Itron Announces Second Quarter 2014 Financial Results
• Quarterly revenues of
• Quarterly GAAP diluted earnings per share of
• Quarterly non-GAAP diluted earnings per share of
• Quarterly adjusted EBITDA of
• Twelve-month backlog of
• Quarterly bookings of
"Our strong second quarter results were driven by double-digit revenue
growth and solid execution in our gas and water segments," said
Financial Results
Revenues were
Gross margin for the quarter was 33.3 percent compared with the prior year period margin of 33.1 percent. For the first six months of 2014, gross margin was 32.9 percent compared with 32.2 percent in the prior year period. The improved gross margin for both the quarter and six month period was driven by the higher relative contribution from the Water and Gas segments, which have higher gross margins than the Electricity segment.
GAAP operating expenses were
GAAP operating income for the quarter was
GAAP operating income for the first six months of 2014 was
Non-GAAP operating expenses for the quarter, which excludes amortization
of intangibles, restructuring charges, acquisition related expenses and
goodwill impairment, were
Non-GAAP operating income for the quarter was
Non-GAAP operating income for the first six months of 2014 was
Free cash flow for the quarter was negative
The company repurchased 107,477 shares of common stock during the
quarter at an average price of
Financial Guidance
Itron's guidance for the full-year 2014 is as follows:
• Revenue between
• Non-GAAP diluted
earnings per share between
The company's guidance for the year assumes a gross margin of
approximately 31 to 32 percent, a non-GAAP effective tax rate of
approximately 33 to 34 percent, average shares outstanding of
approximately 39.5 million, and an average Euro to U.S. dollar exchange
rate of
Earnings Conference Call
About
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
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.
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CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
(Unaudited, in thousands, except per share data) | ||||||||||||||||
Three Months Ended |
Six Months Ended |
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2014 | 2013 | 2014 | 2013 | |||||||||||||
Revenues | $ | 489,353 | $ | 482,175 | $ | 964,148 | $ | 929,711 | ||||||||
Cost of revenues | 326,312 | 322,587 | 646,572 | 630,000 | ||||||||||||
Gross profit | 163,041 | 159,588 | 317,576 | 299,711 | ||||||||||||
Operating expenses | ||||||||||||||||
Sales and marketing | 46,119 | 46,182 | 93,728 | 94,398 | ||||||||||||
Product development | 43,999 | 43,481 | 88,408 | 87,689 | ||||||||||||
General and administrative | 37,680 | 38,317 | 78,087 | 71,912 | ||||||||||||
Amortization of intangible assets | 11,109 | 10,247 | 22,179 | 20,991 | ||||||||||||
Restructuring expense | (7,793 | ) | 3,385 | (2,269 | ) | 4,398 | ||||||||||
Goodwill impairment | - | - | 977 | - | ||||||||||||
Total operating expenses | 131,114 | 141,612 | 281,110 | 279,388 | ||||||||||||
Operating income | 31,927 | 17,976 | 36,466 | 20,323 | ||||||||||||
Other income (expense) | ||||||||||||||||
Interest income | 53 | 194 | 150 | 1,255 | ||||||||||||
Interest expense | (2,913 | ) | (2,336 | ) | (5,822 | ) | (4,674 | ) | ||||||||
Other income (expense), net | (1,375 | ) | (1,742 | ) | (3,873 | ) | (2,559 | ) | ||||||||
Total other income (expense) | (4,235 | ) | (3,884 | ) | (9,545 | ) | (5,978 | ) | ||||||||
Income before income taxes | 27,692 | 14,092 | 26,921 | 14,345 | ||||||||||||
Income tax benefit (provision) | (7,848 | ) | (1,896 | ) | (7,195 | ) | 1,347 | |||||||||
Net income | 19,844 | 12,196 | 19,726 | 15,692 | ||||||||||||
Net income (loss) attributable to non-controlling interests | 585 | (203 | ) | 721 | 723 | |||||||||||
Net income attributable to |
$ | 19,259 | $ | 12,399 | $ | 19,005 | $ | 14,969 | ||||||||
Earnings per common share - Basic | $ | 0.49 | $ | 0.31 | $ | 0.48 | $ | 0.38 | ||||||||
Earnings per common share - Diluted | $ | 0.49 | $ | 0.31 | $ | 0.48 | $ | 0.38 | ||||||||
Weighted average common shares outstanding - Basic | 39,356 | 39,431 | 39,296 | 39,426 | ||||||||||||
Weighted average common shares outstanding - Diluted | 39,544 | 39,678 | 39,528 | 39,724 | ||||||||||||
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SEGMENT INFORMATION | |||||||||||||||||
(Unaudited, in thousands) | |||||||||||||||||
Three Months Ended |
Six Months Ended |
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2014 | 2013 | 2014 | 2013 | ||||||||||||||
Revenues | |||||||||||||||||
Electricity | $ | 183,755 | $ | 213,612 | $ | 363,973 | $ | 389,375 | |||||||||
Gas | 154,322 | 136,011 | 300,431 | 272,926 | |||||||||||||
Water | 151,276 | 132,552 | 299,744 | 267,410 | |||||||||||||
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$ | 489,353 | $ | 482,175 | $ | 964,148 | $ | 929,711 | |||||||||
Gross profit | |||||||||||||||||
Electricity | $ | 52,976 | $ | 62,545 | $ | 95,716 | $ | 107,457 | |||||||||
Gas | 56,711 | 50,128 | 115,117 | 100,770 | |||||||||||||
Water | 53,354 | 46,915 | 106,743 | 91,484 | |||||||||||||
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$ | 163,041 | $ | 159,588 | $ | 317,576 | $ | 299,711 | |||||||||
Operating income (loss) | |||||||||||||||||
Electricity | $ | (1,247 | ) | $ | (4,117 | ) | $ | (24,216 | ) | $ | (23,167 | ) | |||||
Gas | 24,329 | 18,881 | 50,053 | 38,411 | |||||||||||||
Water | 20,519 | 15,389 | 41,162 | 27,964 | |||||||||||||
Corporate unallocated | (11,674 | ) | (12,177 | ) | (30,533 | ) | (22,885 | ) | |||||||||
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$ | 31,927 | $ | 17,976 | $ | 36,466 | $ | 20,323 | |||||||||
METER AND MODULE SUMMARY | |||||||||||||||||
(Units in thousands) | |||||||||||||||||
Three Months Ended |
Six Months Ended |
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2014 | 2013 | 2014 | 2013 | ||||||||||||||
Meters | |||||||||||||||||
Standard | 4,480 | 4,730 | 9,330 | 9,170 | |||||||||||||
Advanced and Smart | 1,360 | 1,340 | 2,880 | 2,970 | |||||||||||||
Total meters | 5,840 | 6,070 | 12,210 | 12,140 | |||||||||||||
Stand-alone communication modules | |||||||||||||||||
Advanced and Smart | 1,580 | 1,350 | 2,930 | 2,690 | |||||||||||||
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CONSOLIDATED BALANCE SHEETS | ||||||||||
(Unaudited, in thousands) | ||||||||||
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ASSETS | ||||||||||
Current assets | ||||||||||
Cash and cash equivalents | $ | 114,780 | $ | 124,805 | ||||||
Accounts receivable, net | 369,473 | 356,709 | ||||||||
Inventories | 192,413 | 177,467 | ||||||||
Deferred tax assets current, net | 37,103 | 37,110 | ||||||||
Other current assets | 112,172 | 103,275 | ||||||||
Total current assets | 825,941 | 799,366 | ||||||||
Property, plant, and equipment, net | 234,840 | 246,820 | ||||||||
Deferred tax assets noncurrent, net | 64,641 | 58,880 | ||||||||
Other long-term assets | 31,862 | 33,027 | ||||||||
Intangible assets, net | 172,927 | 195,840 | ||||||||
Goodwill | 541,539 | 548,578 | ||||||||
Total assets | $ | 1,871,750 | $ | 1,882,511 | ||||||
LIABILITIES AND EQUITY | ||||||||||
Current liabilities | ||||||||||
Accounts payable | $ | 209,080 | $ | 199,769 | ||||||
Other current liabilities | 69,064 | 70,768 | ||||||||
Wages and benefits payable | 93,069 | 89,314 | ||||||||
Taxes payable | 14,172 | 10,700 | ||||||||
Current portion of debt | 30,000 | 26,250 | ||||||||
Current portion of warranty | 23,689 | 21,048 | ||||||||
Unearned revenue | 53,487 | 37,163 | ||||||||
Total current liabilities | 492,561 | 455,012 | ||||||||
Long-term debt | 297,500 | 352,500 | ||||||||
Long-term warranty | 18,860 | 24,098 | ||||||||
Pension plan benefit liability | 87,988 | 88,687 | ||||||||
Deferred tax liabilities noncurrent, net | 6,297 | 7,326 | ||||||||
Other long-term obligations | 84,608 | 81,917 | ||||||||
Total liabilities | 987,814 | 1,009,540 | ||||||||
Commitments and contingencies | ||||||||||
Equity | ||||||||||
Preferred stock | - | - | ||||||||
Common stock | 1,293,548 | 1,290,629 | ||||||||
Accumulated other comprehensive loss, net | (32,832 | ) | (21,722 | ) | ||||||
Accumulated deficit | (394,666 | ) | (413,671 | ) | ||||||
Total |
866,050 | 855,236 | ||||||||
Non-controlling interests | 17,886 | 17,735 | ||||||||
Total equity | 883,936 | 872,971 | ||||||||
Total liabilities and equity | $ | 1,871,750 | $ | 1,882,511 | ||||||
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CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||
(Unaudited, in thousands) | |||||||||
Six Months Ended |
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2014 | 2013 | ||||||||
Operating activities | |||||||||
Net income | $ | 19,726 | $ | 15,692 | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||
Depreciation and amortization | 50,606 | 49,031 | |||||||
Stock-based compensation | 9,454 | 10,122 | |||||||
Amortization of prepaid debt fees | 808 | 829 | |||||||
Deferred taxes, net | (8,046 | ) | (11,543 | ) | |||||
Goodwill impairment | 977 | - | |||||||
Restructuring expense, non-cash | - | 27 | |||||||
Other adjustments, net | 85 | 324 | |||||||
Changes in operating assets and liabilities, net of acquisition: | |||||||||
Accounts receivable | (14,712 | ) | (4,278 | ) | |||||
Inventories | (16,801 | ) | (25,124 | ) | |||||
Other current assets | (9,103 | ) | (9,408 | ) | |||||
Other long-term assets | 312 | 4,489 | |||||||
Accounts payable, other current liabilities, and taxes payable | 12,360 | (10,280 | ) | ||||||
Wages and benefits payable | 4,473 | (5,661 | ) | ||||||
Unearned revenue | 16,560 | 10,497 | |||||||
Warranty | (2,864 | ) | (1,797 | ) | |||||
Other operating, net | 3,356 | (3,946 | ) | ||||||
Net cash provided by operating activities | 67,191 | 18,974 | |||||||
Investing activities | |||||||||
Acquisitions of property, plant, and equipment | (19,403 | ) | (28,895 | ) | |||||
Business acquisitions, net of cash equivalents acquired | - | (860 | ) | ||||||
Other investing, net | 56 | 241 | |||||||
Net cash used in investing activities | (19,347 | ) | (29,514 | ) | |||||
Financing activities | |||||||||
Proceeds from borrowings | - | 15,000 | |||||||
Payments on debt | (51,250 | ) | (22,500 | ) | |||||
Issuance of common stock | 1,530 | 2,590 | |||||||
Repurchase of common stock | (7,164 | ) | (16,126 | ) | |||||
Other financing, net | 1,204 | 2,220 | |||||||
Net cash used in financing activities | (55,680 | ) | (18,816 | ) | |||||
Effect of foreign exchange rate changes on cash and cash equivalents | (2,189 | ) | (3,393 | ) | |||||
Increase (decrease) in cash and cash equivalents | (10,025 | ) | (32,749 | ) | |||||
Cash and cash equivalents at beginning of period | 124,805 | 136,411 | |||||||
Cash and cash equivalents at end of period | $ | 114,780 | $ | 103,662 | |||||
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 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 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, 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 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, 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 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 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 |
Six Months Ended |
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2014 | 2013 | 2014 | 2013 | |||||||||
NON-GAAP NET INCOME & DILUTED EPS | ||||||||||||
GAAP net income |
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Amortization of intangible assets | 11,109 | 10,247 | 22,179 | 20,991 | ||||||||
Amortization of debt placement fees | 379 | 389 | 758 | 778 | ||||||||
Restructuring expense | (7,793) | 3,385 | (2,269) | 4,398 | ||||||||
Acquisition related expenses | 89 | 601 | 578 | 1,229 | ||||||||
Goodwill impairment | - | - | 977 | - | ||||||||
Income tax effect of non-GAAP adjustments | (1,636) | (4,116) | (7,578) | (6,972) | ||||||||
Non-GAAP net income |
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Non-GAAP diluted EPS |
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Weighted average common shares outstanding - Diluted | 39,544 | 39,678 | 39,528 | 39,724 | ||||||||
ADJUSTED EBITDA | ||||||||||||
GAAP net income |
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Interest income | (53) | (194) | (150) | (1,255) | ||||||||
Interest expense | 2,913 | 2,336 | 5,822 | 4,674 | ||||||||
Income tax (benefit) provision | 7,848 | 1,896 | 7,195 | (1,347) | ||||||||
Depreciation and amortization | 25,014 | 24,274 | 50,606 | 49,031 | ||||||||
Restructuring expense | (7,793) | 3,385 | (2,269) | 4,398 | ||||||||
Acquisition related expenses | 89 | 601 | 578 | 1,229 | ||||||||
Goodwill impairment | - | - | 977 | - | ||||||||
Adjusted EBITDA |
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FREE |
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Net cash provided by operating activities |
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Acquisitions of property, plant, and equipment | (10,839) | (14,130) | (19,403) | (28,895) | ||||||||
Free |
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NON-GAAP OPERATING INCOME | ||||||||||||
GAAP operating income |
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Amortization of intangible assets | 11,109 | 10,247 | 22,179 | 20,991 | ||||||||
Restructuring expense | (7,793) | 3,385 | (2,269) | 4,398 | ||||||||
Acquisition related expenses | 89 | 601 | 578 | 1,229 | ||||||||
Goodwill impairment | - | - | 977 | - | ||||||||
Non-GAAP operating income |
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NON-GAAP OPERATING EXPENSE | ||||||||||||
GAAP operating expense |
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Amortization of intangible assets | (11,109) | (10,247) | (22,179) | (20,991) | ||||||||
Restructuring expense | 7,793 | (3,385) | 2,269 | (4,398) | ||||||||
Acquisition related expenses | (89) | (601) | (578) | (1,229) | ||||||||
Goodwill impairment | - | - | (977) | - | ||||||||
Non-GAAP operating expense |
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SEGMENT RECONCILIATIONS |
Three Months Ended |
Six Months Ended |
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2014 | 2013 | 2014 | 2013 | |||||||||
NON-GAAP OPERATING INCOME - ELECTRICITY | ||||||||||||
Electricity - GAAP operating income |
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Amortization of intangible assets | 6,189 | 4,707 | 12,344 | 9,397 | ||||||||
Restructuring expense | (7,925) | 1,760 | (8,455) | 1,511 | ||||||||
Acquisition related expenses | 89 | 602 | 531 | 1,226 | ||||||||
Goodwill impairment | - | - | 977 | - | ||||||||
Electricity - Non-GAAP operating income |
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NON-GAAP OPERATING INCOME - GAS | ||||||||||||
Gas - GAAP operating income |
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Amortization of intangible assets | 2,681 | 2,973 | 5,370 | 6,121 | ||||||||
Restructuring expense | 517 | 3 | 214 | (898) | ||||||||
Gas - Non-GAAP operating income |
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NON-GAAP OPERATING INCOME - WATER | ||||||||||||
Water - GAAP operating income |
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Amortization of intangible assets | 2,239 | 2,567 | 4,465 | 5,473 | ||||||||
Restructuring expense | 453 | 510 | 1,010 | 1,119 | ||||||||
Water - Non-GAAP operating income |
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NON-GAAP OPERATING INCOME - CORPORATE UNALLOCATED | ||||||||||||
Corporate unallocated - GAAP operating income |
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Restructuring expense | (838) | 1,112 | 4,962 | 2,666 | ||||||||
Acquisition related expenses | - | (1) | 47 | 3 | ||||||||
Corporate unallocated - Non-GAAP operating income |
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Vice President, Investor
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509-891-3443
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509-891-3847
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