30.04.10

Itron Inc.: First Quarter 2010 Results

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Itron Announces First Quarter Financial Results
Press Release Source: Itron, Inc. On Wednesday April 28, 2010, 4:00 pm EDT


LIBERTY LAKE, Wash.--(BUSINESS WIRE)--Itron, Inc. (NASDAQ:ITRI - News) today reported financial results for its first quarter ended March 31, 2010. Highlights of the quarter include:

    * Quarterly revenues of $499 million with record North America revenues of $243 million;
    * Quarterly non-GAAP diluted EPS of $1.01 (inclusive of $0.26 of discrete tax benefits);
    * Record cash flow from operations and free cash flow of $66 million and $50 million;
    * Quarterly adjusted EBITDA of $66 million; and
    * Record twelve-month backlog of $981 million; total backlog of $1.5 billion.

“The positive momentum that started in North America in the fourth quarter of last year continues to accelerate and broaden,” said Malcolm Unsworth, president and CEO. “We shipped over 1 million OpenWay meters and modules during the quarter which is equivalent to the total shipped all of last year, and we are seeing strong demand for our gas and water solutions.”

Operations Highlights:

Revenues – Total revenues of $499 million for the first quarter of 2010 were $111 million, or 29%, higher than 2009 first quarter revenues of $389 million. North America revenues of $243 million for the first quarter of 2010 were $104 million, or 74%, higher than the comparable 2009 period revenues of $139 million. The increase in revenue was primarily driven by higher shipments of OpenWay meters and modules. International revenues of $256 million for the first quarter of 2010 were $7 million, or 3%, higher than the comparable 2009 period revenues of $249 million. The increase in International revenues was due to foreign exchange rates which was somewhat offset by a decrease from soft demand and economic conditions in certain markets.

Gross Margin – Gross margin for the first quarter of 2010 was 32% compared with 33% in the first quarter of 2009. First quarter 2010 North America gross margin of 33% was lower than the 2009 gross margin of 38%. The decline in margin in North America was primarily due to increased shipments of our higher cost first generation OpenWay meters and increased service revenues, which have lower margin. In addition, compensation costs were higher due to reinstating annual incentive plans in 2010. International gross margin was 31% for the first quarter of 2010 and 2009.

Operating Expenses – Total operating expenses for the first quarter of 2010 were $125 million compared with $121 million in the same period of 2009. North America operating expenses were $46 million compared with $44 million in the same period of 2009. The increase in North America operating expenses was primarily due to expenses in the current period associated with the reinstatement of annual incentive compensation plans in 2010. This expense was somewhat offset by decreased amortization of intangibles expense. International operating expenses were $68 million in the first quarter of both 2010 and 2009. Increases in International operating expenses in the 2010 period from foreign exchange rates were offset by decreased amortization of intangibles expense. Corporate unallocated expenses of $11 million for the first quarter of 2010 were $2 million higher than the first quarter of 2009 primarily due to higher compensation expense.

Net Interest Expense – Net interest expense of $15 million in the first quarter of 2010 compared with $16 million in the same period of 2009. Amortization of debt placement fees, which is included in net interest expense, was $1.2 million and $1.8 million in the first quarter of 2010 and 2009, respectively. Amortization of debt placement fees varies depending on the amount of debt repayments made in a given period. During the first quarter of 2010, we made approximately $53 million in debt repayments.

Loss on Extinguishment of Debt – The first quarter of 2009 included a $10.3 million net loss on the extinguishment of debt related to a convertible debt for common stock exchange. The difference in the value of the shares of Itron’s common stock issued under the exchange agreement and the value of the shares used to derive the amount payable under the original conversion agreement resulted in the net loss on extinguishment of debt.

Other Expense - Other expense was $592,000 in the first quarter of 2010 compared with $2 million in 2009. The decrease in the 2010 period was primarily due to the recognition of a foreign exchange gain, compared with a loss in the 2009 period, caused by fluctuations in exchange rates for material purchases and related product sales denominated in different currencies. Additionally, the 2009 period included consulting and legal fees associated with an amendment to our senior debt agreement.

GAAP Income Taxes – We had a tax benefit of $8.7 million in the first quarter of 2010 compared with a minimal benefit in the same period of 2009. The first quarter 2010 tax benefit is due primarily to the receipt of a clean energy manufacturing tax credit awarded as part of the American Recovery and Reinvestment Act and a benefit related to the reduction of tax reserves for certain foreign subsidiaries.

GAAP Net Income and Diluted EPS – Our GAAP net income and diluted EPS for the first quarter of 2010 was $26.8 million, or 66 cents per share, compared with a net loss of $19.7 million, or 55 cents per share, in the same period in 2009.

Non-GAAP Operating Income – Non-GAAP operating income, which excludes amortization expense related to intangible assets, was $51 million, or 10.3% of revenues, in the first quarter of 2010, compared with $32 million, or 8.3% of revenues, in the same period in 2009. The increased operating income was primarily due to increased contribution from North America.

Non-GAAP Income Taxes – We had a non-GAAP tax benefit of 4% in the first quarter of 2010 compared with an expense of 32% in the same period of 2009. The non-GAAP tax benefit in 2010 is due primarily to the receipt of a clean energy manufacturing tax credit awarded as part of the American Recovery and Reinvestment Act and a benefit related to the reduction of tax reserves for certain foreign subsidiaries.

Non-GAAP Net Income and Diluted EPS – Non-GAAP net income, which excludes amortization expenses related to intangibles assets, amortization of debt placement fees, the amortization of convertible debt discount, and the non-cash net loss associated with the convertible debt for stock exchange, was $41.3 million in the first quarter of 2010, compared with $12.2 million in the 2009 period. Non-GAAP diluted EPS was $1.01 in the first quarter 2010 compared with 33 cents in the 2009 period. Fully diluted shares outstanding in the first quarter of 2010 were 4.3 million shares higher than the same period in 2009 primarily due to the convertible debt for stock exchange in the first quarter of 2009 and the equity offering in the second quarter of 2009.

Concluded Unsworth, “Global interest in advanced metering applications, not only for electric but also for gas and water utilities, continues to be high. Itron is well positioned to take advantage of the momentum worldwide due to our global footprint and leading market positions.”

Other Financial Highlights:

Backlog and New Order Bookings - Total backlog was $1.5 billion at March 31, 2010 compared with $1.5 billion at March 31, 2009. Twelve month backlog of $981 million at March 31, 2010 was higher than the $471 million at March 31, 2009 due to the inclusion of a substantial amount of OpenWay contract shipments in the current twelve month backlog. New order bookings for the first quarter of 2010 were $481 million, compared with $625 million in the first quarter of 2009. New order bookings in the first quarter of 2009 included $260 million related to our OpenWay contract with San Diego Gas and Electric while the first quarter of 2010 did not include any significant OpenWay contract bookings. Our book-to-bill ratios were .96 to 1 and 1.6 to 1 for the first quarter of 2010 and 2009, respectively.

Cash Flows from Operations and Financial Condition – Net cash provided by operating activities during the first quarter 2010 was $66 million, compared with $43 million in the same period in 2009. Adjusted earnings before interest, taxes, depreciation, and amortization (adjusted EBITDA) in the first quarter of 2010 was $66 million compared with $43 million for the same period in 2009. Free cash flow for the first quarter of 2010 was $50 million compared with $29 million for the same period in 2009. Cash and equivalents were $123 million at March 31, 2010 compared with $122 million at December 31, 2009.

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 income, non-GAAP net income and 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 costs, particularly those associated with acquisitions. We exclude these expenses in our non-GAAP financial measures as we believe the net result is a measure of our core business that is not subject to the variations of expenses associated with these infrequently occurring items. Non-GAAP performance measures should be considered in addition to, and not as a substitute for, results prepared in accordance with GAAP. Finally, 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.

Earnings Conference Call:

Itron will host a conference call to discuss the financial results contained in this release at 2:00 p.m. (PDT) on April 28, 2010. The call will be webcast in a listen only mode and can be accessed online at www.itron.com, “Investors/Investor Events”. The live webcast will begin at 2:00 p.m. (PDT). The webcast replay will begin after the conclusion of the live call and will be available for two weeks. A telephone replay of the call will also be available approximately one hour after the conclusion of the live call, for 48 hours, and is accessible by dialing (888) 203-1112 (Domestic) or (719) 457-0820 (International), entering passcode #4641152. You may also view presentation materials related to the earnings call on Itron’s website at www.itron.com under Investors / Presentations.

About Itron:

Itron, Inc. is a leading technology provider to the global energy and water industries. Our company is the world’s leading provider of intelligent metering, data collection and utility software solutions, with nearly 8,000 utilities worldwide relying on our technology to optimize the delivery and use of energy and water. Our products include electricity, gas, water and heat meters, data collection and communication systems, including automated meter reading (AMR) and advanced metering infrastructure (AMI); meter data management and related software applications; as well as project management, installation and consulting services. To know more, start here: www.itron.com.

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

 
ITRON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
 
(Unaudited, in thousands, except per share data)                     
        Three Months Ended March 31,
        2010         2009
                
Revenues         $     499,280             $     388,518     
Cost of revenues               340,385                     258,934     
Gross profit             158,895                 129,584     
                
Operating expenses                 
Sales and marketing
            41,537                 36,975     
Product development
            33,040                 31,158     
General and administrative
            33,057                 29,024     
Amortization of intangible assets
              17,811                     23,478     
Total operating expenses
              125,445                     120,635     
                
Operating income             33,450                 8,949     
Other income (expense)                 
Interest income
            167                 535     
Interest expense
            (14,923     )             (16,845     )
Loss on extinguishment of debt, net
            -                 (10,340     )
Other income (expense), net
              (592     )               (2,034     )
Total other income (expense)
              (15,348     )               (28,684     )
                
Income (loss) before income taxes             18,102                 (19,735     )
Income tax benefit               8,685                     6     
Net income (loss)         $     26,787               $     (19,729     )
                
                
Earnings (loss) per common share-Basic         $     0.67               $     (0.55     )
Earnings (loss) per common share-Diluted         $     0.66               $     (0.55     )
                
                
Weighted average common shares outstanding-Basic             40,191                 36,151     
Weighted average common shares outstanding-Diluted             40,862                 36,151     
 

 
ITRON, INC.
SEGMENT INFORMATION
 
(Unaudited, in thousands)                     
        Three Months Ended March 31,
        2010         2009
Revenues                 
Itron North America
        $     243,117             $     139,369     
Itron International
              256,163                     249,149     
Total Company
        $     499,280               $     388,518     
                
Gross profit                 
Itron North America
        $     79,891             $     52,276     
Itron International
              79,004                     77,308     
Total Company
        $     158,895               $     129,584     
                
Operating income (loss)                 
Itron North America
        $     33,768             $     7,793     
Itron International
            10,536                 9,785     
Corporate unallocated
              (10,854     )               (8,629     )
Total Company
        $     33,450               $     8,949     
                
                
METER AND MODULE SUMMARY
(Units in thousands)                 
        Three Months Ended March 31,
        2010         2009
Total meters (with and without AMR/AMI)                 
Itron North America
                
Electricity
            1,450                 840     
Gas
            100                 80     
Itron International
                
Electricity
            1,640                 1,810     
Gas
            980                 1,320     
Water
              2,290                     2,450     
Total meters with and without AMR/AMI
              6,460                     6,500     
                
Additional meter information (Total Company)                 
Meters with AMR
            670                 780     
Meters with AMI
            810                 20     
Standalone AMR/AMI modules               1,190                     1,000     
Meters with AMR/AMI and modules
              2,670                     1,800     
                
Meters with other vendors' AMR/AMI               190                     190     
 

 
ITRON, INC.
CONSOLIDATED BALANCE SHEETS
 
(in thousands)                     
                
        March 31, 2010         December 31, 2009
        (unaudited)         
ASSETS                 
Current assets                 
Cash and cash equivalents
        $     123,418             $     121,893
Accounts receivable, net
            333,141                 337,948
Inventories
            194,022                 170,084
Deferred tax assets current, net
            20,628                 20,762
Other current assets
              77,835                     75,229
Total current assets
    
 
        749,044                 725,916
                
Property, plant, and equipment, net             304,462                 318,217
Prepaid debt fees             7,427                 8,628
Deferred tax assets noncurrent, net             86,728                 89,932
Other noncurrent assets             18,893                 18,117
Intangible assets, net             349,713                 388,212
Goodwill               1,234,129                     1,305,599
Total assets
    
 
    $     2,750,396               $     2,854,621
                
LIABILITIES AND SHAREHOLDERS' EQUITY                 
Current liabilities                 
Accounts payable
        $     230,033             $     219,255
Other current liabilities
            69,782                 64,583
Wages and benefits payable
            79,142                 71,592
Taxes payable
            20,330                 14,377
Current portion of long-term debt
            10,562                 10,871
Current portion of warranty
            20,964                 20,941
Unearned revenue
            50,790                 40,140
Deferred tax liabilities current, net
              1,625                     1,625
Total current liabilities
    
 
        483,228                 443,384
                
Long-term debt             702,266                 770,893
Warranty             12,389                 12,932
Pension plan benefits             60,066                 63,040
Deferred tax liabilities noncurrent, net             70,758                 80,695
Other noncurrent obligations               71,904                     83,163
Total liabilities
    
 
        1,400,611                 1,454,107
                
Commitments and contingencies                 
                
Shareholders' equity                 
Preferred stock
            -                 -
Common stock
            1,308,031                 1,299,134
Accumulated other comprehensive income (loss), net
            (15,283     )             71,130
Retained earnings
              57,037                     30,250
Total shareholders' equity
    
 
          1,349,785                     1,400,514
Total liabilities and shareholders' equity
    
 
    $     2,750,396               $     2,854,621
 

 
ITRON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(Unaudited, in thousands)                     
        Three Months Ended March 31,
        2010         2009
                
Operating activities                 
Net income (loss)
        $     26,787             $     (19,729     )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
                
Depreciation and amortization
    
 
        33,277                 36,236     
Stock-based compensation
    
 
        4,576                 4,487     
Amortization of prepaid debt fees
    
 
        1,252                 1,840     
Amortization of convertible debt discount
    
 
        2,456                 2,570     
Loss on extinguishment of debt, net
    
 
        -                 9,960     
Deferred taxes, net
    
 
        (13,809     )             (7,654     )
Other adjustments, net
    
 
        3,538                 3,102     
Changes in operating assets and liabilities, net of acquisitions:                 
Accounts receivable
            (6,266     )             11,301     
Inventories
            (27,753     )             1,966     
Accounts payables, other current liabilities, and taxes payable
            30,775                 316     
Wages and benefits payable
            10,261                 (7,078     )
Unearned revenue
            11,057                 15,796     
Warranty
            291                 (3,417     )
Other operating, net
              (10,663     )               (6,970     )
Net cash provided by operating activities
    
 
        65,779                 42,726     
                
Investing activities                 
Acquisitions of property, plant, and equipment
            (16,151     )             (13,712     )
Business acquisitions & contingent consideration, net of cash equivalents acquired
            -                 (1,217     )
Other investing, net
              3,102                     664     
Net cash used in investing activities
    
 
        (13,049     )             (14,265     )
                
Financing activities                 
Payments on debt
            (52,837     )             (67,551     )
Issuance of common stock
            4,542                 724     
Other financing, net
              (96     )               (587     )
Net cash used in financing activities
    
 
        (48,391     )             (67,414     )
                
Effect of foreign exchange rate changes on cash and cash equivalents               (2,814     )               (3,346     )
Increase (decrease) in cash and cash equivalents             1,525                 (42,299     )
Cash and cash equivalents at beginning of period               121,893                     144,390     
Cash and cash equivalents at end of period         $     123,418               $     102,091     
 

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 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 in-process research and development (IPR&D), purchase accounting adjustments, or extinguishment of debt gains and losses. 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 income – We define non-GAAP operating income as operating income excluding the expense related to the amortization of intangible assets. We consider this non-GAAP financial measure to be a useful metric for management and investors because it excludes the effect of expenses that are related to previous acquisitions. 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 income versus operating income calculated in accordance with GAAP. Non-GAAP operating income excludes some costs that are recurring. Additionally, the expenses that we exclude in our calculation of 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 income and evaluating non-GAAP operating income together with 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, amortization of debt placement fees, amortization of convertible debt discount, and the non-cash net loss on the extinguishment of debt. 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 the non-cash net loss on the extinguishment of debt, 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 MOST DIRECTLY COMPARABLE GAAP FINANCIAL MEASURES
 
(Unaudited, in thousands, except per share data)                     
        Three Months Ended March 31,
        2010         2009
Non-GAAP operating income:                 
GAAP operating income         $     33,450             $     8,949     
Amortization of intangible assets               17,811                     23,478     
Non-GAAP operating income         $     51,261               $     32,427     
                
Non-GAAP net income:                 
GAAP net income (loss)         $     26,787             $     (19,729     )
Amortization of intangible assets             17,811                 23,478     
Amortization of debt placement fees             1,201                 1,787     
Amortization of convertible debt discount             2,456                 2,570     
Loss on extinguishment of debt, net             -                 9,960     
Income tax effect of non-GAAP adjustments               (6,955     )               (5,845     )
Non-GAAP net income         $     41,300               $     12,221     
                  
Non-GAAP diluted EPS         $     1.01               $     0.33     
                
Weighted average common shares outstanding - Diluted               40,862                     36,539     
                
Adjusted EBITDA:                 
GAAP net income (loss)         $     26,787             $     (19,729     )
Interest income             (167     )             (535     )
Interest expense             14,923                 16,845     
Income tax (benefit) provision             (8,685     )             (6     )
Depreciation and amortization             33,277                 36,236     
Loss on extinguishment of debt, net               -                     9,960     
Adjusted EBITDA         $     66,135               $     42,771     
                
Free Cash Flow:                 
Net cash provided by operating activities         $     65,779             $     42,726     
Acquisitions of property, plant, and equipment               (16,151     )               (13,712     )
Free Cash Flow         $     49,628               $     29,014     
 

Contact:

Itron, Inc.
Vice President, Investor Relations
Ranny Dwiggins, 509-891-3443
ranny.dwiggins@itron.com
or
Director, Investor Relations
Marni Pilcher, 509-891-3847
marni.pilcher@itron.com
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