Itron, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Unless stated otherwise, amounts are in U.S. dollars. Itron provides devices, networked solutions, software and services for utilities and municipalities.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $519.6 million | $598.4 million | Down 13% |
| Gross profit / margin | $167.0 million / 32.2% | $171.6 million / 28.7% | Profit down 3%; margin up 3.5 points |
| Operating income / margin | $30.9 million / 6.0% | $26.4 million / 4.4% | Up 17% |
| Net income attributable to Itron | $12.6 million | $8.7 million | Up 45% |
| Diluted GAAP EPS | $0.30 | $0.21 | Up $0.09 |
| Non-GAAP diluted EPS | $0.52 | $0.57 | Down $0.05 |
| Adjusted EBITDA | $49.7 million | $52.0 million | Down 4% |
| Operating cash flow / free cash flow | $50.0 million / $38.5 million | $18.9 million / $6.3 million | Both increased |
Revenue weakness was concentrated in products: product revenue fell 16% to $442.8 million, while service revenue grew 9% to $76.8 million. Favorable product and solution mix and improved operating efficiency lifted product gross margin to 30.5% from 27.2% and service gross margin to 41.6% from 40.0%.
- Segments: Device Solutions revenue was $172.8 million, down 15%; Networked Solutions was $288.3 million, down 15%; Outcomes was $58.5 million, up 6%. Outcomes gross margin rose to 37.6% from 31.6%; margins also improved in Device and Networked Solutions.
- Balance sheet and liquidity: Cash and equivalents were $574.6 million at March 31, versus $206.9 million at year-end. Current assets were $1.260 billion and current liabilities $909.6 million. The revolver had no borrowings; $435.7 million remained available, subject to its terms.
- Debt: Reported total debt was $921.1 million, including $460 million of new 0% convertible notes due 2026, $400 million of senior notes then outstanding, and $61.1 million of term-loan principal. The senior notes were redeemed and discharged on April 8, 2021; the company expected to recognize a $10 million redemption premium and $11.1 million debt-fee write-off in Q2. The company reported compliance with credit-facility covenants at March 31.
Material changes and financing
Revenue fell $78.8 million year over year, primarily because customer project timing, shipment delays and COVID-related deployment delays weighed on product sales. Foreign exchange favorably affected reported revenue by $17.7 million. Operating expenses declined $9.1 million, while operating income increased despite lower sales, reflecting stronger gross margins and lower expenses.
In March, Itron raised approximately $389.4 million net from a public stock offering of 4.47 million shares and approximately $448.5 million net from issuing $460 million of convertible notes. It paid $84.1 million for note hedge contracts and received $45.3 million from warrant transactions. These transactions increased cash and equity but also affect potential future dilution and financing obligations.
Total backlog was $3.4 billion at quarter-end, versus $3.0 billion a year earlier; twelve-month backlog was $1.3 billion in both periods. Remaining performance obligations were approximately $1.1 billion expected to be recognized over the next 12 months and $1.5 billion thereafter; these amounts are not a complete measure of expected revenue.
Outlook, risks and unusual items
- The filing provides no specific full-year revenue or earnings guidance. Management said it expected existing liquidity to fund operations and obligations for the next 12 months and into the foreseeable future, while offering no assurance.
- Management reported no significant decrease in long-term customer demand identified to date, but some customer projects and deployments had shifted into 2021 and later. COVID-19, supply-chain disruption, facility closures and changing customer schedules could affect results.
- The 2020 restructuring program is expected to be substantially complete by the end of 2022. Estimated pre-tax charges are $55–$65 million, including $35–$45 million of cash expenditures. At quarter-end, $60.6 million was accrued; $30.2 million was expected to be paid within 12 months.
- Q1 included a $1.4 million loss on sale of business, primarily from a currency-denomination adjustment to the Latin America working-capital note; a $1.7 million debt-extinguishment expense; and a $1.7 million fee to terminate an interest-rate swap. Restructuring was a net benefit of $2.0 million in operating expenses.
- Deferred payroll-tax payments reduced earlier cash costs but were expected to increase cash outlays in Q4 2021 and into 2022. Tax examinations and uncertain tax positions remain; management did not expect their resolution to materially adversely affect the company, but could not estimate a reasonably possible range of changes in unrecognized tax benefits.
- Other exposures include warranty estimates, litigation and indemnification obligations, foreign-exchange movements, customer rescheduling or cancellation, and the execution and savings assumptions of restructuring. The filing says indemnification agreements generally do not cap potential payments; no specific material legal loss value is provided in the supplied text.
Investor verification points
- Track whether delayed customer projects convert into shipments and revenue, particularly in Device and Networked Solutions, and whether backlog is realized on schedule.
- Review subsequent filings for the Q2 senior-note redemption costs and the resulting debt mix, interest expense and liquidity.
- Assess the effect of the March share issuance, convertible-note hedge and warrants on diluted shares and future dilution under different share-price scenarios.
- Monitor gross-margin sustainability, Outcomes growth, restructuring cash costs and realized savings against management’s estimates.
- Check subsequent disclosures on COVID-related supply-chain and deployment impacts, working-capital collections on the Latin America sale, tax matters and other contingencies.