Itron, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Itron provides smart devices, networks, software, and services for utilities and municipalities. Figures below are in U.S. dollars; financial statement amounts are shown in millions unless stated otherwise.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $475.3 | $519.6 |
| Gross profit / margin | $135.2 / 28.4% | $167.0 / 32.2% |
| Operating income / margin | $6.8 / 1.4% | $30.9 / 6.0% |
| Net income attributable to Itron | $0.9 | $12.6 |
| Diluted EPS | $0.02 | $0.30 |
| Operating cash flow | $7.6 | $50.0 |
| Free cash flow (non-GAAP) | $2.2 | $38.5 |
| Adjusted EBITDA (non-GAAP) | $18.9 | $49.7 |
Revenue declined 9%, primarily because component shortages constrained shipments; unfavorable currency movements reduced revenue by $11.8 million. Gross margin fell 3.8 percentage points, reflecting higher input costs, manufacturing inefficiencies from shortages, and product mix. Operating expenses declined 6%, including lower restructuring costs and intangible amortization. Lower interest expense helped offset operating deterioration: total other expense was $2.1 million versus $12.7 million in Q1 2021. The effective tax rate was 81%, reflecting, among other items, jurisdictional losses without recognized tax benefits, R&D-related tax effects, and discrete tax expense tied to the divestiture.
Segments and operating indicators
| Segment | Revenue, Q1 2022 | Revenue change | Gross margin, Q1 2022 |
|---|---|---|---|
| Device Solutions | $139.6 million | (19%) | 15.6% |
| Networked Solutions | $278.8 million | (3%) | 32.8% |
| Outcomes | $56.9 million | (3%) | 38.8% |
Outcomes margin improved from 37.6%; Device Solutions and Networked Solutions margins fell from 18.7% and 39.1%, respectively. Endpoints under management increased to 83.2 million from 71.4 million. Backlog was $3.9 billion, including $1.6 billion expected to be recognized over the next 12 months, compared with $3.4 billion and $1.3 billion a year earlier.
Financial position and liquidity
At March 31, 2022, cash and equivalents were $204.0 million, current assets $792.5 million, and current liabilities $501.6 million. Long-term debt, net, was $450.8 million, consisting of $460 million principal amount of 0% convertible notes due 2026, net of unamortized fees. Cash less reported debt was approximately negative $246.8 million. No loans were outstanding under the revolving credit facility; $435.7 million remained available after standby letters of credit. Itron reported compliance with its debt covenants.
Cash increased $41.4 million during the quarter, principally reflecting $55.9 million in proceeds from the sale of certain Gas device businesses, partly offset by share repurchases. Operating cash flow declined to $7.6 million; management attributed the decrease primarily to variable compensation payouts. Itron repurchased 279,968 shares for $17.0 million during the quarter. Its $100 million authorization had $75 million remaining at quarter-end.
Material changes, outlook, and risks
- Dresser divestiture: The sale of certain Gas device businesses closed February 28, 2022. Itron recorded a $2.2 million Q1 loss related to working-capital changes and professional services. Final sale price and loss remained subject to a 90-day working-capital adjustment, with final recognition expected in Q2. The $55.4 million release of accumulated currency translation amounts from other comprehensive income affected reported comprehensive income; it should not be confused with recurring operating performance.
- Restructuring: The company reported a $6.4 million restructuring credit in Q1. It expected the 2020 and 2021 programs to be substantially complete by the end of 2022 and 2024, respectively; $71.4 million of restructuring liabilities were accrued at quarter-end.
- Management outlook: The filing provides no specific quarterly or full-year revenue or earnings guidance. Management said existing cash, operating cash flows, and capital-market access were expected to fund operations and commitments for at least the next 12 months, while giving no assurance.
- Principal risks: Semiconductor and other supply constraints delayed shipments and customer projects; inflation in components, freight, and labor may not be fully recovered through pricing. COVID-19 disruption and the Russia-Ukraine conflict and related sanctions could further affect supply chains and the global economy. Customer delivery timing, restructuring execution, foreign exchange, taxes, litigation, and warranty estimates also create uncertainty.
- Other exposures: Unrecognized tax benefits were $140.1 million; the company said it could not estimate the range of reasonably possible changes over the next 12 months. Legal proceedings and customer indemnifications are discussed, but the filing does not provide a quantified material loss estimate.
Important facts for investors to verify
- Whether component availability, shipment timing, and inflation-driven cost pressures improve, and how they affect margins and cash generation.
- The Q2 final sale-price and working-capital adjustments for the Dresser transaction, including any additional loss or gain.
- Progress against restructuring plans, expected cash payments, and whether anticipated savings are achieved.
- Backlog conversion, cancellations or rescheduling, and growth in recurring Outcomes services relative to hardware shipments.
- Liquidity and covenant headroom, the 2026 convertible-note repayment or conversion exposure, and the use of the remaining share-repurchase authorization.