Press Release

Itron Announces Third Quarter 2020 Financial Results and Operational Update

Nov 2, 2020 at 8:30 AM EST

LIBERTY LAKE, Wash.--(BUSINESS WIRE)--Nov. 2, 2020-- Itron, Inc. (NASDAQ:ITRI) announced today financial results for its third quarter ended Sept. 30, 2020. Key results for the quarter include (compared with the third quarter of 2019):

  • Revenue of $540 million, compared with $624 million;
  • Gross margin of 26.5%; compared with 31.5%;
  • GAAP net loss of $(25) million, compared with net income of $17 million;
  • GAAP loss per share of $(0.63), compared with GAAP diluted earnings per share (EPS) of $0.42;
  • Non-GAAP diluted EPS of $0.61, compared with $1.04;
  • Adjusted EBITDA of $40 million, compared with $74 million;
  • Free cash flow of $38 million, compared with $32 million; and
  • Total backlog of $2.8 billion, compared with $3.1 billion.

"During the third quarter, our team continued to focus on the success of our customers and safely delivered results aligned to our expectations," said Tom Deitrich, Itron's president and chief executive officer.

"While still being negatively impacted by the COVID-19 pandemic, our results have improved sequentially from the second quarter low point," continued Deitrich. "While we navigate the near-term challenges, we continue to innovate and position Itron to capture the growing technology and service need of utilities and cities with our solutions."

Summary of Third Quarter Consolidated Financial Results

(All comparisons made are against the prior year period unless otherwise noted)

Revenue

Total third quarter revenue decreased 13% to $540 million, or 14%, excluding the impact of changes in foreign currency exchange rates. The decrease was primarily due to lower customer demand and operating constraints resulting from COVID-19.

Device Solutions revenue decreased 17%, Networked Solutions revenue decreased 14% and Outcomes revenue increased 5%.

Gross Margin

Consolidated company gross margin of 26.5% decreased 500 basis points from the prior year due to COVID-19 induced manufacturing inefficiencies, inventory reserves and product mix.

Operating Expenses and Operating Income

GAAP operating expenses of $167 million increased $10 million from the prior year due to $44 million of restructuring expenses recognized in the quarter, partially offset by lower SG&A expenses, product development and amortization.

Non-GAAP operating expenses of $114 million decreased $17 million from the prior year due to lower sales, general and administrative expenses and product development.

GAAP operating loss of $(24) million was lower than the prior year due to lower gross profit and higher GAAP operating expenses. Non-GAAP operating income of $30 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 $(25) million, or $(0.63) per share, a decrease from net income of $17 million, or $0.42 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.

Non-GAAP net income, which excludes certain charges including amortization of intangible assets, amortization of debt placement fees, restructuring, loss on sale of business, corporate transition cost, acquisition and integration related expenses and the income tax effect of those adjustments, was $25 million, or $0.61 per diluted share, compared with $41 million, or $1.04 per diluted share, in 2019. The lower year-over-year results were primarily due to the negative impact of the COVID-19 virus.

Cash Flow

Net cash provided by operating activities was $45 million in the third quarter compared with $50 million in the same quarter of 2019. Free cash flow was $38 million in the third quarter compared with $32 million in the prior year. The higher free cash flow was due to improved working capital and lower capital expenditures, partially offset by the lower operating income.

Other Measures

Total backlog was $2.8 billion and 12-month backlog was $1.1 billion, compared with $3.1 billion and $1.4 billion, respectively, in the prior year. Bookings in the quarter totaled $432 million.

Operational Update and Outlook

Results, while improving sequentially from the second quarter, still reflect the current pandemic operating environment. Our supply chain and logistics situation remain stable. We continue to have all factories up and running with aggressive measures to execute safely across our entire operation. Itron remains vigilant and prepared for regional and local spikes from the pandemic that may potentially disrupt our operations. We see some customers resuming deployments and a strong pipeline of new tenders. To date there have been no contract cancellations or slowing with collections from our customers. However, some new deployments that were expected to start in 2020 have shifted to out years due to pandemic conditions and/or delays in the regulatory approval process. On balance, we were pleased with our team’s focus and execution this quarter and we remain on track to achieve our second half 2020 expectations.

Earnings Conference Call

Itron will host a conference call to discuss the financial results and guidance contained in this release at 11 a.m. EST on Nov. 2, 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 Nov. 7, 2020. To access the telephone replay, dial 888-203-1112 or 719-457-0820 and enter passcode 6815143.

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
September 30,

 

Nine Months Ended
September 30,

 

 

 

2020

 

2019

 

 

2020

 

2019

 

Revenues

 

 

 

 

 

 

Product revenues

$

470,658

 

 

$

552,897

 

 

 

$

1,437,780

 

 

$

1,663,794

 

 

 

Service revenues

69,526

 

 

71,577

 

 

 

210,413

 

 

210,293

 

 

 

 

Total revenues

540,184

 

 

624,474

 

 

 

1,648,193

 

 

1,874,087

 

 

Cost of revenues

 

 

 

 

 

 

Product cost of revenues

358,297

 

 

389,778

 

 

 

1,072,271

 

 

1,176,913

 

 

 

Service cost of revenues

38,636

 

 

38,292

 

 

 

122,588

 

 

122,293

 

 

 

 

Total cost of revenues

396,933

 

 

428,070

 

 

 

1,194,859

 

 

1,299,206

 

 

Gross profit

143,251

 

 

196,404

 

 

 

453,334

 

 

574,881

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

Sales, general and administrative

64,982

 

 

83,666

 

 

 

215,018

 

 

264,640

 

 

 

Research and development

46,224

 

 

50,612

 

 

 

148,999

 

 

150,551

 

 

 

Amortization of intangible assets

11,183

 

 

16,095

 

 

 

33,488

 

 

48,185

 

 

 

Restructuring

44,462

 

 

6,592

 

 

 

41,531

 

 

7,685

 

 

 

Loss on sale of business

380

 

 

 

 

 

57,295

 

 

 

 

 

 

Total operating expenses

167,231

 

 

156,965

 

 

 

496,331

 

 

471,061

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

(23,980

)

 

39,439

 

 

 

(42,997

)

 

103,820

 

 

Other income (expense)

 

 

 

 

 

 

Interest income

354

 

 

517

 

 

 

2,165

 

 

1,379

 

 

 

Interest expense

(10,810

)

 

(12,868

)

 

 

(33,771

)

 

(39,899

)

 

 

Other income (expense), net

(2,607

)

 

(2,759

)

 

 

(3,414

)

 

(6,463

)

 

 

 

Total other income (expense)

(13,063

)

 

(15,110

)

 

 

(35,020

)

 

(44,983

)

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

(37,043

)

 

24,329

 

 

 

(78,017

)

 

58,837

 

 

Income tax benefit (provision)

11,985

 

 

(6,152

)

 

 

(366

)

 

(20,692

)

 

Net income (loss)

(25,058

)

 

18,177

 

 

 

(78,383

)

 

38,145

 

 

 

Net income attributable to noncontrolling interests

299

 

 

1,330

 

 

 

1,092

 

 

3,759

 

 

Net income (loss) attributable to Itron, Inc.

$

(25,357

)

 

$

16,847

 

 

 

$

(79,475

)

 

$

34,386

 

 

 

 

 

 

 

 

 

 

Net income (loss) per common share - Basic

$

(0.63

)

 

$

0.43

 

 

 

$

(1.98

)

 

$

0.87

 

 

Net income (loss) per common share - Diluted

$

(0.63

)

 

$

0.42

 

 

 

$

(1.98

)

 

$

0.86

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - Basic

40,337

 

 

39,478

 

 

 

40,199

 

 

39,508

 

 

Weighted average common shares outstanding - Diluted

40,337

 

 

39,903

 

 

 

40,199

 

 

39,884

 

 

 

ITRON, INC.

SEGMENT INFORMATION

 

 

 

 

 

 

 

 

(Unaudited, in thousands)

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2020

2019

 

2020

2019

Product revenues

 

 

 

 

 

 

Device Solutions

$

174,039

 

 

$

211,096

 

 

 

$

501,157

 

 

$

644,254

 

 

 

Networked Solutions

282,677

 

 

330,487

 

 

 

898,465

 

 

978,259

 

 

 

Outcomes

13,942

 

 

11,314

 

 

 

38,158

 

 

41,281

 

 

 

 

Total Company

$

470,658

 

 

$

552,897

 

 

 

$

1,437,780

 

 

$

1,663,794

 

 

 

 

 

 

 

 

 

 

Service revenues

 

 

 

 

 

 

Device Solutions

$

2,089

 

 

$

2,253

 

 

 

$

6,415

 

 

$

8,573

 

 

 

Networked Solutions

23,982

 

 

25,734

 

 

 

73,519

 

 

70,305

 

 

 

Outcomes

43,455

 

 

43,590

 

 

 

130,479

 

 

131,415

 

 

 

 

Total Company

$

69,526

 

 

$

71,577

 

 

 

$

210,413

 

 

$

210,293

 

 

 

 

 

 

 

 

 

 

Total revenues

 

 

 

 

 

 

Device Solutions

$

176,128

 

 

$

213,349

 

 

 

$

507,572

 

 

$

652,827

 

 

 

Networked Solutions

306,659

 

 

356,221

 

 

 

971,984

 

 

1,048,564

 

 

 

Outcomes

57,397

 

 

54,904

 

 

 

168,637

 

 

172,696

 

 

 

 

Total Company

$

540,184

 

 

$

624,474

 

 

 

$

1,648,193

 

 

$

1,874,087

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

 

 

 

 

Device Solutions

$

20,528

 

 

$

40,945

 

 

 

$

64,843

 

 

$

122,451

 

 

 

Networked Solutions

102,295

 

 

135,406

 

 

 

332,368

 

 

388,717

 

 

 

Outcomes

20,428

 

 

20,053

 

 

 

56,123

 

 

63,713

 

 

 

 

Total Company

$

143,251

 

 

$

196,404

 

 

 

$

453,334

 

 

$

574,881

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

 

 

 

 

Device Solutions

$

11,017

 

 

$

27,905

 

 

 

$

28,095

 

 

$

81,717

 

 

 

Networked Solutions

71,404

 

 

105,637

 

 

 

237,466

 

 

298,994

 

 

 

Outcomes

12,044

 

 

10,843

 

 

 

29,468

 

 

35,620

 

 

 

Corporate unallocated

(118,445

)

 

(104,946

)

 

 

(338,026

)

 

(312,511

)

 

 

 

Total Company

$

(23,980

)

 

$

39,439

 

 

 

$

(42,997

)

 

$

103,820

 

 

ITRON, INC.

METER AND MODULE SUMMARY

 

 

 

 

 

 

 

 

(Unaudited, Units in thousands)

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2020

2019

 

2020

2019

Itron Endpoints

 

 

 

 

 

 

Standard endpoints

3,890

 

5,420

 

 

12,410

 

16,460

 

 

Networked endpoints

3,860

 

3,940

 

 

11,950

 

12,180

 

 

 

Total endpoints

7,750

 

9,360

 

 

24,360

 

28,640

 

 

 

 

 

 

 

 

 

ITRON, INC.

CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

(Unaudited, in thousands)

September 30, 2020

 

December 31, 2019

ASSETS

 

 

 

Current assets

 

 

 

 

Cash and cash equivalents

$

586,167

 

 

$

149,904

 

 

Accounts receivable, net

386,920

 

 

472,925

 

 

Inventories

205,178

 

 

227,896

 

 

Other current assets

173,906

 

 

146,526

 

 

 

Total current assets

1,352,171

 

 

997,251

 

 

 

 

 

 

 

Property, plant, and equipment, net

205,930

 

 

233,228

 

Deferred tax assets, net

72,305

 

 

63,899

 

Other long-term assets

47,929

 

 

44,686

 

Operating lease right-of-use assets, net

78,190

 

 

79,773

 

Intangible assets, net

144,888

 

 

185,097

 

Goodwill

1,114,511

 

 

1,103,907

 

 

 

Total assets

$

3,015,924

 

 

$

2,707,841

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

Current liabilities

 

 

 

 

Accounts payable

$

232,236

 

 

$

328,128

 

 

Other current liabilities

76,509

 

 

63,785

 

 

Wages and benefits payable

91,225

 

 

119,220

 

 

Taxes payable

15,482

 

 

22,193

 

 

Current portion of debt

21,406

 

 

 

 

Current portion of warranty

32,118

 

 

38,509

 

 

Unearned revenue

117,729

 

 

99,556

 

 

 

Total current liabilities

586,705

 

 

671,391

 

 

 

 

 

 

 

Long-term debt, net

1,313,459

 

 

932,482

 

Long-term warranty

10,969

 

 

14,732

 

Pension benefit obligation

103,273

 

 

98,712

 

Deferred tax liabilities, net

1,854

 

 

1,809

 

Operating lease liabilities

68,847

 

 

68,919

 

Other long-term obligations

133,552

 

 

118,981

 

 

 

Total liabilities

2,218,659

 

 

1,907,026

 

 

 

 

 

 

 

Equity

 

 

 

 

Common stock

1,381,774

 

 

1,357,600

 

 

Accumulated other comprehensive loss, net

(154,013)

 

 

(204,672)

 

 

Accumulated deficit

(455,865)

 

 

(376,390)

 

 

 

Total Itron, Inc. shareholders' equity

771,896

 

 

776,538

 

 

Noncontrolling interests

25,369

 

 

24,277

 

 

 

Total equity

797,265

 

 

800,815

 

 

 

Total liabilities and equity

$

3,015,924

 

 

$

2,707,841

 

 

ITRON, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

(Unaudited, in thousands)

Nine Months Ended September 30,

 

 

 

2020

 

2019

Operating activities

 

 

 

 

Net income (loss)

$

(78,383

)

 

 

$

38,145

 

 

 

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

 

 

 

 

 

Depreciation and amortization

72,306

 

 

 

85,691

 

 

 

 

Non-cash operating lease expense

15,252

 

 

 

13,847

 

 

 

 

Stock-based compensation

20,638

 

 

 

21,064

 

 

 

 

Amortization of prepaid debt fees

3,029

 

 

 

3,686

 

 

 

 

Deferred taxes, net

(9,439

)

 

 

4,990

 

 

 

 

Loss on sale of business

57,295

 

 

 

 

 

 

 

Restructuring, non-cash

6,518

 

 

 

(2,147

)

 

 

 

Other adjustments, net

3,856

 

 

 

(6,121

)

 

Changes in operating assets and liabilities

 

 

 

 

Accounts receivable

82,087

 

 

 

(39,385

)

 

 

Inventories

8,978

 

 

 

(15,762

)

 

 

Other current assets

(12,862

)

 

 

(10,494

)

 

 

Other long-term assets

(2,547

)

 

 

7,945

 

 

 

Accounts payable, other current liabilities, and taxes payable

(82,775

)

 

 

(4,063

)

 

 

Wages and benefits payable

(28,446

)

 

 

30,220

 

 

 

Unearned revenue

15,098

 

 

 

6,746

 

 

 

Warranty

(10,894

)

 

 

(5,506

)

 

 

Other operating, net

10,860

 

 

 

(756

)

 

 

 

Net cash provided by operating activities

70,571

 

 

 

128,100

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

Net payments related to the sale of business

(748

)

 

 

 

 

 

Acquisitions of property, plant, and equipment

(36,297

)

 

 

(44,570

)

 

 

Other investing, net

3,573

 

 

 

9,977

 

 

 

 

Net cash used in investing activities

(33,472

)

 

 

(34,593

)

 

 

 

 

 

 

 

Financing activities

 

 

 

 

Proceeds from borrowings

400,000

 

 

 

50,000

 

 

 

Payments on debt

 

 

 

(100,313

)

 

 

Issuance of common stock

5,059

 

 

 

7,117

 

 

 

Repurchase of common stock

 

 

 

(25,000

)

 

 

Prepaid debt fees

(184

)

 

 

(175

)

 

 

Other financing, net

(2,285

)

 

 

(5,221

)

 

 

 

Net cash provided by (used in) financing activities

402,590

 

 

 

(73,592

)

 

 

 

 

 

 

 

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

(3,426

)

 

 

(543

)

 

Increase in cash, cash equivalents, and restricted cash

436,263

 

 

 

19,372

 

 

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

149,904

 

 

 

122,328

 

 

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

$

586,167

 

 

 

$

141,700

 

 

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, or restructuring 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, and acquisition and integration. 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, and acquisition and integration. 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, 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, 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 the entity's functional currency 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 September 30,

 

Nine Months Ended September 30,

 

 

 

 

2020

2019

 

2020

2019

 

NON-GAAP OPERATING EXPENSES

 

 

 

 

 

 

 

GAAP operating expenses

$

167,231

 

 

$

156,965

 

 

 

$

496,331

 

 

$

471,061

 

 

 

 

 

Amortization of intangible assets

(11,183

)

 

(16,095

)

 

 

(33,488

)

 

(48,185

)

 

 

 

 

Restructuring

(44,462

)

 

(6,592

)

 

 

(41,531

)

 

(7,685

)

 

 

 

 

Loss on sale of business

(380

)

 

 

 

 

(57,295

)

 

 

 

 

 

 

Corporate transition cost

 

 

(57

)

 

 

33

 

 

(1,613

)

 

 

 

 

Acquisition and integration related expense

2,348

 

 

(3,834

)

 

 

738

 

 

(24,593

)

 

 

 

Non-GAAP operating expenses

$

113,554

 

 

$

130,387

 

 

 

$

364,788

 

 

$

388,985

 

 

 

 

 

 

 

 

 

 

 

 

NON-GAAP OPERATING INCOME

 

 

 

 

 

 

 

GAAP operating income (loss)

$

(23,980

)

 

$

39,439

 

 

 

$

(42,997

)

 

$

103,820

 

 

 

 

 

Amortization of intangible assets

11,183

 

 

16,095

 

 

 

33,488

 

 

48,185

 

 

 

 

 

Restructuring

44,462

 

 

6,592

 

 

 

41,531

 

 

7,685

 

 

 

 

 

Loss on sale of business

380

 

 

 

 

 

57,295

 

 

 

 

 

 

 

Corporate transition cost

 

 

57

 

 

 

(33

)

 

1,613

 

 

 

 

 

Acquisition and integration related expense

(2,348

)

 

3,834

 

 

 

(738

)

 

24,593

 

 

 

 

Non-GAAP operating income

$

29,697

 

 

$

66,017

 

 

 

$

88,546

 

 

$

185,896

 

 

 

 

 

 

 

 

 

 

 

 

NON-GAAP NET INCOME & DILUTED EPS

 

 

 

 

 

 

 

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

$

(25,357

)

 

$

16,847

 

 

 

$

(79,475

)

 

$

34,386

 

 

 

 

 

Amortization of intangible assets

11,183

 

 

16,095

 

 

 

33,488

 

 

48,185

 

 

 

 

 

Amortization of debt placement fees

972

 

 

1,240

 

 

 

2,898

 

 

3,555

 

 

 

 

 

Restructuring

44,462

 

 

6,592

 

 

 

41,531

 

 

7,685

 

 

 

 

 

Loss on sale of business

380

 

 

 

 

 

57,295

 

 

 

 

 

 

 

Corporate transition cost

 

 

57

 

 

 

(33

)

 

1,613

 

 

 

 

 

Acquisition and integration related expense

(2,348

)

 

3,834

 

 

 

(738

)

 

24,593

 

 

 

 

 

Income tax effect of non-GAAP adjustments

(4,658

)

 

(3,269

)

 

 

(6,037

)

 

(16,131

)

 

 

 

Non-GAAP net income attributable to Itron, Inc.

$

24,634

 

 

$

41,396

 

 

 

$

48,929

 

 

$

103,886

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP diluted EPS

$

0.61

 

 

$

1.04

 

 

 

$

1.21

 

 

$

2.60

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP weighted average common shares outstanding - Diluted

40,559

 

39,903

 

 

40,507

 

39,884

 

 

 

 

 

 

 

 

 

 

 

ADJUSTED EBITDA

 

 

 

 

 

 

 

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

$

(25,357

)

 

$

16,847

 

 

 

$

(79,475

)

 

$

34,386

 

 

 

 

 

Interest income

(354

)

 

(517

)

 

 

(2,165

)

 

(1,379

)

 

 

 

 

Interest expense

10,810

 

 

12,868

 

 

 

33,771

 

 

39,899

 

 

 

 

 

Income tax provision

(11,985

)

 

6,152

 

 

 

366

 

 

20,692

 

 

 

 

 

Depreciation and amortization

24,076

 

 

28,623

 

 

 

72,306

 

 

85,691

 

 

 

 

 

Restructuring

44,462

 

 

6,592

 

 

 

41,531

 

 

7,685

 

 

 

 

 

Loss on sale of business

380

 

 

 

 

 

57,295

 

 

 

 

 

 

 

Corporate transition cost

 

 

57

 

 

 

(33

)

 

1,613

 

 

 

 

 

Acquisition and integration related expense

(2,348

)

 

3,834

 

 

 

(738

)

 

24,593

 

 

 

 

Adjusted EBITDA

$

39,684

 

 

$

74,456

 

 

 

$

122,858

 

 

$

213,180

 

 

 

 

 

 

 

 

 

 

 

 

FREE CASH FLOW

 

 

 

 

 

 

 

 

Net cash provided by operating activities

$

44,785

 

 

$

50,037

 

 

 

$

70,571

 

 

$

128,100

 

 

 

 

 

Acquisitions of property, plant, and equipment

(7,248

)

 

(18,059

)

 

 

(36,297

)

 

(44,570

)

 

 

 

Free Cash Flow

$

37,537

 

 

$

31,978

 

 

 

$

34,274

 

 

$

83,530

 

 

 

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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