EX-99.1 2 a5263960ex991.txt ITRON, INC. EXHIBIT 99.1 Exhibit 99.1 Itron Announces Strong Third Quarter Results SPOKANE, Wash.--(BUSINESS WIRE)--Nov. 1, 2006--Itron, Inc. (NASDAQ:ITRI), today reported financial results for its third quarter ended September 30, 2006. Highlights of the results include: -- Record quarterly and year-to-date revenues of $164.7 million and $484.1 million; -- Quarterly and year-to-date GAAP diluted EPS of $.35 and $1.01; -- Record quarterly and year-to-date pro forma diluted EPS of $.63 and $1.83; -- Record year-to-date cash flow from operations of $87 million. Revenues for the third quarter of 2006 were $164.7 million, 17% higher than third quarter 2005 revenues of $141.1 million. Revenues for the nine months ended September 30, 2006 were $484.1 million, which reflects a 23% increase over revenues of $392.7 million in the first nine months of 2005. "We continue to deliver solid operating results," said LeRoy Nosbaum, chairman and CEO. "We had our highest quarterly revenue in the company's history despite the expected decline from the first half of the year in revenue associated with our Progress Energy contract. The overall level of activity in the industry continues to be high and our competitive position remains excellent." -- Electricity Metering segment revenues were $81.6 million in the third quarter compared with $58.6 million in the third quarter of 2005. For the nine months ended September 30, 2006 Electricity Metering revenues were $250.4 million compared with $173.3 million in the same period in 2005. The 39% and 44% respective increases in revenues were primarily driven by shipments of electricity meters with embedded AMR and related installation services to Progress Energy. Without the effect of Progress Energy, Electricity Metering revenues in the quarter increased 7% over 2005. The Progress Energy contract accounted for meter shipments of approximately 300,000 and 1.9 million in the quarter and year-to-date periods. -- Meter Data Collection (MDC) segment revenues of $69.4 million in the third quarter of 2006 were down slightly from $70.6 million in the third quarter of 2005. Year-to-date 2006 MDC revenues of $191.3 million were 5% higher than the $182.5 million year-to-date in 2005 despite a planned sales shift from stand-alone electric AMR modules to electric meters with embedded AMR, which are reflected in Electricity Metering segment revenues. The higher year-to-date MDC revenue is primarily due to shipments of gas ERT modules associated with several AMR projects. -- Software Solutions revenues were $13.7 million during the quarter or 15% higher than $11.9 million in the third quarter of 2005. For the nine months ended September 30, 2006, software revenues of $42.4 million were 15% higher than revenues of $36.9 million for the same period in 2005. Software revenues have increased in 2006 primarily due to increased software license sales for a variety of products. New order bookings for the quarter and year-to-date periods in 2006 were $128 million and $441 million, compared with $212 million and $506 million in 2005. New order bookings in 2005 included $118 million from one contract with Progress Energy, which was signed in the third quarter of 2005. Twelve-month backlog, which represents the portion of backlog that will be earned over the next twelve months, was $194 million at September 30, 2006, compared with $198 million one year ago. At September 30, 2006 and 2005 total backlog was $325 million. Twelve-month and total backlog at September 30, 2005 included $77 million and $118 million respectively, related to our contract with Progress Energy. At September 30, 2006 there was $14 million remaining in backlog related to this contract. "New order bookings and resulting backlog remain strong," said LeRoy Nosbaum, "both of which mitigate the effect of the large order with Progress Energy winding down." Total company gross margins of 41% for the quarter were slightly lower than the 43% in the third quarter of 2005. Gross margins for the year-to-date periods in 2006 were 42% which was in line with the 43% in the same period of 2005. Current quarter and year-to-date gross margins were lower for Electricity Metering due to a higher portion of lower margin installation revenue in both periods. Software Solutions gross margins were lower for the quarter due to the timing of projects. Software margin for the nine months ended September 30, 2006 of 42% was slightly higher than the 41% in the same period of 2005 due to a higher proportion of revenue from software licenses. On January 1, 2006, the Company adopted Statement of Financial Accounting Standard No. 123(R), Share-Based Payment (SFAS 123 (R), which requires the expensing of share-based compensation. Total stock-based compensation in the quarter and year-to-date periods was $2.7 million and $6.8 million respectively, of which $2.3 million and $5.9 million was due to the adoption of SFAS 123(R) for stock options. Pro forma operating income, which excludes intangible asset amortization expenses in both 2006 and 2005, restructuring charges in 2005 and SFAS 123(R) stock option compensation expense in 2006, was $26.5 million for the quarter, or 16.1% of revenues, compared with $23.9 million or 16.9% of revenues in the third quarter of 2005. Year-to-date pro forma operating income was $81.7 million, or 16.9% of revenues compared with $59.8 million or 15.2% of revenues for the nine months ended September 30, 2005, even with increased investments in research and development in 2006. GAAP net income was $9.2 million, or 35 cents per diluted share, for the current quarter, compared with net income of $6.0 million, or 23 cents per diluted share, for the third quarter of 2005. For the nine months ended September 30, 2006, GAAP net income was $26.5 million, or $1.01 per diluted share, compared with $16.1 million, or 66 cents per diluted share for the same period in 2005. GAAP net income in the nine month 2005 period included a $5.9 million tax benefit for additional research and development (R&D) credits for the years 1997 through 2004. Pro forma net income was $16.6 million, or 63 cents per diluted share, for the quarter and $48.2 million, or $1.83 per diluted share, for the nine months ended September 30, 2006, compared with $12.6 million, or 49 cents per diluted share, in the third quarter of 2005 and $30.3 million or $1.24 per diluted share for the nine months ended September 30, 2005. Pro forma net income excludes intangible asset and debt fee amortization expense in 2005 and 2006, restructuring charges and the benefit of R&D tax credits in 2005 and SFAS 123(R) stock option compensation expense in 2006. On August 4, 2006, we issued $345 million of 2.50% convertible senior subordinated notes with a 40% conversion premium at the time of issuance. Upon conversion we are required to settle the principal amount of the convertible notes in cash and may elect to settle the remaining conversion obligation (stock price in excess of conversion price) in cash, shares or a combination. The notes are due August 2026 and contain put options at five-year intervals at the option of the holder. We expect to use the proceeds from the issuance for future investments in or acquisitions of companies or technologies that are complementary to our business. The net proceeds from the issuance of notes have been invested in short term securities and were mildly accretive to our results during the quarter because of the interest spread. We generated $87.0 million of cash from operations during the first nine months of 2006 compared with $49.6 million in 2005. Capital expenditures were $25.9 million in the first nine months of 2006 compared with $10.3 million in the first nine months of 2005. The increase in 2006 is primarily related to an enterprise software upgrade and capital improvements associated with our new headquarters building. Forward Looking Statements: This release contains forward-looking statements concerning our expectations about our operations, financial performance, sales, earnings and cash flow. These statements reflect our current plans and expectations and are based on information currently available. They rely on a number of assumptions and estimates, which could be inaccurate, and which are subject to risks and uncertainties that could cause our actual results to vary materially from those anticipated. Risks and uncertainties include the rate and timing of customer demand for our products, rescheduling of current customer orders, changes in estimated liabilities for product warranties, changes in laws and regulations, our dependence on new product development and intellectual property, future acquisitions, changes in estimates for stock based compensation and other factors which are more fully described in our Annual Report on Form 10-K for the year ended December 31, 2005 and other reports on file with the Securities and Exchange Commission. Itron undertakes no obligation to update publicly or revise any forward-looking statements, including our business outlook. Business Outlook: The outlook information provided below and elsewhere in this release is based on information available today and does not include the effect of any pending or future acquisitions. Itron assumes no obligation to publicly update or revise our business outlook. Our future performance involves risks and uncertainties. For the full year 2006, we expect: -- Revenues between $638 and $642 million (previous guidance was $625 to $635 million). -- GAAP net income between $32 and $34 million (previous guidance was $31 to $33 million). -- Pro forma net income between $61 and $63 million (previous guidance was $59 to $61 million. -- Pro forma EPS between $2.35 and $2.40 per diluted share (previous guidance was $2.25 to $2.30). -- Our 2006 estimated pro forma tax rate as a percentage of pre-tax pro forma income is expected to be approximately 37%, which is higher than our previous estimated rate due to the expiration of the federal research credit which Congress has yet to renew for 2006. If the research credit is renewed for the entire year, we estimate it will reduce our pro forma tax rate as a percentage of pre-tax pro forma income to approximately 35%. -- Adjusted EBITDA, which excludes $8 million of stock option compensation expenses, between $117 and $120 million. Our preliminary expectations for the full year 2007 are: -- Revenue growth of approximately 8% over 2006 with a range of 3% above and below that midpoint target. -- Pro forma diluted EPS growth of almost twice the rate of revenue growth. Use of Non-GAAP Financial Information: To supplement our consolidated financial statements presented in accordance with GAAP, we use certain non-GAAP financial measures, including pro forma operating income, pro forma net income and EPS, EBITDA and Adjusted EBITDA. Management believes these non-GAAP financial measures provide useful information to both management and investors by excluding certain expenses, gains and losses that may not be indicative of our core results and provides for consistency and comparability in our financial reporting. 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. Specifically, these non-GAAP financial measures are provided to enhance investors' overall understanding of our current financial performance and our future anticipated performance. Non-GAAP performance measures should be considered in addition to, and not as a substitute for, results prepared in accordance with GAAP. Finally, our non-GAAP financial measures may be different from those reported by other companies. Reconciliations between GAAP and non-GAAP financial measures are included in this press release. Earnings Conference Call: Itron will host a conference call to discuss the financial results contained in this release at 1:45 p.m. (PST) on November 1, 2006. The call will be webcast in a listen only mode and can be accessed online at www.itron.com, "Investors - Investor Events." The live webcast will begin at 1:45 p.m. (PST). The webcast replay will begin shortly after the conclusion of the live call and will be available for two weeks. A telephone replay of the call will also be available approximately one hour after the conclusion of the live call, for 48 hours, and is accessible by dialing (888) 203-1112 (Domestic) or (719) 457-0820 (International), entering passcode # 3314107. About Itron: Itron is a leading technology provider and critical source of knowledge to the global energy and water industries. Nearly 3,000 utilities worldwide rely on Itron technology to deliver the knowledge they require to optimize the delivery and use of energy and water. tron delivers value to its clients by providing industry-leading solutions for electricity metering, meter data collection, energy information management, demand side management and response, load forecasting, analysis and consulting services, distribution system design and optimization, Web-based workforce automation, commercial and industrial customer care and residential energy management. To know more, start here: www.itron.com. Statements of operations, reconciliations between GAAP and non-GAAP results, segment information, balance sheets, cash flow statements and reconciliations of adjusted EBITDA follow. ITRON, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, in thousands, except per share data) Three Months Ended Nine Months Ended September 30, September 30, --------------------------------------- 2006 2005 2006 2005 --------- --------- --------- --------- Revenues Sales $152,023 $128,683 $446,934 $355,696 Service 12,683 12,462 37,135 37,042 --------- --------- --------- --------- Total revenues 164,706 141,145 484,069 392,738 Cost of revenues Sales 90,319 73,179 260,279 203,188 Service 6,962 6,936 20,559 20,783 --------- --------- --------- --------- Total cost of revenues 97,281 80,115 280,838 223,971 --------- --------- --------- --------- Gross profit 67,425 61,030 203,231 168,767 Operating expenses Sales and marketing 15,176 13,688 46,978 40,456 Product development 15,626 11,807 43,416 35,135 General and administrative 12,463 11,645 37,104 33,381 Amortization of intangible assets 8,284 9,712 23,209 29,143 Restructurings - - - 390 --------- --------- --------- --------- Total operating expenses 51,549 46,852 150,707 138,505 --------- --------- --------- --------- Operating income 15,876 14,178 52,524 30,262 Other income (expense) Interest income 3,467 69 4,189 167 Interest expense (4,028) (4,328) (12,359) (15,280) Other income (expense), net (187) (535) (876) 20 --------- --------- --------- --------- Total other income (expense) (748) (4,794) (9,046) (15,093) --------- --------- --------- --------- Income before income taxes 15,128 9,384 43,478 15,169 Income tax (provision) benefit (5,913) (3,382) (16,990) 963 --------- --------- --------- --------- Net income $ 9,215 $ 6,002 $ 26,488 $ 16,132 --------- --------- --------- --------- Earnings per share Basic net income per share $ 0.36 $ 0.25 $ 1.05 $ 0.70 --------- --------- --------- --------- Diluted net income per share $ 0.35 $ 0.23 $ 1.01 $ 0.66 --------- --------- --------- --------- Weighted average number of shares outstanding Basic 25,552 24,441 25,343 22,912 Diluted 26,336 25,919 26,251 24,471 ITRON, INC. RECONCILIATIONS BETWEEN GAAP AND PRO FORMA (Unaudited, in thousands, except per share data) Three Months Ended September 30, 2006 ------------------------------ Pro Forma Reported Entries Pro Forma --------- -------------------- Revenues $164,706 $ - $164,706 Cost of revenues 97,281 (376)(a) 96,905 --------- -------- --------- Gross profit 67,425 376 67,801 Operating expenses 51,549 (1,938)(a) 41,327 (8,284)(b) --------- -------- --------- Operating income 15,876 10,598 26,474 Other income (expense) (748) 597 (d) (151) --------- -------- --------- Income before income taxes 15,128 11,195 26,323 Income tax (provision) benefit (5,913) (3,784)(e) (9,697) --------- -------- --------- Net income $ 9,215 $ 7,411 $ 16,626 --------- -------- --------- Earnings per share Basic net income per share $ 0.36 $ 0.65 --------- --------- Diluted net income per share $ 0.35 $ 0.63 --------- --------- Weighted average number of shares outstanding Basic 25,552 25,552 Diluted 26,336 26,336 Three Months Ended September 30, 2005 ------------------------------- Pro Forma Reported Entries Pro Forma --------- -------------------- Revenues $141,145 $ - $141,145 Cost of revenues 80,115 - 80,115 --------- -------- --------- Gross profit 61,030 - 61,030 Operating expenses 46,852 (9,712)(b) 37,140 --------- -------- --------- Operating income 14,178 9,712 23,890 Other income (expense) (4,794) 1,245 (d) (3,549) --------- -------- --------- Income before income taxes 9,384 10,957 20,341 Income tax (provision) benefit (3,382) (4,339)(e) (7,721) --------- -------- --------- Net income $ 6,002 $ 6,618 $ 12,620 --------- -------- --------- Earnings per share Basic net income per share $ 0.25 $ 0.52 --------- --------- Diluted net income per share $ 0.23 $ 0.49 --------- --------- Weighted average number of shares outstanding Basic 24,441 24,441 Diluted 25,919 25,919 Nine Months Ended September 30, 2006 ------------------------------- Pro Forma Reported Entries Pro Forma --------- --------------------- Revenues $484,069 $ - $484,069 Cost of revenues 280,838 (902)(a) 279,936 --------- --------- --------- Gross profit 203,231 902 204,133 Operating expenses 150,707 (5,040)(a) 122,458 (23,209)(b) --------- --------- --------- Operating income 52,524 29,151 81,675 Other income (expense) (9,046) 3,633 (d) (5,413) --------- --------- --------- Income before income taxes 43,478 32,784 76,262 Income tax (provision) benefit (16,990) (11,105)(e) (28,095) --------- --------- --------- Net income $ 26,488 $ 21,679 $ 48,167 --------- --------- --------- Earnings per share Basic net income per share $ 1.05 $ 1.90 --------- --------- Diluted net income per share $ 1.01 $ 1.83 --------- --------- Weighted average number of shares outstanding Basic 25,343 25,343 Diluted 26,251 26,251 Nine Months Ended September 30, 2005 ------------------------------- Pro Forma Reported Entries Pro Forma --------- --------------------- Revenues $392,738 $ - $392,738 Cost of revenues 223,971 - 223,971 --------- --------- --------- Gross profit 168,767 - 168,767 Operating expenses 138,505 (29,143)(b) 108,972 (390)(c) --------- --------- --------- Operating income 30,262 29,533 59,795 Other income (expense) (15,093) 4,223 (d) (10,870) --------- --------- --------- Income before income taxes 15,169 33,756 48,925 Income tax (provision) benefit 963 (19,623)(e) (18,660) --------- --------- --------- Net income $ 16,132 $ 14,133 $ 30,265 --------- --------- --------- Earnings per share Basic net income per share $ 0.70 $ 1.32 --------- --------- Diluted net income per share $ 0.66 $ 1.24 --------- --------- Weighted average number of shares outstanding Basic 22,912 22,912 Diluted 24,471 24,471 Pro Forma Adjustments --------------------------------------------------------------- (a) Non-cash stock option compensation expense. (b) Amortization of intangible assets. (c) Restructurings. (d) Debt fee amortization. (e) Income taxes associated with pro forma entries. ITRON, INC. SEGMENT INFORMATION (Unaudited, in thousands) Three Months Ended Nine Months Ended September 30, September 30, ---------------------------------------- 2006 2005 2006 2005 ---------- --------- --------- --------- Revenues Hardware Solutions Electricity Metering $81,575 $58,598 $250,420 $173,326 Meter Data Collection 69,437 70,638 191,298 182,506 ---------- --------- --------- --------- Total Hardware Solutions 151,012 129,236 441,718 355,832 Software Solutions 13,694 11,909 42,351 36,906 ---------- --------- --------- --------- Total Company $164,706 $141,145 $484,069 $392,738 ---------- --------- --------- --------- Gross profit Hardware Solutions Electricity Metering $31,466 $24,236 $100,392 $73,223 Meter Data Collection 30,965 32,080 85,132 80,412 ---------- --------- --------- --------- Total Hardware Solutions 62,431 56,316 185,524 153,635 Software Solutions 4,994 4,714 17,707 15,132 ---------- --------- --------- --------- Total Company $67,425 $61,030 $203,231 $168,767 ---------- --------- --------- --------- Operating income (loss) Hardware Solutions Electricity Metering $27,296 $20,178 $89,070 $60,504 Meter Data Collection 24,881 26,656 67,672 64,601 Other unallocated costs (9,736) (5,938) (28,169) (18,143) ---------- --------- --------- --------- Total Hardware Solutions 42,441 40,896 128,573 106,962 Software Solutions (3,874) (2,996) (9,698) (8,570) Corporate unallocated (22,691) (23,722) (66,351) (68,130) ---------- --------- --------- --------- Total Company $15,876 $14,178 $52,524 $30,262 ---------- --------- --------- --------- Three Months Ended Nine Months Ended September 30, September 30, ---------------------------------------- 2006 2005 2006 2005 ---------- --------- --------- --------- (Units in thousands) Unit Shipments by Segment Electricity Metering Total meters 1,575 1,175 5,175 3,375 With Itron AMR 850 575 3,325 1,375 With other AMR 325 150 700 575 Meter Data Collection AMR standalone modules 1,150 1,175 3,225 3,075 Licensed AMR (other vendors' meters) 125 250 300 550 (1)Total units with Itron AMR 2,125 2,000 6,850 5,000 Growth in total Itron AMR shipments 6% 37% (1) Includes Itron meters with Itron AMR, other vendors' electronic electricity meters with Itron AMR and Itron AMR standalone modules. ITRON, INC. CONSOLIDATED BALANCE SHEETS (Unaudited, in thousands) September 30, December 31, 2006 2005 ------------- ------------ ASSETS Current assets Cash and cash equivalents $234,521 $33,638 Short-term investments, held to maturity 171,733 - Accounts receivable, net 97,033 104,428 Inventories 58,953 49,456 Deferred income taxes, net 22,455 23,194 Other 23,047 10,941 ------------- ------------ Total current assets 607,742 221,657 Property, plant and equipment, net 83,819 77,623 Intangible assets, net 109,937 123,293 Goodwill 119,586 116,032 Deferred income taxes, net 46,775 48,955 Other 17,161 11,324 ------------- ------------ Total assets $985,020 $598,884 ------------- ------------ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable and accrued expenses $52,666 $46,215 Wages and benefits payable 24,802 23,732 Current portion of debt - 4,376 Current portion of warranty 9,141 8,497 Unearned revenue 27,605 22,758 ------------- ------------ Total current liabilities 114,214 105,578 Long-term debt 469,299 160,186 Project financing debt - 2,367 Warranty 9,463 6,779 Contingent purchase price 5,686 - Other obligations 8,208 6,440 ------------- ------------ Total liabilities 606,870 281,350 Shareholders' equity Preferred stock - - Common stock 345,404 312,046 Accumulated other comprehensive income, net 1,641 871 Retained earnings 31,105 4,617 ------------- ------------ Total shareholders' equity 378,150 317,534 ------------- ------------ Total liabilities and shareholders' equity $985,020 $598,884 ------------- ------------ ITRON, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, in thousands) Nine Months Ended September 30, ------------------- 2006 2005 --------- --------- Operating activities Net income $26,488 $16,132 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 34,266 38,785 Employee stock plans income tax benefits 12,686 14,399 Excess tax benefits from stock-based compensation (9,108) - Stock-based compensation 6,811 399 Amortization of prepaid debt fees 3,766 4,330 Deferred income taxes, net 2,784 (16,313) Other, net (1,208) 1,534 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable 9,416 (4,738) Inventories (8,549) (5,199) Accounts payable and accrued expenses 3,622 360 Wages and benefits payable 1,088 7,412 Unearned revenue 5,758 (3,085) Warranty 3,328 (194) Other long-term obligations (237) (436) Other, net (3,923) (3,832) --------- --------- Net cash provided by operating activities 86,988 49,554 Investing activities Purchases of investments held to maturity (170,434) - Acquisitions of property, plant and equipment (25,878) (10,264) Business acquisitions, net of cash and cash equivalents acquired (7,321) - Other, net 1,507 1,780 --------- --------- Net cash used in investing activities (202,126) (8,484) Financing activities Proceeds from borrowings 345,000 - Payments on debt (42,703) (122,704) Issuance of common stock 13,375 82,269 Excess tax benefits from stock-based compensation 9,108 - Prepaid debt fees (8,759) (391) Other, net - 28 --------- --------- Net cash provided by (used in) financing activities 316,021 (40,798) Increase in cash and cash equivalents 200,883 272 Cash and cash equivalents at beginning of period 33,638 11,624 --------- --------- Cash and cash equivalents at end of period $234,521 $11,896 --------- --------- Non-cash transactions: Fixed assets purchased but not yet paid $3,452 $- Non-cash affects of acquisitions 637 ITRON, INC. RECONCILIATIONS BETWEEN GAAP NET INCOME, EBITDA AND ADJUSTED EBITDA (Unaudited, in thousands) Three Months Ended Nine Months Ended September 30, September 30, ------------------------------------ 2006 2005 2006 2005 --------- -------- -------- -------- GAAP net income $9,215 $6,002 $26,488 $16,132 Adjustments to GAAP net income Interest income (3,467) (69) (4,189) (167) Interest expense 4,028 4,328 12,359 15,280 Income tax provision (benefit) 5,913 3,382 16,990 (963) Depreciation and amortization 11,975 12,661 34,266 38,785 --------- -------- -------- -------- Total adjustments 18,449 20,302 59,426 52,935 EBITDA $27,664 $26,304 $85,914 $69,067 --------- -------- -------- -------- Non-cash stock option compensation expense 2,314 - 5,942 - --------- -------- -------- -------- Adjusted EBITDA $29,978 $26,304 $91,856 $69,067 --------- -------- -------- -------- CONTACT: Itron, Inc. Vice President, Investor Relations and Corporate Communications Deloris Duquette, 509-891-3523 deloris.duquette@itron.com