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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
May 2, 2007
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Date of Report (Date of Earliest Event Reported)
ITRON, INC.
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(Exact Name of Registrant as Specified in its Charter)
Washington 000-22418 91-1011792
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(State or Other Jurisdiction (Commission File No.) (IRS Employer
of Incorporation) Identification No.)
2111 N. Molter Road, Liberty Lake, WA 99019
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(Address of Principal Executive Offices, Zip Code)
(509) 924-9900
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(Registrant's Telephone Number, Including Area Code)
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(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition.
On May 2, 2007, Itron, Inc. issued a press release announcing the
financial results for the three months ending March 31, 2007. A
copy of this press release and accompanying financial statements
are attached as Exhibit 99.1.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
The following exhibit is filed as part of this report:
Exhibit
Number Description
- ------------ -------------------------------------------------------------
99.1 Press Release dated May 2, 2007.
The information presented in this Current Report on Form 8-K may contain
forward-looking statements and certain assumptions upon which such
forward-looking statements are in part based. Numerous important factors,
including those factors identified in Itron, Inc.'s Annual Report on Form 10-K
and other of the Company's filings with the Securities and Exchange Commission,
and the fact that the assumptions set forth in this Current Report on Form 8-K
could prove incorrect, could cause actual results to differ materially from
those contained in such forward-looking statements.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
ITRON, INC.
Dated: May 2, 2007 By: /s/ Steven M. Helmbrecht
---------------------------------
Steven M. Helmbrecht
Sr. Vice President and Chief Financial Officer
EXHIBIT INDEX
Exhibit
Number Description
- ------------ -------------------------------------------------------------
99.1 Press Release dated May 2, 2007.
Exhibit 99.1
Itron Announces First Quarter Results
LIBERTY LAKE, Wash.--(BUSINESS WIRE)--May 2, 2007--Itron, Inc.
(NASDAQ:ITRI), today reported financial results for its first quarter ended
March 31, 2007. Highlights include:
-- Quarterly revenues of $148 million;
-- Quarterly GAAP diluted EPS of 26 cents per share;
-- Quarterly non-GAAP diluted EPS of 43 cents per share; and
-- Quarterly EBITDA of $22 million.
Financial Highlights:
Revenue -- Total revenues for the first quarter of 2007 of $148 million
were approximately $7.6 million, or 5%, lower than 2006 first quarter revenues
of $156 million. Hardware solutions revenues for the first quarter of $132
million were approximately $10 million, or 7%, lower than the first quarter of
2006. The 2006 first quarter hardware solutions revenues included $32 million
from our contract with Progress Energy, which was completed at the end of 2006.
This contract also contributed to the higher number of meters shipped during the
first quarter of 2006. Standalone automated meter reading (AMR) modules were
consistent from year to year. Software revenues were $2.3 million, or 17%,
higher in the current quarter primarily due to increased software license
revenue.
"First quarter revenues were in line with our projections and our prior
discussions about lower revenue expectations in the first half of the year
compared to the second half," said LeRoy Nosbaum, chairman and CEO. "We had a
tough comparison this quarter given the exceptional first quarter we had last
year. As we said coming into 2007, this will be an interesting year as the
industry builds momentum for AMI. Our AMI development, conversion to a new ERP
system in the first quarter and other activities produced some higher expenses.
Obviously our highlight of the quarter was our acquisition of Actaris which
brings us a diversification of revenue and a geographical platform that should
allow for nice growth going forward."
Gross Margin -- Total gross margin of 41% was two percentage points lower
in the first quarter of 2007 compared with the same period of 2006. The entire
decline was due to lower hardware solutions gross margin which was primarily
caused by lower production volumes for electricity meters and some increased
warranty expense. Software solutions gross margin of 46% in the current quarter
was consistent with the same period in 2006.
Operating Expenses -- Total operating expenses for the first quarter of
2007 were $52 million, an increase of approximately $4 million compared with the
first quarter of 2006. Research and development expenses were higher in 2007
primarily related to our advanced metering infrastructure (AMI) initiative,
OpenWay. General and administrative expenses were higher in 2007 due to expenses
related to the acquisition of Actaris, increased professional services and
depreciation expense associated with the new ERP system and higher expenses
related to maintaining two corporate facilities, one of which is held for sale.
Stock-based compensation expenses of $2.9 million were $800,000 higher than the
$2.1 million in 2006.
Interest and Other Income -- Interest income of $6.1 million in the first
quarter of 2007 was substantially higher than the $362,000 in the comparable
period of 2006. The increased interest income in 2007 was due to interest earned
on the investment of net proceeds from our $345 million convertible debt
issuance in August of 2006 and the $235 million Private Investor Placement of
Equity (PIPE) which was completed on March 1, 2007. Interest expense of $5.5
million for the first quarter of 2007 was similar to the $5.7 million in the
first quarter of 2006. The first quarter of 2007 also included a foreign
exchange gain of $1.6 million due to an increase in fair value for foreign
exchange transactions executed in the first quarter of 2007 related to our
acquisition of Actaris.
Income Taxes -- Our GAAP tax rate was 37% for the first quarter of 2007,
which was substantially lower than the rate of 46% in the same quarter of 2006.
The lower rate is primarily due to the renewal and extension of the federal
research and development tax credit at the end of 2006 and increased deductions
related to the American Jobs Creation Act of 2004.
GAAP Net Income and EPS -- Our GAAP net income and fully diluted EPS for
the first quarter of 2007 was $7.2 million, or 26 cents per share, compared with
$7.1 million, or 27 cents per share, in the same period in 2006.
Non-GAAP Operating Income, Net Income and EPS -- Non-GAAP operating income,
which excludes amortization expense of intangibles assets, was $16 million, or
11% of revenues, in the first quarter of 2007, compared with $26 million, or 17%
of revenues, in the first quarter of 2006. Non-GAAP net income and EPS of $12
million and 43 cents per share in 2007 was lower than the $13 million and 51
cents per share in the 2006 period. Non-GAAP net income and EPS include expenses
for stock-based compensation and are lower in the first quarter of 2007 due to
lower revenue, higher expenses and an increased number of shares outstanding in
2007. Our non-GAAP tax rates were 38% and 43% for the first quarter of 2007 and
2006, respectively.
New Order Bookings and Backlog -- New order bookings for the first quarter
were $118 million, compared with $206 million in the first quarter of 2006. New
order bookings in 2006 included bookings for three large mobile AMR deployments.
Our first quarter 2007 book-to-bill ratio was .9 to 1. Total backlog was $376
million at March 31, 2007 compared to $392 million at December 31, 2006. Twelve
month backlog of $225 million at March 31, 2007 remained level with twelve month
backlog at the end of 2006.
Cash Flows from Operations -- Net cash provided by operating activities was
$9 million for the first quarter of 2007, compared with $37 million in the first
quarter of 2006. The decrease was primarily the result of an increase in
accounts receivable due to delayed invoicing and decreased collection activity
related to our conversion to a new ERP system on January 1, 2007. Earnings
before interest, taxes, depreciation and amortization (EBITDA) in the first
quarter of 2007, was $22 million compared with $29 million for the same period
in 2006. The lower EBITDA in 2007 was due primarily to decreased operating
income.
"As we indicated on our year end earnings call, our revenue has returned to
a more traditional quarterly pattern, therefore so have our related financial
results," said Nosbaum. "We had acceptable earnings in the first quarter while
making great strategic progress with our acquisition of Actaris. We are very
excited about 2007 and our prospects going forward as a larger, more diversified
global company with an unmatched breadth of solutions for our customers."
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. They 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 compensation, changes in
foreign exchange rates, foreign business risks and other factors which are more
fully described in our Annual Report on Form 10-K for the year ended December
31, 2006 and other reports on file with the Securities and Exchange Commission.
Itron undertakes no obligation to update publicly or revise any forward-looking
statements, including our business outlook.
Business Outlook:
The outlook information provided below and elsewhere in this release is
based on information available today and includes the effect of the Actaris
acquisition which closed on April 18, 2007. Itron assumes no obligation to
publicly update or revise our business outlook. Our future performance involves
risks and uncertainties.
For the full year 2007, we expect
-- Revenues between $1.40 billion and $1.43 billion;
-- Diluted non-GAAP EPS of between $2.60 and $2.90 (includes
approximately $0.30 of stock-based compensation expense); and
-- EBITDA in excess of $230 million
Second quarter revenues are expected to be between $370 and $390 million.
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 income, non-GAAP net income and diluted EPS and EBITDA. 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 costs associated with acquisitions. We exclude these
expenses in our non-GAAP financial measures as we believe that they are a
measure of our core business that is not subject to the variations of expenses
associated with these infrequently occurring items. Non-GAAP performance
measures should be considered in addition to, and not as a substitute for,
results prepared in accordance with GAAP. Finally, 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.
Earnings Conference Call:
Itron will host a conference call to discuss the financial results
contained in this release at 1:45 p.m. (PDT) on May 2, 2007. The call will be
webcast in a listen only mode and can be accessed online at www.itron.com,
"Investors -- Investor Events." The live webcast will begin at 1:45 p.m. (PDT).
The webcast replay will begin after the conclusion of the live call and will be
available for 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 888-203-1112 (Domestic) or 719-457-0820
(International), entering passcode # 6599584.
About Itron
Itron is a leading technology provider and critical source of knowledge to
the global energy and water industries. Itron operates in two divisions; as
Itron in North America and as Actaris outside of North America. Our company is
the world's leading provider of metering, data collection and software
solutions, with nearly 8,000 utilities worldwide relying on our technology to
optimize the delivery and use of energy and water. Itron delivers industry
leading solutions for electricity, gas and water utilities by offering meters;
data collection and communication systems, including automated meter reading
(AMR) and advanced metering infrastructure (AMI); meter data management and
utility software applications; as well as comprehensive project management,
installation, and consulting services. To know more, start here: www.itron.com.
Statements of operations, segment information, balance sheets, cash flow
statements and reconciliations of non-GAAP financial measures to the most
directly comparable financial measures follow.
ITRON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
Three Months Ended
March 31,
-------------------
2007 2006
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Revenues
Sales $135,649 $142,934
Service 12,262 12,619
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Total revenues 147,911 155,553
Cost of revenues
Sales 79,129 81,842
Service 7,457 6,937
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Total cost of revenues 86,586 88,779
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Gross profit 61,325 66,774
Operating expenses
Sales and marketing 14,920 15,481
Product development 15,821 12,870
General and administrative 14,244 12,122
Amortization of intangible assets 7,040 7,313
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Total operating expenses 52,025 47,786
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Operating income 9,300 18,988
Other income (expense)
Interest income 6,089 362
Interest expense (5,497) (5,746)
Other income (expense), net 1,508 (448)
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Total other income (expense) 2,100 (5,832)
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Income before income taxes 11,400 13,156
Income tax provision (4,220) (6,087)
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Net income $ 7,180 $ 7,069
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Earnings per share
Basic $ 0.26 $ 0.28
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Diluted $ 0.26 $ 0.27
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Weighted average number of shares outstanding
Basic 27,198 25,057
Diluted 27,980 26,071
ITRON, INC.
SEGMENT INFORMATION
(Unaudited, in thousands)
Three Months Ended
March 31,
-------------------
2007 2006
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Revenues
Hardware Solutions $132,205 $142,129
Software Solutions 15,706 13,424
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Total Company $147,911 $155,553
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Gross profit
Hardware Solutions $ 54,083 $ 60,612
Software Solutions 7,242 6,162
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Total Company $ 61,325 $ 66,774
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Operating income (loss)
Hardware Solutions $ 34,166 $ 42,981
Software Solutions (1,318) (2,489)
Corporate unallocated (23,548) (21,504)
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Total Company $ 9,300 $ 18,988
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Three Months Ended
March 31,
-------------------
2007 2006
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Unit Shipments
Meters
Meters with Itron AMR 500 1,200
Meters with other AMR 250 150
Meters with no AMR 400 375
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Total Meters 1,150 1,725
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AMR units
AMR standalone modules 1,200 1,075
Licensed AMR (other vendors' meters) - 125
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Total AMR units 1,200 1,200
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Total Itron AMR units 1,700 2,400
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ITRON, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
March 31, Dec. 31,
2007 2006
----------- -----------
ASSETS
Current assets
Cash and cash equivalents $ 621,871 $ 361,405
Short-term investments, held to maturity - 34,583
Accounts receivable, net 124,227 109,924
Inventories 50,734 52,496
Deferred income taxes, net 20,278 20,916
Other 23,087 17,121
----------- -----------
Total current assets 840,197 596,445
Property, plant and equipment, net 87,833 88,689
Intangible assets, net 104,761 112,682
Goodwill 127,248 126,266
Deferred income taxes, net 52,701 47,400
Other 26,398 17,040
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Total assets $1,239,138 $ 988,522
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 50,361 $ 43,922
Wages and benefits payable 18,918 24,214
Current portion of warranty 9,440 7,999
Unearned revenue 25,306 27,449
----------- -----------
Total current liabilities 104,025 103,584
Long-term debt 469,349 469,324
Warranty 10,400 10,149
Contingent purchase price 6,272 5,879
Other obligations 16,265 8,604
----------- -----------
Total liabilities 606,311 597,540
Commitments and contingencies
Shareholders' equity
Preferred stock - -
Common stock 585,451 351,018
Accumulated other comprehensive income, net 1,820 1,588
Retained earnings 45,556 38,376
----------- -----------
Total shareholders' equity 632,827 390,982
----------- -----------
Total liabilities and shareholders'
equity $1,239,138 $ 988,522
----------- -----------
ITRON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Three Months Ended
March 31,
-------------------
2007 2006
--------- ---------
Operating activities
Net income $ 7,180 $ 7,069
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 11,460 10,938
Employee stock plans income tax benefits 1,969 5,366
Excess tax benefits from stock-based
compensation (1,611) (4,280)
Stock-based compensation 2,876 2,053
Amortization of prepaid debt fees 758 2,772
Deferred income taxes, net 1,684 236
Unrealized gain on foreign currency
contracts (1,557) -
Other, net (432) 424
Changes in operating assets and liabilities, net
of acquisitions:
Accounts receivable (14,303) 20,791
Inventories 1,668 (3,058)
Accounts payable and accrued expenses 8,963 2,644
Wages and benefits payable (5,296) (4,612)
Unearned revenue (2,006) 1,452
Warranty 1,692 (165)
Other long-term obligations 200 (470)
Other, net (4,471) (3,768)
--------- ---------
Net cash provided by operating activities 8,774 37,392
Investing activities
Proceeds from the maturities of investments,
held to maturity 35,000 -
Acquisitions of property, plant and equipment (8,622) (6,251)
Business acquisitions, net of cash and cash
equivalents acquired (149) -
Deferred pre-acquisition costs (5,821) -
Other, net 85 295
--------- ---------
Net cash provided by (used in) investing
activities 20,493 (5,956)
Financing activities
Payments on debt - (34,885)
Issuance of common stock 229,588 6,192
Excess tax benefits from stock-based
compensation 1,611 4,280
--------- ---------
Net cash provided by (used in) financing
activities 231,199 (24,413)
Increase in cash and cash equivalents 260,466 7,023
Cash and cash equivalents at beginning of period 361,405 33,638
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Cash and cash equivalents at end of period $621,871 $ 40,661
--------- ---------
Itron, Inc.
About Non-GAAP Financial Measures
The accompanying press release dated May 2, 2007 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 income, non-GAAP net income and
EPS and EBITDA. 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" information following.
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. 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 in-process research and
development or purchase accounting adjustments. 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. These non-GAAP financial measures also facilitate management's internal
comparisons to our historical performance and ability to service debt as well as
comparisons to our competitor's operating results. We believe these non-GAAP
financial measures are useful to investors because they allow for 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 help them analyze the health of our
business.
Non-GAAP operating income -- We define non-GAAP operating income as
operating income minus amortization of intangible expenses. We consider this
non-GAAP financial measure to be a useful metric for management and investors
because it excludes the effects of expenses that are related to previous
acquisitions. By excluding these expenses we believe that it is easier for
management and investors to compare our financial results over multiple periods.
We believe that excluding amortization of intangible assets enables management
and investors to analyze trends in our operations. For example, expenses related
to amortization of intangible assets has been decreasing, which is improving
GAAP operating margins, yet the improvement in GAAP operating margins due to
this lower expense is not reflective of an improvement in our core business.
There are some limitations related to the use of non-GAAP operating income
versus operating income calculated in accordance with GAAP. Non-GAAP operating
income excludes some costs that are recurring. Additionally, the expenses that
we exclude in our calculation of 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
income and evaluating non-GAAP operating income together with GAAP operating
income.
Non-GAAP net income and non-GAAP EPS -- We define non-GAAP net income as
net income minus the expenses associated with amortization of intangible assets
and amortization of debt fees as well as the tax effects of each item. We define
non-GAAP EPS as non-GAAP net income divided by the weighted average shares, on a
fully diluted basis, outstanding as of the end of each period. We consider these
financial measures to be a useful metric 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 EPS. We compensate for these limitations by
providing specific information regarding the GAAP amounts excluded from non-GAAP
net income and non-GAAP EPS and evaluating non-GAAP net income and non-GAAP EPS
together with GAAP net income and EPS.
EBITDA -- We define EBITDA as net income minus interest income, plus
interest expense, tax expense and depreciation and amortization expenses. We
feel that providing this financial measure is important for management and
investors to understand our ability to service our debt and is a measure of the
cash generated by our core business. Management uses EBITDA as a performance
measure for executive compensation. A limitation to using 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 expenses that we exclude in our calculation of EBITDA may
differ from the expenses that our peer companies exclude when they report the
results. Management compensates for this limitation by providing a
reconciliation of this measure to GAAP net income.
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 MOST DIRECTLY COMPARABLE GAAP FINANCIAL MEASURES
(Unaudited, in thousands, except per share data)
Three Months
Ended March 31,
-----------------
2007 2006
-------- --------
Non-GAAP Operating Income:
GAAP operating income $ 9,300 $18,988
Amortization of intangible assets 7,040 7,313
-------- --------
Non-GAAP operating income $16,340 $26,301
-------- --------
Non-GAAP Net Income:
GAAP net income $ 7,180 $ 7,069
Amortization of intangible assets 7,040 7,313
Amortization of debt placement fees 742 2,735
Income tax effect of non-GAAP adjustments (2,975) (3,898)
-------- --------
Non-GAAP net income $11,987 $13,219
-------- --------
-------- --------
Non-GAAP diluted EPS $ 0.43 $ 0.51
-------- --------
Shares used in diluted EPS 27,980 26,071
-------- --------
EBITDA:
GAAP net income $ 7,180 $ 7,069
Interest income (6,089) (362)
Interest expense 5,497 5,746
Income tax provision 4,220 6,087
Depreciation and amortization 11,460 10,938
-------- --------
EBITDA $22,268 $29,478
-------- --------
See "About non-GAAP Financial Measures" immediately preceding this
table for information on these measures, the items excluded from the
most directly comparable GAAP measures in arriving at non-GAAP
financial measures and the reasons that management uses each measure
and excludes the specified amounts in arriving at each non-GAAP
financial measure.
CONTACT: Itron, Inc.
Deloris Duquette, 509-891-3523
Vice President,
Investor Relations and Corporate Communications
deloris.duquette@itron.com
www.itron.com