Itron Posts Strong First Quarter 2003 Results
SPOKANE, WA. — April 17, 2003 — Itron, Inc. (NASDAQ:ITRI), today reported its financial results for the quarter ended March 31, 2003.
First quarter revenues of $74.6 million were 20% higher than first quarter 2002 revenues. Approximately half of the year over year growth came from four acquisitions completed in the last twelve months. First quarter 2003 results include approximately 27 days worth of operations for Silicon Energy, which Itron acquired on March 4, 2003, as well as certain costs related to the acquisition. Also included are the results of three other acquisitions in the past year, two of which closed on October 1, 2002, and one that closed March 12, 2002.
On a GAAP basis, Itron had net income of $2.9 million in the first quarter of 2003, or 14 cents per diluted share, compared with a net loss of $3.0 million in the first quarter of 2002, or (18) cents per diluted share.
Pro forma net income for the first quarter of 2003 was $6.3 million, or 29 cents per diluted share, compared with $4.6 million, or 24 cents per diluted share, in the first quarter of 2002. A schedule reconciling income between GAAP and pro forma is attached to this release. Pro forma results in 2003 exclude intangible amortization expenses of $1.9 million, restructuring charges of $2.2 million and in-process R&D charges of $900,000. Pro forma results in 2002 exclude intangible asset amortization expenses of $337,000 and in-process R&D charges of $7.4 million.
“With strong first quarter results like these, we are off to a good start in 2003,” commented LeRoy Nosbaum, chairman and CEO. “Our results for the first quarter were better than we had expected coming into the quarter, partially as a result of two new orders during the quarter from large utilities for AMR deployments. In addition, distributor sales in our Water and Public Power business unit were stronger than we had forecast.”
Gross margin for the first quarter of 2003 was 49%, slightly higher than fourth quarter 2002 gross margin of 48% and represents a new quarterly high. On a comparative basis, gross margin was 44% in the first quarter of 2002. Gross margin improved from the prior quarter due to a more favorable mix of hardware product and higher software license sales. Those same factors, along with less installation revenues in the first quarter of this year, resulted in the improvement in first quarter gross margin in 2003 compared with 2002.
Sales and marketing, product development and general and administrative expenses combined were $26.4 million in the first quarter of 2003, or 35% of revenues compared with $19.0 million, or 31% of revenues in the first quarter of 2002. Increases in sales and marketing, product development and general and administrative expenses were primarily driven by the four acquisitions completed in the last twelve months as well as increased headcount. In addition, general and administrative expenses in 2003 reflect higher defense costs related to the Benghiat patent litigation, and increased IT spending.
We recorded a restructuring charge of $2.2 million in the first quarter of 2003, primarily related to a reorganization of our Energy Information Solutions (EIS) product group in Raleigh, NC to enable more of a focus on the utility and large energy user sector, with a reduced focus on custom data collection software for regional transmission organizations and other wholesale energy market participants. By comparison, there were no restructuring related charges in the first quarter of 2002.
We completed the acquisition of Silicon Energy, a provider of enterprise energy management software and services to utilities and large energy users, on March 4, 2003 for approximately $71.2 million. Itron financed a portion of the purchase price with a $50 million term bank loan, with a current floating interest rate of approximately 3.8% per year, payable over three years. In connection with the acquisition, we recorded approximately $41.3 million of goodwill and $16.3 million of intangible assets, after the write-off of approximately $900,000 of in-process R&D. The majority of the acquired intangible assets will be amortized within approximately three years. These amounts are preliminary estimates based on independent valuations, which are being finalized, and which are subject to adjustments based on review by our outside auditors.
Intangible asset amortization expense was $1.9 million in the first quarter of 2003, compared with $337,000 in the first quarter of 2002, the increase resulting from amortization of acquisition related intangible assets. In-process R&D charges were $900,000 in the first quarter of 2003, related to the Silicon Energy acquisition, compared with $7.4 million in the first quarter of 2002 related to an acquisition in that quarter.
Net interest expense for the first quarter of 2003 of $287,000 included approximately one month of interest expense for the term bank debt related to the Silicon Energy acquisition. First quarter 2002 net interest expense of $971,000 included interest expense for $53.2 million in subordinated debt, which was converted to common stock during the second quarter of 2002.
Additional highlights for the first quarter include:
The following statements are based on management’s current expectations. These statements are forward-looking and are made as of the date of this press release. Actual results may differ materially due to a number of risks and uncertainties. Itron undertakes no obligation to update publicly or revise any forward-looking statements.
The Company’s guidance for the full year 2003 remains unchanged, with revenues expected to be between $330 to $340 million, and pro forma EPS expected to be between $1.20 and $1.25. Second quarter expectations are for revenues between $75 and $80 million, with proforma EPS of 24 to 28 cents. Pro forma results for the year and quarter exclude restructuring charges, intangible asset amortization, and in-process R&D.
Nosbaum commented that, despite such a strong first quarter, the Company was leaving its guidance for the year unchanged. “While it is a rare event, we did have one large order get rescheduled late in the quarter from a 12 month to an 18 month installation, which will push about $8 million in revenues out of 2003 to 2004. However, we are still on track for a good year in 2003, despite a weak overall economy and a tough environment for many of our customers.”
Use of Pro Forma Financial Information:
To supplement our consolidated financial statements presented in accordance with GAAP, Itron uses pro forma measures of operating results, net income and earnings per share. Pro forma results are adjusted from GAAP-based results to exclude certain costs, expenses and expense reversals that we believe are not indicative of our core operating results. Pro forma results are one of the primary indicators management uses for evaluating historical results and for planning and forecasting future periods. We believe the pro forma results provide useful information to investors in terms of enhancing their overall understanding of our current financial performance as well as our future prospects. We have historically provided pro forma results and believe the inclusion of them provides investors with consistency in our financial reporting. Pro forma results should be viewed in addition to, and not in lieu of, GAAP results.
Forward Looking Statements:
This release contains forward-looking statements concerning Itron’s operations, economic performance, sales, earnings growth and cost reduction programs. These statements reflect the Company’s current plans and expectations and are based on information currently available to it. They rely on a number of assumptions and estimates, which could be inaccurate, and which are subject to risks and uncertainties that could cause the Company’s actual results to vary materially from those anticipated. Risks and uncertainties include the rate and timing of customer demand and signing of orders for the Company’s products, rescheduling of current customer orders, the ability of the Company to effectuate additional initiatives for improving growth and profitability, the inability to predict the outcome of appeals or any negotiation efforts associated with the Benghiat litigation including the uncertainty as to whether the court will award enhanced damages or future royalties, estimating costs associated with litigation defense, changes in law and regulation (including FCC licensing actions), and other factors which are more fully described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 on file with the Securities and Exchange Commission. Itron undertakes no obligation to update publicly or revise any forward-looking statements.
Earnings Conference Call:
Itron will host a conference call to discuss the financial results for the quarter at 1:45 p.m. Pacific Time on April 17, 2003. The call will be webcast live in a listen only mode, and later archived. The call will be hosted by CCBN. The webcast will be accessible online at www.itron.com, “About Itron – Investor Events.” Investors may also listen to the call through CCBN’s investor centers at www.companyboardroom.com or www.streetevents.com. The live webcast will begin at 1:45 p.m. (PT) and webcast replays will begin shortly after the conclusion of the call and will be available for approximately two weeks. A telephone replay of the call will also be available approximately one hour after the conclusion of the live call, for 48 hours, and is accessible by dialing (800) 428-6051 (Domestic) or (973) 709-2089 (International), and entering passcode #289508.
Itron is a leading technology provider and critical source of knowledge to the global energy and water industries. More than 2,800 utilities worldwide rely on Itron technology to deliver the knowledge they require to optimize the delivery and use of energy and water. Itron delivers value to its clients by providing industry-leading solutions for meter data collection, energy information management, demand side management and response, load forecasting, analysis and consulting services, transmission and distribution system design and optimization, Web-based workforce automation, commercial and industrial customer care and residential energy management.
For additional information, contact:
Vice-president, Investor Relations and Corporate Communications
Itron Q1 Earnings Statement