Itron Announces Fourth Quarter and Full Year 2015 Financial Results

Itron, Inc. (NASDAQ:ITRI) announced today financial results for its fourth quarter and full year ended December 31, 2015. Highlights include:

• Quarterly and full year revenues of $490 million and $1.9 billion;
• Quarterly and full year GAAP diluted earnings per share of 56 cents and 64 cents;
• Quarterly and full year non-GAAP diluted earnings per share of 76 cents and $1.01;
• Quarterly and full year adjusted EBITDA of $53 million or 11 percent, and $128 million or 7 percent.

“Itron’s fourth quarter results reflect solid operating performance,” said Philip Mezey, Itron’s president and chief executive officer. “Highlights in the quarter included higher shipments of smart meters and modules, strong revenue growth in the Water segment, improved gross margin in Gas, robust bookings in the Electricity and Gas businesses and increased cash flow.”

Mezey added, “Smart grid and smart city momentum is accelerating, creating more opportunity for Itron’s innovative solutions for this industry. Our significant backlog growth, benefits from our restructuring and efficiency projects and our Itron OpenWay Riva™ next generation platform position us well for continued revenue growth and improved profitability in 2016.”

Summary of Fourth Quarter Consolidated Financial Results

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

Revenue

Total revenue for the quarter was $490 million compared with $510 million in 2014. Changes in foreign currency exchange rates unfavorably impacted revenue by approximately $38 million for the quarter. Excluding the impact of foreign currency, revenues increased $19 million, or 4 percent, driven primarily by the Water segment which grew 13 percent on a constant currency basis.

Gross Margin

Gross margin for the quarter increased to 31.7 percent compared with the prior year period margin of 30.3 percent. The improvement in gross margin was driven by decreased variable compensation and improved Gas gross margin.

GAAP Operating Income, Net Income, Earnings per Share

GAAP operating income improved to $35 million for the quarter compared with an operating loss of $49 million in 2014. Net income for the quarter was $21 million, or 56 cents per diluted share, compared with a net loss of $49 million, or $1.25 per share. The increases in operating income and net income for the quarter were driven primarily by a decrease of $52 million in restructuring charges and a decrease of $23 million in variable compensation due to a reduction in planned payout. The results also reflect improved gross margin performance in the Gas business. Tax expense was recognized in the quarter compared with a net tax benefit in the prior year period, largely due to improved income.

Non-GAAP Operating Income, Net Income, Earnings per Share

Non-GAAP operating income improved to $44 million for the quarter compared with $29 million. Non-GAAP net income for the quarter was $29 million, or 76 cents per diluted share, compared with $14 million, or 36 cents per diluted share. The increases in non-GAAP operating and net income for the quarter were driven primarily by lower operating expenses attributable to the reduced variable compensation and higher gross margin performance in the Gas business.

Free Cash Flow

Free cash flow was $43 million for the fourth quarter compared with $4 million in the prior year quarter. The increase over the prior year was driven by improved earnings and working capital.

Other Measures

Bookings in the quarter totaled $822 million. Total backlog was $1.55 billion and twelve month backlog was $833 million at year-end, an increase of 4 percent and 11.5 percent, respectively.

During the quarter, the company repurchased 88,266 shares of Itron common stock at an average price of $34.04 per share pursuant to Board authorization to repurchase up to $50 million of Itron common stock. As of Dec. 31, 2015, the company had repurchased 743,444 shares of Itron common stock at an average price of $33.63 per share since the inception of the plan in February 2015. This plan will conclude on Feb. 19, 2016.

Financial Guidance – Full Year 2016

Itron’s guidance for the full year 2016 is as follows:

• Revenue between $1.85 and $1.95 billion
• Non-GAAP diluted EPS between $1.95 and $2.25

This guidance assumes a Euro to U.S. dollar average exchange rate of $1.10 in 2016, average shares outstanding of approximately 38 million for the year and a non-GAAP effective tax rate for the year of approximately 37 percent.

Earnings Conference Call

Itron will host a conference call to discuss the financial results and guidance contained in this release at 5 p.m. Eastern Time on Feb. 17, 2016. 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 for one year at http://investors.itron.com/events.cfm. A telephone replay of the conference call will be available through Feb. 22, 2016. To access the telephone replay, dial (888) 203-1112 (Domestic) or (719) 457-0820 (International) and enter passcode 297230.

About Itron

Itron is a world-leading technology and services company dedicated to the resourceful use of energy and water. We provide comprehensive solutions that measure, manage and analyze energy and water. Our broad product portfolio includes electricity, gas, water and thermal energy measurement devices and control technology; communications systems; software; as well as managed and consulting services. With thousands of employees supporting nearly 8,000 customers in more than 100 countries, Itron applies knowledge and technology to better manage energy and water resources. Together, we can create a more resourceful world. Join us: www.itron.com.

Itron® is a registered trademark of Itron, Inc.

Forward-Looking Statements

This release contains forward-looking statements concerning our expectations about operations, financial performance, sales, earnings and cash flows. These statements reflect our current plans and expectations and are based on information currently available. The statements rely on a number of assumptions and estimates, which could be inaccurate, and which are subject to risks and uncertainties that could cause our actual results to vary materially from those anticipated. Risks and uncertainties include the rate and timing of customer demand for our products, rescheduling of current customer orders, changes in estimated liabilities for product warranties, changes in laws and regulations, our dependence on new product development and intellectual property, future acquisitions, changes in estimates for stock-based and bonus compensation, increasing volatility in foreign exchange rates, international business risks and other factors that are more fully described in our Annual Report on Form 10-K for the year ended December 31, 2014 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.

Non-GAAP Financial Information

To supplement our consolidated financial statements presented in accordance with GAAP, we use certain non-GAAP financial measures, including non-GAAP operating expense, non-GAAP operating income, non-GAAP net income, non-GAAP diluted EPS, adjusted EBITDA and free cash flow. We provide these non-GAAP financial measures because we believe they provide greater transparency and represent supplemental information used by management in its financial and operational decision making. Specifically, these non-GAAP financial measures are provided to enhance investors’ overall understanding of our current financial performance and our future anticipated performance by excluding infrequent or non-cash costs, particularly those associated with acquisitions. We exclude certain costs in our non-GAAP financial measures as we believe the net result is a measure of our core business. Non-GAAP performance measures should be considered in addition to, and not as a substitute for, results prepared in accordance with GAAP. Our non-GAAP financial measures may be different from those reported by other companies. A more detailed discussion of why we use non-GAAP financial measures, the limitations of using such measures, and reconciliations between non-GAAP and the nearest GAAP financial measures are included in this press release.

Statements of operations, segment information, balance sheets, cash flow statements and reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures follow.

Itron, Inc.

About Non-GAAP Financial Measures

The accompanying press release contains non-GAAP financial measures. To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use certain non-GAAP financial measures, including non-GAAP operating expense, non-GAAP operating income, non-GAAP net income, non-GAAP diluted EPS, adjusted EBITDA and free cash flow. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. For more information on these non-GAAP financial measures, please see the table captioned “Reconciliations of Non-GAAP Financial Measures to Most Directly Comparable GAAP Financial Measures.”

We use these non-GAAP financial measures for financial and operational decision making and as a means for determining executive compensation. Management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our performance and ability to service debt by excluding certain expenses that may not be indicative of our recurring core operating results. These non-GAAP financial measures facilitate management’s internal comparisons to our historical performance as well as comparisons to our competitors’ operating results. Our executive compensation plans exclude non-cash charges related to amortization of intangibles acquired through a business acquisition and non-recurring discrete cash and non-cash charges that are infrequent in nature such as purchase accounting adjustments, restructuring charges or goodwill impairment charges. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting and analyzing future periods. We believe these non-GAAP financial measures are useful to investors because they provide greater transparency with respect to key metrics used by management in its financial and operational decision making and because they are used by our institutional investors and the analyst community to analyze the health of our business.

Non-GAAP operating expense and non-GAAP operating income – We define non-GAAP operating expense as operating expense excluding certain expenses related to the amortization of intangible assets acquired through a business acquisition, restructuring, acquisitions and goodwill impairment. We define non-GAAP operating income as operating income excluding the expenses related to the amortization of intangible assets acquired through a business acquisition, restructuring, acquisitions and goodwill impairment. We consider these non-GAAP financial measures to be useful metrics for management and investors because they exclude the effect of expenses that are related to previous acquisitions and restructurings. By excluding these expenses, we believe that it is easier for management and investors to compare our financial results over multiple periods and analyze trends in our operations. For example, in certain periods expenses related to amortization of intangible assets may decrease, which would improve GAAP operating margins, yet the improvement in GAAP operating margins due to this lower expense is not necessarily reflective of an improvement in our core business. There are some limitations related to the use of non-GAAP operating expense and non-GAAP operating income versus operating expense and operating income calculated in accordance with GAAP. Non-GAAP operating expense and non-GAAP operating income exclude some costs that are recurring. Additionally, the expenses that we exclude in our calculation of non-GAAP operating expense and non-GAAP operating income may differ from the expenses that our peer companies exclude when they report the results of their operations. We compensate for these limitations by providing specific information about the GAAP amounts we have excluded from our non-GAAP operating expense and non-GAAP operating income and evaluating non-GAAP operating expense and non-GAAP operating income together with GAAP operating expense and GAAP operating income.

Non-GAAP net income and non-GAAP diluted EPS – We define non-GAAP net income as net income excluding the expenses associated with amortization of intangible assets acquired through a business acquisition, restructuring, acquisitions, goodwill impairment and amortization of debt placement fees. We define non-GAAP diluted EPS as non-GAAP net income divided by the weighted average shares, on a diluted basis, outstanding during each period. We consider these financial measures to be useful metrics for management and investors for the same reasons that we use non-GAAP operating income. The same limitations described above regarding our use of non-GAAP operating income apply to our use of non-GAAP net income and non-GAAP diluted EPS. We compensate for these limitations by providing specific information regarding the GAAP amounts excluded from these non-GAAP measures and evaluating non-GAAP net income and non-GAAP diluted EPS together with GAAP net income and GAAP diluted EPS.

Adjusted EBITDA – We define adjusted EBITDA as net income (a) minus interest income, (b) plus interest expense, depreciation and amortization of business acquisition related intangible asset expenses, restructuring expense, acquisition related expense, goodwill impairment and (c) exclude the tax expense or benefit. We believe that providing this financial measure is important for management and investors to understand our ability to service our debt as it is a measure of the cash generated by our core business. Management uses adjusted EBITDA as a performance measure for executive compensation. A limitation to using adjusted EBITDA is that it does not represent the total increase or decrease in the cash balance for the period and the measure includes some non-cash items and excludes other non-cash items. Additionally, the items that we exclude in our calculation of adjusted EBITDA may differ from the items that our peer companies exclude when they report their results. We compensate for these limitations by providing a reconciliation of this measure to GAAP net income.

Free cash flow – We define free cash flow as net cash provided by operating activities less cash used for acquisitions of property, plant and equipment. We believe free cash flow provides investors with a relevant measure of liquidity and a useful basis for assessing our ability to fund our operations and repay our debt. The same limitations described above regarding our use of adjusted EBITDA apply to our use of free cash flow. We compensate for these limitations by providing specific information regarding the GAAP amounts and reconciling to free cash flow.

The accompanying tables have more detail on the GAAP financial measures that are most directly comparable to the non-GAAP financial measures and the related reconciliations between these financial measures.

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