Itron Announces Fourth Quarter and Fiscal 2012 Financial Results
LIBERTY LAKE, Wash.--(BUSINESS WIRE)--
Itron, Inc. (NASDAQ:ITRI) announced today financial results for its
fourth quarter and full year ended December 31, 2012. Highlights include:
Quarterly and full year revenues of $523 million and $2.2 billion;
Quarterly and full year GAAP diluted net earnings per share of 40
cents and $2.71;
Quarterly and full year non-GAAP diluted net earnings per share of 58
cents and $3.62;
Full year cash flow from operations and free cash flow of $205 million
and $155 million;
Quarterly and full year adjusted EBITDA of $44 million and $260
million;
Twelve-month backlog of $568 million and total backlog of $1.0
billion; and
Quarterly bookings of $467 million.
“Our fourth quarter results reflect transition in Itron’s business as we
successfully complete more than $1.5 billion of OpenWay projects in
North America and begin new electricity, gas and water smart system
pilots and deployments around the world,” said Philip Mezey, Itron’s
president and chief executive officer. “While total revenues declined in
the quarter compared to last year, our base business revenues excluding
these large OpenWay contracts grew six percent. Non-GAAP earnings for
the quarter were impacted by higher product development, sales and
marketing expenses as we prepare for new projects developing in nearly
every major geographic region.”
“Itron has a solid, profitable financial foundation,” continued Mr.
Mezey. “With our financial strength, large customer base and
next-generation technologies for electricity, gas and water
applications, Itron is well-positioned to lead a transformation in the
utility sector. In 2013, we will accelerate our commitment to innovation
and we will continue to invest in new solutions to help our customers
build the smart cities of the next decade. I am excited to lead our
company at a time when we can truly make a difference in our industry.”
Financial Results
Revenues were $523 million for the quarter and $2.2 billion for the full
year, compared with $642 million and $2.4 billion in the same periods in
2011. Changes in foreign currency exchange rates unfavorably impacted
revenue by $9 million for the quarter and $92 million for the year.
Excluding the impact from foreign currency, revenues for the quarter and
year decreased $110 million and $164 million compared with the same
periods in 2011. Higher revenue in the Water segment was offset by lower
revenue in the Energy segment due to the completion of several OpenWay
projects in North America. Itron Cellular Solutions, which was acquired
in May 2012, added $10 million and $22 million in revenue in the fourth
quarter and full year 2012, respectively.
Gross margin for the quarter was 31.2 percent compared with the prior
year period margin of 30.0 percent. Gross margin for the Energy segment
improved due to lower warranty costs and manufacturing efficiencies,
partially offset by the impact of lower volumes and product mix. The
gross margin for the Water segment decreased primarily due to higher
service costs. For the year, gross margin was 32.8 percent compared with
30.7 percent in 2011. Gross margin improvement over the prior year was
driven by lower warranty costs in both the Energy and Water segments,
which positively impacted gross margin by 1.7 percentage points.
Additionally, benefits from our restructuring actions and manufacturing
efficiencies offset the impact of decreased volumes.
GAAP operating expenses were $144 million in the quarter compared with
$253 million in the same period last year. The decrease in expenses was
primarily due to lower restructuring and goodwill impairment charges.
For the year, operating expenses were $565 million compared with $1.2
billion in 2011. The decrease was due to a favorable impact of $25
million from changes in foreign currency rates, lower restructuring
expenses, goodwill impairment and intangible asset amortization costs
partially offset by increased sales and marketing activity and product
development efforts to position us for upcoming global smart grid
opportunities. GAAP operating income for the quarter and year was $19
million and $151 million, compared with an operating loss of $60 million
and $459 million in the respective 2011 periods. Itron Cellular
Solutions negatively impacted GAAP operating income by $2.3 million and
$12.4 million in the fourth quarter and full year 2012, respectively.
Net interest expense was $2.2 million for the quarter and $9.2 million
for the year compared with $2.2 million and $35.9 million in the same
periods last year. The decrease in net interest expense in the year 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 fourth quarter and year were $16
million, or 40 cents per share, and $108 million, or $2.71 per share,
respectively. This compares to a net loss of $55 million, or $1.35 per
share, and $510 million, or $12.56 per share in the same periods in
2011, respectively. The 2012 net income for the quarter was positively
impacted by a tax benefit. The net income for the year 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 year
increased $6 million and $20 million over the 2011 respective periods.
Foreign currency favorably impacted non-GAAP operating expenses by $2
million in the quarter and $19 million in the year. 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 $30 million and $206 million
for the quarter and year, compared with $65 million and $257 million in
the same periods in 2011. Itron Cellular Solutions negatively impacted
non-GAAP operating income by $1.4 million and $8.3 million in the fourth
quarter and full year 2012, respectively.
Non-GAAP net income and diluted EPS for the quarter and year were $23
million, or 58 cents per share, and $145 million, or $3.62 per share,
respectively. This compares with $49 million, or $1.19 cents per share,
and $176 million, or $4.29 per share, respectively, in the same periods
in 2011. The decrease in non-GAAP net income for the quarter was due to
lower gross profit and increased operating expenses, partially offset by
decreased tax expense. The decrease in non-GAAP net income for the year
was due to lower gross profit, higher operating expenses and increased
tax expense, partially offset by decreased interest expense.
The company repurchased 157,772 shares of Itron common stock during the
quarter at an average price of $42.73 per share pursuant to Board
authorization to repurchase up to $100 million of Itron common stock
beginning October 2011 through the expiration date of February 15, 2013.
As of December 31, 2012 the company had repurchased approximately 2
million shares of Itron common stock at an average price of $37.96 per
share since inception of the program, representing approximately 5.0
percent of total shares outstanding as of October 2011.
Financial Guidance
Itron’s guidance for the full-year 2013 is as follows:
• Revenue between $2.0 billion and $2.1 billion
• Non-GAAP diluted EPS between $3.00 and $3.25
The company’s guidance assumes a gross margin of approximately 33.5
percent, a Euro to U.S. dollar average exchange rate of $1.34, average
shares outstanding of approximately 40 million for the year and a
non-GAAP effective tax rate for the year of 25 percent.
Earnings Conference Call:
Itron will host a conference call to discuss the financial results and
guidance contained in this release at 5:00 p.m. Eastern Time (ET) on
February 13, 2013. 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 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
4441088.
About Itron
Itron is a global technology company. We build solutions that help
utilities measure, monitor and manage energy and water. Our broad
product portfolio includes electricity, gas, water and thermal energy
measurement and control technology; communications systems; software;
and professional services. With thousands of employees supporting nearly
8,000 utilities in more than one hundred countries, Itron empowers
utilities to responsibly and efficiently manage energy and water
resources. Join us in creating a more resourceful world, start here: www.itron.com.
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.
ITRON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
Three Months Ended December 31,
Twelve Months Ended December 31,
2012
2011
2012
2011
Revenues
$
523,335
$
642,477
$
2,178,178
$
2,434,124
Cost of revenues
359,835
449,944
1,463,031
1,687,666
Gross profit
163,500
192,533
715,147
746,458
Operating expenses
Sales and marketing
51,987
47,086
197,603
185,105
Product development
44,358
42,158
178,653
161,305
General and administrative
37,527
38,281
138,290
142,908
Amortization of intangible assets
11,943
15,587
47,810
63,394
Restructuring expense
(1,790
)
65,079
1,665
68,082
Goodwill impairment
-
44,447
-
584,847
Total operating expenses
144,025
252,638
564,021
1,205,641
Operating income (loss)
19,475
(60,105
)
151,126
(459,183
)
Other income (expense)
Interest income
285
231
952
862
Interest expense
(2,521
)
(2,464
)
(10,115
)
(36,794
)
Other income (expense), net
(1,520
)
(2,309
)
(5,744
)
(6,651
)
Total other income (expense)
(3,756
)
(4,542
)
(14,907
)
(42,583
)
Income (loss) before income taxes
15,719
(64,647
)
136,219
(501,766
)
Income tax benefit (provision)
745
11,099
(25,995
)
(4,430
)
Net income (loss)
16,464
(53,548
)
110,224
(506,196
)
Net income attributable to non-controlling interests
504
1,083
1,949
3,961
Net income (loss) attributable to Itron, Inc.
$
15,960
$
(54,631
)
$
108,275
$
(510,157
)
Earnings per common share - Basic
$
0.41
$
(1.35
)
$
2.73
$
(12.56
)
Earnings per common share - Diluted
$
0.40
$
(1.35
)
$
2.71
$
(12.56
)
Weighted average common shares outstanding - Basic
39,233
40,506
39,625
40,612
Weighted average common shares outstanding - Diluted
39,619
40,506
39,934
40,612
ITRON, INC.
SEGMENT INFORMATION
(Unaudited, in thousands)
Three Months Ended December 31,
Twelve Months Ended December 31,
2012
2011
2012
2011
Revenues
Energy
Electricity
$
229,844
$
358,899
$
1,024,340
$
1,239,428
Gas
161,855
163,549
627,193
672,999
Total Energy
$
391,699
$
522,448
$
1,651,533
$
1,912,427
Water
131,636
120,029
526,645
521,697
Total Company
$
523,335
$
642,477
$
2,178,178
$
2,434,124
Gross profit
Energy
$
121,339
$
152,118
$
530,396
$
578,575
Water
42,161
40,415
184,751
167,883
Total Company
$
163,500
$
192,533
$
715,147
$
746,458
Operating income (loss)
Energy
$
19,158
$
(35,265
)
$
135,369
$
(112,831
)
Water
9,314
(13,190
)
59,210
(303,772
)
Corporate unallocated
(8,997
)
(11,650
)
(43,453
)
(42,580
)
Total Company
$
19,475
$
(60,105
)
$
151,126
$
(459,183
)
METER AND MODULE SUMMARY
(Units in thousands)
Three Months Ended December 31,
Twelve Months Ended December 31,
2012
2011
2012
2011
Meters
Standard
4,310
4,720
17,920
19,570
Advanced and Smart
1,920
3,010
8,030
9,320
Total meters
6,230
7,730
25,950
28,890
Stand-alone communication modules
Advanced and Smart
1,410
1,490
6,460
6,330
ITRON, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
December 31, 2012
December 31, 2011
ASSETS
Current assets
Cash and cash equivalents
$
136,411
$
133,086
Accounts receivable, net
375,326
371,641
Inventories
170,719
195,837
Deferred tax assets current, net
33,536
58,172
Other current assets
104,958
81,618
Total current assets
820,950
840,354
Property, plant, and equipment, net
255,212
262,670
Deferred tax assets noncurrent, net
44,584
22,144
Other long-term assets
28,908
62,704
Intangible assets, net
238,771
239,500
Goodwill
701,016
636,910
Total assets
$
2,089,441
$
2,064,282
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable
$
227,739
$
246,775
Other current liabilities
49,950
53,734
Wages and benefits payable
91,802
93,730
Taxes payable
9,305
11,526
Current portion of debt
18,750
15,000
Current portion of warranty
27,115
52,588
Unearned revenue
42,712
37,369
Total current liabilities
467,373
510,722
Long-term debt
398,750
437,502
Long-term warranty
26,490
26,948
Pension plan benefit liability
90,533
62,449
Deferred tax liabilities noncurrent, net
16,682
31,699
Other long-term obligations
80,100
73,417
Total liabilities
1,079,928
1,142,737
Commitments and contingencies
Equity
Preferred stock
-
-
Common stock
1,294,213
1,319,222
Accumulated other comprehensive loss, net
(34,384
)
(37,160
)
Accumulated deficit
(266,862
)
(375,137
)
Total Itron, Inc. shareholders' equity
992,967
906,925
Non-controlling interests
16,546
14,620
Total equity
1,009,513
921,545
Total liabilities and equity
$
2,089,441
$
2,064,282
ITRON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Twelve Months Ended December 31,
2012
2011
Operating activities
Net income (loss)
$
110,224
$
(506,196
)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization
109,471
129,466
Stock-based compensation
19,512
16,411
Amortization of prepaid debt fees
1,597
5,715
Amortization of convertible debt discount
-
5,336
Deferred taxes, net
(6,775
)
(12,985
)
Goodwill impairment
-
584,847
Restructuring expense, non-cash
(4,839
)
25,144
Other adjustments, net
(189
)
(44
)
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable
36,300
(22,770
)
Inventories
28,253
6,389
Other current assets
(20,052
)
(3,859
)
Other long-term assets
10,578
(17,401
)
Accounts payables, other current liabilities, and taxes payable
(47,367
)
22,715
Wages and benefits payable
(8,967
)
(19,813
)
Unearned revenue
12,009
19,070
Warranty
(25,919
)
29,616
Other operating, net
(8,746
)
(9,283
)
Net cash provided by operating activities
205,090
252,358
Investing activities
Acquisitions of property, plant, and equipment
(50,543
)
(60,076
)
Business acquisitions, net of cash equivalents acquired
(79,017
)
(20,092
)
Other investing, net
4,115
1,427
Net cash used in investing activities
(125,445
)
(78,741
)
Financing activities
Proceeds from borrowings
80,000
670,000
Payments on debt
(115,002
)
(848,054
)
Issuance of common stock
4,781
4,625
Repurchase of common stock
(47,441
)
(29,428
)
Other financing, net
134
(6,596
)
Net cash used in financing activities
(77,528
)
(209,453
)
Effect of foreign exchange rate changes on cash and cash equivalents
1,208
(555
)
Increase (decrease) in cash and cash equivalents
3,325
(36,391
)
Cash and cash equivalents at beginning of period
133,086
169,477
Cash and cash equivalents at end of period
$
136,411
$
133,086
Itron, Inc.
About Non-GAAP Financial Measures
The accompanying press release contains non-GAAP financial measures. To
supplement our consolidated financial statements, which are prepared and
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. The presentation of this financial information is not
intended to be considered in isolation or as a substitute for, or
superior to, the financial information prepared and presented in
accordance with GAAP. For more information on these non-GAAP financial
measures please see the table captioned “Reconciliations of Non-GAAP
Financial Measures to Most Directly Comparable GAAP Financial Measures.”
We use these non-GAAP financial measures for financial and operational
decision making and as a means for determining executive compensation.
Management believes that these non-GAAP financial measures provide
meaningful supplemental information regarding our performance and
ability to service debt by excluding certain expenses that may not be
indicative of our recurring core operating results. These non-GAAP
financial measures facilitate management’s internal comparisons to our
historical performance as well as comparisons to our competitors’
operating results. Our executive compensation plans exclude non-cash
charges related to amortization of intangibles and non-recurring
discrete cash and non-cash charges that are infrequent in nature such as
purchase accounting adjustments, restructuring charges or goodwill
impairment charges. We believe that both management and investors
benefit from referring to these non-GAAP financial measures in assessing
our performance and when planning, forecasting and analyzing future
periods. We believe these non-GAAP financial measures are useful to
investors because they provide greater transparency with respect to key
metrics used by management in its financial and operational decision
making and because they are used by our institutional investors and the
analyst community to help them analyze the health of our business.
Non-GAAP operating expense and non-GAAP operating income – We define
non-GAAP operating expense as operating expense excluding certain
expenses related to the amortization of intangible assets,
restructuring, acquisitions and goodwill impairment. We define non-GAAP
operating income as operating income excluding the expenses related to
the amortization of intangible assets, restructuring, acquisitions and
goodwill impairment. We consider these non-GAAP financial measures to be
useful metrics for management and investors because they exclude the
effect of expenses that are related to previous acquisitions and
restructurings. By excluding these expenses we believe that it is easier
for management and investors to compare our financial results over
multiple periods and analyze trends in our operations. For example,
expenses related to amortization of intangible assets are decreasing,
which is improving GAAP operating margins, yet the improvement in GAAP
operating margins due to this lower expense is not necessarily
reflective of an improvement in our core business. There are some
limitations related to the use of non-GAAP operating expense and
non-GAAP operating income versus operating expense and operating income
calculated in accordance with GAAP. Non-GAAP operating expense and
non-GAAP operating income exclude some costs that are recurring.
Additionally, the expenses that we exclude in our calculation of
non-GAAP operating expense and non-GAAP operating income may differ from
the expenses that our peer companies exclude when they report the
results of their operations. We compensate for these limitations by
providing specific information about the GAAP amounts we have excluded
from our non-GAAP operating expense and non-GAAP operating income and
evaluating non-GAAP operating expense and non-GAAP operating income
together with GAAP operating expense and GAAP operating income.
Non-GAAP net income and non-GAAP diluted EPS – We define non-GAAP net
income as net income excluding the expenses associated with amortization
of intangible assets, restructuring, acquisitions, goodwill impairment,
amortization of debt placement fees and amortization of convertible debt
discount. We define non-GAAP diluted EPS as non-GAAP net income divided
by the weighted average shares, on a diluted basis, outstanding during
each period. We consider these financial measures to be useful metrics
for management and investors for the same reasons that we use non-GAAP
operating income. The same limitations described above regarding our use
of non-GAAP operating income apply to our use of non-GAAP net income and
non-GAAP diluted EPS. We compensate for these limitations by providing
specific information regarding the GAAP amounts excluded from these
non-GAAP measures and evaluating non-GAAP net income and non-GAAP
diluted EPS together with GAAP net income and GAAP diluted EPS.
Adjusted EBITDA – We define adjusted EBITDA as net income (a) minus
interest income, (b) plus interest expense, depreciation and
amortization of intangible asset expenses, restructuring expense,
acquisition related expenses and goodwill impairment and (c) exclude the
tax expense or benefit. We believe that providing this financial measure
is important for management and investors to understand our ability to
service our debt as it is a measure of the cash generated by our core
business. Management uses adjusted EBITDA as a performance measure for
executive compensation. A limitation to using adjusted EBITDA is that it
does not represent the total increase or decrease in the cash balance
for the period and the measure includes some non-cash items and excludes
other non-cash items. Additionally, the items that we exclude in our
calculation of adjusted EBITDA may differ from the items that our peer
companies exclude when they report their results. Management compensates
for this limitation by providing a reconciliation of this measure to
GAAP net income.
Free cash flow – We define free cash flow as net cash provided by
operating activities less cash used for acquisitions of property, plant,
and equipment. We believe free cash flow provides investors with a
relevant measure of liquidity and a useful basis for assessing our
ability to fund our operations and repay our debt. The same limitations
described above regarding our use of non-GAAP operating income apply to
our use of free cash flow. We compensate for these limitations by
providing specific information regarding the GAAP amounts and
reconciling to free cash flow.
The accompanying tables have more detail on the GAAP financial measures
that are most directly comparable to the non-GAAP financial measures and
the related reconciliations between these financial measures.
ITRON, INC.
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
TO THE MOST DIRECTLY COMPARABLE GAAP FINANCIAL MEASURES
(Unaudited, in thousands, except per share data)
Three Months Ended December 31,
Twelve Months Ended December 31,
2012
2011
2012
2011
NON-GAAP OPERATING INCOME - ENERGY
Energy - GAAP operating income (loss)
$
19,158
$
(35,265
)
$
135,369
$
(112,831
)
Amortization of intangible assets
8,688
11,304
34,765
45,951
Restructuring expense
(2,219
)
49,939
1,317
51,873
Acquisition related expenses
667
-
2,495
-
Goodwill impairment
-
38,650
-
254,735
Energy - Non-GAAP operating income
$
26,294
$
64,628
$
173,946
$
239,728
NON-GAAP OPERATING INCOME - WATER
Water - GAAP operating income (loss)
$
9,314
$
(13,190
)
$
59,210
$
(303,772
)
Amortization of intangible assets
3,255
4,283
13,045
17,443
Restructuring expense
106
14,765
(765
)
15,321
Goodwill impairment
-
5,797
-
330,112
Water - Non-GAAP operating income
$
12,675
$
11,655
$
71,490
$
59,104
NON-GAAP OPERATING LOSS - CORPORATE UNALLOCATED
Corporate unallocated - GAAP operating loss
$
(8,997
)
$
(11,650
)
$
(43,453
)
$
(42,580
)
Restructuring expense
323
375
1,113
888
Acquisition related expenses
-
-
2,962
-
Corporate unallocated - Non-GAAP operating loss
$
(8,674
)
$
(11,275
)
$
(39,378
)
$
(41,692
)
NON-GAAP OPERATING INCOME
GAAP operating income (loss)
$
19,475
$
(60,105
)
$
151,126
$
(459,183
)
Amortization of intangible assets
11,943
15,587
47,810
63,394
Restructuring expense
(1,790
)
65,079
1,665
68,082
Acquisition related expenses
667
-
5,457
-
Goodwill impairment
-
44,447
-
584,847
Non-GAAP operating income
$
30,295
$
65,008
$
206,058
$
257,140
NON-GAAP OPERATING EXPENSE
Total Company - GAAP operating expense
$
144,025
$
252,638
$
564,021
$
1,205,641
Amortization of intangible assets
(11,943
)
(15,587
)
(47,810
)
(63,394
)
Restructuring expense
1,790
(65,079
)
(1,665
)
(68,082
)
Acquisition related expenses
(667
)
-
(5,457
)
-
Goodwill impairment
-
(44,447
)
-
(584,847
)
Total Company - Non-GAAP operating expense
$
133,205
$
127,525
$
509,089
$
489,318
NON-GAAP NET INCOME & DILUTED EPS
GAAP net income (loss)
$
15,960
$
(54,631
)
$
108,275
$
(510,157
)
Amortization of intangible assets
11,943
15,587
47,810
63,394
Amortization of debt placement fees
397
349
1,558
5,435
Amortization of convertible debt discount
-
-
-
5,336
Restructuring expense
(1,790
)
65,079
1,665
68,082
Acquisition related expenses
667
-
5,457
-
Goodwill impairment
-
44,447
-
584,847
Income tax effect of non-GAAP adjustments
(4,238
)
(22,319
)
(20,185
)
(40,986
)
Non-GAAP net income
$
22,939
$
48,512
$
144,580
$
175,951
Non-GAAP diluted EPS
$
0.58
$
1.19
$
3.62
$
4.29
Weighted average common shares outstanding - Diluted
Press Release $ITRI Itron, Inc.
LIBERTY LAKE, Wash.--(BUSINESS WIRE)-- Itron, Inc. (NASDAQ:ITRI) announced today financial results for its fourth quarter and full year ended December 31, 2012. Highlights include:
“Our fourth quarter results reflect transition in Itron’s business as we successfully complete more than $1.5 billion of OpenWay projects in North America and begin new electricity, gas and water smart system pilots and deployments around the world,” said Philip Mezey, Itron’s president and chief executive officer. “While total revenues declined in the quarter compared to last year, our base business revenues excluding these large OpenWay contracts grew six percent. Non-GAAP earnings for the quarter were impacted by higher product development, sales and marketing expenses as we prepare for new projects developing in nearly every major geographic region.”
“Itron has a solid, profitable financial foundation,” continued Mr. Mezey. “With our financial strength, large customer base and next-generation technologies for electricity, gas and water applications, Itron is well-positioned to lead a transformation in the utility sector. In 2013, we will accelerate our commitment to innovation and we will continue to invest in new solutions to help our customers build the smart cities of the next decade. I am excited to lead our company at a time when we can truly make a difference in our industry.”
Financial Results
Revenues were $523 million for the quarter and $2.2 billion for the full year, compared with $642 million and $2.4 billion in the same periods in 2011. Changes in foreign currency exchange rates unfavorably impacted revenue by $9 million for the quarter and $92 million for the year. Excluding the impact from foreign currency, revenues for the quarter and year decreased $110 million and $164 million compared with the same periods in 2011. Higher revenue in the Water segment was offset by lower revenue in the Energy segment due to the completion of several OpenWay projects in North America. Itron Cellular Solutions, which was acquired in May 2012, added $10 million and $22 million in revenue in the fourth quarter and full year 2012, respectively.
Gross margin for the quarter was 31.2 percent compared with the prior year period margin of 30.0 percent. Gross margin for the Energy segment improved due to lower warranty costs and manufacturing efficiencies, partially offset by the impact of lower volumes and product mix. The gross margin for the Water segment decreased primarily due to higher service costs. For the year, gross margin was 32.8 percent compared with 30.7 percent in 2011. Gross margin improvement over the prior year was driven by lower warranty costs in both the Energy and Water segments, which positively impacted gross margin by 1.7 percentage points. Additionally, benefits from our restructuring actions and manufacturing efficiencies offset the impact of decreased volumes.
GAAP operating expenses were $144 million in the quarter compared with $253 million in the same period last year. The decrease in expenses was primarily due to lower restructuring and goodwill impairment charges. For the year, operating expenses were $565 million compared with $1.2 billion in 2011. The decrease was due to a favorable impact of $25 million from changes in foreign currency rates, lower restructuring expenses, goodwill impairment and intangible asset amortization costs partially offset by increased sales and marketing activity and product development efforts to position us for upcoming global smart grid opportunities. GAAP operating income for the quarter and year was $19 million and $151 million, compared with an operating loss of $60 million and $459 million in the respective 2011 periods. Itron Cellular Solutions negatively impacted GAAP operating income by $2.3 million and $12.4 million in the fourth quarter and full year 2012, respectively.
Net interest expense was $2.2 million for the quarter and $9.2 million for the year compared with $2.2 million and $35.9 million in the same periods last year. The decrease in net interest expense in the year 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 fourth quarter and year were $16 million, or 40 cents per share, and $108 million, or $2.71 per share, respectively. This compares to a net loss of $55 million, or $1.35 per share, and $510 million, or $12.56 per share in the same periods in 2011, respectively. The 2012 net income for the quarter was positively impacted by a tax benefit. The net income for the year 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 year increased $6 million and $20 million over the 2011 respective periods. Foreign currency favorably impacted non-GAAP operating expenses by $2 million in the quarter and $19 million in the year. 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 $30 million and $206 million for the quarter and year, compared with $65 million and $257 million in the same periods in 2011. Itron Cellular Solutions negatively impacted non-GAAP operating income by $1.4 million and $8.3 million in the fourth quarter and full year 2012, respectively.
Non-GAAP net income and diluted EPS for the quarter and year were $23 million, or 58 cents per share, and $145 million, or $3.62 per share, respectively. This compares with $49 million, or $1.19 cents per share, and $176 million, or $4.29 per share, respectively, in the same periods in 2011. The decrease in non-GAAP net income for the quarter was due to lower gross profit and increased operating expenses, partially offset by decreased tax expense. The decrease in non-GAAP net income for the year was due to lower gross profit, higher operating expenses and increased tax expense, partially offset by decreased interest expense.
The company repurchased 157,772 shares of Itron common stock during the quarter at an average price of $42.73 per share pursuant to Board authorization to repurchase up to $100 million of Itron common stock beginning October 2011 through the expiration date of February 15, 2013. As of December 31, 2012 the company had repurchased approximately 2 million shares of Itron common stock at an average price of $37.96 per share since inception of the program, representing approximately 5.0 percent of total shares outstanding as of October 2011.
Financial Guidance
Itron’s guidance for the full-year 2013 is as follows:
• Revenue between $2.0 billion and $2.1 billion
• Non-GAAP diluted EPS between $3.00 and $3.25
The company’s guidance assumes a gross margin of approximately 33.5 percent, a Euro to U.S. dollar average exchange rate of $1.34, average shares outstanding of approximately 40 million for the year and a non-GAAP effective tax rate for the year of 25 percent.
Earnings Conference Call:
Itron will host a conference call to discuss the financial results and guidance contained in this release at 5:00 p.m. Eastern Time (ET) on February 13, 2013. 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 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 4441088.
About Itron
Itron is a global technology company. We build solutions that help utilities measure, monitor and manage energy and water. Our broad product portfolio includes electricity, gas, water and thermal energy measurement and control technology; communications systems; software; and professional services. With thousands of employees supporting nearly 8,000 utilities in more than one hundred countries, Itron empowers utilities to responsibly and efficiently manage energy and water resources. Join us in creating a more resourceful world, start here: www.itron.com.
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.
ITRON, INC.
ASSETS
Itron, Inc.
About Non-GAAP Financial Measures
The accompanying press release contains non-GAAP financial measures. To supplement our consolidated financial statements, which are prepared and 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. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. For more information on these non-GAAP financial measures please see the table captioned “Reconciliations of Non-GAAP Financial Measures to Most Directly Comparable GAAP Financial Measures.”
We use these non-GAAP financial measures for financial and operational decision making and as a means for determining executive compensation. Management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our performance and ability to service debt by excluding certain expenses that may not be indicative of our recurring core operating results. These non-GAAP financial measures facilitate management’s internal comparisons to our historical performance as well as comparisons to our competitors’ operating results. Our executive compensation plans exclude non-cash charges related to amortization of intangibles and non-recurring discrete cash and non-cash charges that are infrequent in nature such as purchase accounting adjustments, restructuring charges or goodwill impairment charges. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting and analyzing future periods. We believe these non-GAAP financial measures are useful to investors because they provide greater transparency with respect to key metrics used by management in its financial and operational decision making and because they are used by our institutional investors and the analyst community to help them analyze the health of our business.
Non-GAAP operating expense and non-GAAP operating income – We define non-GAAP operating expense as operating expense excluding certain expenses related to the amortization of intangible assets, restructuring, acquisitions and goodwill impairment. We define non-GAAP operating income as operating income excluding the expenses related to the amortization of intangible assets, restructuring, acquisitions and goodwill impairment. We consider these non-GAAP financial measures to be useful metrics for management and investors because they exclude the effect of expenses that are related to previous acquisitions and restructurings. By excluding these expenses we believe that it is easier for management and investors to compare our financial results over multiple periods and analyze trends in our operations. For example, expenses related to amortization of intangible assets are decreasing, which is improving GAAP operating margins, yet the improvement in GAAP operating margins due to this lower expense is not necessarily reflective of an improvement in our core business. There are some limitations related to the use of non-GAAP operating expense and non-GAAP operating income versus operating expense and operating income calculated in accordance with GAAP. Non-GAAP operating expense and non-GAAP operating income exclude some costs that are recurring. Additionally, the expenses that we exclude in our calculation of non-GAAP operating expense and non-GAAP operating income may differ from the expenses that our peer companies exclude when they report the results of their operations. We compensate for these limitations by providing specific information about the GAAP amounts we have excluded from our non-GAAP operating expense and non-GAAP operating income and evaluating non-GAAP operating expense and non-GAAP operating income together with GAAP operating expense and GAAP operating income.
Non-GAAP net income and non-GAAP diluted EPS – We define non-GAAP net income as net income excluding the expenses associated with amortization of intangible assets, restructuring, acquisitions, goodwill impairment, amortization of debt placement fees and amortization of convertible debt discount. We define non-GAAP diluted EPS as non-GAAP net income divided by the weighted average shares, on a diluted basis, outstanding during each period. We consider these financial measures to be useful metrics for management and investors for the same reasons that we use non-GAAP operating income. The same limitations described above regarding our use of non-GAAP operating income apply to our use of non-GAAP net income and non-GAAP diluted EPS. We compensate for these limitations by providing specific information regarding the GAAP amounts excluded from these non-GAAP measures and evaluating non-GAAP net income and non-GAAP diluted EPS together with GAAP net income and GAAP diluted EPS.
Adjusted EBITDA – We define adjusted EBITDA as net income (a) minus interest income, (b) plus interest expense, depreciation and amortization of intangible asset expenses, restructuring expense, acquisition related expenses and goodwill impairment and (c) exclude the tax expense or benefit. We believe that providing this financial measure is important for management and investors to understand our ability to service our debt as it is a measure of the cash generated by our core business. Management uses adjusted EBITDA as a performance measure for executive compensation. A limitation to using adjusted EBITDA is that it does not represent the total increase or decrease in the cash balance for the period and the measure includes some non-cash items and excludes other non-cash items. Additionally, the items that we exclude in our calculation of adjusted EBITDA may differ from the items that our peer companies exclude when they report their results. Management compensates for this limitation by providing a reconciliation of this measure to GAAP net income.
Free cash flow – We define free cash flow as net cash provided by operating activities less cash used for acquisitions of property, plant, and equipment. We believe free cash flow provides investors with a relevant measure of liquidity and a useful basis for assessing our ability to fund our operations and repay our debt. The same limitations described above regarding our use of non-GAAP operating income apply to our use of free cash flow. We compensate for these limitations by providing specific information regarding the GAAP amounts and reconciling to free cash flow.
The accompanying tables have more detail on the GAAP financial measures that are most directly comparable to the non-GAAP financial measures and the related reconciliations between these financial measures.
Itron, Inc.
Barbara Doyle, 509-891-3443
Vice President, Investor Relations
barbara.doyle@itron.com
or
Marni Pilcher, 509-891-3847
Director, Investor Relations
marni.pilcher@itron.com
Source: Itron, Inc.