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Press Release

Itron Announces Second Quarter Results

LIBERTY LAKE, WA — July 29, 2009 — Itron, Inc. (NASDAQ:ITRI) today reported financial results for its second quarter and six months ended June 30, 2009. Results include:

• Quarterly and six-month revenues of $414 million and $802 million;
• Quarterly and six-month non-GAAP diluted EPS of 49 cents and 82 cents;
• Quarterly and six-month Adjusted EBITDA of $47 million and $90 million; and
• Quarterly and six-month Bookings of $427 million and $1.05 billion.

"Revenue in the second quarter was up from the first quarter," said Malcolm Unsworth, president and CEO. "However, we continue to be affected by the economy, customers' uncertainty related to stimulus funds and volatility in foreign currency exchange rates."

Operations Highlights – Second Quarter:

Revenues – Total revenues of $414 million for the second quarter of 2009 were $100 million, or 19%, lower than 2008 second quarter revenues of $514 million. North America revenues of $143 million for the second quarter of 2009 were $39 million, or 21%, lower than the second quarter of 2008. The lower North America revenue in 2009 was primarily driven by the completion of a number of AMR contracts in 2008 and fewer electric meters shipped during the quarter related to the economic downturn and delays in orders as customers evaluate projects eligible for stimulus funds. International revenues were $271 million for the second quarter of 2009, which were $61 million, or 18%, lower than second quarter 2008. Approximately 82% of the decrease in International revenue was due to foreign exchange rates while the remainder was primarily due to the completion of a smart metering/AMI project in 2008 and lower revenue in South America. Shipments of products to electric, gas and water utilities comprised approximately 41%, 30% and 29% of total International revenue in both 2009 and 2008.

Gross Margin – Gross margin for the second quarter of 2009 was 32.2%. This compares with 34.3% in the second quarter of 2008. Second quarter 2009 North America gross margin of 35.0% was lower than 2008 gross margin of 38.5%. The lower gross margin in 2009 was primarily driven by shipments of our first generation AMI meters and increased overhead due to lower overall production levels. International gross margin of 30.7% was lower than second quarter 2008 gross margin of 32.0% primarily due to completion of a smart metering/AMI project in Sweden and a higher mix of service revenue with lower margins in South America.

Operating Expenses – Total operating expenses for the second quarter of 2009 were $121 million compared with 2008 second quarter operating expenses of $140 million. North America operating expenses of $44.1 million in the second quarter of 2009 were lower than 2008 second quarter operating expenses of $50.0 million due to lower sales and general and administrative expenses. International operating expenses in the second quarter of 2009 of $70.2 million were $10.1 million lower than $80.3 million in the second quarter of 2008, due in large part to decreased amortization of intangibles expense in the 2009 period, as well as foreign exchange rates. Corporate unallocated expenses of $7 million for the second quarter of 2009 were $2.7 million lower than in the second quarter of 2008 due to reductions in both compensation expenses and consulting fees for Sarbanes-Oxley compliance.

Interest and Other Income – Net interest expense of $15.9 million in the second quarter of 2009 was substantially lower than $24.3 million in the comparable period in 2008, due primarily to lower average debt balances. Amortization of debt placement fees, which is included in net interest expense, of $374,000 in the second quarter of 2009 was lower than the same period in 2008 due to higher debt amortization expense related to $304 million in debt repayments in the second quarter of 2008. Other expense was $2.9 million in the second quarter of 2009 compared with other expense of $1.8 million in 2008. The other expense in the current period is primarily due to legal and advisory fees associated with an amendment to our senior debt agreement.

Income Taxes – We had a tax benefit of $22.4 million in the second quarter of 2009 compared with $1 million in the same quarter of 2008. The second quarter of 2009 benefit is due to expected lower income in higher tax jurisdictions for the year.

GAAP Net Income and Diluted EPS – Our GAAP net income and diluted EPS for the second quarter of 2009 was $15.3 million, or 40 cents per share, compared with net income of $11.1 million, or 31 cents per share, in the same period in 2008.

Non-GAAP Operating Income, Net Income and Diluted EPS – Non-GAAP operating income, which excludes amortization expense related to intangible assets, was $35.9 million, or 8.7% of revenues, in the second quarter of 2009. The 2009 non-GAAP operating income was lower than the $67.6 million, or 13.2% of revenues, in the second quarter of 2008 primarily due to the combination of lower revenues and gross margin contribution in 2009. Non-GAAP net income, which also excludes amortization of debt placement fees and the additional non-cash interest expense related to the adoption of FSP 14-1, was $18.6 million compared with $36.0 million in the 2008 period. Non-GAAP diluted EPS was 49 cents in 2009 compared with $1.02 in 2008. The lower net income and EPS was primarily due to the decline in gross margin and lower revenues in 2009. Diluted weighted average shares outstanding in the second quarter of 2009 were approximately 2.8 million shares higher than the same period in 2008 primarily due to the convertible debt for stock exchange in the first quarter of 2009 and the equity offering in the second quarter of 2009. Our non-GAAP tax rates were 6% and 26% for the second quarter of 2009 and 2008. The lower non-GAAP tax rate in 2009 is due to projected lower income in higher tax jurisdictions.
"This quarter was another challenge for Itron, especially compared against the second quarter of last year when we had the best quarterly performance in the history of the company," said Unsworth. "Although we have talked about 2009 being a challenging year due to the economy and the timing of stimulus funds and AMI deployments, we continue to believe that next year we will begin to reap the rewards of our investments in this new technology based on the current schedule of business."

Operations Highlights – Six Months:

Revenues – Total revenues of $802 million for the first six months of 2009 were $190 million, or 19%, lower than 2008 six month revenues of $992 million. North America revenues of $282 million for the first six months of 2009 were $70 million, or 20%, lower than the first half of 2008. The lower North America revenue in 2009 was primarily driven by the completion of a number of AMR contracts in 2008 and fewer electric meters shipped during the first six months related to the economic downturn and delays in orders as customers evaluate projects eligible for stimulus funds. International revenues of $520 million for the first six months of 2009 were $121 million, or 19%, lower than the same period in 2008. Approximately 85% of the decrease in International revenue was due to foreign exchange rates while the remainder was primarily due to the completion of a smart metering/AMI project in 2008 and lower revenue in South America. Shipments of products to electric, gas and water utilities comprised approximately 39%, 29% and 32% of total International revenue in 2009 compared with 40%, 29% and 31% in 2008.

Gross Margin – Gross margin for the first six months of 2009 was 32.7%. This compares with 34.1% in the first six months of 2008. First half 2009 North America gross margin of 36.2% was lower than 2008 gross margin of 38.2%. The lower gross margin in 2009 was primarily driven by shipments of our first generation AMI meters and increased overhead due to lower overall production levels. International gross margin of 30.8% was lower than first half 2008 gross margin of 31.9% primarily due to completion of a smart metering/AMI project in Sweden and a higher mix of service revenue with lower margins in South America.

Operating Expenses – Total operating expenses for the first six months of 2009 were $242 million compared with $275 million in the same period in 2008. North America operating expenses of $88.6 million in the first six months of 2009 were lower than 2008 six month operating expenses of $96 million due to lower sales and general and administrative expenses. International operating expenses in the first six months of 2009 of $137.7 million were $21.1 million lower than the $159.8 million in the first half of 2008, due in large part to decreased amortization of intangibles expense in the 2009 period, as well as foreign exchange rates. Corporate unallocated expenses of $15.7 million for the first six months of 2009 were $3.9 million lower than the first half of 2008 due to reductions in both compensation expenses and consulting fees for Sarbanes-Oxley compliance.

Interest and Other Income – Net interest expense of $32 million in the first six months of 2009 was substantially lower than the $51 million in the comparable period in 2008, due primarily to lower average debt balances and lower interest rates. Amortization of debt placement fees, which is included in net interest expense, of $2.2 million in the first six months of 2009 was lower than the $5.7 million in the same period in 2008 due to higher debt amortization expense related to $351 million in debt repayments in the second half of 2008. Other expense was $4.9 million in the first six months of 2009 compared with $1.7 million in 2008. The other expense in the current period is primarily due to legal and advisory fees associated with an amendment to our senior debt agreement and foreign exchange losses caused by volatility in foreign exchange rates. In the first six months of 2009, we incurred a $10.3 million net loss on the extinguishment of debt related to a convertible debt for common stock exchange. The difference in the value of the shares of Itron's common stock issued under the exchange agreement and the value of the shares used to derive the amount payable under the original conversion agreement resulted in a net loss on extinguishment of debt.

Income Taxes – We had a tax benefit of $22.4 million in the first six months of 2009 compared with $1.7 million in the same period of 2008. The first six months of 2009 benefit is due to expected lower income in higher tax jurisdictions for the year.

GAAP Net Income/Loss and Diluted EPS – Our GAAP net loss and fully diluted EPS loss for the first six months of 2009 was $4.4 million, or 12 cents per share, compared with net income of $12.0 million, or 35 cents per share, in the same period in 2008.

Non-GAAP Operating Income, Net Income and Diluted EPS – Non-GAAP operating income, which excludes amortization expense related to intangible assets, was $68.3 million, or 8.5% of revenues in the first half of 2009. The 2009 non-GAAP operating income was lower than the $126.2 million, or 12.7% of revenues, in the first half of 2008 primarily due to the combination of lower revenues and gross margin contribution in 2009. Non-GAAP net income, which also excludes amortization of debt placement fees, the additional non-cash interest expense related to the adoption of FSP 14-1 and the non-cash net loss associated with the convertible debt for stock exchange, was $30.8 million compared with $62.9 million in the 2008 period. Non-GAAP diluted EPS was 82 cents in 2009 compared with $1.85 in 2008. The lower net income and EPS was primarily due to a decline in gross margin and lower revenues in 2009. Diluted weighted average shares outstanding in the first six months of 2009 were approximately 3.3 million shares higher than the same period in 2008 primarily due to the equity offering of 3.4 million shares in the second quarter of 2008, the convertible debt for stock exchange in the first quarter of 2009 and the equity offering in the second quarter of 2009. Our non-GAAP tax rates were 19% and 26% for the first six months of 2009 and 2008, respectively. The lower non-GAAP tax rate in 2009 is due to projected lower income in higher tax jurisdictions.

Other Financial Highlights:

New Order Bookings and Backlog – New order bookings for the second quarter of 2009 were $427 million, compared with $432 million in the second quarter of 2008. Our book-to-bill ratios were 1.03 to 1 and .9 to 1 for the second quarter of 2009 and 2008, respectively. New order bookings for the first six months of 2009 were $1.05 billion compared with $916 million in the same six months of 2008. Total backlog was $1.6 billion at June 30, 2009 compared with $609 million at June 30, 2008. Twelve month backlog of $646 million at June 30, 2009 was higher than the $493 million at June 30, 2008 due to the timing of future AMI shipments.

Cash Flows – Net cash provided by operating activities during the first six months of 2009 was $67 million, compared with $120 million in the same period in 2008. Adjusted earnings before interest, taxes, depreciation and amortization and the non-cash net loss on extinguishment of debt (Adjusted EBITDA) in the second quarter of 2009 was $47 million compared with $79 million for the same period in 2008. Adjusted EBITDA for the first six months of 2009 was $90 million compared with $151 million in the first six months of 2008. Free cash flow in the first six months of 2009 was $40 million compared with $91 million in the same period of 2008.

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 income, non-GAAP net income and diluted EPS, Adjusted EBITDA 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. Specifically, these non-GAAP financial measures are provided to enhance investors' overall understanding of our current financial performance and our future anticipated performance by excluding infrequent costs, particularly those associated with acquisitions. We exclude these expenses in our non-GAAP financial measures as we believe the net result is a measure of our core business that is not subject to the variations of expenses associated with these infrequently occurring items. Non-GAAP performance measures should be considered in addition to, and not as a substitute for, results prepared in accordance with GAAP. Finally, 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.

Earnings Conference Call:
Itron will host a conference call to discuss the financial results contained in this release at 2:00 p.m. (PDT) on July 29, 2009. The call will be webcast in a listen only mode and can be accessed online at www.itron.com, "Investors/Investor Events." The live webcast will begin at 2:00 p.m. (PDT). The webcast replay will begin after the conclusion of the live call and will be available for two weeks. A telephone replay of the call will also be available approximately one hour after the conclusion of the live call, for 48 hours, and is accessible by dialing (888) 203-1112 (Domestic) or (719) 457-0820 (International), entering passcode #9496493. You may also view presentation materials related to the earnings call on Itron's website, www.itron.com / Investors / Presentations.


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.

PR Contact

Alison Mallahan

Senior Public Relations Manager

(509) 891-3802