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Itron Announces First Quarter 2018 Financial Results

May 14, 2018

LIBERTY LAKE, Wash.--(BUSINESS WIRE)--May 14, 2018--Itron, Inc. (NASDAQ:ITRI) announced today financial results for its first quarter ended March 31, 2018. Highlights in the quarter include:

Completed acquisition of Silver Spring Networks on Jan. 5, 2018, which operates and reports as the new Itron Networks segment; Revenue of $607 million, compared with $478 million in the first quarter of 2017; Gross margin of 29.6 percent, compared with 33.0 percent in the first quarter of 2017; GAAP loss per share of $3.74, compared with earnings of 40 cents per diluted share in the first quarter of 2017; Non-GAAP diluted earnings per share (EPS) of 13 cents, compared with 57 cents the first quarter of 2017; Adjusted EBITDA of $40 million, compared with $46 million in the first quarter of 2017; and Total backlog of $3.1 billion, compared with $1.6 billion at the end of the first quarter of 2017.

“Itron’s revenue increased by 27 percent in the quarter, driven by increased sales of our smart electric and gas solutions in Europe, accelerated deliveries of our OpenWay® Riva solutions in the Americas and strong performance in the new Networks segment,” said Philip Mezey, Itron president and chief executive officer. “We were very pleased with our revenue performance including the new Networks segment, which delivered 1 million endpoints in the quarter.

“As anticipated, margins and EPS declined from last year, driven by costs related to our global supply chain transitions, higher component and commodity prices and product mix. We are making progress with operational initiatives to help drive efficiencies later in the year, including the integration of the Networks business, executing our restructuring projects and collaborating with our global supply chain partners,” continued Mezey.

“We continue to see strong customer demand for our expanded portfolio of smart networks, software, services, meters and sensors that helps our customers better manage utility and municipal services. Total backlog has increased to $3.1 billion, including the addition of the acquired Networks segment backlog.”

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

Revenue

Total revenue of $607 million increased 27 percent in the first quarter. The increased revenue includes the new Networks segment which added $86 million of revenue. Excluding the addition of the Networks segment, total revenue grew 9 percent.

Electricity revenue increased 6 percent on higher managed services revenue, product revenue growth in the Europe, Middle East and Africa (EMEA) region and strong Riva demand in North America. Gas revenue grew 11 percent primarily driven by smart solution deliveries in EMEA. Water revenue grew by 14 percent driven by increased smart solution deliveries in North America and Asia-Pacific regions and higher residential demand in Latin America. Networks segment revenue was driven by deployments in North America and accelerating international adoption of new solutions.

Gross Margin

Consolidated company gross margin of 29.6 percent decreased 340 basis points compared with the first quarter of 2017. The decline was due to higher costs associated with global supply chain transitions, higher component and commodity costs and product mix.

Operating Expenses and Operating Income (loss)

GAAP operating expenses for the quarter were $320 million compared with $127 million in the first quarter of 2017. The higher operating expenses were driven by restructuring charges of $88 million, acquisition and integration-related expenses of $63 million, the addition of Networks segment and Distributed Energy Management (DEM) operations and the impact of changes in foreign currency exchange rates. Higher operating expenses drove a GAAP operating loss of $140 million compared with operating income of $31 million in the first quarter of 2017.

Non-GAAP operating expenses of $152 million increased from $119 million in 2017 driven by the addition of acquired operations and the impact of changes in foreign currency exchange rates. Non-GAAP operating income declined to $28 million compared with $39 million in 2017 due to higher expenses.

Net Income (loss) and Earnings per Share

Net loss attributable to Itron for the quarter was $146 million, or $3.74 per share, compared with net income of $16 million, or 40 cents per diluted share, in 2017.

The net loss was driven by the operating loss in the quarter and higher interest expense related to financing for the acquisition. These impacts were partially offset by a tax benefit in the U.S. on the pre-tax loss.

Excluding certain charges, including restructuring, acquisition and integration-related expenses and amortization of intangible assets and debt placement fees, non-GAAP net income for the quarter was $5 million, or 13 cents per diluted share, compared with $22 million, or 57 cents per diluted share, in 2017. Compared with last year, non-GAAP net income reflects lower operating income, higher interest expense and a higher non-GAAP effective tax rate due to the timing and mix of taxable income by jurisdiction.

Cash Flow

Net cash used by operating activities was $24 million in the first quarter of 2018 compared with cash provided by operating activities of $63 million in the same quarter of 2017. Free cash flow was negative $42 million in the first quarter compared with positive $54 million in the prior year. The decreases were primarily driven by cash outlays for acquisition and integration-related expenses and timing of 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 $1.6 billion and $819 million, respectively, in the prior year quarter. Bookings in the quarter totaled $557 million. The Networks segment added $1.4 billion and $337 million to total and 12 month backlog, respectively.

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 14, 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 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 20, 2018. To access the telephone replay, dial 888-203-1112 or 719-457-0820, and enter passcode 7526899.

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.

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.

(1) The Networks segment shipped an immaterial number of meters during the three months ended March 31, 2018. (2) The Networks segment shipped approximately 990,000 network interface cards during the three months ended March 31, 2018.

The stand-alone communication modules and cards category includes communicating radio modules shipped in Electric, Gas and Water segments and network interface cards, the primary product sold by our Networks segment.

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