Itron Announces Fourth Quarter and Full Year 2017 Financial Results
Fourth Quarter Revenue Increased 11 Percent Driven by Strength in Smart Solutions
LIBERTY LAKE, Wash.—(BUSINESS WIRE)—Feb. 28, 2018—Itron, Inc. (NASDAQ:ITRI) announced today financial results for its fourth quarter and full year ended Dec. 31, 2017. Highlights for the quarter and full year include:
"Our fourth quarter results reflect strong execution of our strategy as we delivered year-over-year growth in revenue and non-GAAP earnings per share," said Philip Mezey, Itron president and chief executive officer. "The progress we made in the quarter and throughout 2017 provides a solid foundation for 2018 as we optimize our operations and integrate Silver Spring Networks. The integration is progressing as planned with active collaboration across our team, a powerful sense of our shared mission and values and positive support from customers and partners."
Summary of Fourth Quarter Consolidated Financial Results
(All comparisons made are against the prior year period unless otherwise noted)
Revenue
Total revenue of $551 million increased 11 percent, or 8 percent excluding the impact of changes in foreign currency exchange rates, compared with the fourth quarter of 2016, driven by strong smart solution business and managed services.
By segment, Electricity revenue increased 20 percent driven by higher smart solution deliveries primarily in North America and Europe, Middle East and Africa (EMEA) regions. Gas and Water revenue increased 2 percent and 3 percent, respectively, primarily due to a favorable impact from changes in foreign currency exchange rates.
Gross Margin
Consolidated gross margin of 31.7 percent increased 10 basis points compared with the fourth quarter of 2016, driven by higher volume and mix of smart solutions primarily in the Electricity segment, offsetting lower gross margins in the Gas and Water segments.
Operating Income, Net Income and Earnings per Share (EPS)
GAAP operating income increased to $47 million compared with $31 million in the fourth quarter of 2016. Non-GAAP operating income increased to $55 million compared with $45 million in 2016. GAAP and non-GAAP operating income improved due to increased revenue at a higher gross margin, offsetting modest increases in operating expenses to support new solutions.
GAAP net income attributable to Itron for the quarter was $2 million, or $0.05 per diluted share, compared with net income of $12 million, or $0.30 per diluted share, in 2016. The lower GAAP net income and EPS were due to a charge of $30 million, or $0.77 per share, to recognize estimated impacts on the company's deferred tax assets due to the enactment of the Tax Act.
Non-GAAP net income of $40 million, or $1.01 per diluted share, increased compared with $26 million, or $0.68 per diluted share, in 2016. The increase reflects higher non-GAAP operating income and lower tax expense related to tax audit settlements, adjustments to valuation allowances and the timing and mix of taxable income by jurisdiction. Non-GAAP amounts exclude the charge related to the Tax Act.
Cash Flow
In the fourth quarter, cash provided by operating activities of $77 million and free cash flow of $61 million increased $43 million and $40 million, respectively, compared with the fourth quarter of 2016. Full-year 2017 cash provided by operating activities of $191 million and free cash flow of $142 million increased $76 million and $70 million, respectively, from the prior year. These cash flow increases were primarily driven by improved profitability and changes in working capital.
Other Measures
Bookings of $811 million increased 24 percent compared with the fourth quarter of 2016. Total backlog was $1.8 billion and 12-month backlog was $931 million at the end of the quarter, a year-over-year increase of 6 percent and 22 percent, respectively.
Operational Update
On Feb. 22, 2018, the board of directors approved a new restructuring plan to continue efforts to optimize our global supply chain, manufacturing operations and product development, sales and marketing Organizations. Estimated pre-tax restructuring charges are between $100 and $110 million, the majority of which will be recognized in the first quarter of 2018. The projects under this plan are anticipated to result in approximately $45 to $50 million of annualized savings upon completion. The Company expects to substantially complete projects under this plan by the end of 2020.
Many of our employees are represented by unions or works councils, which requires consultation, and potential restructuring projects may be subject to regulatory approval, both of which could impact the timing of planned savings in certain jurisdictions.
Financial Guidance Update
Itron's guidance for the full year 2018 is as follows:
Itron's guidance for the first quarter of 2018 is as follows:
Guidance assumes an average euro to U.S. dollar foreign currency exchange rate of $1.21 in 2018, diluted weighted average shares outstanding of approximately 40 million for the year, a non-GAAP effective tax rate for the year of approximately 28 percent and total interest expense of approximately $50 million. Operating profitability and Non-GAAP EPS is expected to be weighted to the second half of the year.
The company also confirmed its expectations that the acquisition of Silver Spring Networks will be accretive to gross margin in 2018 and will be accretive to non-GAAP EPS and adjusted EBITDA in 2019.
These assumptions are forward-looking and reflect the estimated impacts of purchase accounting for the acquisition of Silver Spring Networks, adoption of the new revenue accounting standard and the Tax Act on our financial results and are subject to change.
A reconciliation of forward-looking non-GAAP diluted EPS to the GAAP diluted EPS has not been provided because we are unable to predict with reasonable certainty the potential amount or timing of restructuring and acquisition and integration related expenses and their related tax effects without unreasonable effort. These items are uncertain, depend on various factors and could have a material impact on GAAP results for the guidance period.
Earnings Conference Call
Itron will host a conference call to discuss the financial results and guidance contained in this release at 5:00 p.m. EDT on Feb. 28, 2018. 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 investors.itron.com. A replay of the audio webcast will be made available at investors.itron.com. A telephone replay of the conference call will be available through Mar. 5, 2018. To access the telephone replay, dial (888) 203-1112 (domestic) or (719) 457-0820 (international) and enter passcode 3052187.
Forward Looking Statements
This release contains forward-looking statements within in the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our expectations about revenues, operations, financial performance, earnings, earnings per share and cash flows. Although we believe the estimates and assumptions upon which these forward-looking statements are based are reasonable, any of these estimates or assumptions could prove to be inaccurate and the forward-looking statements based on these estimates and assumptions could be incorrect. Our operations involve risks and uncertainties, many of which are outside our control, and any one of which, or a combination of which, could materially affect our results of operations and whether the forward-looking statements ultimately prove to be correct. Actual results and trends in the future may differ materially from those suggested or implied by the forward-looking statements depending on a variety of factors. Some of the factors that we believe could affect our results include our ability to achieve estimated cost savings, the rate and timing of customer demand for our products, rescheduling of current customer orders, changes in estimated liabilities for product warranties, adverse impacts of litigation, 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 Dec. 31, 2016 and other reports on file with the Securities and Exchange Commission. Itron undertakes no obligation to update or revise any information in this press release.
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, adjusted EBITDA margin, constant currency 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. We exclude certain costs in our non-GAAP financial measures as we believe the net result is a measure of our core business. The company believes these measures facilitate operating performance comparisons from period to period by eliminating potential differences caused by the existence and timing of certain expense items that would not otherwise be apparent on a GAAP basis. 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.
Related Documents
Itron Q4 2017 Earnings Statement.
- Quarterly and full year revenue of $551 million and $2.0 billion;
- Quarterly and full year gross margin of 31.7 percent and 33.5 percent;
- Quarterly and full year GAAP net income of $2 million and $57 million, which include a charge of $30 million associated with the Tax Cut and Jobs Act ("Tax Act");
- Quarterly and full year GAAP diluted earnings per share of $0.05 and $1.45, which include the impact of $0.77 per share associated with the Tax Act; and
- Quarterly and full year non-GAAP diluted earnings per share of $1.01 and $3.06, which exclude the charge associated with the Tax Act.
- The acquisition of Silver Spring Networks closed on Jan. 5, 2018 and will operate and report as a new Itron Networks segment.
"Our fourth quarter results reflect strong execution of our strategy as we delivered year-over-year growth in revenue and non-GAAP earnings per share," said Philip Mezey, Itron president and chief executive officer. "The progress we made in the quarter and throughout 2017 provides a solid foundation for 2018 as we optimize our operations and integrate Silver Spring Networks. The integration is progressing as planned with active collaboration across our team, a powerful sense of our shared mission and values and positive support from customers and partners."
Summary of Fourth Quarter Consolidated Financial Results
(All comparisons made are against the prior year period unless otherwise noted)
Revenue
Total revenue of $551 million increased 11 percent, or 8 percent excluding the impact of changes in foreign currency exchange rates, compared with the fourth quarter of 2016, driven by strong smart solution business and managed services.
By segment, Electricity revenue increased 20 percent driven by higher smart solution deliveries primarily in North America and Europe, Middle East and Africa (EMEA) regions. Gas and Water revenue increased 2 percent and 3 percent, respectively, primarily due to a favorable impact from changes in foreign currency exchange rates.
Gross Margin
Consolidated gross margin of 31.7 percent increased 10 basis points compared with the fourth quarter of 2016, driven by higher volume and mix of smart solutions primarily in the Electricity segment, offsetting lower gross margins in the Gas and Water segments.
Operating Income, Net Income and Earnings per Share (EPS)
GAAP operating income increased to $47 million compared with $31 million in the fourth quarter of 2016. Non-GAAP operating income increased to $55 million compared with $45 million in 2016. GAAP and non-GAAP operating income improved due to increased revenue at a higher gross margin, offsetting modest increases in operating expenses to support new solutions.
GAAP net income attributable to Itron for the quarter was $2 million, or $0.05 per diluted share, compared with net income of $12 million, or $0.30 per diluted share, in 2016. The lower GAAP net income and EPS were due to a charge of $30 million, or $0.77 per share, to recognize estimated impacts on the company's deferred tax assets due to the enactment of the Tax Act.
Non-GAAP net income of $40 million, or $1.01 per diluted share, increased compared with $26 million, or $0.68 per diluted share, in 2016. The increase reflects higher non-GAAP operating income and lower tax expense related to tax audit settlements, adjustments to valuation allowances and the timing and mix of taxable income by jurisdiction. Non-GAAP amounts exclude the charge related to the Tax Act.
Cash Flow
In the fourth quarter, cash provided by operating activities of $77 million and free cash flow of $61 million increased $43 million and $40 million, respectively, compared with the fourth quarter of 2016. Full-year 2017 cash provided by operating activities of $191 million and free cash flow of $142 million increased $76 million and $70 million, respectively, from the prior year. These cash flow increases were primarily driven by improved profitability and changes in working capital.
Other Measures
Bookings of $811 million increased 24 percent compared with the fourth quarter of 2016. Total backlog was $1.8 billion and 12-month backlog was $931 million at the end of the quarter, a year-over-year increase of 6 percent and 22 percent, respectively.
Operational Update
On Feb. 22, 2018, the board of directors approved a new restructuring plan to continue efforts to optimize our global supply chain, manufacturing operations and product development, sales and marketing Organizations. Estimated pre-tax restructuring charges are between $100 and $110 million, the majority of which will be recognized in the first quarter of 2018. The projects under this plan are anticipated to result in approximately $45 to $50 million of annualized savings upon completion. The Company expects to substantially complete projects under this plan by the end of 2020.
Many of our employees are represented by unions or works councils, which requires consultation, and potential restructuring projects may be subject to regulatory approval, both of which could impact the timing of planned savings in certain jurisdictions.
Financial Guidance Update
Itron's guidance for the full year 2018 is as follows:
- Revenue between $2.33 and $2.43 billion
- Non-GAAP diluted EPS between $2.95 and $3.35
Itron's guidance for the first quarter of 2018 is as follows:
- Revenue between $575 and $600 million
- Non-GAAP diluted EPS between $0.10 and $0.15
Guidance assumes an average euro to U.S. dollar foreign currency exchange rate of $1.21 in 2018, diluted weighted average shares outstanding of approximately 40 million for the year, a non-GAAP effective tax rate for the year of approximately 28 percent and total interest expense of approximately $50 million. Operating profitability and Non-GAAP EPS is expected to be weighted to the second half of the year.
The company also confirmed its expectations that the acquisition of Silver Spring Networks will be accretive to gross margin in 2018 and will be accretive to non-GAAP EPS and adjusted EBITDA in 2019.
These assumptions are forward-looking and reflect the estimated impacts of purchase accounting for the acquisition of Silver Spring Networks, adoption of the new revenue accounting standard and the Tax Act on our financial results and are subject to change.
A reconciliation of forward-looking non-GAAP diluted EPS to the GAAP diluted EPS has not been provided because we are unable to predict with reasonable certainty the potential amount or timing of restructuring and acquisition and integration related expenses and their related tax effects without unreasonable effort. These items are uncertain, depend on various factors and could have a material impact on GAAP results for the guidance period.
Earnings Conference Call
Itron will host a conference call to discuss the financial results and guidance contained in this release at 5:00 p.m. EDT on Feb. 28, 2018. 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 investors.itron.com. A replay of the audio webcast will be made available at investors.itron.com. A telephone replay of the conference call will be available through Mar. 5, 2018. To access the telephone replay, dial (888) 203-1112 (domestic) or (719) 457-0820 (international) and enter passcode 3052187.
Forward Looking Statements
This release contains forward-looking statements within in the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our expectations about revenues, operations, financial performance, earnings, earnings per share and cash flows. Although we believe the estimates and assumptions upon which these forward-looking statements are based are reasonable, any of these estimates or assumptions could prove to be inaccurate and the forward-looking statements based on these estimates and assumptions could be incorrect. Our operations involve risks and uncertainties, many of which are outside our control, and any one of which, or a combination of which, could materially affect our results of operations and whether the forward-looking statements ultimately prove to be correct. Actual results and trends in the future may differ materially from those suggested or implied by the forward-looking statements depending on a variety of factors. Some of the factors that we believe could affect our results include our ability to achieve estimated cost savings, the rate and timing of customer demand for our products, rescheduling of current customer orders, changes in estimated liabilities for product warranties, adverse impacts of litigation, 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 Dec. 31, 2016 and other reports on file with the Securities and Exchange Commission. Itron undertakes no obligation to update or revise any information in this press release.
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, adjusted EBITDA margin, constant currency 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. We exclude certain costs in our non-GAAP financial measures as we believe the net result is a measure of our core business. The company believes these measures facilitate operating performance comparisons from period to period by eliminating potential differences caused by the existence and timing of certain expense items that would not otherwise be apparent on a GAAP basis. 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.
Related Documents
Itron Q4 2017 Earnings Statement.
About Itron
Itron is a proven global leader in energy, water, smart city, IIoT and intelligent infrastructure services. For utilities, cities and society, we build innovative systems, create new efficiencies, connect communities, encourage conservation and increase resourcefulness. By safeguarding our invaluable natural resources today and tomorrow, we improve the quality of life for people around the world. Join us: www.itron.com.
Itron® is a registered trademark of Itron, Inc. All third-party trademarks are property of their respective owners and any usage herein does not suggest or imply any relationship between Itron and the third party unless expressly stated.