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Press Release

Itron Announces Third Quarter 2016 Financial Results

LIBERTY LAKE, Wash. — Nov. 2, 2016 — Itron, Inc. (NASDAQ:ITRI) announced today financial results for its third quarter ended Sept. 30, 2016. Highlights for the quarter include:
  • Revenues of $507 million, an increase of 8 percent from the third quarter 2015;
  • Gross margin of 33.7 percent, an increase of 230 basis points;
  • Restructuring charges of $41 million recorded;
  • GAAP diluted loss per share of 26 cents, compared with earnings of 33 cents per diluted share in the third quarter 2015;
  • Non-GAAP diluted earnings per share of 77 cents, compared with 44 cents in the 2015 period; and
  • Quarterly bookings of $670 million and total backlog of $1.5 billion.
"We are pleased with our strong financial performance during the third quarter, including substantial top-line growth and continued margin improvement," said Philip Mezey, Itron's president and chief executive officer. "In 2016, we are realizing benefits from successfully executing our prior restructuring and cost savings initiatives while continuing to grow our business. Given our strong performance year-to-date, we currently expect our results to come in at the high-end of our guidance, or potentially a little above. Looking ahead, I am confident that investments in our OpenWay Riva IoT solution and differentiated software and services offerings, combined with our on-going operational discipline, position Itron well for continued growth and profitability."

Summary of Third Quarter Consolidated Financial Results
(All comparisons made are against the prior year period unless otherwise noted)

Revenue
Total revenue for the quarter grew 8 percent to $507 million compared with $470 million in 2015. Changes in foreign currency exchange rates unfavorably impacted revenue by approximately $5 million for the quarter. Excluding the impact of foreign currency, revenues increased $43 million, or 9 percent, driven by growth in the Electricity and Gas segments. Total advanced and smart meter volumes increased 24 percent primarily due to smart metering projects in North America and Europe. Electricity revenues grew 17 percent driven by smart metering projects in North America and Gas revenues grew 5 percent driven by a new record level of revenue in North America. Revenues in the Water segment decreased 5 percent compared with the prior year driven by weakness in international regions and timing of anticipated project activity.

Gross Margin
Gross margin for the quarter increased to 33.7 percent compared with the prior year period margin of 31.4 percent, driven by higher Electricity and Gas segment margins resulting from increased sales, favorable product mix and operational efficiencies.

Operating Expenses
Operating expenses for the quarter were $164 million compared with $120 million in 2015. The increase was due to $41 million in restructuring charges related to plans announced on Sept. 1, 2016 as well as higher general and administrative costs for professional fees associated with accounting, audit and legal services.

Non-GAAP operating expenses were $119 million, an increase of $4 million compared with 2015, due to the higher general and administrative costs for professional fees associated with accounting, audit and legal services.

GAAP Operating Income, Net Income, Earnings per Share
GAAP operating income was $6 million for the quarter compared with $27 million in 2015. Net loss for the quarter was $10 million, or 26 cents per share, compared with net income of $13 million, or 33 cents per diluted share in 2015. The lower operating income and the net loss for the quarter were driven by the restructuring charges. Net income was also impacted by a higher effective tax rate resulting from restructuring charges in jurisdictions with valuation allowances on deferred tax assets.

Non-GAAP Operating Income, Net Income, Earnings per Share
Non-GAAP operating income improved to $52 million for the quarter compared with $32 million in 2015. Non-GAAP net income for the quarter was $30 million, or 77 cents per diluted share, compared with $17 million, or 44 cents per diluted share. The increase in non-GAAP operating income and net income for the quarter was driven by strong performance in revenue and gross margin.

Cash Flow
Net cash provided by operating activities was $31 million in the third quarter of 2016 compared with $3 million in 2015. Free cash flow was $20 million for the third quarter compared with negative $10 million in the prior year quarter. The increase in free cash flow was primarily due to improved profitability adjusted for non-cash items and working capital management.

Other Measures
Total backlog was $1.5 billion and twelve-month backlog was $731 million at the end of the quarter. Bookings in the quarter totaled $670 million, reflecting a number of significant bookings across several customers.

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. Eastern Time on Nov. 2, 2016. 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, 2016. To access the telephone replay, dial (888) 203-1112 (Domestic) or (719) 457-0820 (International) and enter passcode 780255.

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, cash flows and restructuring activities including headcount reductions and other cost savings initiatives. 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 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 and other factors that are more fully described in our Annual Report on Form 10-K for the year ended December 31, 2015 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, 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. 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.

Related Documents
Itron Q3 2016 Earnings Statement.

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.

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