Itron Announces First Quarter 2017 Financial Results
-
Revenues of
$478 million , compared with$498 million in the first quarter of 2016; - Gross margin of 32.9 percent, an increase of 10 basis points compared with the first quarter of 2016;
-
GAAP diluted earnings per share of
40 cents , an increase of 54 percent compared with the first quarter of 2016; and -
Non-GAAP diluted earnings per share of
57 cents , an increase of 30 percent compared with the first quarter of 2016.
"Our first quarter results demonstrate a strong start to 2017," said
Summary of First Quarter Consolidated Financial Results
(All
comparisons made are against the prior year period unless otherwise
noted)
Revenue
Total revenue for the quarter decreased 4 percent to
Higher revenue in the Electricity segment was offset by decreased
revenue in the Water and Gas segments. Electricity revenue increased 10
percent, driven by smart metering projects in
Gross Margin
Gross margin for the quarter improved to 32.9 percent compared with the prior year period margin of 32.8 percent. The improvement was driven by favorable product mix, primarily in the Gas segment. The Gas business achieved record gross margin of 41 percent in the quarter.
Operating Expenses
Operating expenses for the quarter were
Operating Income, Net Income and Earnings per Share
GAAP operating income was
Net income for the quarter was
The increases in GAAP and non-GAAP operating income were driven by improved gross margin and lower operating expenses. GAAP and non-GAAP earnings per diluted share reflect the company's higher operating income in addition to lower effective tax rates.
Cash Flow
Net cash provided by operating activities was
Other Measures
Bookings in the quarter totaled
Earnings Conference Call
About
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, cash flows and
restructuring activities including headcount reductions and other cost
savings initiatives. 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 execute on our restructuring plan, 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
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.
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||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||
(Unaudited, in thousands, except per share data) | ||||||||||
Three Months Ended |
||||||||||
2017 | 2016 | |||||||||
Revenues | $ | 477,592 | $ | 497,590 | ||||||
Cost of revenues | 320,367 | 334,387 | ||||||||
Gross profit | 157,225 | 163,203 | ||||||||
Operating expenses | ||||||||||
Sales and marketing | 41,468 | 40,767 | ||||||||
Product development | 40,868 | 45,346 | ||||||||
General and administrative | 37,246 | 45,069 | ||||||||
Amortization of intangible assets | 4,549 | 6,210 | ||||||||
Restructuring | 3,052 | 2,237 | ||||||||
Total operating expenses | 127,183 | 139,629 | ||||||||
Operating income | 30,042 | 23,574 | ||||||||
Other income (expense) | ||||||||||
Interest income | 269 | 271 | ||||||||
Interest expense | (2,674 | ) | (2,918 | ) | ||||||
Other income (expense), net | (2,576 | ) | (1,517 | ) | ||||||
Total other income (expense) | (4,981 | ) | (4,164 | ) | ||||||
Income before income taxes | 25,061 | 19,410 | ||||||||
Income tax provision | (9,047 | ) | (8,626 | ) | ||||||
Net income | 16,014 | 10,784 | ||||||||
Net income attributable to non-controlling interests | 169 | 695 | ||||||||
Net income attributable to |
$ | 15,845 | $ | 10,089 | ||||||
Earnings per common share - Basic | $ | 0.41 | $ | 0.27 | ||||||
Earnings per common share - Diluted | $ | 0.40 | $ | 0.26 | ||||||
Weighted average common shares outstanding - Basic | 38,474 | 38,059 | ||||||||
Weighted average common shares outstanding - Diluted | 39,215 | 38,376 | ||||||||
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SEGMENT INFORMATION | ||||||||||
(Unaudited, in thousands) | ||||||||||
Three Months Ended |
||||||||||
2017 | 2016 | |||||||||
Revenues | ||||||||||
Electricity | $ | 238,751 | $ | 217,295 | ||||||
Gas | 124,211 | 139,256 | ||||||||
Water | 114,630 | 141,039 | ||||||||
|
$ | 477,592 | $ | 497,590 | ||||||
Gross profit | ||||||||||
Electricity | $ | 67,192 | $ | 64,586 | ||||||
Gas | 50,504 | 48,577 | ||||||||
Water | 39,529 | 50,040 | ||||||||
|
$ | 157,225 | $ | 163,203 | ||||||
Operating income (loss) | ||||||||||
Electricity | $ | 16,862 | $ | 10,632 | ||||||
Gas | 21,256 | 16,299 | ||||||||
Water | 8,735 | 18,076 | ||||||||
Corporate unallocated | (16,811 | ) | (21,433 | ) | ||||||
|
$ | 30,042 | $ | 23,574 | ||||||
METER AND MODULE SUMMARY | ||||||||||
(Units in thousands) | ||||||||||
Three Months Ended |
||||||||||
2017 | 2016 | |||||||||
Meters | ||||||||||
Standard | 4,010 | 4,370 | ||||||||
Smart | 2,440 | 2,190 | ||||||||
Total meters | 6,450 | 6,560 | ||||||||
Stand-alone communication modules | ||||||||||
Smart | 1,400 | 1,460 | ||||||||
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||||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||||
(Unaudited, in thousands) | ||||||||||
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ASSETS | ||||||||||
Current assets | ||||||||||
Cash and cash equivalents | $ | 187,928 | $ | 133,565 | ||||||
Accounts receivable, net | 344,411 | 351,506 | ||||||||
Inventories | 178,060 | 163,049 | ||||||||
Other current assets | 95,424 | 84,346 | ||||||||
Total current assets | 805,823 | 732,466 | ||||||||
Property, plant, and equipment, net | 178,647 | 176,458 | ||||||||
Deferred tax assets, net | 106,896 | 94,113 | ||||||||
Other long-term assets | 50,166 | 50,129 | ||||||||
Intangible assets, net | 69,485 | 72,151 | ||||||||
|
462,906 | 452,494 | ||||||||
Total assets | $ | 1,673,923 | $ | 1,577,811 | ||||||
LIABILITIES AND EQUITY | ||||||||||
Current liabilities | ||||||||||
Accounts payable | $ | 194,012 | $ | 172,711 | ||||||
Other current liabilities | 46,359 | 43,625 | ||||||||
Wages and benefits payable | 82,010 | 82,346 | ||||||||
Taxes payable | 18,736 | 10,451 | ||||||||
Current portion of debt | 15,469 | 14,063 | ||||||||
Current portion of warranty | 23,500 | 24,874 | ||||||||
Unearned revenue | 84,705 | 64,976 | ||||||||
Total current liabilities | 464,791 | 413,046 | ||||||||
Long-term debt | 288,266 | 290,460 | ||||||||
Long-term warranty | 18,036 | 18,428 | ||||||||
Pension benefit obligation | 87,663 | 84,498 | ||||||||
Deferred tax liabilities, net | 3,214 | 3,073 | ||||||||
Other long-term obligations | 109,346 | 117,953 | ||||||||
Total liabilities | 971,316 | 927,458 | ||||||||
Equity | ||||||||||
Common stock | 1,276,298 | 1,270,467 | ||||||||
Accumulated other comprehensive loss, net | (213,618 | ) | (229,327 | ) | ||||||
Accumulated deficit | (379,326 | ) | (409,536 | ) | ||||||
|
683,354 | 631,604 | ||||||||
Non-controlling interests | 19,253 | 18,749 | ||||||||
Total equity | 702,607 | 650,353 | ||||||||
Total liabilities and equity | $ | 1,673,923 | $ | 1,577,811 | ||||||
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CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||
(Unaudited, in thousands) | ||||||||||
Three Months Ended |
||||||||||
2017 | 2016 | |||||||||
Operating activities | ||||||||||
Net income | $ | 16,014 | $ | 10,784 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||
Depreciation and amortization | 14,378 | 16,674 | ||||||||
Stock-based compensation | 5,211 | 3,900 | ||||||||
Amortization of prepaid debt fees | 266 | 276 | ||||||||
Deferred taxes, net | 882 | 4,507 | ||||||||
Restructuring, non-cash | — | 1,114 | ||||||||
Other adjustments, net | 946 | 66 | ||||||||
Changes in operating assets and liabilities: | ||||||||||
Accounts receivable | 13,119 | (33,308 | ) | |||||||
Inventories | (11,274 | ) | 3,244 | |||||||
Other current assets | (11,169 | ) | (5,457 | ) | ||||||
Other long-term assets | 646 | 2,945 | ||||||||
Accounts payable, other current liabilities, and taxes payable | 28,277 | 10,161 | ||||||||
Wages and benefits payable | (1,796 | ) | 9,349 | |||||||
Unearned revenue | 14,020 | 14,343 | ||||||||
Warranty | (2,303 | ) | (4,045 | ) | ||||||
Other operating, net | (3,960 | ) | (748 | ) | ||||||
Net cash provided by operating activities | 63,257 | 33,805 | ||||||||
Investing activities | ||||||||||
Acquisitions of property, plant, and equipment | (9,122 | ) | (8,791 | ) | ||||||
Other investing, net | (78 | ) | 558 | |||||||
Net cash used in investing activities | (9,200 | ) | (8,233 | ) | ||||||
Financing activities | ||||||||||
Payments on debt | (2,813 | ) | (23,406 | ) | ||||||
Issuance of common stock | 405 | 660 | ||||||||
Other financing, net | 155 | (2,289 | ) | |||||||
Net cash used in financing activities | (2,253 | ) | (25,035 | ) | ||||||
Effect of foreign exchange rate changes on cash and cash equivalents | 2,559 | 1,060 | ||||||||
Increase in cash and cash equivalents | 54,363 | 1,597 | ||||||||
Cash and cash equivalents at beginning of period | 133,565 | 131,018 | ||||||||
Cash and cash equivalents at end of period | $ | 187,928 | $ | 132,615 | ||||||
About Non-GAAP Financial Measures
The accompanying press release contains non-GAAP financial measures. To supplement our consolidated financial statements, which are prepared 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, constant currency 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, and other companies may define such measures differently. 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/or 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 certain discrete cash and non-cash charges 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 expenses and non-GAAP operating income - We define non-GAAP operating expenses as operating expenses excluding certain expenses related to the amortization of intangible assets, restructuring, acquisitions and goodwill impairment. We define non-GAAP operating income as operating income excluding the expenses related to the amortization of intangible assets, 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 restructuring projects. 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 expenses and non-GAAP operating income versus operating expense and operating income calculated in accordance with GAAP. 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 attributable to
Adjusted EBITDA - We define adjusted EBITDA as net income (a) minus interest income, (b) plus interest expense, depreciation, amortization of intangible assets, restructuring, acquisition related expense, goodwill impairment and (c) excluding the tax expense or benefit. 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.
Constant currency - We refer to the impact
of foreign currency exchange rate fluctuations in our discussions of
financial results, which references the differences between the foreign
currency exchange rates used to translate operating results from local
currencies into
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.
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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 |
||||||||||
2017 | 2016 | ||||||||||
NON-GAAP NET INCOME & DILUTED EPS | |||||||||||
GAAP net income attributable to |
$ | 15,845 | $ | 10,089 | |||||||
Amortization of intangible assets | 4,549 | 6,210 | |||||||||
Amortization of debt placement fees | 241 | 247 | |||||||||
Restructuring | 3,052 | 2,237 | |||||||||
Acquisition-related expenses | 333 | 3 | |||||||||
Income tax effect of non-GAAP adjustments | (1,834 | ) | (1,955 | ) | |||||||
Non-GAAP net income attributable to |
$ | 22,186 | $ | 16,831 | |||||||
Non-GAAP diluted EPS | $ | 0.57 | $ | 0.44 | |||||||
Weighted average common shares outstanding - Diluted | 39,215 | 38,376 | |||||||||
ADJUSTED EBITDA | |||||||||||
GAAP net income attributable to |
$ | 15,845 | $ | 10,089 | |||||||
Interest income | (269 | ) | (271 | ) | |||||||
Interest expense | 2,674 | 2,918 | |||||||||
Income tax provision | 9,047 | 8,626 | |||||||||
Depreciation and amortization | 14,378 | 16,674 | |||||||||
Restructuring | 3,052 | 2,237 | |||||||||
Acquisition-related expenses | 333 | 3 | |||||||||
Adjusted EBITDA | $ | 45,060 | $ | 40,276 | |||||||
FREE CASH FLOW | |||||||||||
Net cash provided by operating activities | $ | 63,257 | $ | 33,805 | |||||||
Acquisitions of property, plant, and equipment | (9,122 | ) | (8,791 | ) | |||||||
Free Cash Flow | $ | 54,135 | $ | 25,014 | |||||||
NON-GAAP OPERATING INCOME | |||||||||||
GAAP operating income | $ | 30,042 | $ | 23,574 | |||||||
Amortization of intangible assets | 4,549 | 6,210 | |||||||||
Restructuring | 3,052 | 2,237 | |||||||||
Acquisition-related expenses | 333 | 3 | |||||||||
Non-GAAP operating income | $ | 37,976 | $ | 32,024 | |||||||
NON-GAAP OPERATING EXPENSES | |||||||||||
GAAP operating expenses | $ | 127,183 | $ | 139,629 | |||||||
Amortization of intangible assets | (4,549 | ) | (6,210 | ) | |||||||
Restructuring | (3,052 | ) | (2,237 | ) | |||||||
Acquisition-related expenses | (333 | ) | (3 | ) | |||||||
Non-GAAP operating expenses | $ | 119,249 | $ | 131,179 | |||||||
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RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES | |||||||||||
TO THE MOST DIRECTLY COMPARABLE GAAP FINANCIAL MEASURES | |||||||||||
(Unaudited, in thousands) | |||||||||||
SEGMENT RECONCILIATIONS |
Three Months Ended |
||||||||||
2017 | 2016 | ||||||||||
NON-GAAP OPERATING INCOME - ELECTRICITY | |||||||||||
Electricity - GAAP operating income | $ | 16,862 | $ | 10,632 | |||||||
Amortization of intangible assets | 2,362 | 3,250 | |||||||||
Restructuring | (176 | ) | 528 | ||||||||
Acquisition-related expenses | — | 3 | |||||||||
Electricity - Non-GAAP operating income | $ | 19,048 | $ | 14,413 | |||||||
NON-GAAP OPERATING INCOME - GAS | |||||||||||
Gas - GAAP operating income | $ | 21,256 | $ | 16,299 | |||||||
Amortization of intangible assets | 1,277 | 1,619 | |||||||||
Restructuring | 1,084 | 1,264 | |||||||||
Gas - Non-GAAP operating income | $ | 23,617 | $ | 19,182 | |||||||
NON-GAAP OPERATING INCOME - WATER | |||||||||||
Water - GAAP operating income | $ | 8,735 | $ | 18,076 | |||||||
Amortization of intangible assets | 910 | 1,341 | |||||||||
Restructuring | 1,018 | (64 | ) | ||||||||
Water - Non-GAAP operating income | $ | 10,663 | $ | 19,353 | |||||||
NON-GAAP OPERATING INCOME - CORPORATE UNALLOCATED | |||||||||||
Corporate unallocated - GAAP operating loss | $ | (16,811 | ) | $ | (21,433 | ) | |||||
Restructuring | 1,126 | 509 | |||||||||
Acquisition-related expenses | 333 | — | |||||||||
Corporate unallocated - Non-GAAP operating loss | $ | (15,352 | ) | $ | (20,924 | ) |
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