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Itron Announces Second Quarter 2018 Financial Results

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Itron, Inc. (NASDAQ:ITRI) announced today financial results for its
second quarter ended June 30, 2018. Key results for the quarter include:

  • Revenue of $586 million, compared with $503 million in the second
    quarter of 2017;
  • Gross margin of 30 percent, compared with 35 percent in the second
    quarter of 2017;
  • GAAP diluted earnings per share (EPS) of 7 cents, compared with 36
    cents in the second quarter of 2017;
  • Non-GAAP diluted EPS of 51 cents, compared with 71 cents the second
    quarter of 2017;
  • Adjusted EBITDA of $57 million, compared with $60 million in the
    second quarter of 2017; and
  • Total backlog of $3.1 billion, compared with $1.6 billion at the end
    of the second quarter of 2017.

"Solid customer demand and increased backlog are driving revenue growth,
as demonstrated by this quarter's results and our increased revenue
guidance for 2018," said Philip Mezey, Itron's president and chief
executive officer. "This is underscored by a high level of interest in
Itron smart utility solutions, including our newly launched Intelis
ultrasonic gas and water metering platforms.

"The integration of Silver Spring Networks is progressing well; with
synergy targets ahead of schedule and a clear convergence road map that
enables sales of new solutions across our combined customer base and
protects customers' assets," continued Mezey.

"In addition, constraints in the global supply chain are stabilizing. We
successfully secured parts supply to deliver on our customer commitments
in the second quarter and for the demand we see for the remainder of the
year. We are actively working to mitigate the near-term cost impacts
while continuing to execute on restructuring initiatives that improve
our cost structure. These actions, combined with our strong forward
revenue and product mix visibility, will drive increased profitability
in the second half of 2018, and sustainable margin enhancement for the
future."

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

Revenue

Total revenue of $586 million increased 16 percent in the second
quarter. Excluding $74 million from the acquired Networks segment, total
revenue increased 2 percent.

Water segment revenue increased 9 percent driven by new North America
smart solution projects. Electricity segment revenue was in line with
the prior year and Gas revenue decreased 1 percent.

Gross Margin

Consolidated company gross margin of 30 percent decreased from 35
percent in the prior year. Excluding a one-time $8 million insurance
recovery in the second quarter of 2017, gross margin decreased 370 basis
points. The decline was primarily driven by product mix, supply chain
inefficiencies and higher component and commodity costs.

Operating Expenses and Operating Income

GAAP operating expenses of $156 million and non-GAAP operating expenses
of $132 million increased compared with last year, primarily driven by
acquired operations. Excluding acquisitions, operating expenses were
down year-over-year as the company executed on cost saving initiatives,
acquisition synergies and decreased spending, including lower variable
compensation.

GAAP operating income was $21 million compared with $38 million in the
second quarter of 2017. Non-GAAP operating income was $44 million
compared with $54 million in 2017. Operating income was impacted
primarily by higher operating expenses from acquired operations.

Net Income and Earnings per Share

Net income attributable to Itron for the quarter was $3 million, or
$0.07 per diluted share, compared with net income of $14 million, or 36
cents per diluted share, in 2017. Compared with last year, net income
decreased due to lower operating income and an increase of approximately
$10 million in interest expense related to acquisition financing.

Non-GAAP net income, which excludes certain charges including
restructuring, acquisition and integration-related expenses, and
amortization of intangible assets and debt placement fees, was $20
million, or 51 cents per diluted share, compared with $28 million, or 71
cents per diluted share, in 2017. The decrease in non-GAAP net income
was due to lower non-GAAP operating income and higher interest expense,
partially offset by a lower non-GAAP effective tax rate reflecting
benefits from U.S. tax reform net of the timing and mix of taxable
income by jurisdiction.

Cash Flow

Net cash provided by operating activities was $41 million in the second
quarter compared with $30 million in the same quarter of 2017. Free cash
flow was $29 million in the second quarter compared with $17 million in
the prior year. Higher cash flow was driven primarily by improvement in
working capital.

Other Measures

Total backlog was $3.1 billion and 12 month backlog was $1.4 billion at
the end of the quarter, compared with $1.6 billion and $860 million,
respectively, in the prior year quarter. Bookings in the quarter totaled
$579 million.

Financial Guidance Update

Itron's guidance for the full year 2018 is as follows:

  • Revenue between $2.425 - $2.475 billion from previous guidance of
    $2.33 to $2.43 billion
  • Non-GAAP diluted EPS between $2.75 - $2.90 from previous guidance of
    $2.95 - $3.35

The revised guidance assumes a Euro to U.S. dollar foreign currency
exchange rate of 1.18 on average in the second half of 2018, average
fully diluted shares outstanding of approximately 40 million for the
year, non-GAAP effective tax rate for the year of approximately 30
percent and total interest expense of approximately $52 million for the
year. A reconciliation of forward-looking non-GAAP diluted EPS to the
GAAP diluted EPS has not been provided because we are unable to predict
with reasonable certainty the potential amount or timing of
restructuring and acquisition and integration-related expenses and their
related tax effects without unreasonable effort. These items are
uncertain, depend on various factors and could have a material impact on
GAAP results for the guidance period.

Earnings Conference Call

Itron will host a conference call to discuss the financial results and
guidance contained in this release at 5 p.m. EDT on Aug. 6, 2018. The
call will be webcast in a listen-only mode. Webcast information and
conference call materials will be made available 10 minutes before the
start of the call and will be accessible on Itron's website at http://investors.itron.com/events.cfm.
A replay of the audio webcast will be made available at http://investors.itron.com/events.cfm.
A telephone replay of the conference call will be available through Aug.
11, 2018. To access the telephone replay, dial 888-203-1112 or
719-457-0820, and enter passcode 6190897.

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® and OpenWay® are registered trademarks 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.

Forward Looking Statements

This release contains forward-looking statements within in the meaning
of the Private Securities Litigation Reform Act of 1995. These
statements relate to our expectations about revenues, operations,
financial performance, earnings, earnings per share and cash flows.
Although we believe the estimates and assumptions upon which these
forward-looking statements are based are reasonable, any of these
estimates or assumptions could prove to be inaccurate and the
forward-looking statements based on these estimates and assumptions
could be incorrect. Our operations involve risks and uncertainties, many
of which are outside our control, and any one of which, or a combination
of which, could materially affect our results of operations and whether
the forward-looking statements ultimately prove to be correct. Actual
results and trends in the future may differ materially from those
suggested or implied by the forward-looking statements depending on a
variety of factors. Some of the factors that we believe could affect our
results include our ability to achieve estimated cost savings, the rate
and timing of customer demand for our products, rescheduling of current
customer orders, changes in estimated liabilities for product
warranties, adverse impacts of litigation, changes in laws and
regulations, our dependence on new product development and intellectual
property, future acquisitions, changes in estimates for stock-based and
bonus compensation, increasing volatility in foreign exchange rates,
international business risks and other factors that are more fully
described in our Annual Report on Form 10-K for the year ended Dec. 31,
2017 and other reports on file with the Securities and Exchange
Commission. Itron undertakes no obligation to update or revise any
information in this press release.

Non-GAAP Financial Information

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

 
ITRON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
             
(Unaudited, in thousands, except per share data)
Three Months Ended
June 30,
Six Months Ended
June 30,
2018   2017 2018   2017
Revenues
Product revenues $ 515,914 $ 454,713 $ 1,053,024 $ 887,078
Service revenues 69,976     48,369   140,087     93,596  
Total revenues 585,890 503,082 1,193,111 980,674
Cost of revenues
Product cost of revenues 366,542 293,433 749,392 580,526
Service cost of revenues 42,771     31,372   87,287     64,234  
Total cost of revenues 409,313     324,805   836,679     644,760  
Gross profit 176,577 178,277 356,432 335,914
 
Operating expenses
Sales and marketing 45,448 44,514 97,369 85,769
Product development 54,775 43,024 115,059 83,791
General and administrative 43,415 43,098 145,908 80,285
Amortization of intangible assets 17,999 4,970 35,739 9,519
Restructuring (5,623 )   5,043   82,242     8,095  
Total operating expenses 156,014     140,649   476,317     267,459  
 
Operating income (loss) 20,563 37,628 (119,885 ) 68,455
Other income (expense)
Interest income 633 470 1,294 739
Interest expense (14,645 ) (3,411 ) (30,149 ) (6,610 )
Other income (expense), net 1,003     (3,120 ) (164 )   (5,956 )
Total other income (expense) (13,009 )   (6,061 ) (29,019 )   (11,827 )
 
Income (loss) before income taxes 7,554 31,567 (148,904 ) 56,628
Income tax benefit (provision) (3,781 )   (16,560 ) 7,407     (25,607 )
Net income (loss) 3,773 15,007 (141,497 ) 31,021
Net income attributable to noncontrolling interests 1,116     910   1,512     1,079  
Net income (loss) attributable to Itron, Inc. $ 2,657     $ 14,097   $ (143,009 )   $ 29,942  
 
Earnings (loss) per common share - Basic $ 0.07     $ 0.36   $ (3.66 )   $ 0.78  
Earnings (loss) per common share - Diluted $ 0.07     $ 0.36   $ (3.66 )   $ 0.76  
 
Weighted average common shares outstanding - Basic 39,243 38,683 39,095 38,579
Weighted average common shares outstanding - Diluted 39,789 39,332 39,095 39,274
 

 
ITRON, INC.
SEGMENT INFORMATION
             
(Unaudited, in thousands)
Three Months Ended
June 30,
Six Months Ended
June 30,
2018   2017 2018   2017
Product revenues
Electricity $ 212,236 $ 215,271 $ 426,113 $ 421,174
Gas 129,397 130,872 259,640 247,999
Water 118,574 108,570 244,161 217,905
Networks 55,707       123,110      
Total Company $ 515,914     $ 454,713   $ 1,053,024     $ 887,078  
 
Service revenues
Electricity $ 38,342 $ 35,061 $ 76,870 $ 67,909
Gas 7,635 7,828 15,131 14,912
Water 6,063 5,480 11,670 10,775
Networks 17,936       36,416      
Total Company $ 69,976     $ 48,369   $ 140,087     $ 93,596  
 
Total revenues
Electricity $ 250,578 $ 250,332 $ 502,983 $ 489,083
Gas 137,032 138,700 274,771 262,911
Water 124,637 114,050 255,831 228,680
Networks 73,643       159,526      
Total Company $ 585,890     $ 503,082   $ 1,193,111     $ 980,674  
 
Gross profit
Electricity $ 76,987 $ 78,645 $ 146,962 $ 145,895
Gas 40,543 50,536 84,014 101,351
Water 37,835 49,096 75,640 88,668
Networks 21,212       49,816      
Total Company $ 176,577     $ 178,277   $ 356,432     $ 335,914  
 
Operating income (loss)
Electricity $ 28,997 $ 17,839 $ 26,229 $ 34,923
Gas 15,245 16,977 (13,103 ) 38,708
Water 8,824 16,866 (2,886 ) 25,670
Networks (28,219 ) (103,729 )
Corporate unallocated (4,284 )   (14,054 ) (26,396 )   (30,846 )
Total Company $ 20,563     $ 37,628   $ (119,885 )   $ 68,455  
 

 
METER AND MODULE SUMMARY
             
(Units in thousands)
Three Months Ended
June 30,
Six Months Ended
June 30,
2018   2017 2018   2017
Meters (1)
Standard 4,030 4,350 8,170 8,360
Smart 2,990     2,570   5,930     5,010
Total meters 7,020     6,920   14,100     13,370
 
Stand-alone communication modules and cards (2)
Smart 2,410     1,530   5,010     2,930
(1) The Networks segment shipped an immaterial number of
meters during the three and six months ended June 30, 2018.
(2) The Networks segment shipped approximately 940,000
and 2,050,000 network interface cards, respectively, during the
three and six months ended June 30, 2018.
 
The stand-alone communication modules and cards category includes
communicating radio modules shipped in Electric, Gas and Water
segments and network interface cards, the primary product sold by
our Networks segment.
 

 
ITRON, INC.
CONSOLIDATED BALANCE SHEETS
       
(Unaudited, in thousands)
June 30, 2018   December 31, 2017
ASSETS
Current assets
Cash and cash equivalents $ 162,882 $ 176,274
Accounts receivable, net 443,394 398,029
Inventories 195,056 193,835
Other current assets 95,418     81,604  
Total current assets 896,750 849,742
 
Property, plant, and equipment, net 223,435 200,768
Deferred tax assets, net 58,305 49,971
Restricted cash 2,109 311,010
Other long-term assets 46,787 43,666
Intangible assets, net 296,778 95,228
Goodwill 1,119,409     555,762  
Total assets $ 2,643,573     $ 2,106,147  
 
LIABILITIES AND EQUITY
Current liabilities
Accounts payable $ 249,013 $ 262,166
Other current liabilities 84,647 56,736
Wages and benefits payable 99,822 90,505
Taxes payable 17,713 16,100
Current portion of debt 20,313 19,688
Current portion of warranty 29,443 21,150
Unearned revenue 94,546     41,438  
Total current liabilities 595,497 507,783
 
Long-term debt 1,098,567 593,572
Long-term warranty 14,276 13,712
Pension benefit obligation 94,386 95,717
Deferred tax liabilities, net 1,455 1,525
Other long-term obligations 156,406     88,206  
Total liabilities 1,960,587 1,300,515
 
Equity
Common stock 1,317,781 1,294,767
Accumulated other comprehensive loss, net (185,868 ) (170,478 )
Accumulated deficit (469,155 )   (337,873 )
Total Itron, Inc. shareholders' equity 662,758 786,416
Non-controlling interests 20,228     19,216  
Total equity 682,986     805,632  
Total liabilities and equity $ 2,643,573     $ 2,106,147  
 

 
ITRON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
       
(Unaudited, in thousands)
Six Months Ended June 30,
2018   2017
Operating activities
Net income (loss) $ (141,497 ) $ 31,021
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 61,979 29,468
Stock-based compensation 16,619 10,135
Amortization of prepaid debt fees 4,602 533
Deferred taxes, net (15,319 ) 7,077
Restructuring, non-cash 624 80
Other adjustments, net 1,205 2,395
Changes in operating assets and liabilities, net of acquisitions
Accounts receivable 12,804 (2,032 )
Inventories 3,385 (29,470 )
Other current assets (1,921 ) (3,905 )
Other long-term assets 4,514 2,186
Accounts payable, other current liabilities, and taxes payable (16,994 ) 36,861
Wages and benefits payable 762 12,299
Unearned revenue 31,156 6,701
Warranty 3,756 (4,825 )
Other operating, net 51,204     (5,080 )
Net cash provided by operating activities 16,879 93,444
 
Investing activities
Acquisitions of property, plant, and equipment (29,309 ) (21,898 )
Business acquisitions, net of cash equivalents acquired (802,488 ) (99,477 )
Other investing, net (543 )   (456 )
Net cash used in investing activities (832,340 ) (121,831 )
 
Financing activities
Proceeds from borrowings 611,938 35,000
Payments on debt (92,234 ) (20,625 )
Issuance of common stock 4,927 2,198
Prepaid debt fees (24,042 )
Other financing, net (2,580 )   952  
Net cash provided by financing activities 498,009 17,525
 
Effect of foreign exchange rate changes on cash, cash equivalents,
and restricted cash
(4,841 )   5,177  
Decrease in cash, cash equivalents, and restricted cash (322,293 ) (5,685 )
Cash, cash equivalents, and restricted cash at beginning of period 487,335     133,565  
Cash, cash equivalents, and restricted cash at end of period $ 165,042     $ 127,880  
 

About Non-GAAP Financial Measures

The accompanying press release contains 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, constant
currency and free cash flow. 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 more information on these non-GAAP financial
measures please see the table captioned "Reconciliations of Non-GAAP
Financial Measures to 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, restructuring charges or goodwill impairment 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, acquisition and integration, and
goodwill impairment. We define non-GAAP operating income as operating
income excluding the expenses related to the amortization of intangible
assets, restructuring, acquisition and integration, and goodwill
impairment. 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 GAAP operating income.

Non-GAAP net income and non-GAAP diluted EPS
- We define non-GAAP net income as net income attributable to Itron,
Inc. excluding the expenses associated with amortization of intangible
assets, restructuring, acquisition and integration, goodwill impairment,
amortization of debt placement fees, the transition to the Tax Cuts and
Jobs Act, and the tax effect of excluding these expenses. We define
non-GAAP diluted EPS as non-GAAP net income divided by the weighted
average shares, on a diluted basis, outstanding during each period. 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.

Adjusted EBITDA - We define adjusted EBITDA
as net income (a) minus interest income, (b) plus interest expense,
depreciation and amortization, restructuring, acquisition and
integration related expense, goodwill impairment 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.

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 local
currencies 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 accompanying tables have more detail on the GAAP financial measures
that are most directly comparable to the non-GAAP financial measures and
the related reconciliations between these 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 June 30, Six Months Ended June 30,
2018   2017 2018   2017
NON-GAAP NET INCOME & DILUTED EPS
GAAP net income (loss) attributable to Itron, Inc. $ 2,657 $ 14,097 $ (143,009 ) $ 29,942
Amortization of intangible assets 17,999 4,970 35,739 9,519
Amortization of debt placement fees 1,172 242 4,515 483
Restructuring (5,623 ) 5,043 82,242 8,095
Acquisition and integration related expense 11,148 6,468 73,795 6,801
Income tax effect of non-GAAP adjustments (6,897 )   (2,896 ) (27,732 )   (4,730 )
Non-GAAP net income attributable to Itron, Inc. $ 20,456     $ 27,924   $ 25,550     $ 50,110  
 
Non-GAAP diluted EPS $ 0.51     $ 0.71   $ 0.64     $ 1.28  
 
Weighted average common shares outstanding - Diluted 39,789     39,332   39,782     39,274  
 
ADJUSTED EBITDA
GAAP net income (loss) attributable to Itron, Inc. $ 2,657 $ 14,097 $ (143,009 ) $ 29,942
Interest income (633 ) (470 ) (1,294 ) (739 )
Interest expense 14,645 3,411 30,149 6,610
Income tax provision (benefit) 3,781 16,560 (7,407 ) 25,607
Depreciation and amortization 30,907 15,090 61,979 29,468
Restructuring (5,623 ) 5,043 82,242 8,095
Acquisition and integration related expense 11,148     6,468   73,795     6,801  
Adjusted EBITDA $ 56,882     $ 60,199   $ 96,455     $ 105,784  
 
FREE CASH FLOW
Net cash provided by operating activities $ 41,327 $ 30,187 $ 16,879 $ 93,444
Acquisitions of property, plant, and equipment (11,876 )   (12,776 ) (29,309 )   (21,898 )
Free Cash Flow $ 29,451     $ 17,411   $ (12,430 )   $ 71,546  
 
NON-GAAP OPERATING INCOME
GAAP operating income (loss) $ 20,563 $ 37,628 $ (119,885 ) $ 68,455
Amortization of intangible assets 17,999 4,970 35,739 9,519
Restructuring (5,623 ) 5,043 82,242 8,095
Acquisition and integration related expense 11,148     6,468   73,795     6,801  
Non-GAAP operating income $ 44,087     $ 54,109   $ 71,891     $ 92,870  
 
NON-GAAP OPERATING EXPENSES
GAAP operating expenses $ 156,014 $ 140,649 $ 476,317 $ 267,459
Amortization of intangible assets (17,999 ) (4,970 ) (35,739 ) (9,519 )
Restructuring 5,623 (5,043 ) (82,242 ) (8,095 )
Acquisition and integration related expense (11,148 )   (6,468 ) (73,795 )   (6,801 )
Non-GAAP operating expenses $ 132,490     $ 124,168   $ 284,541     $ 243,044  
 

 
ITRON, INC.
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
TO THE MOST DIRECTLY COMPARABLE GAAP FINANCIAL MEASURES
               
(Unaudited, in thousands)
 
SEGMENT RECONCILIATIONS   Three Months Ended June 30, Six Months Ended June 30,
2018   2017 2018   2017
NON-GAAP OPERATING INCOME - ELECTRICITY
Electricity - GAAP operating income $ 28,997 $ 17,839 $ 26,229 $ 34,923
Amortization of intangible assets 2,842 2,728 5,722 5,090
Restructuring (145 ) 506 19,455 330
Acquisition and integration related expense (recovery) (1,244 )   6,201   (921 )   6,201  
Electricity - Non-GAAP operating income $ 30,450     $ 27,274   $ 50,485     $ 46,544  
 
NON-GAAP OPERATING INCOME - GAS
Gas - GAAP operating income (loss) $ 15,245 $ 16,977 $ (13,103 ) $ 38,708
Amortization of intangible assets 1,107 1,309 2,231 2,586
Restructuring (2,086 )   4,339   41,461     5,423  
Gas - Non-GAAP operating income $ 14,266     $ 22,625   $ 30,589     $ 46,717  
 
NON-GAAP OPERATING INCOME - WATER
Water - GAAP operating income (loss) $ 8,824 $ 16,866 $ (2,886 ) $ 25,670
Amortization of intangible assets 808 933 1,643 1,843
Restructuring (1,721 )   995   14,993     2,013  
Water - Non-GAAP operating income $ 7,911     $ 18,794   $ 13,750     $ 29,526  
 
NON-GAAP OPERATING INCOME - NETWORKS
Networks - GAAP operating loss $ (28,219 ) $ $ (103,729 ) $
Amortization of intangible assets 13,242 26,143
Acquisition and integration related expense 12,111       74,559      
Networks - Non-GAAP operating loss $ (2,866 )   $   $ (3,027 )   $  
 
NON-GAAP OPERATING INCOME - CORPORATE UNALLOCATED
Corporate unallocated - GAAP operating loss $ (4,284 ) $ (14,054 ) $ (26,396 ) $ (30,846 )
Restructuring (1,671 ) (797 ) 6,333 329
Acquisition and integration related expense 281     267   157     600  
Corporate unallocated - Non-GAAP operating loss $ (5,674 )   $ (14,584 ) $ (19,906 )   $ (29,917 )
 

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