Itron Announces Second Quarter 2022 Financial Results and Updated Full-Year 2022 Guidance

LIBERTY LAKE, Wash.–(BUSINESS WIRE)–Itron, Inc. (NASDAQ:ITRI) announced today financial results for its second quarter ended June 30, 2022. Key results for the quarter include (compared with the second quarter of 2021):

• Revenue of $432 million, compared with $489 million;
• Gross margin of 29.2%; compared with 30.6%;
• GAAP net loss of $(37) million, compared with $(33) million;
• GAAP loss per share (EPS) of $(0.82), compared with $(0.73);
• Non-GAAP diluted EPS of $0.07, compared with $0.28;
• Adjusted EBITDA of $17 million, compared with $36 million;
• Free cash flow of $10 million, compared with $64 million; and
• Total backlog of $4.1 billion, compared with $3.5 billion.

“In the second quarter of 2022, we continued to be impacted operationally by supply constraints and manufacturing inefficiencies. Meanwhile demand for our solutions remained strong with a healthy book-to-bill ratio and another record set for total ending backlog as well as 12-month backlog,” said Tom Deitrich, Itron’s president and chief executive officer.

Summary of Second Quarter Consolidated Financial Results

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

Revenue

Total second quarter revenue decreased 12% to $432 million, or 8%, excluding the impact of changes in foreign currency exchange rates. The decrease was due to the continued impact of component constraints limiting our ability to meet customer demand.

Device Solutions revenue declined 36%, Networked Solutions revenue increased 2%, and Outcomes revenue decreased 6%.

Gross Margin

Consolidated company gross margin of 29.2% decreased 140 basis points from the prior year, primarily due to inflationary pressures and inefficiencies driven by component shortages.

Operating Expenses and Operating Income (Loss)

GAAP operating expenses of $160 million increased $3 million from the prior year. Non-GAAP operating expenses of $117 million decreased $6 million from the prior year primarily due to lower product development expenses.

GAAP operating loss of $(34) million was $27 million higher than the prior year. GAAP operating loss includes goodwill impairment of $38.5 million related to our Device Solutions segment. Non-GAAP operating income of $9 million was $18 million lower than last year. The decreases were primarily due to lower gross profit.

Net Income (Loss) and Earnings (Loss) per Share

Net loss attributable to Itron, Inc. for the quarter was $(37) million, or $(0.82) per share, compared with $(33) million, or $(0.73) per share in 2021. The greater net loss was driven by a larger GAAP operating loss, partially offset by lower interest expense.

Non-GAAP net income, which excludes certain charges including amortization of intangible assets, amortization of debt placement fees, debt extinguishment, restructuring, loss on sale of business, strategic initiatives, acquisition and integration, goodwill impairment, and the income tax effect of those adjustments, was $3 million, or $0.07 per diluted share, compared with $13 million, or $0.28 per diluted share, in 2021. The lower year-over-year results were due to lower non-GAAP operating income and a higher effective tax rate.

Cash Flow

Net cash provided by operating activities was $15 million in the second quarter compared with $73 million in the same quarter of 2021. Free cash flow was $10 million in the second quarter compared with $64 million in the prior year. The year-over-year decrease in cash flow was driven by reduced non-GAAP EBITDA and timing of working capital.

Other Measures

Total backlog was $4.1 billion and 12-month backlog was $1.7 billion, compared with $3.5 billion and $1.4 billion, respectively, in the prior year. Bookings in the quarter totaled $612 million.

Financial Guidance Update

Itron’s guidance for the full year 2022 has been updated as follows:

• Revenue between $1.85 to $1.9 billion vs. previous guidance of $2.0 to $2.1 billion
• Non-GAAP diluted EPS between $0.70 to $0.90 vs. previous guidance of $1.25 to $1.75

The guidance assumes a Euro to U.S. dollar foreign currency exchange rate of 1.06 on average in the second half of 2022, average fully diluted shares outstanding of approximately 45.3 million for the full year, non-GAAP effective tax rate for the full year of approximately 30%.

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 10 a.m. EDT on Aug. 4, 2022. 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 Aug. 9, 2022 at 1:30 p.m. EDT. To access the telephone replay, dial 888-203-1112 or 719-457-0820 and enter passcode 5692928.

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 a registered trademark 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 plans, 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 Part I, Item 1A: Risk Factors included in our 2021 Annual Report and other reports on file with the Securities and Exchange Commission (SEC). We undertake no obligation to update or revise any forward-looking statement, whether written or oral.

Non-GAAP Financial Information

To supplement our consolidated financial statements, which are prepared in accordance with accounting principles generally accepted in the United States (GAAP), we use certain adjusted or non-GAAP financial measures, including non-GAAP operating expense, non-GAAP operating income, non-GAAP net income, non-GAAP diluted earnings per share (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. We believe 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.

ITRON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
			Three Months Ended June 30,							Six Months Ended June 30,
				2022			2021				2022			2021
Revenues
	Product revenues		$	359,898		$	411,719			$	759,708		$	854,523
	Service revenues			71,984			77,693				147,505			154,463
		Total revenues		431,882			489,412				907,213			1,008,986
Cost of revenues
	Product cost of revenues			265,278			295,064				560,098			602,755
	Service cost of revenues			40,499			44,473				85,786			89,312
		Total cost of revenues		305,777			339,537				645,884			692,067
Gross profit				126,105			149,875				261,329			316,919
Operating expenses
	Sales, general and administrative			72,877			74,144				149,278			150,136
	Research and development			45,055			48,763				94,651			100,490
	Amortization of intangible assets			6,485			8,997				13,038			17,970
	Restructuring			(3,459	)		192				(9,825	)		(1,788	)
	Loss on sale of business			194			24,711				2,415			26,103
	Goodwill impairment			38,480			—				38,480			—
		Total operating expenses		159,632			156,807				288,037			292,911
Operating income (loss)				(33,527	)		(6,932	)			(26,708	)		24,008
Other income (expense)
	Interest income			349			432				566			974
	Interest expense			(1,660	)		(14,004	)			(3,252	)		(24,479	)
	Other income (expense), net			(1,386	)		(12,157	)			(2,075	)		(14,923	)
		Total other income (expense)		(2,697	)		(25,729	)			(4,761	)		(38,428	)
Loss before income taxes				(36,224	)		(32,661	)			(31,469	)		(14,420	)
Income tax benefit (provision)				(641	)		216				(4,500	)		(4,445	)
Net loss				(36,865	)		(32,445	)			(35,969	)		(18,865	)
	Net income attributable to noncontrolling interests			102			678				92			1,655
Net loss attributable to Itron, Inc.			$	(36,967	)	$	(33,123	)		$	(36,061	)	$	(20,520	)
Net loss per common share – Basic			$	(0.82	)	$	(0.73	)		$	(0.80	)	$	(0.47	)
Net loss per common share – Diluted			$	(0.82	)	$	(0.73	)		$	(0.80	)	$	(0.47	)
Weighted average common shares outstanding – Basic				45,066			45,142				45,042			43,344
Weighted average common shares outstanding – Diluted				45,066			45,142				45,042			43,344

ITRON, INC.
SEGMENT INFORMATION
(Unaudited, in thousands)
			Three Months Ended June 30,							Six Months Ended June 30,
				2022			2021				2022			2021
Product revenues
	Device Solutions		$	103,433		$	160,647			$	241,319		$	330,978
	Networked Solutions			241,592			235,167				490,860			493,870
	Outcomes			14,873			15,905				27,529			29,675
		Total Company	$	359,898		$	411,719			$	759,708		$	854,523
Service revenues
	Device Solutions		$	1,377		$	2,320			$	3,056		$	4,770
	Networked Solutions			27,870			29,891				57,422			59,502
	Outcomes			42,737			45,482				87,027			90,191
		Total Company	$	71,984		$	77,693			$	147,505		$	154,463
Total revenues
	Device Solutions		$	104,810		$	162,967			$	244,375		$	335,748
	Networked Solutions			269,462			265,058				548,282			553,372
	Outcomes			57,610			61,387				114,556			119,866
		Total Company	$	431,882		$	489,412			$	907,213		$	1,008,986
Gross profit
	Device Solutions		$	13,878		$	30,452			$	35,684		$	62,748
	Networked Solutions			89,909			95,953				181,260			208,712
	Outcomes			22,318			23,470				44,385			45,459
		Total Company	$	126,105		$	149,875			$	261,329		$	316,919
Operating income (loss)
	Device Solutions		$	5,459		$	19,988			$	17,037		$	41,689
	Networked Solutions			62,282			64,630				123,289			143,921
	Outcomes			9,109			12,537				17,450			22,873
	Corporate unallocated			(110,377	)		(104,087	)			(184,484	)		(184,475	)
		Total Company	$	(33,527	)	$	(6,932	)		$	(26,708	)	$	24,008

ITRON, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)			June 30, 2022				December 31, 2021
ASSETS
Current assets
	Cash and cash equivalents		$	208,500			$	162,579
	Accounts receivable, net			259,657				298,459
	Inventories			174,522				165,799
	Other current assets			113,409				123,092
		Total current assets		756,088				749,929
Property, plant, and equipment, net				150,663				163,184
Deferred tax assets, net				187,178				181,472
Other long-term assets				41,395				42,178
Operating lease right-of-use assets, net				58,083				65,523
Intangible assets, net				78,030				92,529
Goodwill				1,036,160				1,098,975
		Total assets	$	2,307,597			$	2,393,790
LIABILITIES AND EQUITY
Current liabilities
	Accounts payable		$	169,368			$	193,129
	Other current liabilities			52,102				81,253
	Wages and benefits payable			88,933				113,532
	Taxes payable			13,371				12,208
	Current portion of warranty			17,378				18,406
	Unearned revenue			120,038				82,816
		Total current liabilities		461,190				501,344
Long-term debt, net				451,369				450,228
Long-term warranty				11,331				13,616
Pension benefit obligation				77,396				87,863
Deferred tax liabilities, net				1,849				2,000
Operating lease liabilities				50,082				57,314
Other long-term obligations				121,280				138,666
		Total liabilities		1,174,497				1,251,031
Equity
	Common stock			1,777,476				1,779,775
	Accumulated other comprehensive loss, net			(115,705	)			(148,098	)
	Accumulated deficit			(551,661	)			(515,600	)
		Total Itron, Inc. shareholders’ equity		1,110,110				1,116,077
	Noncontrolling interests			22,990				26,682
		Total equity		1,133,100				1,142,759
		Total liabilities and equity	$	2,307,597			$	2,393,790

ITRON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)			Six Months Ended June 30,
				2022				2021
Operating activities
	Net loss		$	(35,969	)		$	(18,865	)
	Adjustments to reconcile net loss to net cash provided by operating activities:
		Depreciation and amortization of intangible assets		33,251				42,919
		Non-cash operating lease expense		8,234				8,647
		Stock-based compensation		12,532				12,586
		Amortization of prepaid debt fees		1,720				4,315
		Deferred taxes, net		(4,061	)			(2,942	)
		Loss on sale of business		2,415				26,103
		Loss on extinguishment of debt, net		—				10,000
		Goodwill impairment		38,480				—
		Restructuring, non-cash		(817	)			878
		Other adjustments, net		194				13,913
Changes in operating assets and liabilities, net of acquisition and sale of business:
	Accounts receivable			28,924				29,549
	Inventories			(13,592	)			70
	Other current assets			(10,688	)			22,164
	Other long-term assets			(3,134	)			6,207
	Accounts payable, other current liabilities, and taxes payable			(24,604	)			(43,115	)
	Wages and benefits payable			(22,264	)			17,815
	Unearned revenue			36,093				17,106
	Warranty			(2,501	)			(4,744	)
	Other operating, net			(21,557	)			(19,926	)
		Net cash provided by operating activities		22,656				122,680
Investing activities
	Net proceeds related to the sale of business			55,933				3,142
	Acquisitions of property, plant, and equipment			(10,663	)			(20,476	)
	Business acquisitions, net of cash and cash equivalents acquired			23				—
	Other investing, net			1,722				2,819
		Net cash provided by (used in) investing activities		47,015				(14,515	)
Financing activities
	Proceeds from borrowings			—				460,000
	Payments on debt			—				(915,000	)
	Issuance of common stock			1,797				3,255
	Proceeds from common stock offering			—				389,419
	Proceeds from sale of warrants			—				45,349
	Purchases of convertible note hedge contracts			—				(84,139	)
	Repurchase of common stock			(16,972	)			—
	Prepaid debt fees			(695	)			(12,021	)
	Other financing, net			(4,206	)			4,993
		Net cash used in financing activities		(20,076	)			(108,144	)
Effect of foreign exchange rate changes on cash and cash equivalents				(3,674	)			177
Increase in cash and cash equivalents				45,921				198
Cash and cash equivalents at beginning of period				162,579				206,933
Cash and cash equivalents at end of period			$	208,500			$	207,131

About 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 a reconciliation of each non-GAAP measure to the most comparable financial measure prepared and presented in accordance with GAAP, 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, loss on sale of business, strategic initiative expenses, goodwill impairment, 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, strategic initiative, goodwill impairment, 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, strategic initiative, goodwill impairment, 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 (loss) attributable to Itron, Inc. excluding the expenses associated with amortization of intangible assets, amortization of debt placement fees, debt extinguishment, restructuring, loss on sale of business, strategic initiative, acquisition and integration, goodwill impairment, and the tax effect of excluding these expenses.

Contacts

Itron, Inc.
Kenneth P. Gianella

Vice President, Investor Relations

(669) 770-4643

David Means

Director, Investor Relations

(737) 242-8448

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