Itron announces first quarter 2022 financial results
Liberty lake, wash.--(business wire)--itron, inc. (nasdaq:itri) announced today financial results for its first quarter ended march 31, 2022. key results for the quarter include (compared with the first quarter of 2021): revenue of $475 million, compared with $520 million; gross margin of 28.4%; compared with 32.2%; gaap net income of $1 million, compared with $13 million; gaap diluted earnings per share (eps) of $0.02, compared with $0.30; non-gaap diluted eps of $0.11, compared with $0.52; adjusted ebitda of $19 million, compared with $50 million; free cash flow of $2 million compared with $39 million; and total backlog of $3.9 billion, compared with $3.4 billion. "in the first quarter of 2022, customer demand remained strong with a focus on our networked solutions and outcomes offerings. while we continue to be impacted by the current supply constraints and an inflationary environment, we remain focused on driving our strategy forward," said tom deitrich, itron's president and chief executive officer. summary of first quarter consolidated financial results (all comparisons made are against the prior year period unless otherwise noted) revenue total first quarter revenue decreased 9% to $475 million, or 6%, excluding the impact of changes in foreign currency exchange rates. the decrease was due to the impact of component constraints limiting our ability to meet customer demand. device solutions revenue declined 19%, and networked solutions and outcomes revenue each decreased 3%. gross margin consolidated company gross margin of 28.4% decreased 380 basis points from the prior year, primarily due to higher component costs and manufacturing inefficiencies related to component shortages. operating expenses and operating income gaap operating expenses of $128 million decreased $8 million from the prior year, primarily due to lower restructuring, amortization and product development expenses. non-gaap operating expenses of $126 million decreased $2 million from the prior year primarily due to lower product development expenses. gaap operating income of $7 million was $24 million lower than the prior year and non-gaap operating income of $9 million was $30 million lower than last year. the decreases were due to lower gross profit. net income and earnings per share net income attributable to itron, inc. for the quarter was $1 million, or $0.02 per diluted share, compared with $13 million, or $0.30 per diluted share in 2021. the decrease was driven by lower gaap operating income. 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, acquisition and integration, and the income tax effect of those adjustments, was $5 million, or $0.11 per diluted share, compared with $22 million, or $0.52 per diluted share, in 2021. the lower year over year results were primarily due to lower non-gaap operating income. cash flow net cash provided by operating activities was $8 million in the first quarter compared with $50 million in the same quarter of 2021. free cash flow was $2 million in the first quarter compared with $39 million in the prior year. the year over year decrease in cash flow was primarily due to higher variable compensation payments in the current period. other measures total backlog was $3.9 billion and 12-month backlog was $1.6 billion, compared with $3.4 billion and $1.3 billion, respectively, in the prior year. bookings in the quarter totaled $417 million. 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 may 2, 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 may 7, 2022. to access the telephone replay, dial 888-203-1112 or 719-457-0820 and enter passcode 3063181. 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 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 march 31, 2022 2021 revenues product revenues $ 399,810 $ 442,804 service revenues 75,521 76,770 total revenues 475,331 519,574 cost of revenues product cost of revenues 294,820 307,691 service cost of revenues 45,287 44,839 total cost of revenues 340,107 352,530 gross profit 135,224 167,044 operating expenses sales, general and administrative 76,401 75,992 research and development 49,596 51,727 amortization of intangible assets 6,553 8,973 restructuring (6,366 ) (1,980 ) loss on sale of business 2,221 1,392 total operating expenses 128,405 136,104 operating income 6,819 30,940 other income (expense) interest income 217 542 interest expense (1,592 ) (10,475 ) other income (expense), net (689 ) (2,766 ) total other income (expense) (2,064 ) (12,699 ) income before income taxes 4,755 18,241 income tax provision (3,859 ) (4,661 ) net income 896 13,580 net income (loss) attributable to noncontrolling interests (10 ) 977 net income attributable to itron, inc. $ 906 $ 12,603 net income per common share - basic $ 0.02 $ 0.30 net income per common share - diluted $ 0.02 $ 0.30 weighted average common shares outstanding - basic 45,018 41,526 weighted average common shares outstanding - diluted 45,240 41,964 itron, inc. segment information (unaudited, in thousands) three months ended march 31, 2022 2021 product revenues device solutions $ 137,886 $ 170,331 networked solutions 249,268 258,703 outcomes 12,656 13,770 total company $ 399,810 $ 442,804 service revenues device solutions $ 1,679 $ 2,450 networked solutions 29,552 29,611 outcomes 44,290 44,709 total company $ 75,521 $ 76,770 total revenues device solutions $ 139,565 $ 172,781 networked solutions 278,820 288,314 outcomes 56,946 58,479 total company $ 475,331 $ 519,574 gross profit device solutions $ 21,806 $ 32,296 networked solutions 91,351 112,759 outcomes 22,067 21,989 total company $ 135,224 $ 167,044 operating income (loss) device solutions $ 11,578 $ 21,701 networked solutions 61,007 79,291 outcomes 8,341 10,336 corporate unallocated (74,107 ) (80,388 ) total company $ 6,819 $ 30,940 itron, inc. consolidated balance sheets (unaudited, in thousands) march 31, 2022 december 31, 2021 assets current assets cash and cash equivalents $ 203,997 $ 162,579 accounts receivable, net 303,250 298,459 inventories 171,259 165,799 other current assets 114,021 123,092 total current assets 792,527 749,929 property, plant, and equipment, net 157,244 163,184 deferred tax assets, net 186,133 181,472 other long-term assets 43,883 42,178 operating lease right-of-use assets, net 62,627 65,523 intangible assets, net 85,514 92,529 goodwill 1,091,888 1,098,975 total assets $ 2,419,816 $ 2,393,790 liabilities and equity current liabilities accounts payable $ 203,475 $ 193,129 other current liabilities 56,409 81,253 wages and benefits payable 86,650 113,532 taxes payable 18,576 12,208 current portion of warranty 17,651 18,406 unearned revenue 118,807 82,816 total current liabilities 501,568 501,344 long-term debt, net 450,795 450,228 long-term warranty 13,184 13,616 pension benefit obligation 81,932 87,863 deferred tax liabilities, net 1,956 2,000 operating lease liabilities 54,333 57,314 other long-term obligations 129,296 138,666 total liabilities 1,233,064 1,251,031 equity common stock 1,770,057 1,779,775 accumulated other comprehensive loss, net (95,283 ) (148,098 ) accumulated deficit (514,694 ) (515,600 ) total itron, inc. shareholders' equity 1,160,080 1,116,077 noncontrolling interests 26,672 26,682 total equity 1,186,752 1,142,759 total liabilities and equity $ 2,419,816 $ 2,393,790 itron, inc. consolidated statements of cash flows (unaudited, in thousands) three months ended march 31, 2022 2021 operating activities net income $ 896 $ 13,580 adjustments to reconcile net income to net cash provided by operating activities: depreciation and amortization of intangible assets 16,837 21,810 non-cash operating lease expense 4,113 4,330 stock-based compensation 6,127 6,498 amortization of prepaid debt fees 839 2,695 deferred taxes, net (4,362 ) 2,109 loss on sale of business 2,221 1,392 restructuring, non-cash 390 (45 ) other adjustments, net 137 391 changes in operating assets and liabilities, net of acquisition and sale of business: accounts receivable (8,816 ) (2,078 ) inventories (6,345 ) 9,008 other current assets (11,899 ) 15,692 other long-term assets (2,887 ) (7,627 ) accounts payable, other current liabilities, and taxes payable 14,065 (26,978 ) wages and benefits payable (26,185 ) 5,458 unearned revenue 35,320 18,050 warranty (928 ) (1,382 ) other operating, net (11,932 ) (12,948 ) net cash provided by operating activities 7,591 49,955 investing activities net proceeds related to the sale of business 55,933 2,842 acquisitions of property, plant, and equipment (5,369 ) (11,412 ) business acquisitions, net of cash and cash equivalents acquired 23 — other investing, net 362 2,764 net cash provided (used) in investing activities 50,949 (5,806 ) financing activities proceeds from borrowings — 460,000 payments on debt — (475,000 ) issuance of common stock 784 2,238 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 ) (11,722 ) other financing, net (222 ) (1,564 ) net cash (used in) provided by financing activities (17,105 ) 324,581 effect of foreign exchange rate changes on cash and cash equivalents (17 ) (1,071 ) increase in cash and cash equivalents 41,418 367,659 cash and cash equivalents at beginning of period 162,579 206,933 cash and cash equivalents at end of period $ 203,997 $ 574,592 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, 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, 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, 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, acquisition and integration, and the tax effect of excluding these expenses. we define non-gaap diluted eps as non-gaap net income divided by diluted weighted-average shares outstanding during the period calculated on a gaap basis and then reduced to reflect the anti-dilutive impact of the convertible note hedge transaction entered into in connection with the 0% convertible notes due 2026 issued in march 2021. 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 the budgeted annual effective tax rate (aetr) is used, adjusted for any discrete items, as defined in accounting standards codification (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 (loss) (a) minus interest income, (b) plus interest expense, depreciation and amortization, debt extinguishment, restructuring, loss on sale of business, acquisition and integration, 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 tables below reconcile the non-gaap financial measures of operating expenses, operating income, net income, diluted eps, adjusted ebitda, and free cash flow with the most directly comparable gaap 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 march 31, 2022 2021 non-gaap operating expenses gaap operating expenses $ 128,405 $ 136,104 amortization of intangible assets (6,553 ) (8,973 ) restructuring 6,366 1,980 loss on sale of business (2,221 ) (1,392 ) acquisition and integration (62 ) 377 non-gaap operating expenses $ 125,935 $ 128,096 non-gaap operating income gaap operating income $ 6,819 $ 30,940 amortization of intangible assets 6,553 8,973 restructuring (6,366 ) (1,980 ) loss on sale of business 2,221 1,392 acquisition and integration 62 (377 ) non-gaap operating income $ 9,289 $ 38,948 non-gaap net income & diluted eps gaap net income attributable to itron, inc. $ 906 $ 12,603 amortization of intangible assets 6,553 8,973 amortization of debt placement fees 796 2,652 debt extinguishment — 1,681 restructuring (6,366 ) (1,980 ) loss on sale of business 2,221 1,392 acquisition and integration 62 (377 ) income tax effect of non-gaap adjustments 999 (2,997 ) non-gaap net income attributable to itron, inc. $ 5,171 $ 21,947 non-gaap diluted eps $ 0.11 $ 0.52 non-gaap weighted average common shares outstanding - diluted 45,240 41,964 adjusted ebitda gaap net income attributable to itron, inc. $ 906 $ 12,603 interest income (217 ) (542 ) interest expense 1,592 10,475 income tax provision 3,859 4,661 debt extinguishment — 1,681 depreciation and amortization 16,837 21,810 restructuring (6,366 ) (1,980 ) loss on sale of business 2,221 1,392 acquisition and integration 62 (377 ) adjusted ebitda $ 18,894 $ 49,723 free cash flow net cash provided by operating activities $ 7,591 $ 49,955 acquisitions of property, plant, and equipment (5,369 ) (11,412 ) free cash flow $ 2,222 $ 38,543
