8-K
Itron, Inc. (ITRI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
| November 2, 2020 | ||
|---|---|---|
| Date of Report (Date of Earliest Event Reported) | ||
| ITRON, INC. | ||
| --- | ||
| (Exact Name of Registrant as Specified in its Charter) | ||
| Washington | 000-22418 | 91-1011792 |
| --- | --- | --- |
| (State or Other Jurisdiction<br><br> <br>of Incorporation) | (Commission File No.) | (IRS Employer<br><br> <br>Identification No.) |
| 2111 N. Molter Road, Liberty Lake, Washington 99019 | ||
| --- | ||
| (Address of Principal Executive Offices, Zip Code) | ||
| (509) 924-9900 | ||
| --- | ||
| (Registrant's Telephone Number, Including Area Code) | ||
| (Former Name or Former Address, if Changed Since Last Report) | ||
| --- |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ Written communications pursuant to Rule 425 under Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common stock, no par value | ITRI | NASDAQ Global Select Market |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| Item 2.02 | Results of Operations and Financial Condition. |
|---|
On November 2, 2020, Itron, Inc. issued a press release announcing its financial results for the three and nine months ended September 30, 2020. A copy of this press release and accompanying financial statements are attached as Exhibit 99.1.
| Item 9.01 | Financial Statements and Exhibits. |
|---|
(d) Exhibits.
| Exhibit<br><br> Number | Description |
|---|---|
| 99.1 | Press Release Dated November 2, 2020.* |
| *This exhibit is intended to be furnished and shall not be deemed "filed" for purposes of the Exchange Act. |
Forward Looking Statements
This release contains, and our officers and representatives may from time to time make, "forward-looking statements" within 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 are based on our expectations about, among others, revenues, operations, financial performance, earnings, liquidity, earnings per share, cash flows and restructuring activities including headcount reductions and other cost savings initiatives. This document reflects our current strategy, plans and expectations and is based on information currently available as of the date of this release. When we use words such as "expect," "intend," "anticipate," "believe," "plan," "goal," "seek," "project," "estimate," "future," "strategy," "objective," "may," "likely," "should," "will," "will continue," and similar expressions, including related to future periods, they are intended to identify forward-looking statements. Forward-looking statements rely on a number of assumptions and estimates. 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 execute on our restructuring plan, 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, uncertainties caused by adverse economic conditions, including, without limitation those resulting from extraordinary events or circumstances such as the COVID-19 pandemic and other factors that are more fully described in Item 1A: "Risk Factors" included in our Annual Report on Form 10-K for the year ended December 31, 2019 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.
The impact caused by the ongoing COVID-19 pandemic includes uncertainty as to the duration, spread, severity, and any recurrence of the COVID-19 pandemic, the duration and scope of related government orders and restrictions, impact on overall demand, impact on our customers’ businesses and workforce levels, disruptions of our business and operations, including the impact on our employees, limitations on, or closures of, our facilities, or the business and operations of our customers or suppliers. Our estimates and statements regarding the impact of COVID-19 are made in good faith to provide insight to our current and future operating and financial environment and any of these may materially change due to factors outside our control. For more information on risks associated with the COVID-19 pandemic, please see Itron’s updated risk in Part II, Item 1A, "Risk Factors" of our latest 10-Q filing with the SEC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| ITRON, INC. | ||
|---|---|---|
| By: | /s/ JOAN S. HOOPER | |
| November 2, 2020 | Joan S. Hooper | |
| Date | Senior Vice President and Chief Financial Officer |
EXHIBIT INDEX
| Exhibit<br><br> Number | Description |
|---|---|
| 99.1 | Press<br> Release Dated November 2, 2020.* |
| *This exhibit is intended to be furnished and shall not be deemed "filed" for purposes of the Exchange Act. | |
| Exhibit 99.1 | |
| --- |
Itron Announces Third Quarter 2020 Financial Results and Operational Update
LIBERTY LAKE, Wash.--(BUSINESS WIRE)--November 2, 2020--Itron, Inc. (NASDAQ:ITRI) announced today financial results for its third quarter ended Sept. 30, 2020. Key results for the quarter include (compared with the third quarter of 2019):
- Revenue of $540 million, compared with $624 million;
- Gross margin of 26.5%; compared with 31.5%;
- GAAP net loss of $(25) million, compared with net income of $17 million;
- GAAP loss per share of $(0.63), compared with GAAP diluted earnings per share (EPS) of $0.42;
- Non-GAAP diluted EPS of $0.61, compared with $1.04;
- Adjusted EBITDA of $40 million, compared with $74 million;
- Free cash flow of $38 million, compared with $32 million; and
- Total backlog of $2.8 billion, compared with $3.1 billion.
"During the third quarter, our team continued to focus on the success of our customers and safely delivered results aligned to our expectations," said Tom Deitrich, Itron's president and chief executive officer.
"While still being negatively impacted by the COVID-19 pandemic, our results have improved sequentially from the second quarter low point," continued Deitrich. "While we navigate the near-term challenges, we continue to innovate and position Itron to capture the growing technology and service need of utilities and cities with our solutions."
Summary of Third Quarter Consolidated Financial Results
(All comparisons made are against the prior year period unless otherwise noted)
Revenue
Total third quarter revenue decreased 13% to $540 million, or 14%, excluding the impact of changes in foreign currency exchange rates. The decrease was primarily due to lower customer demand and operating constraints resulting from COVID-19.
Device Solutions revenue decreased 17%, Networked Solutions revenue decreased 14% and Outcomes revenue increased 5%.
Gross Margin
Consolidated company gross margin of 26.5% decreased 500 basis points from the prior year due to COVID-19 induced manufacturing inefficiencies, inventory reserves and product mix.
Operating Expenses and Operating Income
GAAP operating expenses of $167 million increased $10 million from the prior year due to $44 million of restructuring expenses recognized in the quarter, partially offset by lower SG&A expenses, product development and amortization.
Non-GAAP operating expenses of $114 million decreased $17 million from the prior year due to lower sales, general and administrative expenses and product development.
GAAP operating loss of $(24) million was lower than the prior year due to lower gross profit and higher GAAP operating expenses. Non-GAAP operating income of $30 million decreased compared with the prior year due to lower gross profit.
Net Income (Loss) and Earnings (Loss) per Share
The net loss attributable to Itron, Inc. for the quarter was $(25) million, or $(0.63) per share, a decrease from net income of $17 million, or $0.42 per diluted share, in 2019. The decrease was driven by lower GAAP operating income in the current period and a higher GAAP effective tax rate.
Non-GAAP net income, which excludes certain charges including amortization of intangible assets, amortization of debt placement fees, restructuring, loss on sale of business, corporate transition cost, acquisition and integration related expenses and the income tax effect of those adjustments, was $25 million, or $0.61 per diluted share, compared with $41 million, or $1.04 per diluted share, in 2019. The lower year-over-year results were primarily due to the negative impact of the COVID-19 virus.
Cash Flow
Net cash provided by operating activities was $45 million in the third quarter compared with $50 million in the same quarter of 2019. Free cash flow was $38 million in the third quarter compared with $32 million in the prior year. The higher free cash flow was due to improved working capital and lower capital expenditures, partially offset by the lower operating income.
Other Measures
Total backlog was $2.8 billion and 12-month backlog was $1.1 billion, compared with $3.1 billion and $1.4 billion, respectively, in the prior year. Bookings in the quarter totaled $432 million.
Operational Update and Outlook
Results, while improving sequentially from the second quarter, still reflect the current pandemic operating environment. Our supply chain and logistics situation remain stable. We continue to have all factories up and running with aggressive measures to execute safely across our entire operation. Itron remains vigilant and prepared for regional and local spikes from the pandemic that may potentially disrupt our operations. We see some customers resuming deployments and a strong pipeline of new tenders. To date there have been no contract cancellations or slowing with collections from our customers. However, some new deployments that were expected to start in 2020 have shifted to out years due to pandemic conditions and/or delays in the regulatory approval process. On balance, we were pleased with our team’s focus and execution this quarter and we remain on track to achieve our second half 2020 expectations.
Earnings Conference Call
Itron will host a conference call to discuss the financial results and guidance contained in this release at 11 a.m. EST on Nov. 2, 2020. 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 Nov. 7, 2020. To access the telephone replay, dial 888-203-1112 or 719-457-0820 and enter passcode 6815143.
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® is 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, and our officers and representatives may from time to time make, "forward-looking statements" within 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 are based on our expectations about, among others, revenues, operations, financial performance, earnings, liquidity, earnings per share, cash flows and restructuring activities including headcount reductions and other cost savings initiatives. This document reflects our current strategy, plans and expectations and is based on information currently available as of the date of this release. When we use words such as "expect," "intend," "anticipate," "believe," "plan," “goal,” “seek,” "project," "estimate," "future," “strategy,” "objective," "may," “likely,” “should,” "will," "will continue," and similar expressions, including related to future periods, they are intended to identify forward-looking statements. Forward-looking statements rely on a number of assumptions and estimates. 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 execute on our restructuring plan, 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, uncertainties caused by adverse economic conditions, including, without limitation those resulting from extraordinary events or circumstances such as the COVID-19 pandemic and other factors that are more fully described in Item 1A: “Risk Factors” included in our Annual Report on Form 10-K for the year ended Dec. 31, 2019 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.
The impact caused by the ongoing COVID-19 pandemic includes uncertainty as to the duration, spread, severity, and any recurrence of the COVID-19 pandemic, the duration and scope of related government orders and restrictions, impact on overall demand, impact on our customers’ businesses and workforce levels, disruptions of our business and operations, including the impact on our employees, limitations on, or closures of, our facilities, or the business and operations of our customers or suppliers. Our estimates and statements regarding the impact of COVID-19 are made in good faith to provide insight to our current and future operating and financial environment and any of these may materially change due to factors outside our control. For more information on risks associated with the COVID-19 pandemic, please see Itron’s updated risk in Part II, Item 1A, “Risk Factors” of our latest 10-Q filing with the SEC.
Non-GAAP Financial Information
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, 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. We strongly encourage investors and shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure. 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.
| ITRON, INC. | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||
| (Unaudited, in thousands, except per share data) | ||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||
| Revenues | ||||||||||||||
| Product revenues | $ | 470,658 | $ | 552,897 | $ | 1,437,780 | $ | 1,663,794 | ||||||
| Service revenues | 69,526 | 71,577 | 210,413 | 210,293 | ||||||||||
| Total revenues | 540,184 | 624,474 | 1,648,193 | 1,874,087 | ||||||||||
| Cost of revenues | ||||||||||||||
| Product cost of revenues | 358,297 | 389,778 | 1,072,271 | 1,176,913 | ||||||||||
| Service cost of revenues | 38,636 | 38,292 | 122,588 | 122,293 | ||||||||||
| Total cost of revenues | 396,933 | 428,070 | 1,194,859 | 1,299,206 | ||||||||||
| Gross profit | 143,251 | 196,404 | 453,334 | 574,881 | ||||||||||
| Operating expenses | ||||||||||||||
| Sales, general and administrative | 64,982 | 83,666 | 215,018 | 264,640 | ||||||||||
| Research and development | 46,224 | 50,612 | 148,999 | 150,551 | ||||||||||
| Amortization of intangible assets | 11,183 | 16,095 | 33,488 | 48,185 | ||||||||||
| Restructuring | 44,462 | 6,592 | 41,531 | 7,685 | ||||||||||
| Loss on sale of business | 380 | — | 57,295 | — | ||||||||||
| Total operating expenses | 167,231 | 156,965 | 496,331 | 471,061 | ||||||||||
| Operating income (loss) | (23,980 | ) | 39,439 | (42,997 | ) | 103,820 | ||||||||
| Other income (expense) | ||||||||||||||
| Interest income | 354 | 517 | 2,165 | 1,379 | ||||||||||
| Interest expense | (10,810 | ) | (12,868 | ) | (33,771 | ) | (39,899 | ) | ||||||
| Other income (expense), net | (2,607 | ) | (2,759 | ) | (3,414 | ) | (6,463 | ) | ||||||
| Total other income (expense) | (13,063 | ) | (15,110 | ) | (35,020 | ) | (44,983 | ) | ||||||
| Income (loss) before income taxes | (37,043 | ) | 24,329 | (78,017 | ) | 58,837 | ||||||||
| Income tax benefit (provision) | 11,985 | (6,152 | ) | (366 | ) | (20,692 | ) | |||||||
| Net income (loss) | (25,058 | ) | 18,177 | (78,383 | ) | 38,145 | ||||||||
| Net income attributable to noncontrolling interests | 299 | 1,330 | 1,092 | 3,759 | ||||||||||
| Net income (loss) attributable to Itron, Inc. | $ | (25,357 | ) | $ | 16,847 | $ | (79,475 | ) | $ | 34,386 | ||||
| Net income (loss) per common share - Basic | $ | (0.63 | ) | $ | 0.43 | $ | (1.98 | ) | $ | 0.87 | ||||
| Net income (loss) per common share - Diluted | $ | (0.63 | ) | $ | 0.42 | $ | (1.98 | ) | $ | 0.86 | ||||
| Weighted average common shares outstanding - Basic | 40,337 | 39,478 | 40,199 | 39,508 | ||||||||||
| Weighted average common shares outstanding - Diluted | 40,337 | 39,903 | 40,199 | 39,884 |
| ITRON, INC. | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| SEGMENT INFORMATION | ||||||||||||||
| (Unaudited, in thousands) | ||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||
| Product revenues | ||||||||||||||
| Device Solutions | $ | 174,039 | $ | 211,096 | $ | 501,157 | $ | 644,254 | ||||||
| Networked Solutions | 282,677 | 330,487 | 898,465 | 978,259 | ||||||||||
| Outcomes | 13,942 | 11,314 | 38,158 | 41,281 | ||||||||||
| Total Company | $ | 470,658 | $ | 552,897 | $ | 1,437,780 | $ | 1,663,794 | ||||||
| Service revenues | ||||||||||||||
| Device Solutions | $ | 2,089 | $ | 2,253 | $ | 6,415 | $ | 8,573 | ||||||
| Networked Solutions | 23,982 | 25,734 | 73,519 | 70,305 | ||||||||||
| Outcomes | 43,455 | 43,590 | 130,479 | 131,415 | ||||||||||
| Total Company | $ | 69,526 | $ | 71,577 | $ | 210,413 | $ | 210,293 | ||||||
| Total revenues | ||||||||||||||
| Device Solutions | $ | 176,128 | $ | 213,349 | $ | 507,572 | $ | 652,827 | ||||||
| Networked Solutions | 306,659 | 356,221 | 971,984 | 1,048,564 | ||||||||||
| Outcomes | 57,397 | 54,904 | 168,637 | 172,696 | ||||||||||
| Total Company | $ | 540,184 | $ | 624,474 | $ | 1,648,193 | $ | 1,874,087 | ||||||
| Gross profit | ||||||||||||||
| Device Solutions | $ | 20,528 | $ | 40,945 | $ | 64,843 | $ | 122,451 | ||||||
| Networked Solutions | 102,295 | 135,406 | 332,368 | 388,717 | ||||||||||
| Outcomes | 20,428 | 20,053 | 56,123 | 63,713 | ||||||||||
| Total Company | $ | 143,251 | $ | 196,404 | $ | 453,334 | $ | 574,881 | ||||||
| Operating income (loss) | ||||||||||||||
| Device Solutions | $ | 11,017 | $ | 27,905 | $ | 28,095 | $ | 81,717 | ||||||
| Networked Solutions | 71,404 | 105,637 | 237,466 | 298,994 | ||||||||||
| Outcomes | 12,044 | 10,843 | 29,468 | 35,620 | ||||||||||
| Corporate unallocated | (118,445 | ) | (104,946 | ) | (338,026 | ) | (312,511 | ) | ||||||
| Total Company | $ | (23,980 | ) | $ | 39,439 | $ | (42,997 | ) | $ | 103,820 |
| ITRON, INC. | ||||||
|---|---|---|---|---|---|---|
| METER AND MODULE SUMMARY | ||||||
| (Unaudited, Units in thousands) | ||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||
| 2020 | 2019 | 2020 | 2019 | |||
| Itron Endpoints | ||||||
| Standard endpoints | 3,890 | 5,420 | 12,410 | 16,460 | ||
| Networked endpoints | 3,860 | 3,940 | 11,950 | 12,180 | ||
| Total endpoints | 7,750 | 9,360 | 24,360 | 28,640 |
| ITRON, INC. | ||||||
|---|---|---|---|---|---|---|
| CONSOLIDATED BALANCE SHEETS | ||||||
| (Unaudited, in thousands) | September 30, 2020 | December 31, 2019 | ||||
| ASSETS | ||||||
| Current assets | ||||||
| Cash and cash equivalents | $ | 586,167 | $ | 149,904 | ||
| Accounts receivable, net | 386,920 | 472,925 | ||||
| Inventories | 205,178 | 227,896 | ||||
| Other current assets | 173,906 | 146,526 | ||||
| Total current assets | 1,352,171 | 997,251 | ||||
| Property, plant, and equipment, net | 205,930 | 233,228 | ||||
| Deferred tax assets, net | 72,305 | 63,899 | ||||
| Other long-term assets | 47,929 | 44,686 | ||||
| Operating lease right-of-use assets, net | 78,190 | 79,773 | ||||
| Intangible assets, net | 144,888 | 185,097 | ||||
| Goodwill | 1,114,511 | 1,103,907 | ||||
| Total assets | $ | 3,015,924 | $ | 2,707,841 | ||
| LIABILITIES AND EQUITY | ||||||
| Current liabilities | ||||||
| Accounts payable | $ | 232,236 | $ | 328,128 | ||
| Other current liabilities | 76,509 | 63,785 | ||||
| Wages and benefits payable | 91,225 | 119,220 | ||||
| Taxes payable | 15,482 | 22,193 | ||||
| Current portion of debt | 21,406 | — | ||||
| Current portion of warranty | 32,118 | 38,509 | ||||
| Unearned revenue | 117,729 | 99,556 | ||||
| Total current liabilities | 586,705 | 671,391 | ||||
| Long-term debt, net | 1,313,459 | 932,482 | ||||
| Long-term warranty | 10,969 | 14,732 | ||||
| Pension benefit obligation | 103,273 | 98,712 | ||||
| Deferred tax liabilities, net | 1,854 | 1,809 | ||||
| Operating lease liabilities | 68,847 | 68,919 | ||||
| Other long-term obligations | 133,552 | 118,981 | ||||
| Total liabilities | 2,218,659 | 1,907,026 | ||||
| Equity | ||||||
| Common stock | 1,381,774 | 1,357,600 | ||||
| Accumulated other comprehensive loss, net | (154,013) | (204,672) | ||||
| Accumulated deficit | (455,865) | (376,390) | ||||
| Total Itron, Inc. shareholders' equity | 771,896 | 776,538 | ||||
| Noncontrolling interests | 25,369 | 24,277 | ||||
| Total equity | 797,265 | 800,815 | ||||
| Total liabilities and equity | $ | 3,015,924 | $ | 2,707,841 |
| ITRON, INC. | ||||||||
|---|---|---|---|---|---|---|---|---|
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| (Unaudited, in thousands) | Nine Months Ended September 30, | |||||||
| 2020 | 2019 | |||||||
| Operating activities | ||||||||
| Net income (loss) | $ | (78,383 | ) | $ | 38,145 | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 72,306 | 85,691 | ||||||
| Non-cash operating lease expense | 15,252 | 13,847 | ||||||
| Stock-based compensation | 20,638 | 21,064 | ||||||
| Amortization of prepaid debt fees | 3,029 | 3,686 | ||||||
| Deferred taxes, net | (9,439 | ) | 4,990 | |||||
| Loss on sale of business | 57,295 | — | ||||||
| Restructuring, non-cash | 6,518 | (2,147 | ) | |||||
| Other adjustments, net | 3,856 | (6,121 | ) | |||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | 82,087 | (39,385 | ) | |||||
| Inventories | 8,978 | (15,762 | ) | |||||
| Other current assets | (12,862 | ) | (10,494 | ) | ||||
| Other long-term assets | (2,547 | ) | 7,945 | |||||
| Accounts payable, other current liabilities, and taxes payable | (82,775 | ) | (4,063 | ) | ||||
| Wages and benefits payable | (28,446 | ) | 30,220 | |||||
| Unearned revenue | 15,098 | 6,746 | ||||||
| Warranty | (10,894 | ) | (5,506 | ) | ||||
| Other operating, net | 10,860 | (756 | ) | |||||
| Net cash provided by operating activities | 70,571 | 128,100 | ||||||
| Investing activities | ||||||||
| Net payments related to the sale of business | (748 | ) | — | |||||
| Acquisitions of property, plant, and equipment | (36,297 | ) | (44,570 | ) | ||||
| Other investing, net | 3,573 | 9,977 | ||||||
| Net cash used in investing activities | (33,472 | ) | (34,593 | ) | ||||
| Financing activities | ||||||||
| Proceeds from borrowings | 400,000 | 50,000 | ||||||
| Payments on debt | — | (100,313 | ) | |||||
| Issuance of common stock | 5,059 | 7,117 | ||||||
| Repurchase of common stock | — | (25,000 | ) | |||||
| Prepaid debt fees | (184 | ) | (175 | ) | ||||
| Other financing, net | (2,285 | ) | (5,221 | ) | ||||
| Net cash provided by (used in) financing activities | 402,590 | (73,592 | ) | |||||
| Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash | (3,426 | ) | (543 | ) | ||||
| Increase in cash, cash equivalents, and restricted cash | 436,263 | 19,372 | ||||||
| Cash, cash equivalents, and restricted cash at beginning of period | 149,904 | 122,328 | ||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | 586,167 | $ | 141,700 |
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, free cash flow, and constant currency. 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 the 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, or restructuring 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, loss on sale of business, corporate transition cost, and acquisition and integration. We define non-GAAP operating income as operating income excluding the expenses related to the amortization of intangible assets, restructuring, loss on sale of business, corporate transition cost, and acquisition and integration. 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 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, amortization of debt placement fees, restructuring, loss on sale of business, corporate transition cost, acquisition and integration, 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 of intangible assets, restructuring, loss on sale of business, corporate transition cost, acquisition and integration related expense, 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 (loss).
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 the entity's functional currency 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.
| ITRON, INC. | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES | |||||||||||||||
| TO THE MOST DIRECTLY COMPARABLE GAAP FINANCIAL MEASURES | |||||||||||||||
| (Unaudited, in thousands, except per share data) | |||||||||||||||
| TOTAL COMPANY RECONCILIATIONS | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||
| NON-GAAP OPERATING EXPENSES | |||||||||||||||
| GAAP operating expenses | $ | 167,231 | $ | 156,965 | $ | 496,331 | $ | 471,061 | |||||||
| Amortization of intangible assets | (11,183 | ) | (16,095 | ) | (33,488 | ) | (48,185 | ) | |||||||
| Restructuring | (44,462 | ) | (6,592 | ) | (41,531 | ) | (7,685 | ) | |||||||
| Loss on sale of business | (380 | ) | — | (57,295 | ) | — | |||||||||
| Corporate transition cost | — | (57 | ) | 33 | (1,613 | ) | |||||||||
| Acquisition and integration related expense | 2,348 | (3,834 | ) | 738 | (24,593 | ) | |||||||||
| Non-GAAP operating expenses | $ | 113,554 | $ | 130,387 | $ | 364,788 | $ | 388,985 | |||||||
| NON-GAAP OPERATING INCOME | |||||||||||||||
| GAAP operating income (loss) | $ | (23,980 | ) | $ | 39,439 | $ | (42,997 | ) | $ | 103,820 | |||||
| Amortization of intangible assets | 11,183 | 16,095 | 33,488 | 48,185 | |||||||||||
| Restructuring | 44,462 | 6,592 | 41,531 | 7,685 | |||||||||||
| Loss on sale of business | 380 | — | 57,295 | — | |||||||||||
| Corporate transition cost | — | 57 | (33 | ) | 1,613 | ||||||||||
| Acquisition and integration related expense | (2,348 | ) | 3,834 | (738 | ) | 24,593 | |||||||||
| Non-GAAP operating income | $ | 29,697 | $ | 66,017 | $ | 88,546 | $ | 185,896 | |||||||
| NON-GAAP NET INCOME & DILUTED EPS | |||||||||||||||
| GAAP net income (loss) attributable to Itron, Inc. | $ | (25,357 | ) | $ | 16,847 | $ | (79,475 | ) | $ | 34,386 | |||||
| Amortization of intangible assets | 11,183 | 16,095 | 33,488 | 48,185 | |||||||||||
| Amortization of debt placement fees | 972 | 1,240 | 2,898 | 3,555 | |||||||||||
| Restructuring | 44,462 | 6,592 | 41,531 | 7,685 | |||||||||||
| Loss on sale of business | 380 | — | 57,295 | — | |||||||||||
| Corporate transition cost | — | 57 | (33 | ) | 1,613 | ||||||||||
| Acquisition and integration related expense | (2,348 | ) | 3,834 | (738 | ) | 24,593 | |||||||||
| Income tax effect of non-GAAP adjustments | (4,658 | ) | (3,269 | ) | (6,037 | ) | (16,131 | ) | |||||||
| Non-GAAP net income attributable to Itron, Inc. | $ | 24,634 | $ | 41,396 | $ | 48,929 | $ | 103,886 | |||||||
| Non-GAAP diluted EPS | $ | 0.61 | $ | 1.04 | $ | 1.21 | $ | 2.60 | |||||||
| Non-GAAP weighted average common shares outstanding - Diluted | 40,559 | 39,903 | 40,507 | 39,884 | |||||||||||
| ADJUSTED EBITDA | |||||||||||||||
| GAAP net income (loss) attributable to Itron, Inc. | $ | (25,357 | ) | $ | 16,847 | $ | (79,475 | ) | $ | 34,386 | |||||
| Interest income | (354 | ) | (517 | ) | (2,165 | ) | (1,379 | ) | |||||||
| Interest expense | 10,810 | 12,868 | 33,771 | 39,899 | |||||||||||
| Income tax provision | (11,985 | ) | 6,152 | 366 | 20,692 | ||||||||||
| Depreciation and amortization | 24,076 | 28,623 | 72,306 | 85,691 | |||||||||||
| Restructuring | 44,462 | 6,592 | 41,531 | 7,685 | |||||||||||
| Loss on sale of business | 380 | — | 57,295 | — | |||||||||||
| Corporate transition cost | — | 57 | (33 | ) | 1,613 | ||||||||||
| Acquisition and integration related expense | (2,348 | ) | 3,834 | (738 | ) | 24,593 | |||||||||
| Adjusted EBITDA | $ | 39,684 | $ | 74,456 | $ | 122,858 | $ | 213,180 | |||||||
| FREE CASH FLOW | |||||||||||||||
| Net cash provided by operating activities | $ | 44,785 | $ | 50,037 | $ | 70,571 | $ | 128,100 | |||||||
| Acquisitions of property, plant, and equipment | (7,248 | ) | (18,059 | ) | (36,297 | ) | (44,570 | ) | |||||||
| Free Cash Flow | $ | 37,537 | $ | 31,978 | $ | 34,274 | $ | 83,530 |
Contacts
Itron, Inc.
Kenneth P. Gianella
Vice President, Investor Relations
\(669\) 770-4643
Rebecca Hussey
Manager, Investor Relations
\(509\) 891-3574