Itron Announces Third Quarter 2020 Financial Results and Operational Update

LIBERTY LAKE, Wash.—(BUSINESS WIRE)—Nov. 2, 2020—Itron, Inc. (NASDAQ:ITRI) announced today financial results for its third quarter ended Sept. 30, 2020. Key results for the quarter include (compared with the third quarter of 2019):

• Revenue of $540 million, compared with $624 million;
• Gross margin of 26.5%; compared with 31.5%;
• GAAP net loss of $(25) million, compared with net income of $17 million;
• GAAP loss per share of $(0.63), compared with GAAP diluted earnings per share (EPS) of $0.42;
• Non-GAAP diluted EPS of $0.61, compared with $1.04;
• Adjusted EBITDA of $40 million, compared with $74 million;
• Free cash flow of $38 million, compared with $32 million; and
• Total backlog of $2.8 billion, compared with $3.1 billion.

"During the third quarter, our team continued to focus on the success of our customers and safely delivered results aligned to our expectations," said Tom Deitrich, Itron's president and chief executive officer.

"While still being negatively impacted by the COVID-19 pandemic, our results have improved sequentially from the second quarter low point," continued Deitrich. "While we navigate the near-term challenges, we continue to innovate and position Itron to capture the growing technology and service need of utilities and cities with our solutions."

Summary of Third Quarter Consolidated Financial Results
(All comparisons made are against the prior year period unless otherwise noted)

Revenue
Total third quarter revenue decreased 13% to $540 million, or 14%, excluding the impact of changes in foreign currency exchange rates. The decrease was primarily due to lower customer demand and operating constraints resulting from COVID-19.

Device Solutions revenue decreased 17%, Networked Solutions revenue decreased 14% and Outcomes revenue increased 5%.

Gross Margin
Consolidated company gross margin of 26.5% decreased 500 basis points from the prior year due to COVID-19 induced manufacturing inefficiencies, inventory reserves and product mix.

Operating Expenses and Operating Income
GAAP operating expenses of $167 million increased $10 million from the prior year due to $44 million of restructuring expenses recognized in the quarter, partially offset by lower SG&A expenses, product development and amortization.

Non-GAAP operating expenses of $114 million decreased $17 million from the prior year due to lower sales, general and administrative expenses and product development.

GAAP operating loss of $(24) million was lower than the prior year due to lower gross profit and higher GAAP operating expenses. Non-GAAP operating income of $30 million decreased compared with the prior year due to lower gross profit.

Net Income (Loss) and Earnings (Loss) per Share
The net loss attributable to Itron, Inc. for the quarter was $(25) million, or $(0.63) per share, a decrease from net income of $17 million, or $0.42 per diluted share, in 2019. The decrease was driven by lower GAAP operating income in the current period and a higher GAAP effective tax rate.

Non-GAAP net income, which excludes certain charges including amortization of intangible assets, amortization of debt placement fees, restructuring, loss on sale of business, corporate transition cost, acquisition and integration related expenses and the income tax effect of those adjustments, was $25 million, or $0.61 per diluted share, compared with $41 million, or $1.04 per diluted share, in 2019. The lower year-over-year results were primarily due to the negative impact of the COVID-19 virus.

Cash Flow
Net cash provided by operating activities was $45 million in the third quarter compared with $50 million in the same quarter of 2019. Free cash flow was $38 million in the third quarter compared with $32 million in the prior year. The higher free cash flow was due to improved working capital and lower capital expenditures, partially offset by the lower operating income.

Other Measures
Total backlog was $2.8 billion and 12-month backlog was $1.1 billion, compared with $3.1 billion and $1.4 billion, respectively, in the prior year. Bookings in the quarter totaled $432 million.

Operational Update and Outlook
Results, while improving sequentially from the second quarter, still reflect the current pandemic operating environment. Our supply chain and logistics situation remain stable. We continue to have all factories up and running with aggressive measures to execute safely across our entire operation. Itron remains vigilant and prepared for regional and local spikes from the pandemic that may potentially disrupt our operations. We see some customers resuming deployments and a strong pipeline of new tenders. To date there have been no contract cancellations or slowing with collections from our customers. However, some new deployments that were expected to start in 2020 have shifted to out years due to pandemic conditions and/or delays in the regulatory approval process. On balance, we were pleased with our team's focus and execution this quarter and we remain on track to achieve our second half 2020 expectations.

Earnings Conference Call
Itron will host a conference call to discuss the financial results and guidance contained in this release at 11 a.m. EST on Nov. 2, 2020. 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. 7, 2020. To access the telephone replay, dial 888-203-1112 or 719-457-0820 and enter passcode 6815143.

Cautionary Note Regarding Forward Looking Statements
This release contains, and our officers and representatives may from time to time make, "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are neither historical factors nor assurances of future performance. These statements are based on our expectations about, among others, revenues, operations, financial performance, earnings, liquidity, earnings per share, cash flows and restructuring activities including headcount reductions and other cost savings initiatives. This document reflects our current strategy, plans and expectations and is based on information currently available as of the date of this release. When we use words such as "expect," "intend," "anticipate," "believe," "plan," "goal," "seek," "project," "estimate," "future," "strategy," "objective," "may," "likely," "should," "will," "will continue," and similar expressions, including related to future periods, they are intended to identify forward-looking statements. Forward-looking statements rely on a number of assumptions and estimates. 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. Therefore, you should not rely on any of these forward-looking statements. Some of the factors that we believe could affect our results include our ability to execute on our restructuring plan, 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, uncertainties caused by adverse economic conditions, including, without limitation those resulting from extraordinary events or circumstances such as the COVID-19 pandemic and other factors that are more fully described in Item 1A: "Risk Factors" included in our Annual Report on Form 10-K for the year ended Dec. 31, 2019 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.

The impact caused by the ongoing COVID-19 pandemic includes uncertainty as to the duration, spread, severity, and any recurrence of the COVID-19 pandemic, the duration and scope of related government orders and restrictions, impact on overall demand, impact on our customers' businesses and workforce levels, disruptions of our business and operations, including the impact on our employees, limitations on, or closures of, our facilities, or the business and operations of our customers or suppliers. Our estimates and statements regarding the impact of COVID-19 are made in good faith to provide insight to our current and future operating and financial environment and any of these may materially change due to factors outside our control. For more information on risks associated with the COVID-19 pandemic, please see Itron's updated risk in Part II, Item 1A, "Risk Factors" of our latest 10-Q filing with the SEC.

Non-GAAP Financial Information
To supplement our consolidated financial statements, which are prepared 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. We strongly encourage investors and shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure. 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 2020 Earnings Statement.