Itron Announces First Quarter 2019 Financial Results

Itron, Inc. (NASDAQ:ITRI) announced today financial results for its
first quarter ended March 31, 2019. Key results for the quarter include:

• Revenue of $615 million, compared with $607 million in the first
  quarter of 2018;
• Gross margin of 30.5%, compared with 29.6% in the first quarter of
  2018;
• GAAP net loss of $2 million, compared with a net loss of $146 million
  in the first quarter of 2018;
• GAAP loss per share of $0.05, compared with a loss of $3.74 in the
  first quarter of 2018;
• Non-GAAP diluted EPS of $0.70, compared with $0.13 in the first
  quarter of 2018;
• Adjusted EBITDA of $66 million, compared with $40 million in the first
  quarter of 2018; and
• Total backlog of $3.0 billion, compared with $3.1 billion at the end
  of the first quarter of 2018.

“We are pleased with first quarter results, which were driven
by improved operating performance and higher-margin software revenue
associated with customer projects,” said Philip Mezey, Itron’s president
and chief executive officer.

“We are seeing benefits from our operational initiatives, including the
realigned business segments, which are executing and performing well. In
addition, ongoing transformation and integration initiatives are
contributing to improved results,” continued Mezey.

Summary of First Quarter Consolidated Financial Results

(All comparisons made are against the prior year period unless otherwise
noted)

Revenue

Total revenue increased 1% to $615 million, or 5% excluding the impact
of changes in foreign currency exchange rates, in the first quarter.

Networked Solutions revenue increased 11% and Outcomes increased 2%
driven by continued strength in North America deployments. Device
Solutions revenue decreased 11% due to the impact of changes in foreign
currency exchange rates and lower shipments in Europe.

Gross Margin

Consolidated company gross margin of 30.5% increased from 29.6% in the
prior year. The increase was driven by favorable product mix, including
higher-margin software deliveries.

Operating Expenses and Operating Income

GAAP operating expenses of $166 million decreased $154 million from the
prior year primarily due to lower restructuring, acquisition and
integration related expenses. Non-GAAP operating expenses of
$131 million decreased $21 million from the prior year in part due to
benefits from restructuring and integration initiatives.

GAAP operating income increased to $21 million from a loss of $140
million in the first quarter of 2018. The increase is due to lower GAAP
operating expenses, primarily restructuring, acquisition and integration
related expenses, and higher gross profit. Non-GAAP operating income
increased to $57 million from $28 million in 2018 driven by lower
non-GAAP operating expenses and improved gross profit.

Net Income (loss) and Earnings per Share

The net loss attributable to Itron for the quarter was $2 million, or
$0.05 per share, a decrease from a net loss of $146 million, or $3.74
per share, in 2018. The net loss improvement was driven by higher
operating income.

Non-GAAP net income, which excludes certain charges including
restructuring, acquisition and integration related expenses,
amortization of intangible assets, and amortization of debt placement
fees, was $28 million, or $0.70 per diluted share, compared with $5
million, or $0.13 per diluted share, in 2018. The increase in non-GAAP
EPS was due to higher non-GAAP operating income and a lower effective
tax rate.

Cash Flow

Net cash provided by operating activities was $25 million in the first
quarter compared with negative $24 million in the same quarter of 2018.
Free cash flow was $14 million in the first quarter compared with
negative $42 million in the prior year. Higher cash flow was driven
primarily by higher operating income and less cash outlays related to
restructuring, acquisition and integration related expenses.

Other Measures

Total backlog was $3.0 billion and 12-month backlog was $1.4 billion at
the end of the quarter, compared with $3.1 billion and $1.4 billion,
respectively, in the prior year quarter. Bookings in the quarter totaled
$473 million.

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 May 6, 2019. 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 http://investors.itron.com/events.cfm.
A replay of the audio webcast will be made available at http://investors.itron.com/events.cfm.
A telephone replay of the conference call will be available through May
11, 2019. To access the telephone replay, dial 888-203-1112 or
719-457-0820, and enter passcode 5342456.

About Itron

Itron enables utilities and cities to safely, securely and reliably
deliver critical infrastructure services to communities in more than 100
countries. Our portfolio of smart networks, software, services, meters
and sensors helps our customers better manage electricity, gas and water
resources for the people they serve. By working with our customers to
ensure their success, we help improve the quality of life, ensure the
safety and promote the well-being of millions of people around the
globe. Itron is dedicated to creating a more resourceful world. Join us: www.itron.com.

Itron® and OpenWay® are registered trademarks 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.

Cautionary Note Regarding Forward Looking Statements

This release contains “forward-looking statements” within in 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 relate to
our expectations about, among others, 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. 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 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, 2018 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.

About Non-GAAP Financial Measures

The accompanying press release contains non-GAAP financial measures. 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, constant
currency 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, and other companies may define such
measures differently. 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/or 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 certain discrete cash
and non-cash charges such as acquisition and integration related
expenses, 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 analyze the
health of our business.

Non-GAAP operating expenses and non-GAAP operating
income – We define non-GAAP operating expenses as operating
expenses excluding certain expenses related to the amortization of
intangible assets, restructuring, acquisition and integration, corporate
transition costs, and goodwill impairment. We define non-GAAP operating
income as operating income excluding the expenses related to the
amortization of intangible assets, restructuring, acquisition and
integration, and goodwill impairment. Acquisition and integration
related expenses include costs which are incurred to affect and
integrate business combinations, such as professional fees, certain
employee retention and salaries related to integration, severances,
contract terminations, travel costs related to knowledge transfer,
system conversion costs, and asset impairment charges. 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 acquisitions and restructuring projects. 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, in certain periods expenses related to
amortization of intangible assets may decrease, which would improve 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 expenses and non-GAAP operating income versus
operating expenses and operating income calculated in accordance with
GAAP. We compensate for these limitations by providing specific
information about the GAAP amounts excluded from 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 attributable to Itron,
Inc. excluding the expenses associated with amortization of intangible
assets, restructuring, acquisition and integration, goodwill impairment,
amortization of debt placement fees, corporate transition cost, and the
tax effect of excluding these expenses. 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 attributable to Itron, Inc. and GAAP diluted EPS.

For interim periods, beginning the first quarter of 2019, the budgeted
annual effective tax rate (AETR) is used, adjusted for any discrete
items, as defined in ASC 740 – Income Taxes. The budgeted AETR is
determined at the beginning of the fiscal year. The AETR is revised
throughout the year based on changes to our full-year forecast. If the
revised AETR increases or decreases by 200 basis points or more from the
budgeted AETR due to changes in the full-year forecast during the year,
the revised AETR is used in place of the budgeted AETR beginning with
the quarter the 200 basis point threshold is exceeded and going forward
for all subsequent interim quarters in the year. We continue to assess
the AETR based on latest forecast throughout the year and use the most
recent AETR anytime it increases or decreases by 200 basis points or
more from the prior interim period.

Adjusted EBITDA – We define adjusted EBITDA
as net income (a) minus interest income, (b) plus interest expense,
depreciation and amortization, restructuring, acquisition and
integration related expense, corporate transition costs, goodwill
impairment and (c) excluding income tax provision or benefit. 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. We compensate for
these limitations 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 adjusted
EBITDA 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.

Constant currency – We refer to the impact
of foreign currency exchange rate fluctuations in our discussions of
financial results, which references the differences between the foreign
currency exchange rates used to translate operating results from local
currencies into U.S. dollars for financial reporting purposes. We also
use the term “constant currency,” which represents financial results
adjusted to exclude changes in foreign currency exchange rates as
compared with the rates in the comparable prior year period. We
calculate the constant currency change as the difference between the
current period results and the comparable prior period’s results
restated using current period foreign currency exchange rates.

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.

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