Itron Announces First Quarter 2018 Financial Results

LIBERTY LAKE, Wash.–(BUSINESS WIRE)–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.

"ItronÔÇÖs 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,ÔÇØ said Philip Mezey,
Itron president and chief executive officer. ÔÇ£We were very pleased with
our revenue performance including the new Networks segment, which
delivered 1 million endpoints in the quarter.

ÔÇ£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,ÔÇØ continued Mezey.

ÔÇ£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.ÔÇØ

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 ItronÔÇÖs 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.

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 ÔÇ£Reconciliations of Non-GAAP
Financial Measures to Most Directly Comparable GAAP Financial Measures.ÔÇØ

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 managementÔÇÖs internal comparisons to our
historical performance as well as comparisons to our competitorsÔÇÖ
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, 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, the transition to the Tax Cuts and
Jobs Act, 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.

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, 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.

Contacts

Itron, Inc.
Barbara Doyle, 509-891-3443
Vice President,
Investor Relations
or
Rebecca Hussey, 509-891-3574
Manager,
Investor Relations
www.itron.com

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