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Itron Announces Second Quarter 2017 Financial Results
Company Raises Full-Year 2017 Guidance

LIBERTY LAKE, Wash.—(BUSINESS WIRE)—Aug. 2, 2017—Itron, Inc. (NASDAQ:ITRI) announced today financial results for its second quarter ended June 30, 2017. Key financial metrics for the quarter include:

  • Revenue of $503 million, compared with $513 million in the second quarter of 2016;
  • Gross margin of 35.4 percent, compared with 33.1 percent in the second quarter of 2016;
  • GAAP diluted earnings per share of 36 cents, compared with 52 cents in the second quarter of 2016; and
  • Non-GAAP diluted earnings per share of 71 cents, compared with 65 cents in the second quarter of 2016.
  • Results include the impact of the Comverge acquisition as of the transaction close date of June 1, 2017. The acquisition contributed $5 million of distributed energy management (DEM) revenue reported in the Electricity segment and a net loss of $2 million, including acquisition and integration-related expenses and amortization of intangibles.
"The second quarter was Itron's eighth consecutive quarter of year-over-year increases in non-GAAP earnings per share, demonstrating our commitment to greater predictability and profitability in our business results," said Philip Mezey, Itron's president and chief executive officer. "We were also very pleased to close the Comverge transaction during the quarter, adding distributed energy management to Itron's industry-leading AMI and smart grid solutions. The acquisition emphasizes our focus on delivering more value to our customers and supports our strategy to increase the contribution of outcome-based solutions in our business."

Mezey continued, "We are raising our revenue and non-GAAP earnings guidance for full-year 2017 to reflect our strong core business performance and the addition of distributed energy management solutions to our platform."

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

Revenue
Total revenue of $503 million declined $10 million compared with the second quarter of 2016, with growth in the Electricity segment offset by lower Water and Gas revenues. Changes in foreign currency exchange rates unfavorably impacted revenue by approximately $6 million for the quarter.

Electricity revenue increased 8 percent, driven by smart projects in North America and Asia-Pacific regions and the addition of distributed energy management revenues. Gas revenue decreased 8 percent, driven by lower meter volumes partially offset by strong communication module shipments in North America. Water revenue decreased 12 percent primarily due to lower product revenues in North America and EMEA and the timing of new tenders and customer orders in 2017, partially offset by increased sales in Latin America.

Gross Margin
Consolidated company gross margin of 35.4 percent increased 230 basis points compared with the second quarter of 2016 with improvements in all three business segments. Gross margin includes an $8 million insurance recovery in the Water segment related to warranty costs incurred for a product replacement announced in 2015. Excluding the recovery, gross margin improved by 70 basis points compared with the prior year.

Operating Expenses
Operating expenses for the quarter were $141 million compared with $134 million in the second quarter of 2016. Higher restructuring, sales and marketing, and acquisition and integration-related expenses were partially offset by lower legal and professional services fees, reduced headcount in general and administrative areas and lower amortization of intangible assets.

Non-GAAP operating expenses were $125 million compared with $128 million in 2016. The reduction was driven by lower legal and professional services fees and reduced general and administrative headcount.

Operating Income, Net Income and Earnings per Share
GAAP operating income increased to $37 million compared with $35 million in the second quarter of 2016. Non-GAAP operating income also improved to $53 million compared with $42 million in 2016.

The increase in GAAP operating income was driven by improved gross margins offsetting higher operating expenses. The greater increase in non-GAAP operating income was driven by improved gross margins and lower non-GAAP operating expenses, which exclude acquisition and integration-related costs, restructuring, and amortization of intangible assets.

Net income for the quarter was $14 million, or 36 cents per diluted share, compared with net income of $20 million, or 52 cents per diluted share, in 2016. Non-GAAP net income for the quarter was $28 million, or 71 cents per diluted share, compared with $25 million, or 65 cents per diluted share, in 2016.

GAAP earnings per diluted share reflect the company's higher operating income offset by an increase in other expenses, a higher effective tax rate driven by the timing and mix of taxable income by jurisdiction, and increased diluted shares outstanding. Non-GAAP earnings per diluted share increased compared with the prior year due to the company's higher non-GAAP operating income which offset an increase in other expenses, a higher effective tax rate and increased diluted shares outstanding.

Cash Flow
Net cash provided by operating activities was $30 million in the second quarter of 2017 compared with $17 million in the same quarter of 2016. Free cash flow was $17 million for the second quarter compared with $6 million in the prior year. Higher operating and free cash flow reflect improved business results, offsetting increased working capital requirements; primarily due to increased inventory for anticipated shipments and transitions in our supply chain.

Other Measures
Bookings of $416 million increased 19 percent compared with the second quarter of 2016. Total backlog was $1.6 billion and 12-month backlog was $860 million at the end of the quarter, a year-over-year increase of 21 percent and 25 percent, respectively. The Comverge acquisition added $113 million and $44 million to total and 12-month backlog, respectively.

Financial Guidance Update
Itron's guidance for the full year 2017 is as follows:
  • Revenue between $2.03 - $2.06 billion, increased from $1.9 to $2.0 billion
  • Non-GAAP diluted EPS between $2.95 - $3.15, increased from $2.80 - $3.10
The revised guidance assumes a Euro to U.S. dollar foreign currency exchange rate of 1.10 on average in the second half of 2017, average fully diluted shares outstanding of approximately 39.5 million for the year and a non-GAAP effective tax rate for the year of approximately 35 percent. A reconciliation of forward-looking non-GAAP diluted EPS to the GAAP diluted EPS has not been provided because we are unable to predict with reasonable certainty the potential amount or timing of restructuring and acquisition and integration-related expenses and their related tax effects without unreasonable effort. These items are uncertain, depend on various factors and could have a material impact on GAAP results for the guidance period.

Earnings Conference Call
Itron will host a conference call to discuss the financial results and guidance contained in this release at 5:00 p.m. EDT on Aug. 2, 2017. 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. 7, 2017. To access the telephone replay, dial (888) 203-1112 (Domestic) or (719) 457-0820 (International) and enter passcode 3937267.

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, 2016 and other reports on file with the Securities and Exchange Commission. Itron undertakes no obligation to update or revise any information in this press release.

Non-GAAP Financial Information
To supplement our consolidated financial statements presented in accordance with GAAP, we use certain non-GAAP financial measures, including non-GAAP operating expense, non-GAAP operating income, non-GAAP net income, non-GAAP diluted EPS, adjusted EBITDA, adjusted EBITDA margin, constant currency and free cash flow. We provide these non-GAAP financial measures because we believe they provide greater transparency and represent supplemental information used by management in its financial and operational decision making. We exclude certain costs in our non-GAAP financial measures as we believe the net result is a measure of our core business. The company believes these measures facilitate operating performance comparisons from period to period by eliminating potential differences caused by the existence and timing of certain expense items that would not otherwise be apparent on a GAAP basis. Non-GAAP performance measures should be considered in addition to, and not as a substitute for, results prepared in accordance with GAAP. Our non-GAAP financial measures may be different from those reported by other companies. A more detailed discussion of why we use non-GAAP financial measures, the limitations of using such measures, and reconciliations between non-GAAP and the nearest GAAP financial measures are included in this press release.

Related Documents
Itron Q2 2017 Earnings Statement.

About Itron:
Itron is a world-leading technology and services company dedicated to the resourceful use of energy and water. We provide comprehensive solutions that measure, manage and analyze energy and water. Our broad product portfolio includes electricity, gas, water and thermal energy measurement devices and control technology; communications systems; software; as well as managed and consulting services. With thousands of employees supporting nearly 8,000 customers in more than 100 countries, Itron applies knowledge and technology to better manage energy and water resources. Together, we can create a more resourceful world. Join us: www.itron.com.

Itron® 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.

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