Itron Announces Fourth Quarter and Full Year 2017 Financial Results

Fourth Quarter Revenue Increased 11 Percent Driven by Strength in
Smart Solutions

LIBERTY LAKE, Wash.–(BUSINESS WIRE)–Itron, Inc. (NASDAQ:ITRI) announced today financial results for its
fourth quarter and full year ended Dec. 31, 2017. Highlights for the
quarter and full year include:

• Quarterly and full year revenue of $551 million and $2.0 billion;
• Quarterly and full year gross margin of 31.7 percent and 33.5 percent;
• Quarterly and full year GAAP net income of $2 million and $57 million,
  which include a charge of $30 million associated with the Tax Cut and
  Jobs Act ("Tax Act");
• Quarterly and full year GAAP diluted earnings per share of $0.05 and
  $1.45, which include the impact of $0.77 per share associated with the
  Tax Act; and
• Quarterly and full year non-GAAP diluted earnings per share of $1.01
  and $3.06, which exclude the charge associated with the Tax Act.
• The acquisition of Silver Spring Networks closed on Jan. 5, 2018 and
  will operate and report as a new Itron Networks segment.

“Our fourth quarter results reflect strong execution of our strategy as
we delivered year-over-year growth in revenue and non-GAAP earnings per
share," said Philip Mezey, Itron president and chief executive
officer. "The progress we made in the quarter and throughout 2017
provides a solid foundation for 2018 as we optimize our operations and
integrate Silver Spring Networks. The integration is progressing as
planned with active collaboration across our team, a powerful sense of
our shared mission and values and positive support from customers and
partners."

Summary of Fourth Quarter Consolidated Financial Results

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

Revenue

Total revenue of $551 million increased 11 percent, or 8 percent
excluding the impact of changes in foreign currency exchange rates,
compared with the fourth quarter of 2016, driven by strong smart
solution business and managed services.

By segment, Electricity revenue increased 20 percent driven by higher
smart solution deliveries primarily in North America and Europe, Middle
East and Africa (EMEA) regions. Gas and Water revenue increased 2
percent and 3 percent, respectively, primarily due to a favorable impact
from changes in foreign currency exchange rates.

Gross Margin

Consolidated gross margin of 31.7 percent increased 10 basis points
compared with the fourth quarter of 2016, driven by higher volume and
mix of smart solutions primarily in the Electricity segment, offsetting
lower gross margins in the Gas and Water segments.

Operating Income, Net Income and Earnings per
Share (EPS)

GAAP operating income increased to $47 million compared with $31 million
in the fourth quarter of 2016. Non-GAAP operating income increased to
$55 million compared with $45 million in 2016. GAAP and non-GAAP
operating income improved due to increased revenue at a higher gross
margin, offsetting modest increases in operating expenses to support new
solutions.

GAAP net income attributable to Itron for the quarter was $2 million, or
$0.05 per diluted share, compared with net income of $12 million, or
$0.30 per diluted share, in 2016. The lower GAAP net income and EPS were
due to a charge of $30 million, or $0.77 per share, to recognize
estimated impacts on the company's deferred tax assets due to the
enactment of the Tax Act.

Non-GAAP net income of $40 million, or $1.01 per diluted share,
increased compared with $26 million, or $0.68 per diluted share, in
2016. The increase reflects higher non-GAAP operating income and lower
tax expense related to tax audit settlements, adjustments to valuation
allowances and the timing and mix of taxable income by jurisdiction.
Non-GAAP amounts exclude the charge related to the Tax Act.

Cash Flow

In the fourth quarter, cash provided by operating activities of $77
million and free cash flow of $61 million increased $43 million and $40
million, respectively, compared with the fourth quarter of 2016.
Full-year 2017 cash provided by operating activities of $191 million and
free cash flow of $142 million increased $76 million and $70 million,
respectively, from the prior year. These cash flow increases were
primarily driven by improved profitability and changes in working
capital.

Other Measures

Bookings of $811 million increased 24 percent compared with the fourth
quarter of 2016. Total backlog was $1.8 billion and 12-month backlog was
$931 million at the end of the quarter, a year-over-year increase of 6
percent and 22 percent, respectively.

Operational Update

On Feb. 22, 2018, the board of directors approved a new restructuring
plan to continue efforts to optimize our global supply chain,
manufacturing operations and product development, sales and marketing
Organizations. Estimated pre-tax restructuring charges are between $100
and $110 million, the majority of which will be recognized in the first
quarter of 2018. The projects under this plan are anticipated to result
in approximately $45 to $50 million of annualized savings upon
completion. The Company expects to substantially complete projects under
this plan by the end of 2020.

Many of our employees are represented by unions or works councils, which
requires consultation, and potential restructuring projects may be
subject to regulatory approval, both of which could impact the timing of
planned savings in certain jurisdictions.

Financial Guidance

Itron’s guidance for the full year 2018 is as follows:

• Revenue between $2.33 and $2.43 billion
• Non-GAAP diluted EPS between $2.95 and $3.35

Itron's guidance for the first quarter of 2018 is as follows:

• Revenue between $575 and $600 million
• Non-GAAP diluted EPS between $0.10 and $0.15

Guidance assumes an average euro to U.S. dollar foreign currency
exchange rate of $1.21 in 2018, diluted weighted average shares
outstanding of approximately 40 million for the year, a non-GAAP
effective tax rate for the year of approximately 28 percent and total
interest expense of approximately $50 million. Operating profitability
and Non-GAAP EPS is expected to be weighted to the second half of the
year.

The company also confirmed its expectations that the acquisition of
Silver Spring Networks will be accretive to gross margin in 2018 and
will be accretive to non-GAAP EPS and adjusted EBITDA in 2019.

These assumptions are forward-looking and reflect the estimated impacts
of purchase accounting for the acquisition of Silver Spring Networks,
adoption of the new revenue accounting standard and the Tax Act on our
financial results and are subject to change.

A reconciliation of forward-looking non-GAAP diluted EPS to the GAAP
diluted EPS has not been provided because we are unable to predict with
reasonable certainty the potential amount or timing of restructuring and
acquisition and integration related expenses and their related tax
effects without unreasonable effort. These items are uncertain, depend
on various factors and could have a material impact on GAAP results for
the guidance period.

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. EDT on Feb. 28, 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 Mar.
5, 2018. To access the telephone replay, dial (888) 203-1112 (domestic)
or (719) 457-0820 (international) and enter passcode 3052187.

About Itron

Itron is a world-leading technology and services company dedicated to
the resourceful use of energy and water. We provide comprehensive
solutions that measure, manage and analyze energy and water. Our broad
product portfolio includes electricity, gas, water and thermal energy
measurement devices and control technology; communications systems;
software; as well as managed and consulting services. With thousands of
employees supporting nearly 8,000 customers in more than 100 countries,
Itron applies knowledge and technology to better manage energy and water
resources. Together, we can create 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,
2016 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 purchase accounting adjustments,
restructuring charges or goodwill impairment charges, and the impact of
the Tax Cuts and Jobs Act ("Tax Act"). 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, impact from the Tax 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.

Contacts

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

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