Itron Announces Second Quarter 2018 Financial Results
LIBERTY LAKE, Wash.—(BUSINESS WIRE)—Aug. 6, 2018—Itron, Inc. (NASDAQ:ITRI) announced today financial results for its second quarter ended June 30, 2018. Key results for the quarter include:
"The integration of Silver Spring Networks is progressing well; with synergy targets ahead of schedule and a clear convergence road map that enables sales of new solutions across our combined customer base and protects customers' assets," continued Mezey.
"In addition, constraints in the global supply chain are stabilizing. We successfully secured parts supply to deliver on our customer commitments in the second quarter and for the demand we see for the remainder of the year. We are actively working to mitigate the near-term cost impacts while continuing to execute on restructuring initiatives that improve our cost structure. These actions, combined with our strong forward revenue and product mix visibility, will drive increased profitability in the second half of 2018, and sustainable margin enhancement for the future."
Summary of First Quarter Consolidated Financial Results
(All comparisons made are against the prior year period unless otherwise noted)
Revenue
Total revenue of $586 million increased 16 percent in the second quarter. Excluding $74 million from the acquired Networks segment, total revenue increased 2 percent.
Water segment revenue increased 9 percent driven by new North America smart solution projects. Electricity segment revenue was in line with the prior year and Gas revenue decreased 1 percent.
Gross Margin
Consolidated company gross margin of 30 percent decreased from 35 percent in the prior year. Excluding a one-time $8 million insurance recovery in the second quarter of 2017, gross margin decreased 370 basis points. The decline was primarily driven by product mix, supply chain inefficiencies and higher component and commodity costs.
Operating Expenses and Operating Income (loss)
GAAP operating expenses of $156 million and non-GAAP operating expenses of $132 million increased compared with last year, primarily driven by acquired operations. Excluding acquisitions, operating expenses were down year-over-year as the company executed on cost saving initiatives, acquisition synergies and decreased spending, including lower variable compensation.
GAAP operating income was $21 million compared with $38 million in the second quarter of 2017. Non- GAAP operating income was $44 million compared with $54 million in 2017. Operating income was impacted primarily by higher operating expenses from acquired operations.
Net Income and Earnings per Share
Net income attributable to Itron for the quarter was $3 million, or $0.07 per diluted share, compared with net income of $14 million, or 36 cents per diluted share, in 2017. Compared with last year, net income decreased due to lower operating income and an increase of approximately $10 million in interest expense related to acquisition financing.
Non-GAAP net income, which excludes certain charges including restructuring, acquisition and integration-related expenses, and amortization of intangible assets and debt placement fees, was $20 million, or 51 cents per diluted share, compared with $28 million, or 71 cents per diluted share, in 2017. The decrease in non-GAAP net income was due to lower non-GAAP operating income and higher interest expense, partially offset by a lower non-GAAP effective tax rate reflecting benefits from U.S. tax reform net of the timing and mix of taxable income by jurisdiction.
Cash Flow
Net cash provided by operating activities was $41 million in the second quarter compared with $30 million in the same quarter of 2017. Free cash flow was $29 million in the second quarter compared with $17 million in the prior year. Higher cash flow was driven primarily by improvement in working capital.
Other Measures
Total backlog was $3.1 billion and 12 month backlog was $1.4 billion at the end of the quarter, compared with $1.6 billion and $860 million, respectively, in the prior year quarter. Bookings in the quarter totaled $579 million.
Financial Guidance Update
Itron's guidance for the full year 2018 is as follows:
Earnings Conference Call
Itron will host a conference call to discuss the financial results and guidance contained in this release at 5 p.m. EDT on Aug. 6, 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 Aug. 11, 2018. To access the telephone replay, dial 888-203-1112 or 719-457-0820, and enter passcode 6190897.
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, 2017 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 Q2 2018 Earnings Statement.
- Revenue of $586 million, compared with $503 million in the second quarter of 2017;
- Gross margin of 30 percent, compared with 35 percent in the second quarter of 2017;
- GAAP diluted earnings per share (EPS) of 7 cents, compared with 36 cents in the second quarter of 2017;
- Non-GAAP diluted EPS of 51 cents, compared with 71 cents the second quarter of 2017;
- Adjusted EBITDA of $57 million, compared with $60 million in the second quarter of 2017; and
- Total backlog of $3.1 billion, compared with $1.6 billion at the end of the second quarter of 2017.
"The integration of Silver Spring Networks is progressing well; with synergy targets ahead of schedule and a clear convergence road map that enables sales of new solutions across our combined customer base and protects customers' assets," continued Mezey.
"In addition, constraints in the global supply chain are stabilizing. We successfully secured parts supply to deliver on our customer commitments in the second quarter and for the demand we see for the remainder of the year. We are actively working to mitigate the near-term cost impacts while continuing to execute on restructuring initiatives that improve our cost structure. These actions, combined with our strong forward revenue and product mix visibility, will drive increased profitability in the second half of 2018, and sustainable margin enhancement for the future."
Summary of First Quarter Consolidated Financial Results
(All comparisons made are against the prior year period unless otherwise noted)
Revenue
Total revenue of $586 million increased 16 percent in the second quarter. Excluding $74 million from the acquired Networks segment, total revenue increased 2 percent.
Water segment revenue increased 9 percent driven by new North America smart solution projects. Electricity segment revenue was in line with the prior year and Gas revenue decreased 1 percent.
Gross Margin
Consolidated company gross margin of 30 percent decreased from 35 percent in the prior year. Excluding a one-time $8 million insurance recovery in the second quarter of 2017, gross margin decreased 370 basis points. The decline was primarily driven by product mix, supply chain inefficiencies and higher component and commodity costs.
Operating Expenses and Operating Income (loss)
GAAP operating expenses of $156 million and non-GAAP operating expenses of $132 million increased compared with last year, primarily driven by acquired operations. Excluding acquisitions, operating expenses were down year-over-year as the company executed on cost saving initiatives, acquisition synergies and decreased spending, including lower variable compensation.
GAAP operating income was $21 million compared with $38 million in the second quarter of 2017. Non- GAAP operating income was $44 million compared with $54 million in 2017. Operating income was impacted primarily by higher operating expenses from acquired operations.
Net Income and Earnings per Share
Net income attributable to Itron for the quarter was $3 million, or $0.07 per diluted share, compared with net income of $14 million, or 36 cents per diluted share, in 2017. Compared with last year, net income decreased due to lower operating income and an increase of approximately $10 million in interest expense related to acquisition financing.
Non-GAAP net income, which excludes certain charges including restructuring, acquisition and integration-related expenses, and amortization of intangible assets and debt placement fees, was $20 million, or 51 cents per diluted share, compared with $28 million, or 71 cents per diluted share, in 2017. The decrease in non-GAAP net income was due to lower non-GAAP operating income and higher interest expense, partially offset by a lower non-GAAP effective tax rate reflecting benefits from U.S. tax reform net of the timing and mix of taxable income by jurisdiction.
Cash Flow
Net cash provided by operating activities was $41 million in the second quarter compared with $30 million in the same quarter of 2017. Free cash flow was $29 million in the second quarter compared with $17 million in the prior year. Higher cash flow was driven primarily by improvement in working capital.
Other Measures
Total backlog was $3.1 billion and 12 month backlog was $1.4 billion at the end of the quarter, compared with $1.6 billion and $860 million, respectively, in the prior year quarter. Bookings in the quarter totaled $579 million.
Financial Guidance Update
Itron's guidance for the full year 2018 is as follows:
- Revenue between $2.425 - $2.475 billion from previous guidance of $2.33 to $2.43 billion
- Non-GAAP diluted EPS between $2.75 - $2.90 from previous guidance of $2.95 - $3.35
Earnings Conference Call
Itron will host a conference call to discuss the financial results and guidance contained in this release at 5 p.m. EDT on Aug. 6, 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 Aug. 11, 2018. To access the telephone replay, dial 888-203-1112 or 719-457-0820, and enter passcode 6190897.
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, 2017 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 Q2 2018 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.