Itron Announces Third Quarter 2012 Financial Results

LIBERTY LAKE, Wash.—Nov. 1, 2012—Itron, Inc. (NASDAQ:ITRI) announced today financial results for its third quarter and nine months ended September 30, 2012. Highlights include:

• Quarterly and nine month revenues of $504 million and $1.7 billion;
• Quarterly and nine month GAAP diluted net earnings per share of 89 cents and $2.31;
• Quarterly and nine month non-GAAP diluted net earnings per share of 97 cents and $3.04;
• Nine month cash flow from operations and free cash flow of $137 million and $103 million;
• Quarterly and nine month adjusted EBITDA of $68 million and $216 million;
• Twelve-month backlog of $592 million and total backlog of $1.1 billion; and
• Quarterly bookings of $459 million.

"Revenue for the third quarter was down year-over-year as expected due to the successful completion of several large OpenWay deployments in North America," said LeRoy Nosbaum, Itron's president and chief executive officer. "Base business revenues were flat year-over-year as we saw some softening in the U.S. market. While the macro environment may be challenging in the near term, I'm very encouraged with our progress on operating efficiencies, pace of product development and our competitive position in the field. We won a significant contract with Southern California Gas Company in the quarter. In addition, we have been selected at Los Angeles Department of Water and Power, City of San Diego's Public Utilities Department and City Power Johannesburg — all great projects and highly competitive wins for Itron."

Financial Results
Revenues were $504 million for the quarter and $1.7 billion for the first nine months of 2012, compared with $616 million and $1.8 billion in the same periods in 2011. Changes in foreign currency exchange rates unfavorably impacted revenue by $35 million for the quarter and $83 million for the first nine months of 2012. Excluding the impact from foreign currency, revenues for the quarter and nine month period decreased $76 million and $54 million compared with the same periods in 2011 primarily due to the completion of several OpenWay projects in North America. Higher revenue in the Water segment was offset by lower gas module shipments in North America and fewer shipments of Energy products in Asia Pacific.

Gross margin for the quarter was 34.1 percent compared with the prior year period margin of 28.8 percent. For the first nine months of 2012, gross margin was 33.3 percent compared with 30.9 percent in the prior year period. Gross margin improvement over the prior year for the quarter and first nine months driven by lower warranty costs in both the Energy and Water segments, which positively impacted gross margin by 5.4 percentage points in the quarter and 1.9 percentage points in the nine month period. Additionally, benefits from our restructuring actions and manufacturing efficiencies offset the impact of decreased volumes.

GAAP operating expenses were $126 million in the quarter and $420 million for the first nine months of 2012, compared with $674 million and $953 million in the same periods of 2011. The 2011 periods included a non-cash goodwill impairment charge of $540 million. The remaining operating expenses for the quarter decreased $8 million compared with the prior year due to a favorable impact of $9 million from changes in foreign currency rates, lower intangible asset amortization and restructuring costs offset by higher sales and marketing and product development costs. For the nine month period, the remaining operating expenses increased $7 million compared with the 2011 period due to increased global sales and marketing activity and product development efforts, partially offset by a favorable impact of $20 million from foreign exchange rate changes. GAAP operating income for the quarter and first nine months of 2012 was $46 million and $132 million, compared with an operating loss of $497 million and $399 million in the respective 2011 periods. Changes in foreign currency rates reduced operating income $1 million in the quarter and $3 million in the first nine months of 2012.

Net interest expense was $2.3 million for the quarter and $6.9 million for the nine month period compared with $10.6 million and $33.7 million in the same periods last year. The decrease in net interest expense was due to a reduced principal balance and lower effective interest rates due to a refinancing of bank debt in August 2011.

GAAP net income and diluted EPS for the quarter and nine month period was $35 million, or 89 cents per share, and $92 million, or $2.31 per share. This compares to a net loss of $517 million, or $12.70 per share, and $456 million, or $11.21 per share in the same periods in 2011. The 2012 net income for the quarter was positively impacted by decreased interest expense. The net income for the nine month period of 2012 was positively impacted by decreased interest expense which was partially offset by an increase in tax expense driven by discrete tax benefits recognized in the prior year.

Non-GAAP operating expenses exclude amortization of intangibles, restructuring charges, acquisition related expenses and the impairment of goodwill. Non-GAAP operating expenses for the quarter and nine month period increased $1 million and $14 million over the 2011 respective periods. Foreign currency favorably impacted non-GAAP operating expenses by $7 million in the quarter and $17 million in the first nine months of 2012. Excluding the impact of foreign currency, non-GAAP operating expenses increased for both periods due to increased global sales and marketing activity and product development. Non-GAAP operating income was $54 million and $176 million for the quarter and nine month period, compared with $60 million and $192 million in the same periods in 2011. Changes in foreign currency rates reduced non-GAAP operating income $3 million in the quarter and $6 million in the first nine months of 2012.

Non-GAAP net income and diluted EPS for the quarter and nine month period was $39 million, or 97 cents per share, and $122 million, or $3.04 per share. This compares to $38 million or 92 cents per share, and $127 million, or $3.10 per share in the same periods in 2011. The decrease in non-GAAP net income for the quarter was due to lower revenue, partially offset by improved gross margin and decreased interest expense. The decrease in non-GAAP net income for the nine month period was due to lower revenue, higher operating expenses and increased tax expense, partially offset by improved gross margin and decreased interest expense.

The company repurchased 342,415 shares of Itron common stock during the quarter at an average price of $43.00 per share pursuant to Board authorization to repurchase up to $100 million of Itron common stock beginning October 2011. During the quarter, the company announced that its Board of Directors approved the extension of the expiration date of the share repurchase program through February 15, 2013. As of September 30, 2012 the company had repurchased approximately 1.9 million shares of Itron common stock at an average price of $37.55 per share since inception of the program, representing 4.6 percent of total shares outstanding as of October 2011.

Financial Guidance Update
Itron's updated guidance for the full-year 2012 is as follows:

• Revenue between $2.1 billion and $2.15 billion
• Non-GAAP diluted EPS between $3.60 and $3.80

The company's guidance assumes a gross margin between 32 to 33 percent for the fourth quarter, a Euro to U.S. dollar average exchange rate of $1.28 for the fourth quarter, average shares outstanding of approximately 40 million for the year and a non-GAAP effective tax rate for the year of 26 percent.

Earnings Conference Call
Itron will host a conference call to discuss the financial results and guidance contained in this release at 8:30 a.m. Eastern Daylight Time (EDT) on November 1, 2012. The call will be webcast in a listen-only mode. Webcast information and conference call materials will be made available 15 minutes before the start of the call and are accessible on Itron's website at www.itron.com under the Investors page. 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 4476581.

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, 2011 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.

Statements of operations, segment information, balance sheets, cash flow statements and reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures follow.

Related Documents
Itron Q3 2012 Earnings Statement.