Itron Announces Second Quarter 2014 Financial Results

LIBERTY LAKE, Wash. — Aug. 5, 2014 — Itron, Inc. (NASDAQ:ITRI) announced today financial results for its second quarter and six months ended June 30, 2014. Highlights for the quarter include:

• Quarterly revenues of $489 million, an increase of 1.5 percent over the prior year;
• Quarterly GAAP diluted earnings per share of 49 cents, an increase of 18 cents over the prior year;
• Quarterly non GAAP diluted earnings per share of 54 cents, a decrease of 4 cents from the prior year;
• Quarterly adjusted EBITDA of $47 million, an increase of 6 percent over the prior year;
• Twelve month backlog of $675 million and total backlog of $1.3 billion; and
• Quarterly bookings of $478 million.

"Our strong second quarter results were driven by double-digit revenue growth and solid execution in our gas and water segments," said Philip Mezey, Itron's president and chief executive officer. "This was our third consecutive quarter of year over year growth in both revenue and adjusted EBITDA, reflecting our continued focus on delivering innovative technology and services to our customers while streamlining our operations. I am encouraged by our performance in the first half of 2014 and we have increased our financial guidance for the full year. In addition, we are making progress on the performance improvement plans for the electricity segment which will be a key driver of long-term company profitability."

Financial Results

Revenues were $489 million for the quarter and $964 million for the first six months of 2014 compared with $482 million and $930 million for the same periods in 2013. Changes in foreign currency exchange rates favorably impacted revenues by approximately $1 million for the quarter and unfavorably impacted the first six months by $3 million. Excluding the impact from foreign currency, revenues increased $6 million, or 1.3 percent, for the quarter and $38 million, or 4 percent, for the six month period compared with the same periods in 2013. The increases for the quarter and six month period were driven by growth in the Water and Gas segments, which more than offset a decrease in the Electricity segment.

Gross margin for the quarter was 33.3 percent compared with the prior year period margin of 33.1 percent. For the first six months of 2014, gross margin was 32.9 percent compared with 32.2 percent in the prior year period. The improved gross margin for both the quarter and six month period was driven by the higher relative contribution from the Water and Gas segments, which have higher gross margins than the Electricity segment.

GAAP operating expenses were $131 million in the quarter compared with $142 million in the same period last year. The decrease was driven by lower restructuring expenses and reduced headcount, offset by increased variable compensation and intangible asset amortization. GAAP operating expenses for the first six months of 2014 were $281 million compared with $279 million in the 2013 period. The increase in operating expenses for the six month period was driven by increased intangible asset amortization expense, and higher general and administrative costs related to professional fees and compensation, partially offset by lower restructuring expenses and the impact of reduced headcount.

GAAP operating income for the quarter was $32 million compared with $18 million in the same period last year. The increase was driven by higher revenues and lower operating expenses. GAAP net income and diluted EPS for the quarter were $19.3 million, or 49 cents per share, compared with $12 million, or 31 cents per share, in the same period in 2013. The increase in GAAP net income for the quarter was driven by higher operating income, partially offset by a higher effective tax rate. Both the GAAP and non-GAAP estimated tax rate for full year 2014 has increased compared with 2013 due to the expiration of a research and development credit in the U.S. that has not yet been reinstated for the year, and the need for a valuation allowance on certain deferred tax assets.

GAAP operating income for the first six months of 2014 was $36 million compared with $20 million in the prior year period. The increase was driven by higher revenues and gross profit. GAAP net income and diluted earnings per share for the six month period were $19.0 million, or 48 cents per share, compared with net income of $15 million, or 38 cents per share, in the same period last year. The increase in GAAP net income was driven by higher operating income, partially offset by higher net interest expense, higher foreign exchange losses due to the devaluation of currencies in certain markets and a higher effective tax rate.

Non-GAAP operating expenses for the quarter, which excludes amortization of intangibles, restructuring charges, acquisition related expenses and goodwill impairment, were $128 million which is consistent with the prior year period. Increased variable compensation expense in the quarter was offset by the impact of reduced headcount and lower professional fees, litigation and other reserves. For the first six months of 2014, non-GAAP operating expenses were $260 million compared with $253 million in the prior year period. The increase was driven by higher general and administrative costs associated with professional fees and compensation, which were partially offset by the impact of lower headcount.

Non-GAAP operating income for the quarter was $35 million compared with $32 million in the same period last year. The increase in non-GAAP operating income was driven by higher revenue. Non-GAAP net income and diluted earnings per share for the quarter were $21 million, or 54 cents per share, compared with $23 million, or 58 cents per share, in the same period in 2013. The decrease in non-GAAP net income and earnings per share was attributable to higher operating income offset by a higher effective tax rate.

Non-GAAP operating income for the first six months of 2014 was $58 million compared with $47 million in the same period in 2013. The increase in non-GAAP operating income was driven by higher revenue and gross profit. Non-GAAP net income and diluted earnings per share for the first six months of 2014 were $34 million, or 85 cents per share, compared with $35 million, or 89 cents per share, in the same period in 2013. Non-GAAP net income was impacted by higher net interest expense, higher foreign exchange losses due to the devaluation of currencies in certain markets and a higher effective tax rate in 2014.

Free cash flow for the quarter was negative $10 million compared with positive $4 million in the second quarter of 2013. Free cash flow in the quarter was impacted by increased working capital primarily related to the timing of accounts receivable and accounts payable transactions, offsetting lower capital expenditures. During the first six months of 2014, free cash flow was $47.8 million, an improvement of nearly $58 million over 2013 due to higher profits, better relative working capital metrics and lower levels of capital expenditures.

The company repurchased 107,477 shares of common stock during the quarter at an average price of $39.23 per share pursuant to Board authorization to repurchase up to $50 million of Itron common stock over a 12-month period beginning March 2014.

Financial Guidance

Itron's guidance for the full-year 2014 is as follows:

• Revenue between $1.9 and $1.975 billion
• Non-GAAP diluted earnings per share between $1.50 and $1.80

The company's guidance for the year assumes a gross margin of approximately 31 to 32 percent, a non-GAAP effective tax rate of approximately 33 to 34 percent, average shares outstanding of approximately 39.5 million, and an average Euro to U.S. dollar exchange rate of $1.36.

Earnings Conference Call

Itron will host a conference call to discuss the financial results contained in this release at 5:00 p.m. Eastern Daylight Time (EDT) on Aug. 5, 2014. 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 are accessible on Itron's website at http://investors.itron.com/events.cfm. The webcast replay will be available within 90 minutes of the conclusion of the live call and will be available for two weeks. A telephone replay of the conference call will be available at 10:00 p.m. EDT on Aug. 5, 2014 through 10:00 p.m. EDT on Aug. 10, 2014. To access the telephone replay, dial (888) 203-1112 (Domestic) or (719) 457-0820 (International) and enter passcode 8607656.

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, 2013 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.


Related Documents:

Itron Q2 2014 Earnings Statement.