Itron Announces Third Quarter 2018 Financial Results
LIBERTY LAKE, Wash.—(BUSINESS WIRE)—Nov. 5, 2018—Itron, Inc. (NASDAQ:ITRI) announced today financial results for its third quarter ended Sept. 30, 2018. Key results for the quarter include:
"However, we continue to experience external and operational supply chain headwinds, which are expected to remain in the fourth quarter and into 2019," continued Mezey. "We are executing on initiatives to mitigate these cost headwinds, but extended lead times and component shortages are now impacting our top line, resulting in lower revenue guidance for the full year 2018.
“We believe these headwinds will subside somewhat in 2019 and do not change our fundamental long-term model. We continue to implement our operational restructuring programs and integration of recent acquisitions, deliver new and innovative products to market and execute our strategy.”
Summary of Third Quarter Consolidated Financial Results
(All comparisons made are against the prior year period unless otherwise noted)
Revenue
Total revenue of $596 million increased 22 percent in the third quarter. Excluding $90 million from the acquired Networks segment, total revenue increased 4 percent.
Gas segment revenue grew 19 percent driven by record North America communication module shipments. Electricity segment revenues were in line with the prior year and Water revenue, while decreasing 2 percent as reported, was up 1 percent excluding changes in foreign exchange rates.
Gross Margin
Consolidated company gross margin of 33.1 percent decreased from 34.1 percent in the prior year. The decline was primarily driven by higher component and commodity costs, supply chain inefficiencies and the release of special warranty reserves in the prior year.
Operating Expenses and Operating Income
GAAP operating expenses of $155 million and non-GAAP operating expenses of $127 million increased compared with last year, driven by the acquired operations. Excluding the Silver Spring Networks acquisition, operating expenses were down year-over-year due to lower discretionary spending, including variable compensation, and benefits from restructuring initiatives.
GAAP operating income increased to $42 million from $38 million in the third quarter of 2017. Non-GAAP operating income increased to $70 million from $50 million in 2017 driven by increased gross profit from the Silver Spring Networks acquisition and the Gas segment as well as cost controls.
Net Income and Earnings per Share
Net income attributable to Itron for the quarter was $20 million, or 50 cents per diluted share, a decrease from net income of $26 million, or 65 cents per diluted share, in 2017. Net income decreased due to $11 million in higher interest expense related to acquisition financing, partially offset by higher operating income and lower tax expense.
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 $45 million, or $1.13 per diluted share, compared with $31 million, or 77 cents per diluted share, in 2017. The increase in non-GAAP EPS was due to higher non-GAAP operating income and a lower effective tax rate, partially offset by higher interest expense.
Cash Flow
Net cash provided by operating activities was $51 million in the third quarter compared with $21 million in the same quarter of 2017. Free cash flow was $37 million in the third quarter compared with $9 million in the prior year. Higher cash flow was driven primarily by increased profitability and improved 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 $1.5 billion and $847 million, respectively, in the prior year quarter. Bookings in the quarter totaled $593 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. EST on Nov. 5, 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 Nov. 10, 2018. To access the telephone replay, dial 888-203-1112 or 719-457-0820, and enter passcode 5203944.
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 Q3 2018 Earnings Statement.
- Revenue of $596 million, compared with $487 million in the third quarter of 2017;
- Gross margin of 33.1 percent, compared with 34.1 percent in the third quarter of 2017;
- GAAP diluted earnings per share (EPS) of 50 cents, compared with 65 cents in the third quarter of 2017;
- Non-GAAP diluted EPS of $1.13, compared with 77 cents in the third quarter of 2017;
- Adjusted EBITDA of $81 million, compared with $58 million in the third quarter of 2017; and
- Total backlog of $3.1 billion, compared with $1.5 billion at the end of the third quarter of 2017.
"However, we continue to experience external and operational supply chain headwinds, which are expected to remain in the fourth quarter and into 2019," continued Mezey. "We are executing on initiatives to mitigate these cost headwinds, but extended lead times and component shortages are now impacting our top line, resulting in lower revenue guidance for the full year 2018.
“We believe these headwinds will subside somewhat in 2019 and do not change our fundamental long-term model. We continue to implement our operational restructuring programs and integration of recent acquisitions, deliver new and innovative products to market and execute our strategy.”
Summary of Third Quarter Consolidated Financial Results
(All comparisons made are against the prior year period unless otherwise noted)
Revenue
Total revenue of $596 million increased 22 percent in the third quarter. Excluding $90 million from the acquired Networks segment, total revenue increased 4 percent.
Gas segment revenue grew 19 percent driven by record North America communication module shipments. Electricity segment revenues were in line with the prior year and Water revenue, while decreasing 2 percent as reported, was up 1 percent excluding changes in foreign exchange rates.
Gross Margin
Consolidated company gross margin of 33.1 percent decreased from 34.1 percent in the prior year. The decline was primarily driven by higher component and commodity costs, supply chain inefficiencies and the release of special warranty reserves in the prior year.
Operating Expenses and Operating Income
GAAP operating expenses of $155 million and non-GAAP operating expenses of $127 million increased compared with last year, driven by the acquired operations. Excluding the Silver Spring Networks acquisition, operating expenses were down year-over-year due to lower discretionary spending, including variable compensation, and benefits from restructuring initiatives.
GAAP operating income increased to $42 million from $38 million in the third quarter of 2017. Non-GAAP operating income increased to $70 million from $50 million in 2017 driven by increased gross profit from the Silver Spring Networks acquisition and the Gas segment as well as cost controls.
Net Income and Earnings per Share
Net income attributable to Itron for the quarter was $20 million, or 50 cents per diluted share, a decrease from net income of $26 million, or 65 cents per diluted share, in 2017. Net income decreased due to $11 million in higher interest expense related to acquisition financing, partially offset by higher operating income and lower tax expense.
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 $45 million, or $1.13 per diluted share, compared with $31 million, or 77 cents per diluted share, in 2017. The increase in non-GAAP EPS was due to higher non-GAAP operating income and a lower effective tax rate, partially offset by higher interest expense.
Cash Flow
Net cash provided by operating activities was $51 million in the third quarter compared with $21 million in the same quarter of 2017. Free cash flow was $37 million in the third quarter compared with $9 million in the prior year. Higher cash flow was driven primarily by increased profitability and improved 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 $1.5 billion and $847 million, respectively, in the prior year quarter. Bookings in the quarter totaled $593 million.
Financial Guidance Update
Itron's guidance for the full year 2018 is as follows:
- Revenue between $2.370 - $2.390 billion from previous guidance of $2.425 to $2.475 billion
- Non-GAAP diluted EPS between $2.40 - $2.50 from previous guidance of $2.75 - $2.90
Earnings Conference Call
Itron will host a conference call to discuss the financial results and guidance contained in this release at 5 p.m. EST on Nov. 5, 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 Nov. 10, 2018. To access the telephone replay, dial 888-203-1112 or 719-457-0820, and enter passcode 5203944.
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 Q3 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.
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