Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
ITRI > SEC Filings for ITRI > Form 10-Q on 1-May-2014All Recent SEC Filings

Show all filings for ITRON INC /WA/

Form 10-Q for ITRON INC /WA/


1-May-2014

Quarterly Report


ITEM 2: Management's Discussion and Analysis of Financial Condition and Results of Operations

In this Quarterly Report on Form 10-Q, the terms "we," "us," "our," "Itron," and the "Company" refer to Itron, Inc.

The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and notes included in this report and with our Annual Report on Form 10-K for the year ended December 31, 2013, filed with the Securities and Exchange Commission (SEC) on February 26, 2014.

Documents we provide to the SEC are available free of charge under the Investors section of our website at www.itron.com as soon as practicable after they are filed with or furnished to the SEC. In addition, these documents are available at the SEC's website (http://www.sec.gov), at the SEC's Headquarters at 100 F Street, NE, Washington, DC 20549, or by calling 1-800-SEC-0330.

Certain Forward-Looking Statements

This document contains forward-looking statements concerning our operations, financial performance, revenues, earnings growth, liquidity, and other items. This document reflects our current plans and expectations and is based on information currently available as of the date of this Quarterly Report on Form 10-Q. When we use the words "expect," "intend," "anticipate," "believe," "plan," "project," "estimate," "future," "objective," "may," "will," "will continue," and similar expressions, they are intended to identify forward-looking statements. Forward-looking statements rely on a number of assumptions and estimates. These assumptions and estimates could be inaccurate and cause our actual results to vary materially from expected results. Risks and uncertainties include 1) the rate and timing of customer demand for our products, 2) rescheduling or cancellations of current customer orders and commitments, 3) changes in estimated liabilities for product warranties and/or litigation, 4) our dependence on customers' acceptance of new products and their performance,
5) competition, 6) changes in domestic and international laws and regulations,
7) changes in foreign currency exchange rates and interest rates, 8) international business risks, 9) our own and our customers' or suppliers' access to and cost of capital, 10) future business combinations, and 11) other factors. You should not solely rely on these forward-looking statements as they are only valid as of the date of this Quarterly Report on Form 10-Q. We do not have any obligation to publicly update or revise any forward-looking statement in this document. For a more complete description of these and other risks, refer to Item 1A: "Risk Factors" included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, which was filed with the SEC on February 26, 2014.

Results of Operations

We are a technology company, offering end-to-end smart metering solutions to electric, natural gas, and water utilities around the world. Our smart metering solutions, meter data management software, and knowledge application solutions bring additional value to a utility's metering and grid systems. Our professional services help our customers project-manage, install, implement, operate, and maintain their systems.

We operate under the Itron brand worldwide and manage and report under three operating segments - Electricity, Gas, and Water.
In March 2013, we separated the management of our Energy operating segment into Electricity and Gas to allow each business line to develop its own go-to-market strategy, prioritize its marketing and product development requirements, and focus on its strategic investments. Our sales, marketing, and delivery functions are managed under our three business lines - Electricity, Gas, and Water. Our product development and manufacturing operations are now managed on a worldwide basis to promote a global perspective in our operations and processes and still maintain alignment with the business lines. The transition to the new organizational structure, including changes to operations and financial reporting systems, was completed in the fourth quarter of 2013. Our historical segment information for the three months ended March 31, 2013 has been recast to reflect our new operating segments.

We have three measures of segment performance: revenue, gross profit (margin), and operating income (margin). Our operating segments have distinct products, and therefore intersegment revenues are minimal. Corporate-specific operating expenses, interest income, interest expense, other income (expense), and income tax provision (benefit) are not allocated to the segments and are not included in the measure of segment profit or loss. In addition, we allocate only certain production assets and intangible assets to our operating segments. We do not manage the performance of the segments on a balance sheet basis.

Overview

Revenues for the three months ended March 31, 2014 were $475 million, compared with $448 million in the same period last year. The increase in 2014 was the result of higher revenues in all three segments. Gross margin for the three months ended


Table of Contents

March 31, 2014 was 32.5%, compared with gross margins of 31.3% for the same period in 2013. The higher margins were the result of higher volumes and more favorable mix of products in the Gas and Water segments.

Our tax benefit for the first three months of 2014 was higher than the federal statutory benefit of 35% due to discrete tax benefits recognized. Our tax benefit for the first three months of 2013 reflects the favorable discrete tax benefit for the retroactive extension of the 2012 research and experimentation credit in the amount of $4.0 million. The American Taxpayer Relief Act of 2012 was signed into law on January 2, 2013 and extended several business tax provisions including the research and experimentation credit. Our annual estimated effective tax rate for 2013 was favorably impacted by a higher percentage of projected earnings in foreign jurisdictions with tax rates below 35%, the benefit of certain interest expense deductions, and an election under U.S. Internal Revenue Code Section 338 with respect to a foreign acquisition in 2007.

Bookings during the first quarter of 2014 include a $279 million booking for a significant project in our Electricity operating segment. Total backlog was $1.3 billion and twelve-month backlog was $614 million at March 31, 2014.

On February 7, 2014, Itron's Board of Directors authorized a new repurchase program of up to $50 million in shares of our common stock over a 12-month period; this program took effect following the expiration of the previous stock repurchase program on March 7, 2014. Repurchases are made in the open market or in privately negotiated transactions and in accordance with applicable securities laws. Refer to Part II, Item 2: "Unregistered Sales of Equity Securities and Use of Proceeds" for additional information related to our share repurchase program.

Total Company Revenues, Gross Profit and Margin, and Unit Shipments

                 Three Months Ended March 31,
                2014          2013       % Change
                  (in thousands)
Revenues     $ 474,795     $ 447,536        6%
Gross Profit $ 154,535     $ 140,123       10%
Gross Margin      32.5 %        31.3 %



                                               Three Months Ended March 31,
                                                    2014                  2013
                                                      (in thousands)
Revenues by Region
United States and Canada (North America) $       200,370               $ 177,206
Europe, Middle East, and Africa (EMEA)           223,504                 211,895
Other                                             50,921                  58,435
Total revenues                           $       474,795               $ 447,536

Meter and Module Summary
We classify meters into three categories:
• Standard metering - no built-in remote reading communication technology

• Advanced metering - one-way communication of meter data

• Smart metering - two-way communication including remote meter configuration and upgrade (consisting primarily of our OpenWay® technology)

In addition, advanced and smart meter communication modules can be sold separately from the meter.


Table of Contents

Our revenue is driven significantly by sales of meters and communication modules. A summary of our meter and communication module shipments is as follows:

                                        Three Months Ended March 31,
                                               2014                  2013
                                            (units in thousands)
Meters
Standard                                  4,850                     4,440
Advanced and smart                        1,520                     1,630
Total meters                              6,370                     6,070

Stand-alone communication modules
Advanced and smart                        1,350                     1,340

Revenues
Revenues increased $27.3 million or 6%, for the three months ended March 31, 2014, compared with the same period in 2013. This increase was driven by higher revenues in all segments, with the largest increase, both in dollars and percentage points, occurring in the Water segment. A more detailed analysis of these fluctuations is provided in Operating Segment Results.

No single customer accounted for more than 10% of total Company revenues during the three months ended March 31, 2014 and March 31, 2013. Our 10 largest customers accounted for 20% of total revenues during the first quarters ended March 31, 2014 and 2013, respectively.

Gross Margins
Gross margin for the first quarter of 2014 was 32.5%, compared with 31.3% for the same period in 2013. Margins increased in the Gas and Water segments but declined in the Electricity segment. The higher margins in the Gas and Water segments were primarily the result of more favorable product mix, which is due to higher volumes of products with higher margins as a proportion of total sales, and improved absorption as a result of increased volumes. The Electricity segment gross margin declined because of lower volumes; less favorable product mix, which is due to higher volumes of products with lower margins as a proportion of total sales; and increased warranty expense. A more detailed analysis of these fluctuations is provided in Operating Segment Results.


Table of Contents

Operating Segment Results

For a description of our operating segments, refer to Item 1: "Financial
Statements Note 15: Segment Information".

                                          Three Months Ended March 31,
                                    2014              2013             % Change
Segment Revenues                        (in thousands)
Electricity                   $      180,218     $     175,763            3%
Gas                                  146,109           136,915            7%
Water                                148,468           134,858           10%
Total revenues                $      474,795     $     447,536            6%

                                                  Three Months Ended March 31,
                                             2014                               2013
                                   Gross              Gross             Gross            Gross
                                   Profit            Margin             Profit           Margin
Segment Gross Profit and       (in thousands)                       (in thousands)
Margin
Electricity                   $       42,740          23.7%        $       44,912        25.6%
Gas                                   58,406          40.0%                50,642        37.0%
Water                                 53,389          36.0%                44,569        33.0%
Total gross profit and margin $      154,535          32.5%        $      140,123        31.3%

                                                  Three Months Ended March 31,
                                             2014                               2013
                                 Operating          Operating         Operating        Operating
                               Income (Loss)         Margin         Income (Loss)        Margin
Segment Operating Income       (in thousands)                       (in thousands)
(Loss) and Operating Margin
Electricity                   $      (22,969 )        (13)%        $      (19,050 )      (11)%
Gas                                   25,724           18%                 19,530         14%
Water                                 20,643           14%                 12,575          9%
Corporate unallocated                (18,859 )                            (10,708 )
Total Company                 $        4,539           1%          $        2,347          1%

Electricity:

Revenues - Three months ended March 31, 2014 vs. Three months ended March 31, 2013
Electricity revenues increased $4.5 million, or 3%, for the three months ended March 31, 2014, compared with the same period in 2013. Revenues in 2014 were higher primarily due to increased product shipments and higher professional services in North America, the impact of which was partially offset by lower volumes of prepayment meters in Asia/Pacific. The net translation effect of our operations denominated in foreign currencies into U.S. dollars negatively impacted Electricity revenues by $4.4 million in 2014.

No single customer accounted for more than 10% of the Electricity operating segment revenues during the three months ended March 31, 2014 and 2013.

Gross Margin - Three months ended March 31, 2014 vs. Three months ended March 31, 2013
Electricity gross margin was 23.7% for the three months ended March 31, 2014, compared with 25.6% for the first three months in 2013. During the first quarter of 2014, gross margin decreased 190 basis points over the prior year, primarily as the result of less favorable product mix, lower volumes of standard and prepayment meters, and higher warranty expense, partially offset by higher volumes of smart meters.

Operating Expenses - Three months ended March 31, 2014 vs. Three months ended March 31, 2013
Electricity operating expenses increased $1.7 million, or 3%, for the three months ended March 31, 2014, compared with the same period in 2013 primarily as a result of $2.5 million in higher litigation expenses and $1.0 million in goodwill impairment, offset partially by lower sales and marketing and product development expenses. Operating expenses for sales and marketing, product development, general and administrative, and amortization of intangible assets as a percentage of revenues were 36% in 2014 and 37% in 2013.


Table of Contents

Gas:

Revenues - Three months ended March 31, 2014 vs. Three months ended March 31, 2013
Gas revenues increased $9.2 million, or 7%, for the three months ended March 31, 2014, compared with the first quarter of 2013, primarily driven by North America, which had an increase of $10.4 million of product shipments partially offset by $2.4 million of lower professional services.

No single customer accounted for more than 10% of the Gas operating segment revenues during the three months ended March 31, 2014 and 2013.

Gross Margin - Three months ended March 31, 2014 vs. Three months ended March 31, 2013
Gas gross margin was 40.0% for the three months ended March 31, 2014, compared with 37.0% for first quarter in 2013. The increase was driven by higher volumes and more favorable product mix in North America, as well as lower warranty costs across the Gas business.

Operating Expenses - Three months ended March 31, 2014 vs. Three months ended March 31, 2013
Gas operating expenses increased $1.6 million, or 5.0%, for the three months ended March 31, 2014, compared with the same period in 2013. This was due primarily to higher product development costs in 2014. Operating expenses for sales and marketing, product development, general and administrative, and amortization of intangible assets as a percentage of revenues were 23% in 2014 and 2013.

Water:

Revenues - Three months ended March 31, 2014 vs. Three months ended March 31, 2013
Revenues increased $13.6 million, or 10%, for the three months ended March 31, 2014, compared with the first quarter of 2013. This increase was primarily due to $11.6 million in higher product volume, including heat products, in EMEA and by $2.2 million in increased shipments in Latin America.

No single customer represented more than 10% of the Water operating segment revenues during the three months ended March 31, 2014 and 2013.

Gross Margin - Three months ended March 31, 2014 vs. Three months ended March 31, 2013
Water gross margin increased to 36.0% for the three months ended March 31, 2014, compared with 33.0% for the same period last year, primarily as the result of a decrease in professional services in North America, which have a lower gross margin, along with increased product volumes in North America and Latin America.

Operating Expenses - Three months ended March 31, 2014 vs. Three months ended March 31, 2013
Operating expenses for the three months ended March 31, 2014 increased by $0.8 million, or 2%, over the first quarter of 2013, primarily as the result of increased share of allocated costs. Operating expenses for sales and marketing, product development, general and administrative, and amortization of intangible assets as a percentage of revenues were 22% in 2014 and 23% in 2013.

Corporate unallocated:

Operating expenses not directly associated with an operating segment are classified as "Corporate unallocated." These expenses increased by $8.2 million in the three months ended March 31, 2014, due to increased restructuring costs of $4.2 million during the first quarter 2014 as compared with the same period of 2013, as well as higher professional services costs.

Bookings and Backlog of Orders

Bookings for a reported period represent customer contracts and purchase orders received during the period that have met certain conditions, such as regulatory and/or contractual approval. Total backlog represents committed but undelivered products and services for contracts and purchase orders at period end. Twelve-month backlog represents the portion of total backlog that we estimate will be recognized as revenue over the next 12 months. Backlog is not a complete measure of our future revenues as we also receive significant book-and-ship orders. Bookings and backlog may fluctuate significantly due to the timing of large project awards. In addition, annual or multi-year contracts are subject to rescheduling and cancellation by customers due to the long-term nature of the contracts. Beginning total backlog, plus bookings, minus revenues, will not equal ending total backlog due to miscellaneous contract adjustments, foreign currency fluctuations, and other factors.


Table of Contents

                                     Ending       Ending
                      Quarterly       Total      12-Month
Quarter Ended          Bookings      Backlog     Backlog
                                 (in millions)
March 31, 2014       $       745    $  1,333    $     614
December 31, 2013            527       1,068          549
September 30, 2013           457       1,055          582
June 30, 2013                515       1,058          558
March 31, 2013               447       1,029          565

Information on bookings by our operating segments is as follows:

Quarter Ended         Total Bookings      Electricity      Gas      Water
                                         (in millions)
March 31, 2014       $            745    $         463    $ 135    $  147
December 31, 2013                 527              192      142       193
September 30, 2013                457              167      167       123
June 30, 2013                     515              256      109       150
March 31, 2013                    447              171      134       142

Bookings during the first quarter of 2014 include a $279 million booking for a significant project in our Electricity operating segment.

Operating Expenses

                                             Three Months Ended March 31,
                                                 % of                                 % of
                               2014            Revenues             2013            Revenues
                          (in thousands)                       (in thousands)
Sales and marketing     $         47,609          10%        $         48,216          11%
Product development               44,409          10%                  44,208          10%
General and
administrative                    40,407          9%                   33,595          8%
Amortization of
intangible assets                 11,070          2%                   10,744          2%
Restructuring                      5,524          1%                    1,013          -%
Goodwill impairment                  977          -%                        -          -%
Total operating
expenses                $        149,996          32%        $        137,776          31%

Operating expenses increased $12.2 million for the three months ended March 31, 2014, primarily due to increased restructuring costs associated with the 2013 Projects, litigation reserves, which are included within general and administrative operating expense, and goodwill impairment.

Other Income (Expense)

The following table shows the components of other income (expense):

                                     Three Months Ended March 31,
                                        2014               2013
                                            (in thousands)
Interest income                   $          97       $       1,061
Interest expense                         (2,505 )            (1,925 )
Amortization of prepaid debt fees          (404 )              (413 )
Other income (expense), net              (2,498 )              (817 )
Total other income (expense)      $      (5,310 )     $      (2,094 )


Table of Contents

Interest income: Interest income is generated from our cash and cash equivalents balances and certain deposits on hand with third parties. Interest income declined during the three months ended March 31, 2014 as interest rates remained low, and we recognized interest on deposits with government entities related to tax contingencies in 2013.

Interest expense: Interest expense for the three months ended March 31, 2014 increased due to the impact of interest rate swaps, which became effective during the third quarter of 2013 and a higher interest rate margin on the credit facility, offset partially by lower debt outstanding. Average total debt outstanding was $375.0 million and $416.7 million for the quarters ended March 31, 2014 and 2013, respectively.

Amortization of prepaid debt fees: Amortization of prepaid debt fees for the three months ended March 31, 2014 remained consistent with the same period in 2013. Refer to Item 1: "Financial Statements Note 6: Debt" for additional details related to our long-term borrowings.

Other income (expense), net: Other expenses, net, consist primarily of unrealized and realized foreign currency gains and losses from balances denominated in currencies other than the reporting entity's functional currency and other non-operating income (expenses). As a result of currency movements in certain markets in which we do business, foreign currency losses, net of hedging, were $2.1 million for the three months ended March 31, 2014, compared with net foreign currency losses of $594,000 in the same period in 2013.

Financial Condition

Cash Flow Information:

                                                       Three Months Ended March 31,
                                                        2014                   2013
                                                              (in thousands)
Operating activities                            $          66,761       $             595
Investing activities                                       (8,397 )               (15,569 )
Financing activities                                      (35,507 )               (17,243 )
Effect of exchange rates on cash and cash
equivalents                                                (1,335 )                (2,633 )
Increase (decrease) in cash and cash
equivalents                                     $          21,522       $         (34,850 )

Cash and cash equivalents was $146.3 million at March 31, 2014, compared with $124.8 million at December 31, 2013.

Operating activities
Cash provided by operating activities during the three months ended March 31, 2014 was $66.2 million higher than during the same period in 2013. This increase was primarily due to invoice timing, resulting in $37.8 million of decreased payments in accounts payable during the first quarter of 2014 compared with the first quarter of 2013, as well as $7.0 million in increased collections of accounts receivable and $3.0 million in increased receipts of unearned revenue.

Investing activities
Cash used in investing activities during the three months ended March 31, 2014 was $7.2 million lower compared with the same period in 2013, primarily due to a decline in the acquisition of property, plant, and equipment of $6.2 million.

Financing activities
Net cash used in financing activities during the three months ended March 31, 2014 was $18.3 million higher, compared with the same period in 2013, primarily as a result of $11.9 million in increased debt repayments and $2.7 million higher repurchases of our common stock. Refer to Part II, Item 2: "Unregistered Sale of Equity Securities and Use of Proceeds" for additional details related to our share repurchase program.

Effect of exchange rates on cash and cash equivalents The effect of exchange rates on the cash balances of currencies held in foreign denominations for the three months ended March 31, 2014 was a decrease of $1.3 million, compared with a decrease of $2.6 million for the same period in 2013.


Table of Contents

Off-balance sheet arrangements:

We have no off-balance sheet financing agreements or guarantees as defined by Item 303 of Regulation S-K at March 31, 2014 and December 31, 2013 that we believe are reasonably likely to have a current or future effect on our financial condition, results of operations, or cash flows.

Liquidity and Capital Resources:

Our principal sources of liquidity are cash flows from operations, borrowings, . . .

  Add ITRI to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for ITRI - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.