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Itron Announces Third Quarter 2023 Financial Results

Itron, Inc. (NASDAQ: ITRI), which is innovating the way utilities and cities manage energy and water, announced today financial results for its third quarter ended September 30, 2023. Key results for the quarter include (compared with the third quarter of 2022):

  • Revenue of $561 million, increased 33%;
  • Gross profit of $187 million, increased 56%;
  • GAAP net income of $40 million, increased $36 million;
  • GAAP diluted earnings per share of $0.87, increased $0.78 per share;
  • Non-GAAP diluted EPS of $0.98, increased $0.75 per share;
  • Adjusted EBITDA of $68 million, increased 181%;
  • Free cash flow of $28 million, increased $18 million; and
  • Total backlog of $4.3 billion increased 3%.

“Our third quarter results demonstrate broad-based and strong team execution on customer deliveries that drove acceleration in revenue, gross margin, EBITDA, EPS, and cash flow,” said Tom Deitrich, Itron’s president and CEO. “Our quarter end cash balance of $255 million provides ample liquidity and flexibility as we continue to execute our strategic objectives.

“The dramatically changing utility landscape and the electrification of everything is exposing a variety of growing challenges for the utilities, municipalities, and cities that we serve. Itron’s capabilities to provide visibility and control at scale are essential in managing rapidly increasing demand, while ensuring reliable and sustainable access to energy and water for consumers. Our investments in new solutions directly address these critical customer needs and are delivering returns as our third quarter results demonstrate.”

Summary of Third Quarter Consolidated Financial Results

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

Revenue

Total third quarter revenue increased 33%, to $561 million. The increase was due to improving supply chain conditions and strong operational execution.

Device Solutions revenue increased 18%, or 13% in constant currency, due primarily to growth in water meter sales.

Networked Solutions revenue increased 43%, due to improving supply conditions which enabled higher customer deliveries.

Outcomes revenue increased 14%, or 13% in constant currency, due primarily to an increase in recurring services.

Gross Margin

Consolidated company gross margin of 33.4% increased 490 basis points from the prior year due to very favorable product mix and operational efficiencies.

Operating Expenses and Operating Income

GAAP operating expenses of $132 million increased $19 million from the prior year, and Non-GAAP operating expenses of $128 million increased $23 million from the prior year. Both GAAP and Non-GAAP increases were due to increased labor costs, including variable compensation.

GAAP operating income of $55 million was $48 million higher than the prior year, and Non-GAAP operating income of $59 million was $44 million higher than the prior year. Both GAAP and Non-GAAP increases were due to higher gross profit, partially offset by higher operating expenses.

Net Income and Earnings per Share

Net income attributable to Itron, Inc. for the quarter was $40 million, or $0.87 per diluted share, compared with a net income of $4 million, or $0.09 per diluted share in 2022. The increase was driven by higher GAAP operating income, partially offset by higher tax expense.

Non-GAAP net income, which excludes the expenses associated with amortization of intangible assets, amortization of debt placement fees, restructuring, loss on sale of business, strategic initiative expenses, currency translation write-off, goodwill impairment, acquisition and integration, and the tax effect of excluding these expenses, was $45 million, or $0.98 per diluted share, compared with $11 million, or $0.23 per diluted share, in 2022. The increase was due to higher non-GAAP operating income, partially offset by higher tax expense.

Cash Flow

Net cash provided by operating activities was $34 million in the third quarter compared with $15 million in the prior year. Free cash flow was $28 million in the third quarter compared with $11 million in the prior year. The increase in cash flow was due to higher earnings, partially offset by growth in working capital.

Other Measures

Total backlog at quarter end was $4.3 billion compared with $4.2 billion in the prior year. Bookings in the quarter totaled $413 million.

Q4 2023 Outlook and Full Year 2023 Guidance Update

Outlook for the fourth quarter of 2023 is as follows:

  • Revenue between $565 and $575 million
  • Non-GAAP diluted EPS between $0.70 and $0.80

Itron's guidance for the full year 2023 has been updated as follows:

  • Revenue between $2.16 to $2.17 billion vs. previous guidance of $2.11 to $2.14 billion
  • Non-GAAP diluted EPS between $2.83 to $2.93 vs. previous guidance of $2.03 to $2.28

Earnings Conference Call

Itron will host a conference call to discuss the financial results contained in this release at 10 a.m. EDT on November 2, 2023. Interested parties may listen to the conference call on a live webcast. The webcast, along with a supplemental presentation, may be accessed from the company’s website at https://investors.itron.com/events.cfm. Participants should access the webcast 10 minutes prior to the start of the call. A webcast replay of the conference call will be available through November 7, 2023 and may be accessed on the company's website at http://investors.itron.com/events.cfm.

About Itron

Itron enables utilities and cities to safely, securely and reliably deliver critical infrastructure solutions 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 and other factors that are more fully described in Part I, Item 1A: Risk Factors included in our Annual Report on Form 10-K for the year ended Dec. 31, 2022 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, 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, free cash flow, and constant currency. 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. When providing future outlooks and/or earnings guidance, 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 related expenses and their related tax effects without unreasonable effort. These costs are uncertain, depend on various factors and could have a material impact on GAAP results for the guidance period. 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.

ITRON, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

 

 

 

 

 

 

(Unaudited, in thousands, except per share data)

 

 

 

 

 

 

 

 

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

 

 

2023

 

2022

 

2023

 

2022

Revenues

 

 

 

 

 

 

 

 

Product revenues

 

$

480,355

 

 

$

347,791

 

 

$

1,361,482

 

 

$

1,107,499

 

Service revenues

 

 

80,417

 

 

 

73,069

 

 

 

234,978

 

 

 

220,574

 

Total revenues

 

 

560,772

 

 

 

420,860

 

 

 

1,596,460

 

 

 

1,328,073

 

Cost of revenues

 

 

 

 

 

 

 

 

Product cost of revenues

 

 

332,035

 

 

 

258,541

 

 

 

951,666

 

 

 

818,639

 

Service cost of revenues

 

 

41,534

 

 

 

42,257

 

 

 

127,276

 

 

 

128,043

 

Total cost of revenues

 

 

373,569

 

 

 

300,798

 

 

 

1,078,942

 

 

 

946,682

 

Gross profit

 

 

187,203

 

 

 

120,062

 

 

 

517,518

 

 

 

381,391

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

Sales, general and administrative

 

 

76,576

 

 

 

63,446

 

 

 

231,176

 

 

 

212,724

 

Research and development

 

 

51,644

 

 

 

43,820

 

 

 

154,769

 

 

 

138,471

 

Amortization of intangible assets

 

 

4,663

 

 

 

6,413

 

 

 

14,433

 

 

 

19,451

 

Restructuring

 

 

(615

)

 

 

(1,272

)

 

 

36,868

 

 

 

(11,097

)

Loss on sale of business

 

 

45

 

 

 

767

 

 

 

675

 

 

 

3,182

 

Goodwill impairment

 

 

 

 

 

 

 

 

 

 

 

38,480

 

Total operating expenses

 

 

132,313

 

 

 

113,174

 

 

 

437,921

 

 

 

401,211

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

54,890

 

 

 

6,888

 

 

 

79,597

 

 

 

(19,820

)

Other income (expense)

 

 

 

 

 

 

 

 

Interest income

 

 

2,642

 

 

 

801

 

 

 

5,968

 

 

 

1,367

 

Interest expense

 

 

(2,445

)

 

 

(1,679

)

 

 

(6,479

)

 

 

(4,931

)

Other income (expense), net

 

 

646

 

 

 

(1,065

)

 

 

(1,162

)

 

 

(3,140

)

Total other income (expense)

 

 

843

 

 

 

(1,943

)

 

 

(1,673

)

 

 

(6,704

)

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

 

55,733

 

 

 

4,945

 

 

 

77,924

 

 

 

(26,524

)

Income tax provision

 

 

(15,388

)

 

 

(473

)

 

 

(24,513

)

 

 

(4,973

)

Net income (loss)

 

 

40,345

 

 

 

4,472

 

 

 

53,411

 

 

 

(31,497

)

Net income attributable to noncontrolling interests

 

 

173

 

 

 

355

 

 

 

874

 

 

 

447

 

Net income (loss) attributable to Itron, Inc.

 

$

40,172

 

 

$

4,117

 

 

$

52,537

 

 

$

(31,944

)

 

 

 

 

 

 

 

 

 

Net income (loss) per common share - Basic

 

$

0.88

 

 

$

0.09

 

 

$

1.16

 

 

$

(0.71

)

Net income (loss) per common share - Diluted

 

$

0.87

 

 

$

0.09

 

 

$

1.15

 

 

$

(0.71

)

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - Basic

 

 

45,462

 

 

 

45,139

 

 

 

45,393

 

 

 

45,075

 

Weighted average common shares outstanding - Diluted

 

 

45,950

 

 

 

45,330

 

 

 

45,768

 

 

 

45,075

 

ITRON, INC.

SEGMENT INFORMATION

 

 

 

 

 

 

 

 

 

(Unaudited, in thousands)

 

 

 

 

 

 

 

 

 

 

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

 

 

2023

 

2022

 

2023

 

2022

Product revenues

 

 

 

 

 

 

 

 

Device Solutions

 

$

110,138

 

 

$

92,893

 

 

$

340,098

 

 

$

334,212

 

Networked Solutions

 

 

352,771

 

 

 

240,498

 

 

 

964,909

 

 

 

731,358

 

Outcomes

 

 

17,446

 

 

 

14,400

 

 

 

56,475

 

 

 

41,929

 

Total Company

 

$

480,355

 

 

$

347,791

 

 

$

1,361,482

 

 

$

1,107,499

 

 

 

 

 

 

 

 

 

 

Service revenues

 

 

 

 

 

 

 

 

Device Solutions

 

$

631

 

 

$

1,110

 

 

$

2,085

 

 

$

4,166

 

Networked Solutions

 

 

32,200

 

 

 

29,374

 

 

 

94,460

 

 

 

86,796

 

Outcomes

 

 

47,586

 

 

 

42,585

 

 

 

138,433

 

 

 

129,612

 

Total Company

 

$

80,417

 

 

$

73,069

 

 

$

234,978

 

 

$

220,574

 

 

 

 

 

 

 

 

 

 

Total revenues

 

 

 

 

 

 

 

 

Device Solutions

 

$

110,769

 

 

$

94,003

 

 

$

342,183

 

 

$

338,378

 

Networked Solutions

 

 

384,971

 

 

 

269,872

 

 

 

1,059,369

 

 

 

818,154

 

Outcomes

 

 

65,032

 

 

 

56,985

 

 

 

194,908

 

 

 

171,541

 

Total Company

 

$

560,772

 

 

$

420,860

 

 

$

1,596,460

 

 

$

1,328,073

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

 

 

 

 

 

 

Device Solutions

 

$

26,919

 

 

$

14,805

 

 

$

75,351

 

 

$

50,489

 

Networked Solutions

 

 

135,203

 

 

 

81,895

 

 

 

362,852

 

 

 

263,155

 

Outcomes

 

 

25,081

 

 

 

23,362

 

 

 

79,315

 

 

 

67,747

 

Total Company

 

$

187,203

 

 

$

120,062

 

 

$

517,518

 

 

$

381,391

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

 

 

 

 

 

 

Device Solutions

 

$

17,675

 

 

$

7,066

 

 

$

45,837

 

 

$

24,103

 

Networked Solutions

 

 

102,503

 

 

 

54,640

 

 

 

266,052

 

 

 

177,929

 

Outcomes

 

 

10,280

 

 

 

11,339

 

 

 

35,867

 

 

 

28,789

 

Corporate unallocated

 

 

(75,568

)

 

 

(66,157

)

 

 

(268,159

)

 

 

(250,641

)

Total Company

 

$

54,890

 

 

$

6,888

 

 

$

79,597

 

 

$

(19,820

)

 

 

 

 

 

 

 

 

 

Total Gross Margin

 

 

33.4

%

 

 

28.5

%

 

 

32.4

%

 

 

28.7

%

ITRON, INC.

CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

(Unaudited, in thousands)

 

September 30, 2023

 

December 31, 2022

ASSETS

 

 

 

 

Current assets

 

 

 

 

Cash and cash equivalents

 

$

254,771

 

 

$

202,007

 

Accounts receivable, net

 

 

318,104

 

 

 

280,435

 

Inventories

 

 

276,099

 

 

 

228,701

 

Other current assets

 

 

160,768

 

 

 

118,441

 

Total current assets

 

 

1,009,742

 

 

 

829,584

 

 

 

 

 

 

Property, plant, and equipment, net

 

 

129,714

 

 

 

140,123

 

Deferred tax assets, net

 

 

209,153

 

 

 

211,982

 

Other long-term assets

 

 

35,348

 

 

 

39,901

 

Operating lease right-of-use assets, net

 

 

41,285

 

 

 

52,826

 

Intangible assets, net

 

 

50,408

 

 

 

64,941

 

Goodwill

 

 

1,035,761

 

 

 

1,038,721

 

Total assets

 

$

2,511,411

 

 

$

2,378,078

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

Current liabilities

 

 

 

 

Accounts payable

 

$

224,308

 

 

$

237,178

 

Other current liabilities

 

 

54,508

 

 

 

42,869

 

Wages and benefits payable

 

 

106,941

 

 

 

89,431

 

Taxes payable

 

 

17,407

 

 

 

15,324

 

Current portion of warranty

 

 

16,221

 

 

 

18,203

 

Unearned revenue

 

 

136,539

 

 

 

95,567

 

Total current liabilities

 

 

555,924

 

 

 

498,572

 

 

 

 

 

 

Long-term debt, net

 

 

454,247

 

 

 

452,526

 

Long-term warranty

 

 

7,262

 

 

 

7,495

 

Pension benefit obligation

 

 

58,079

 

 

 

57,839

 

Deferred tax liabilities, net

 

 

823

 

 

 

833

 

Operating lease liabilities

 

 

33,024

 

 

 

44,370

 

Other long-term obligations

 

 

144,322

 

 

 

124,887

 

Total liabilities

 

 

1,253,681

 

 

 

1,186,522

 

 

 

 

 

 

Equity

 

 

 

 

Common stock

 

 

1,811,365

 

 

 

1,788,479

 

Accumulated other comprehensive loss, net

 

 

(100,840

)

 

 

(94,674

)

Accumulated deficit

 

 

(472,795

)

 

 

(525,332

)

Total Itron, Inc. shareholders' equity

 

 

1,237,730

 

 

 

1,168,473

 

Noncontrolling interests

 

 

20,000

 

 

 

23,083

 

Total equity

 

 

1,257,730

 

 

 

1,191,556

 

Total liabilities and equity

 

$

2,511,411

 

 

$

2,378,078

 

ITRON, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

(Unaudited, in thousands)

 

Nine Months Ended September 30,

 

 

2023

 

2022

Operating activities

 

 

 

 

Net income (loss)

 

$

53,411

 

 

$

(31,497

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

Depreciation and amortization of intangible assets

 

 

42,013

 

 

 

50,612

 

Non-cash operating lease expense

 

 

12,197

 

 

 

12,250

 

Stock-based compensation

 

 

20,531

 

 

 

17,416

 

Amortization of prepaid debt fees

 

 

2,761

 

 

 

2,610

 

Deferred taxes, net

 

 

1,938

 

 

 

(6,428

)

Loss on sale of business

 

 

675

 

 

 

3,182

 

Goodwill impairment

 

 

 

 

 

38,480

 

Restructuring, non-cash

 

 

910

 

 

 

(879

)

Other adjustments, net

 

 

(318

)

 

 

2,148

 

Changes in operating assets and liabilities, net of acquisition and sale of business:

 

 

 

 

Accounts receivable

 

 

(37,832

)

 

 

12,270

 

Inventories

 

 

(48,280

)

 

 

(48,377

)

Other current assets

 

 

(43,240

)

 

 

(15,907

)

Other long-term assets

 

 

3,392

 

 

 

(7,897

)

Accounts payable, other current liabilities, and taxes payable

 

 

220

 

 

 

55,032

 

Wages and benefits payable

 

 

17,361

 

 

 

(30,877

)

Unearned revenue

 

 

38,619

 

 

 

32,151

 

Warranty

 

 

(2,177

)

 

 

(5,031

)

Restructuring

 

 

23,966

 

 

 

(34,410

)

Other operating, net

 

 

(9,071

)

 

 

(7,318

)

Net cash provided by operating activities

 

 

77,076

 

 

 

37,530

 

 

 

 

 

 

Investing activities

 

 

 

 

Net proceeds (payments) related to the sale of business

 

 

(772

)

 

 

55,933

 

Acquisitions of property, plant, and equipment

 

 

(18,304

)

 

 

(14,886

)

Business acquisitions, net of cash and cash equivalents acquired

 

 

 

 

 

23

 

Other investing, net

 

 

73

 

 

 

2,424

 

Net cash provided by (used in) investing activities

 

 

(19,003

)

 

 

43,494

 

 

 

 

 

 

Financing activities

 

 

 

 

Issuance of common stock

 

 

2,366

 

 

 

2,631

 

Repurchase of common stock

 

 

 

 

 

(16,972

)

Prepaid debt fees

 

 

(517

)

 

 

(697

)

Other financing, net

 

 

(4,488

)

 

 

(4,358

)

Net cash used in financing activities

 

 

(2,639

)

 

 

(19,396

)

 

 

 

 

 

Effect of foreign exchange rate changes on cash and cash equivalents

 

 

(2,670

)

 

 

(8,794

)

Increase in cash and cash equivalents

 

 

52,764

 

 

 

52,834

 

Cash and cash equivalents at beginning of period

 

 

202,007

 

 

 

162,579

 

Cash and cash equivalents at end of period

 

$

254,771

 

 

$

215,413

 

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 restructuring, loss on sale of business, strategic initiative expenses, Russian currency translation write-off, goodwill impairment, or acquisition and integration related expenses. 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 expenses, Russian currency translation write-off, goodwill impairment, and acquisition and integration related expenses. We define non-GAAP operating income as operating income (loss) excluding the expenses related to the amortization of intangible assets, restructuring, loss on sale of business, strategic initiative expenses, Russian currency translation write-off, goodwill impairment, and acquisition and integration related expenses. 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 not related to our core operating results. 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, restructuring, loss on sale of business, strategic initiative expenses, Russian currency translation write-off, goodwill impairment, acquisition and integration related expenses, 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 transactions 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 (loss) 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, restructuring, loss on sale of business, strategic initiative expenses, Russian currency translation write-off, goodwill impairment, acquisition and integration related expenses, 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 in the reconciliation.

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 September 30,

 

Nine Months Ended September 30,

 

 

2023

2022

 

2023

2022

NON-GAAP OPERATING EXPENSES

 

 

 

 

 

 

GAAP operating expenses

 

$

132,313

 

$

113,174

 

 

$

437,921

 

$

401,211

 

Amortization of intangible assets

 

 

(4,663

)

 

(6,413

)

 

 

(14,433

)

 

(19,451

)

Restructuring

 

 

615

 

 

1,272

 

 

 

(36,868

)

 

11,097

 

Loss on sale of business

 

 

(45

)

 

(767

)

 

 

(675

)

 

(3,182

)

Strategic initiative

 

 

5

 

 

35

 

 

 

5

 

 

(675

)

Russian currency translation write-off

 

 

 

 

(1,885

)

 

 

 

 

(1,885

)

Goodwill impairment

 

 

 

 

 

 

 

 

 

(38,480

)

Acquisition and integration

 

 

(28

)

 

(154

)

 

 

(117

)

 

(370

)

Non-GAAP operating expenses

 

$

128,197

 

$

105,262

 

 

$

385,833

 

$

348,265

 

 

 

 

 

 

 

 

NON-GAAP OPERATING INCOME

 

 

 

 

 

 

GAAP operating income (loss)

 

$

54,890

 

$

6,888

 

 

$

79,597

 

$

(19,820

)

Amortization of intangible assets

 

 

4,663

 

 

6,413

 

 

 

14,433

 

 

19,451

 

Restructuring

 

 

(615

)

 

(1,272

)

 

 

36,868

 

 

(11,097

)

Loss on sale of business

 

 

45

 

 

767

 

 

 

675

 

 

3,182

 

Strategic initiative

 

 

(5

)

 

(35

)

 

 

(5

)

 

675

 

Russian currency translation write-off

 

 

 

 

1,885

 

 

 

 

 

1,885

 

Goodwill impairment

 

 

 

 

 

 

 

 

 

38,480

 

Acquisition and integration

 

 

28

 

 

154

 

 

 

117

 

 

370

 

Non-GAAP operating income

 

$

59,006

 

$

14,800

 

 

$

131,685

 

$

33,126

 

 

 

 

 

 

 

 

NON-GAAP NET INCOME & DILUTED EPS

 

 

 

 

 

 

GAAP net income (loss) attributable to Itron, Inc.

 

$

40,172

 

$

4,117

 

 

$

52,537

 

$

(31,944

)

Amortization of intangible assets

 

 

4,663

 

 

6,413

 

 

 

14,433

 

 

19,451

 

Amortization of debt placement fees

 

 

897

 

 

846

 

 

 

2,629

 

 

2,478

 

Restructuring

 

 

(615

)

 

(1,272

)

 

 

36,868

 

 

(11,097

)

Loss on sale of business

 

 

45

 

 

767

 

 

 

675

 

 

3,182

 

Strategic initiative

 

 

(5

)

 

(35

)

 

 

(5

)

 

675

 

Russian currency translation write-off

 

 

 

 

1,885

 

 

 

 

 

1,885

 

Goodwill impairment

 

 

 

 

 

 

 

 

 

38,480

 

Acquisition and integration

 

 

28

 

 

154

 

 

 

117

 

 

370

 

Income tax effect of non-GAAP adjustments

 

 

(293

)

 

(2,362

)

 

 

(10,156

)

 

(4,663

)

Non-GAAP net income attributable to Itron, Inc.

 

$

44,892

 

$

10,513

 

 

$

97,098

 

$

18,817

 

 

 

 

 

 

 

 

Non-GAAP diluted EPS

 

$

0.98

 

$

0.23

 

 

$

2.12

 

$

0.42

 

 

 

 

 

 

 

 

Non-GAAP weighted average common shares outstanding - Diluted

 

 

45,950

 

 

45,330

 

 

 

45,768

 

 

45,267

 

 

 

 

 

 

 

 

ADJUSTED EBITDA

 

 

 

 

 

 

GAAP net income (loss) attributable to Itron, Inc.

 

$

40,172

 

$

4,117

 

 

$

52,537

 

$

(31,944

)

Interest income

 

 

(2,642

)

 

(801

)

 

 

(5,968

)

 

(1,367

)

Interest expense

 

 

2,445

 

 

1,679

 

 

 

6,479

 

 

4,931

 

Income tax provision

 

 

15,388

 

 

473

 

 

 

24,513

 

 

4,973

 

Depreciation and amortization

 

 

13,645

 

 

17,361

 

 

 

42,013

 

 

50,612

 

Restructuring

 

 

(615

)

 

(1,272

)

 

 

36,868

 

 

(11,097

)

Loss on sale of business

 

 

45

 

 

767

 

 

 

675

 

 

3,182

 

Strategic initiative

 

 

(5

)

 

(35

)

 

 

(5

)

 

675

 

Russian currency translation write-off

 

 

 

 

1,885

 

 

 

 

 

1,885

 

Goodwill impairment

 

 

 

 

 

 

 

 

 

38,480

 

Acquisition and integration

 

 

28

 

 

154

 

 

 

117

 

 

370

 

Adjusted EBITDA

 

$

68,461

 

$

24,328

 

 

$

157,229

 

$

60,700

 

 

 

 

 

 

 

 

FREE CASH FLOW

 

 

 

 

 

 

Net cash provided by operating activities

 

$

34,087

 

$

14,874

 

 

$

77,076

 

$

37,530

 

Acquisitions of property, plant, and equipment

 

 

(5,806

)

 

(4,223

)

 

 

(18,304

)

 

(14,886

)

Free Cash Flow

 

$

28,281

 

$

10,651

 

 

$

58,772

 

$

22,644

 

 

Contacts

Itron, Inc.

Paul Vincent

Vice President, Investor Relations

(512) 560-1172

David Means

Director, Investor Relations

(737) 242-8448

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