Itron Announces First Quarter 2011 Results

LIBERTY LAKE, WA.—April 27, 2011—Itron, Inc. (NASDAQ:ITRI) today reported financial results for its first quarter ended March 31, 2011. Highlights include:

•Quarterly revenues of $564 million;
•Quarterly GAAP diluted EPS of 66 cents;
•Quarterly non-GAAP diluted EPS of 99 cents;
•Quarterly non-GAAP operating income of $66 million;
•Quarterly non-GAAP operating margin of 11.7%;
•Quarterly bookings of $681 million; and
•Record total backlog of $1.75 billion and twelve-month backlog of $989 million.

"We had a great start to the year driven by the continued global success of our advanced solutions for electric, gas and water utilities," said Malcolm Unsworth, president and CEO. "We ended the quarter with a record backlog of $1.75 billion as a result of very strong bookings, and also improved our operating margin. And we are implementing a new global reorganization to position ourselves to aggressively grow our business and profitability going forward."

Operations Highlights:

Revenues increased $66 million, or 13.3%, for the quarter compared to the same period in 2010. North America revenues increased $35.4 million, or 14.7%, over the prior year period primarily due to higher shipments of OpenWay meters and modules. Approximately 1.1 million OpenWay units were shipped in the quarter. International revenues increased $30.6 million, or 12.0%, over the prior year period primarily due to increased gas and water advanced metering projects. International's first quarter revenue included a $3 million favorable effect from foreign currency exchange rates.

Bookings for the quarter included $268 million for a contract with BC Hydro for an end-to-end Itron smart metering solution including OpenWay meters, radio frequency (RF) mesh network with network concentrators, data collection engine and meter data management software.

Gross margin for the quarter was 32.7% which was 1.1% higher than the prior year period due primarily to OpenWay systems in North America. Despite higher material costs, International maintained its gross margin due to a more favorable product mix. Gross margin was also impacted by both a warranty charge of $7.7 million related to product in Brazil and an $8.6 million gain resulting from the recovery of a separate warranty claim.

Non-GAAP operating income for the first quarter increased $16.3 million, or 33%, over the same 2010 period primarily due to increased revenue and gross margin. Operating expenses, excluding amortization of intangibles, were $118.4 million, or 21.0% of revenue, for the quarter compared to $107.6 million, or 21.6% of revenue, in the prior year. The increase was due primarily to increased marketing activity as well as continued investment in research and development for new and enhanced products.

Net income for the first quarter was $27.1 million, or 66 cents per share, compared with net income of $25.3 million, or 62 cents per share in the same period in 2010. Tax expense for the first quarter increased over $18 million as compared with the same period in 2010. The first quarter of 2011 included minimal discrete tax benefits compared with 2010 which included approximately $11 million, or 26 cents, of discrete tax benefits. Despite the increase in tax expense, net income increased over the prior year period primarily due to higher operating income in our North America segment.

Free cash flow for the first quarter decreased $25 million compared with the same period in 2010 primarily due to increased incentive plan compensation payments. During the first quarter of 2011, we made over $50 million in debt repayments.

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 costs, particularly those associated with acquisitions. We exclude certain infrequent costs, particularly those associated with acquisitions, 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. 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.