Itron Announces Second Quarter Financial Results (See press release dated February 16, 2011 regarding restatement)

LIBERTY LAKE, WA. — July 28, 2010 — Itron, Inc. (NASDAQ:ITRI) today reported financial results for its second quarter and six months ended June 30, 2010. Highlights include:

• Record quarterly and six month revenues of $569 million and $1.1 billion;
• Quarterly and six month non-GAAP diluted EPS of 98 cents and $1.99;
• Six month cash flow from operations and free cash flow of $117 million and $89 million;
• Quarterly and six-month adjusted EBITDA of $84 and $150 million;
• Record twelve-month backlog of $1.0 billion and total backlog of $1.7 billion; and
• Quarterly bookings of $806 million.

"We are having a fantastic year with record financial results, strong bookings and record backlog," said Malcolm Unsworth, president and CEO. "This performance underscores the strength of Itron's portfolio of products and solutions — the broadest in the industry. At the same time, there were some disappointments with recent contract awards in North America. As we look forward, we are actively pursuing a variety of activities to enhance our competitive position in these areas."

Operations Highlights:

Total Company – Total revenues of $569 million for the second quarter of 2010 and $1.1 billion for the first six months of 2010 were 38% and 33% higher than respective 2009 revenues of $414 and $802 million.

North America – Revenues of $303 million for the second quarter and $546 million for the first six months of 2010 were 112% and 94% higher than respective 2009 revenues of $143 million and $282 million. The increase in revenues in 2010 was primarily driven by higher shipments of OpenWay meters and modules. During the second quarter of 2010, we shipped 1.2 million OpenWay units.

International – Revenues of $266 million for the second quarter of 2010 were $5 million, or 2%, lower than the comparable 2009 period revenues of $271 million. The decrease in revenues was due to foreign exchange rates. Revenues of $522 million for the first half of 2010 were $3 million higher than the same period in 2009 due to favorable foreign exchange rates modestly offset by a slowdown due to economic conditions in certain markets.

Gross Margins:

Total Company – Gross margins of 31.0% for the second quarter and 31.4% for the first six months of 2010 were lower than 2009 gross margins of 32.2% and 32.7%.

North America – Gross margins of 34.0% for the quarter and 33.5% for the six months of 2010 were lower than the 2009 gross margins of 34.9% and 36.2%. The decline in gross margins was primarily due to increased shipments of our higher cost first generation OpenWay meters and increased service revenues, which have lower margin. In addition, compensation costs were higher due to reinstating annual incentive plans in 2010.

International – Gross margins of 27.5% for the quarter and 29.1% for the first six months of 2010 were lower than 2009 gross margins of 30.7% and 30.9%. The decrease in margins was due to increased warranty expense.

Operating Expenses:

Total Company – Operating expenses of $124 million for the second quarter and $249 million for the first six months of 2010 were slightly higher than the 2009 periods of $121 million and $242 million.

North America – Operating expenses were $46 million for the second quarter and $92 million for the first six months of 2010 compared with $44 million and $89 million for the same periods of 2009. The increase in operating expenses was primarily due to expenses in the current period associated with the reinstatement of annual incentive compensation plans in 2010 and higher sales and marketing expense. These increases were somewhat offset by decreased amortization of intangibles expense.

International – Operating expenses for the second quarter 2010 of $68 million were $2 million lower than $70 million in the second quarter 2009. The decrease was due to foreign exchange rates and lower amortization of intangibles, partially offset by higher sales and marketing and general administrative costs. Operating expenses for the first six months of 2010 were $137 million compared with $138 million for the same period of 2009. Decreases in operating expenses were due to decreased amortization of intangibles expense partially offset by increases from foreign exchange rates and higher sales and marketing and general administrative expenses.

Corporate Unallocated – Corporate unallocated expenses were $10 million for the second quarter and $21 million for the first six months of 2010 compared with $7 million and $16 million in the same periods of 2009. The increase in 2010 was primarily due to higher compensation expense.

Other Income/Expense:

Net Interest Expense – Net interest expense of $14 million for the second quarter and $29 million for the first six months of 2010 compared with $16 million and $32 million for the same periods of 2009. Amortization of debt placement fees, which is included in net interest expense, was $1.5 million for the second quarter and $2.7 million for the first six months of 2010 compared with $374,000 and $2.2 million in the respective 2009 periods. Amortization of debt placement fees varies depending on the amount of debt repayments made in a given period. During the first half of 2010, we made approximately $74 million in debt repayments compared with $70 million in the same period of 2009.

Loss on Extinguishment of Debt – The first six months of 2009 included a $10.3 million net loss on the extinguishment of debt related to a convertible debt for common stock exchange. The difference in the value of the shares of Itron's common stock issued under the exchange agreement and the value of the shares used to derive the amount payable under the original conversion agreement resulted in the net loss on extinguishment of debt.

Other Income/Expense – Other expense was $425,000 in the second quarter of 2010 compared with $2.9 million in 2009. Other expense for the first six months of 2010 was $1.0 million compared with $4.9 million in the 2009 period. The 2010 periods include a foreign exchange gain, compared with a loss in the 2009 periods, caused by fluctuations in exchange rates for material purchases and related product sales denominated in different currencies. Additionally, the 2009 periods included consulting and legal fees associated with an amendment to our senior debt agreement.

GAAP Measures:

GAAP Income Taxes – We had a tax expense of $11.1 million in the second quarter of 2010 compared with a benefit of $22.4 million in the second quarter of 2009. For the first six months of 2010, we had a tax expense of $2.4 million compared with a benefit of $22.4 million in the same period of 2009. The tax provision reflected in the first six months of 2010 is derived from our estimated tax rate for the full year.

GAAP Net Income and Diluted EPS – Our GAAP net income and diluted EPS for the second quarter and first six months of 2010 was $26.9 million, or 65 cents per share, and $53.7 million, or $1.31 per share. This compares with net income of $15.3 million, or 40 cents per share, and a net loss of $4.4 million, or 12 cents in the same periods in 2009. The increase in 2010 net income was primarily due to higher operating income in our North America segment.

Non-GAAP Measures:

Non-GAAP Operating Income – Non-GAAP operating income, which excludes amortization expense related to intangible assets, was $69 million, or 12.1% of revenues, in the second quarter and $120 million, or 11.3% of revenues, for the first six months of 2010. This compares with $36 million, or 8.7% of revenues, and $68.3 million, or 8.5% of revenues, in the second quarter and first six months of 2009. The increased operating income was primarily due to increased contribution from North America.

Non-GAAP Income Taxes – We had a non-GAAP tax rate of 31.1% in the second quarter and 16.8% for the first six months of 2010 compared with 6.3% and 18.7% in the same periods of 2009. The tax provision reflected in the first six months of 2010 is derived from our estimated non-GAAP tax rate for the full year.

Non-GAAP Net Income and Diluted EPS – Non-GAAP net income, which excludes amortization expenses related to intangible assets, amortization of debt placement fees, the amortization of convertible debt discount, and the non-cash net loss associated with the convertible debt for stock exchange, was $40.4 million in the second quarter and $81.7 million for the first six months of 2010. This compares with $18.6 million and $30.8 million in the 2009 periods. Non-GAAP diluted EPS was 98 cents and $1.99 in the second quarter and first six months of 2010 compared with 49 cents and 82 cents in the same periods of 2009. Fully diluted shares outstanding were 3.0 million and 3.7 million shares higher than the same periods in 2009 primarily due to the convertible debt for stock exchange in the first quarter of 2009 and the equity offering in the second quarter of 2009.

Other Financial Highlights:

Backlog and New Order Bookings: Total backlog was $1.7 billion at June 30, 2010 compared with $1.6 billion at June 30, 2009. Twelve month backlog of $1.0 billion at June 30, 2010 was higher than the $646 million at June 30, 2009 due to the inclusion of a substantial amount of OpenWay contract shipments in the current twelve month backlog. New order bookings for the second quarter of 2010 were $806 million, compared with $427 million in the second quarter of 2009. New order bookings in the second quarter of 2010 included $339 million related to our OpenWay contract with Detroit Edison while the second quarter of 2009 did not include any significant OpenWay contract bookings. Our book-to-bill ratios were 1.4 to 1 and 1.0 to 1 for the second quarter of 2010 and 2009, respectively.

Cash Flows from Operations and Financial Condition: Net cash provided by operating activities during the first six months of 2010 was $117 million, compared with $67 million in the same period in 2009. Adjusted earnings before interest, taxes, depreciation, amortization and the non-cash net loss on the extinguishment of debt (adjusted EBITDA) in the second quarter of 2010 was $84 million compared with $47 million for the same period in 2009. Adjusted EBITDA for the first six months of 2010 was $150 million compared with $90 million in the first six months of 2009. Free cash flow for the first six months of 2010 was $89 million compared with $40 million in the same period in 2009. Cash and equivalents were $137 million at June 30, 2010 compared with $122 million at December 31, 2009.

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, 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 costs, particularly those associated with acquisitions. We exclude these expenses in our non-GAAP financial measures as we believe the net result is 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 2:00 p.m. (PDT) on July 28, 2010. The call will be webcast in a listen only mode and can be accessed online atwww.itron.com, "Investors/Investor Events". The live webcast will begin at 2:00 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 #6492029. You may also view presentation materials related to the earnings call on Itron's website atwww.itron.com under Investors / Presentations.