Press Release

Itron Announces Second Quarter 2020 Financial Results and Provides Update on COVID-19

Aug 3, 2020 at 4:05 PM EDT

LIBERTY LAKE, Wash.--(BUSINESS WIRE)--Aug. 3, 2020-- Itron, Inc. (NASDAQ:ITRI) announced today financial results for its second quarter ended June 30, 2020. Key results for the quarter include (compared with the second quarter of 2019):

  • Revenue of $510 million, compared with $635 million;
  • Gross margin of 27.2%; compared with 30.1%;
  • GAAP net loss of $(63) million, compared with net income of $19 million;
  • GAAP loss per share of $(1.56), compared with GAAP diluted earnings per share (EPS) of $0.49;
  • Non-GAAP diluted EPS of $0.03, compared with $0.87;
  • Adjusted EBITDA of $31 million, compared with $73 million; and
  • Total backlog of $2.9 billion, compared with $3.1 billion.

"In balance, I am pleased with our team's focus and execution this quarter during these unprecedented and challenging times," said Tom Deitrich, Itron's president and chief executive officer.

"In the second quarter, our continued commitment to our customers and aggressive actions to safely ensure our business continuity yielded results that were better than our expectations," continued Deitrich. "We remain confident in our ability to work through the near-term challenges presented by the COVID-19 pandemic as we make strides in our strategy and the long-term opportunities it can deliver."

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

Revenue
Total second quarter revenue decreased 20% to $510 million, or 18%, excluding the impact of changes in foreign currency exchange rates.

Device Solutions revenue decreased 41%, Networked Solutions revenue decreased 9% and Outcomes revenue decreased 9%. The decreases were primarily due to COVID-19.

Gross Margin
Consolidated company gross margin of 27.2% decreased 290 basis points from the prior year due to COVID-19 induced manufacturing inefficiencies.

Operating Expenses and Operating Income
GAAP operating expenses of $184 million increased $36 million from the prior year due to a $57 million loss on sale of business in the current period related to the divestiture of our manufacturing and sales operations in Latin America. This sale was part of our operations strategy to move to a more asset light business model.

Non-GAAP operating expenses of $118 million decreased $10 million from the prior year primarily due to lower sales, general and administrative expenses.

GAAP operating loss of $(45) million was lower than the prior year due to lower gross profit and higher GAAP operating expenses. Non-GAAP operating income of $20 million decreased compared with the prior year due to lower gross profit.

Net Income (Loss) and Earnings (Loss) per Share
The net loss attributable to Itron, Inc. for the quarter was $(63) million, or $(1.56) per share, a decrease from net income of $19 million, or $0.49 per diluted share, in 2019. The decrease was driven by lower GAAP operating income in the current period and a higher GAAP effective tax rate due to the timing and mix of income by jurisdiction. The divestiture of the manufacturing and sales operations in Latin America was a non-cash loss of $57 million or a $1.42 per share negative impact.

Non-GAAP net income, which excludes certain charges including restructuring, acquisition and integration related expenses, corporate transition cost, amortization of intangible assets, loss on sale of business, amortization of debt placement fees and the income tax effect of those adjustments, was $1 million, or $0.03 per diluted share, compared with $35 million, or $0.87 per diluted share, in 2019. The COVID-19 virus had a negative impact on the second quarter results and was the primary driver in the lower year-over-year results.

Cash Flow
Net cash provided by operating activities was $7 million in the second quarter compared with $53 million in the same quarter of 2019. Free cash flow was $(10) million in the second quarter compared with $38 million in the prior year. The lower cash flow was due to lower profitability and an increase in working capital.

Other Measures
Total backlog was $2.9 billion and 12-month backlog was $1.3 billion, compared with $3.1 billion and $1.4 billion, respectively, in the prior year. Bookings in the quarter totaled $390 million.

COVID-19 Operational Update
We currently have all factories up and running with aggressive measures to drive safety across our entire operation. Our supply chain and logistics situation has stabilized. And while there have been intermittent shortages, none has been at sustained levels. We continue investments necessary for our long-term strategy and will continue to position ourselves to capture the growing need for technology and outcomes in our industry. Our teams have begun to re-enter some customer sites and help our customers plan for and in some cases resume deployments. To date there have been no order cancellations or issues with collections from our customers.

We are observing that utilities and municipalities are recovering at varying rates across the globe. Our customers' priority is supplying essential services to their communities and recovering from the impact of COVID-19. We see this impacting our business with reduced near-term demand and the delay of planned 2020 deployments into future quarters. We are aggressively managing our response in these unprecedented times by working closely with our customers to ensure alignment on their shipments, deployment schedules and ongoing operational activities. We will continue to keep tight controls on operating and capital expenditures and drive actions focused on improving margins as we continue our path toward our targeted “asset light” operating model. Our services remain essential to our customers and the need for our solutions will increase as they begin to get back to normal operations.

Insight for Second Half 2020
Due to the uncertainty of the impact of the COVID-19 pandemic, we suspended our full year 2020 guidance on May 4, 2020.

With this unique situation, we will provide some insight into the second half of 2020 based on the best information we have today.

Our current view of the second half of 2020 is consistent with comments made on our last earnings call. While we are seeing operating improvements in the second half of the year; we anticipate revenue and non-GAAP earnings per share to be on par with the first half of 2020, with neither quarter being larger than our first quarter performance. This also considers a higher non-GAAP, full year, effective tax rate of approximately 36% driven by an expected shift in the mix of income by jurisdiction. We anticipate the full year 2020 free cash flow to be positive, although at approximately half of our prior year’s performance.

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. 3, 2020. 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 http://investors.itron.com/events.cfm. A replay of the audio webcast will be made available at http://investors.itron.com/events.cfm. A telephone replay of the conference call will be available through Aug. 8, 2020. To access the telephone replay, dial 888-203-1112 or 719-457-0820 and enter passcode 1649295.

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® is 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.

Cautionary Note Regarding Forward Looking Statements
This release contains, and our officers and representatives may from time to time make, "forward-looking statements" within 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 are based on our expectations about, among others, revenues, operations, financial performance, earnings, liquidity, earnings per share, cash flows and restructuring activities including headcount reductions and other cost savings initiatives. This document reflects our current strategy, plans and expectations and is based on information currently available as of the date of this release. When we use words such as "expect," "intend," "anticipate," "believe," "plan," “goal,” “seek,” "project," "estimate," "future," “strategy,” "objective," "may," “likely,” “should,” "will," "will continue," and similar expressions, including related to future periods, they are intended to identify forward-looking statements. Forward-looking statements rely on a number of assumptions and estimates. 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 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, uncertainties caused by adverse economic conditions, including, without limitation those resulting from extraordinary events or circumstances such as the COVID-19 pandemic and other factors that are more fully described in Item 1A: “Risk Factors” included in our Annual Report on Form 10-K for the year ended Dec. 31, 2019 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.

The impact caused by the ongoing COVID-19 pandemic includes uncertainty as to the duration, spread, severity, and any recurrence of the COVID-19 pandemic, the duration and scope of related government orders and restrictions, impact on overall demand, impact on our customers’ businesses and workforce levels, disruptions of our business and operations, including the impact on our employees, limitations on, or closures of, our facilities, or the business and operations of our customers or suppliers. Our estimates and statements regarding the impact of COVID-19 are made in good faith to provide insight to our current and future operating and financial environment and any of these may materially change due to factors outside our control. For more information on risks associated with the COVID-19 pandemic, please see Itron’s updated risk in Part II, Item 1A, “Risk Factors” of our latest 10-Q filing with the SEC.

Non-GAAP Financial Information
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, 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. We strongly encourage investors and shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure. 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.

ITRON, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

 

 

 

 

 

(Unaudited, in thousands, except per share data)

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2020

 

2019

 

 

2020

 

2019

 

Revenues

 

 

 

 

 

 

Product revenues

$

438,985

 

 

$

566,047

 

 

 

$

967,122

 

 

$

1,110,897

 

 

 

Service revenues

70,609

 

 

68,990

 

 

 

140,887

 

 

138,716

 

 

 

 

Total revenues

509,594

 

 

635,037

 

 

 

1,108,009

 

 

1,249,613

 

 

Cost of revenues

 

 

 

 

 

 

Product cost of revenues

329,293

 

 

401,033

 

 

 

713,974

 

 

787,135

 

 

 

Service cost of revenues

41,784

 

 

42,790

 

 

 

83,952

 

 

84,001

 

 

 

 

Total cost of revenues

371,077

 

 

443,823

 

 

 

797,926

 

 

871,136

 

 

Gross profit

138,517

 

 

191,214

 

 

 

310,083

 

 

378,477

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

Sales, general and administrative

69,538

 

 

88,259

 

 

 

150,036

 

 

180,974

 

 

 

Research and development

48,994

 

 

49,449

 

 

 

102,775

 

 

99,939

 

 

 

Amortization of intangible assets

11,140

 

 

16,117

 

 

 

22,305

 

 

32,090

 

 

 

Restructuring

(2,683

)

 

(6,169

)

 

 

(2,931

)

 

1,093

 

 

 

Loss on sale of business

56,915

 

 

 

 

 

56,915

 

 

 

 

 

 

Total operating expenses

183,904

 

 

147,656

 

 

 

329,100

 

 

314,096

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

(45,387

)

 

43,558

 

 

 

(19,017

)

 

64,381

 

 

Other income (expense)

 

 

 

 

 

 

Interest income

1,258

 

 

534

 

 

 

1,811

 

 

862

 

 

 

Interest expense

(11,684

)

 

(13,496

)

 

 

(22,961

)

 

(27,031

)

 

 

Other income (expense), net

(1,873

)

 

(2,060

)

 

 

(807

)

 

(3,704

)

 

 

 

Total other income (expense)

(12,299

)

 

(15,022

)

 

 

(21,957

)

 

(29,873

)

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

(57,686

)

 

28,536

 

 

 

(40,974

)

 

34,508

 

 

Income tax provision

(4,801

)

 

(8,419

)

 

 

(12,351

)

 

(14,540

)

 

Net income (loss)

(62,487

)

 

20,117

 

 

 

(53,325

)

 

19,968

 

 

 

Net income attributable to noncontrolling interests

315

 

 

671

 

 

 

793

 

 

2,429

 

 

Net income (loss) attributable to Itron, Inc.

$

(62,802

)

 

$

19,446

 

 

 

$

(54,118

)

 

$

17,539

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share - Basic

$

(1.56

)

 

$

0.49

 

 

 

$

(1.35

)

 

$

0.44

 

 

Net income (loss) per common share - Diluted

$

(1.56

)

 

$

0.49

 

 

 

$

(1.35

)

 

$

0.44

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - Basic

40,216

 

 

39,389

 

 

 

40,130

 

 

39,523

 

 

Weighted average common shares outstanding - Diluted

40,216

 

39,686

 

40,130

 

39,875

 

ITRON, INC.

SEGMENT INFORMATION

 

 

 

 

 

 

 

 

(Unaudited, in thousands)

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2020

 

2019

 

 

2020

 

2019

 

Product revenues

 

 

 

 

 

 

Device Solutions

$

126,950

 

 

$

214,589

 

 

 

$

327,118

 

 

$

433,158

 

 

 

Networked Solutions

300,351

 

 

333,422

 

 

 

615,788

 

 

647,772

 

 

 

Outcomes

11,684

 

 

18,036

 

 

 

24,216

 

 

29,967

 

 

 

 

Total Company

$

438,985

 

 

$

566,047

 

 

 

$

967,122

 

 

$

1,110,897

 

 

 

 

 

 

 

 

 

 

Service revenues

 

 

 

 

 

 

Device Solutions

$

2,215

 

 

$

3,134

 

 

 

$

4,326

 

 

$

6,320

 

 

 

Networked Solutions

24,129

 

 

22,494

 

 

 

49,537

 

 

44,571

 

 

 

Outcomes

44,265

 

 

43,362

 

 

 

87,024

 

 

87,825

 

 

 

 

Total Company

$

70,609

 

 

$

68,990

 

 

 

$

140,887

 

 

$

138,716

 

 

 

 

 

 

 

 

 

 

Total revenues

 

 

 

 

 

 

Device Solutions

$

129,165

 

 

$

217,723

 

 

 

$

331,444

 

 

$

439,478

 

 

 

Networked Solutions

324,480

 

 

355,916

 

 

 

665,325

 

 

692,343

 

 

 

Outcomes

55,949

 

 

61,398

 

 

 

111,240

 

 

117,792

 

 

 

 

Total Company

$

509,594

 

 

$

635,037

 

 

 

$

1,108,009

 

 

$

1,249,613

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

 

 

 

 

Device Solutions

$

11,948

 

 

$

41,590

 

 

 

$

44,315

 

 

$

81,506

 

 

 

Networked Solutions

108,323

 

 

126,243

 

 

 

230,073

 

 

253,311

 

 

 

Outcomes

18,246

 

 

23,381

 

 

 

35,695

 

 

43,660

 

 

 

 

Total Company

$

138,517

 

 

$

191,214

 

 

 

$

310,083

 

 

$

378,477

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

 

 

 

 

Device Solutions

$

(1,120

)

 

$

28,355

 

 

 

$

17,078

 

 

$

53,812

 

 

 

Networked Solutions

77,382

 

 

98,035

 

 

 

166,062

 

 

193,357

 

 

 

Outcomes

9,226

 

 

14,367

 

 

 

17,424

 

 

24,777

 

 

 

Corporate unallocated

(130,875

)

 

(97,199

)

 

 

(219,581

)

 

(207,565

)

 

 

 

Total Company

$

(45,387

)

 

$

43,558

 

 

 

$

(19,017

)

 

$

64,381

 

 

ITRON, INC.

METER AND MODULE SUMMARY

 

 

 

 

 

 

 

 

(Unaudited, Units in thousands)

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2020

2019

 

2020

2019

Itron Endpoints

 

 

 

 

 

 

Standard endpoints

3,130

 

5,570

 

 

8,520

 

11,040

 

 

Networked endpoints

4,190

 

4,260

 

 

8,090

 

8,240

 

 

 

Total endpoints

7,320

 

9,830

 

 

16,610

 

19,280

 

 

 

 

 

 

 

 

 

ITRON, INC.

CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

(Unaudited, in thousands)

June 30, 2020

 

December 31, 2019

ASSETS

 

 

 

Current assets

 

 

 

 

Cash and cash equivalents

$

544,823

 

 

 

$

149,904

 

 

 

Accounts receivable, net

411,200

 

 

 

472,925

 

 

 

Inventories

226,564

 

 

 

227,896

 

 

 

Other current assets

172,241

 

 

 

146,526

 

 

 

 

Total current assets

1,354,828

 

 

 

997,251

 

 

 

 

 

 

 

 

Property, plant, and equipment, net

216,319

 

 

 

233,228

 

 

Deferred tax assets, net

57,835

 

 

 

63,899

 

 

Other long-term assets

45,610

 

 

 

44,686

 

 

Operating lease right-of-use assets, net

78,777

 

 

 

79,773

 

 

Intangible assets, net

157,125

 

 

 

185,097

 

 

Goodwill

1,101,648

 

 

 

1,103,907

 

 

 

 

Total assets

$

3,012,142

 

 

 

$

2,707,841

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

Current liabilities

 

 

 

 

Accounts payable

$

240,221

 

 

 

$

328,128

 

 

 

Other current liabilities

63,429

 

 

 

63,785

 

 

 

Wages and benefits payable

106,215

 

 

 

119,220

 

 

 

Taxes payable

19,878

 

 

 

22,193

 

 

 

Current portion of debt

14,063

 

 

 

 

 

 

Current portion of warranty

33,039

 

 

 

38,509

 

 

 

Unearned revenue

124,834

 

 

 

99,556

 

 

 

 

Total current liabilities

601,679

 

 

 

671,391

 

 

 

 

 

 

 

 

Long-term debt, net

1,320,004

 

 

 

932,482

 

 

Long-term warranty

11,718

 

 

 

14,732

 

 

Pension benefit obligation

99,184

 

 

 

98,712

 

 

Deferred tax liabilities, net

1,794

 

 

 

1,809

 

 

Operating lease liabilities

69,337

 

 

 

68,919

 

 

Other long-term obligations

105,557

 

 

 

118,981

 

 

 

 

Total liabilities

2,209,273

 

 

 

1,907,026

 

 

 

 

 

 

 

 

Equity

 

 

 

 

Common stock

1,376,134

 

 

 

1,357,600

 

 

 

Accumulated other comprehensive loss, net

(167,827

)

 

 

(204,672

)

 

 

Accumulated deficit

(430,508

)

 

 

(376,390

)

 

 

 

Total Itron, Inc. shareholders' equity

777,799

 

 

 

776,538

 

 

 

Noncontrolling interests

25,070

 

 

 

24,277

 

 

 

 

Total equity

802,869

 

 

 

800,815

 

 

 

 

Total liabilities and equity

$

3,012,142

 

 

 

$

2,707,841

 

 

ITRON, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

(Unaudited, in thousands)

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

Operating activities

 

 

 

 

Net income (loss)

$

(53,325

)

 

 

$

19,968

 

 

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

48,230

 

 

 

57,068

 

 

 

 

Non-cash operating lease expense

9,909

 

 

 

9,481

 

 

 

 

Stock-based compensation

15,581

 

 

 

13,783

 

 

 

 

Amortization of prepaid debt fees

2,013

 

 

 

2,402

 

 

 

 

Deferred taxes, net

5,904

 

 

 

2,076

 

 

 

 

Loss on sale of business

56,915

 

 

 

 

 

 

 

Restructuring, non-cash

(1,146

)

 

 

(5,295

)

 

 

 

Other adjustments, net

287

 

 

 

(3,471

)

 

Changes in operating assets and liabilities

 

 

 

 

Accounts receivable

52,031

 

 

 

(29,121

)

 

 

Inventories

(16,529

)

 

 

(9,202

)

 

 

Other current assets

(7,861

)

 

 

(14,413

)

 

 

Other long-term assets

(3,919

)

 

 

6,616

 

 

 

Accounts payable, other current liabilities, and taxes payable

(76,144

)

 

 

(2,801

)

 

 

Wages and benefits payable

(11,145

)

 

 

13,484

 

 

 

Unearned revenue

23,099

 

 

 

14,961

 

 

 

Warranty

(8,417

)

 

 

(3,270

)

 

 

Other operating, net

(9,697

)

 

 

5,797

 

 

 

 

Net cash provided by operating activities

25,786

 

 

 

78,063

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

Net payments related to the sale of business

(3,630

)

 

 

 

 

 

Acquisitions of property, plant, and equipment

(29,049

)

 

 

(26,511

)

 

 

Other investing, net

3,520

 

 

 

9,773

 

 

 

 

Net cash used in investing activities

(29,159

)

 

 

(16,738

)

 

 

 

 

 

 

 

Financing activities

 

 

 

 

Proceeds from borrowings

400,000

 

 

 

50,000

 

 

 

Payments on debt

 

 

 

(72,188

)

 

 

Issuance of common stock

4,183

 

 

 

4,001

 

 

 

Repurchase of common stock

 

 

 

(25,000

)

 

 

Prepaid debt fees

(184

)

 

 

(175

)

 

 

Other financing, net

(2,036

)

 

 

(3,165

)

 

 

 

Net cash provided by (used in) financing activities

401,963

 

 

 

(46,527

)

 

 

 

 

 

 

 

Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash

(3,671

)

 

 

727

 

 

Increase in cash, cash equivalents, and restricted cash

394,919

 

 

 

15,525

 

 

Cash, cash equivalents, and restricted cash at beginning of period

149,904

 

 

 

122,328

 

 

Cash, cash equivalents, and restricted cash at end of period

$

544,823

 

 

 

$

137,853

 

 

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, free cash flow, and constant currency. 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 the 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 acquisition and integration related expenses, 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, loss on sale of business, corporate transition cost, acquisition and integration, and goodwill impairment. We define non-GAAP operating income as operating income excluding the expenses related to the amortization of intangible assets, restructuring, loss on sale of business, corporate transition cost, acquisition and integration, and goodwill impairment. Acquisition and integration related expenses include costs, which are incurred to affect and integrate business combinations, such as professional fees, certain employee retention and salaries related to integration, severances, contract terminations, travel costs related to knowledge transfer, system conversion costs, and asset impairment charges. 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 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 expenses and operating income calculated in accordance with GAAP. We compensate for these limitations by providing specific information about the GAAP amounts excluded from 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 operating income.

Non-GAAP net income and non-GAAP diluted EPS – We define non-GAAP net income as net income attributable to Itron, Inc. excluding the expenses associated with amortization of intangible assets, amortization of debt placement fees, restructuring, loss on sale of business, corporate transition cost, acquisition and integration, goodwill impairment, and the tax effect of excluding these expenses. 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 attributable to Itron, Inc. and GAAP diluted EPS.

For interim periods, beginning the first quarter of 2019, the budgeted annual effective tax rate (AETR) is used, adjusted for any discrete items, as defined in ASC 740 - Income Taxes. The budgeted AETR is determined at the beginning of the fiscal year. The AETR is revised throughout the year based on changes to our full-year forecast. If the revised AETR increases or decreases by 200 basis points or more from the budgeted AETR due to changes in the full-year forecast during the year, the revised AETR is used in place of the budgeted AETR beginning with the quarter the 200 basis point threshold is exceeded and going forward for all subsequent interim quarters in the year. We continue to assess the AETR based on latest forecast throughout the year and use the most recent AETR anytime it increases or decreases by 200 basis points or more from the prior interim period.

Adjusted EBITDA – We define adjusted EBITDA as net income (a) minus interest income, (b) plus interest expense, depreciation and amortization of intangible assets, restructuring, loss on sale of business, corporate transition cost, acquisition and integration related expense, goodwill impairment and (c) excluding income tax provision 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 (loss).

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 U.S. dollars for financial reporting purposes. We also use the term "constant currency," which represents financial results adjusted to exclude changes in foreign currency exchange rates as compared with the rates in the comparable prior year period. We calculate the constant currency change as the difference between the current period results and the comparable prior period's results restated using current period foreign currency exchange rates.

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 THE MOST DIRECTLY COMPARABLE GAAP FINANCIAL MEASURES

 

 

 

 

 

 

 

 

 

(Unaudited, in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL COMPANY RECONCILIATIONS

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

 

2020

 

2019

 

 

2020

 

2019

 

 

NON-GAAP OPERATING EXPENSES

 

 

 

 

 

 

 

GAAP operating expenses

$

183,904

 

 

$

147,656

 

 

 

$

329,100

 

 

$

314,096

 

 

 

 

 

Amortization of intangible assets

(11,140

)

 

(16,117

)

 

 

(22,305

)

 

(32,090

)

 

 

 

 

Restructuring

2,683

 

 

6,169

 

 

 

2,931

 

 

(1,093

)

 

 

 

 

Loss on sale of business

(56,915

)

 

 

 

 

(56,915

)

 

 

 

 

 

 

Corporate transition cost

(7

)

 

(473

)

 

 

33

 

 

(1,556

)

 

 

 

 

Acquisition and integration related expense

(338

)

 

(9,194

)

 

 

(1,610

)

 

(20,759

)

 

 

 

Non-GAAP operating expenses

$

118,187

 

 

$

128,041

 

 

 

$

251,234

 

 

$

258,598

 

 

 

 

 

 

 

 

 

 

 

 

NON-GAAP OPERATING INCOME

 

 

 

 

 

 

 

GAAP operating income (loss)

$

(45,387

)

 

$

43,558

 

 

 

$

(19,017

)

 

$

64,381

 

 

 

 

 

Amortization of intangible assets

11,140

 

 

16,117

 

 

 

22,305

 

 

32,090

 

 

 

 

 

Restructuring

(2,683

)

 

(6,169

)

 

 

(2,931

)

 

1,093

 

 

 

 

 

Loss on sale of business

56,915

 

 

 

 

 

56,915

 

 

 

 

 

 

 

Corporate transition cost

7

 

 

473

 

 

 

(33

)

 

1,556

 

 

 

 

 

Acquisition and integration related expense

338

 

 

9,194

 

 

 

1,610

 

 

20,759

 

 

 

 

Non-GAAP operating income

$

20,330

 

 

$

63,173

 

 

 

$

58,849

 

 

$

119,879

 

 

 

 

 

 

 

 

 

 

 

 

NON-GAAP NET INCOME & DILUTED EPS

 

 

 

 

 

 

 

GAAP net income (loss) attributable to Itron, Inc.

$

(62,802

)

 

$

19,446

 

 

 

$

(54,118

)

 

$

17,539

 

 

 

 

 

Amortization of intangible assets

11,140

 

 

16,117

 

 

 

22,305

 

 

32,090

 

 

 

 

 

Amortization of debt placement fees

963

 

 

1,159

 

 

 

1,926

 

 

2,315

 

 

 

 

 

Restructuring

(2,683

)

 

(6,169

)

 

 

(2,931

)

 

1,093

 

 

 

 

 

Loss on sale of business

56,915

 

 

 

 

 

56,915

 

 

 

 

 

 

 

Corporate transition cost

7

 

 

473

 

 

 

(33

)

 

1,556

 

 

 

 

 

Acquisition and integration related expense

338

 

 

9,194

 

 

 

1,610

 

 

20,759

 

 

 

 

 

Income tax effect of non-GAAP adjustments

(2,552

)

 

(5,620

)

 

 

(1,379

)

 

(12,862

)

 

 

 

Non-GAAP net income attributable to Itron, Inc.

$

1,326

 

 

$

34,600

 

 

 

$

24,295

 

 

$

62,490

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP diluted EPS

$

0.03

 

 

$

0.87

 

 

 

$

0.60

 

 

$

1.57

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP weighted average common shares outstanding - Diluted

40,488

 

39,686

 

 

40,481

 

39,875

 

 

 

 

 

 

 

 

 

 

 

ADJUSTED EBITDA

 

 

 

 

 

 

 

GAAP net income (loss) attributable to Itron, Inc.

$

(62,802

)

 

$

19,446

 

 

 

$

(54,118

)

 

$

17,539

 

 

 

 

 

Interest income

(1,258

)

 

(534

)

 

 

(1,811

)

 

(862

)

 

 

 

 

Interest expense

11,684

 

 

13,496

 

 

 

22,961

 

 

27,031

 

 

 

 

 

Income tax provision

4,801

 

 

8,419

 

 

 

12,351

 

 

14,540

 

 

 

 

 

Depreciation and amortization

24,199

 

 

28,641

 

 

 

48,230

 

 

57,068

 

 

 

 

 

Restructuring

(2,683

)

 

(6,169

)

 

 

(2,931

)

 

1,093

 

 

 

 

 

Loss on sale of business

56,915

 

 

 

 

 

56,915

 

 

 

 

 

 

 

Corporate transition cost

7

 

 

473

 

 

 

(33

)

 

1,556

 

 

 

 

 

Acquisition and integration related expense

338

 

 

9,194

 

 

 

1,610

 

 

20,759

 

 

 

 

Adjusted EBITDA

$

31,201

 

 

$

72,966

 

 

 

$

83,174

 

 

$

138,724

 

 

 

 

 

 

 

 

 

 

 

 

FREE CASH FLOW

 

 

 

 

 

 

 

 

Net cash provided by operating activities

$

6,892

 

 

$

53,139

 

 

 

$

25,786

 

 

$

78,063

 

 

 

 

 

Acquisitions of property, plant, and equipment

(16,447

)

 

(15,096

)

 

 

(29,049

)

 

(26,511

)

 

 

 

Free Cash Flow

$

(9,555

)

 

$

38,043

 

 

 

$

(3,263

)

 

$

51,552

 

 

 

Itron, Inc. 
Kenneth P. Gianella
Vice President, Investor Relations
(669) 770-4643

Rebecca Hussey
Manager, Investor Relations
(509) 891-3574

Source: Itron, Inc.

 

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