Itron, Inc. — Q2 2021 Form 10-Q
Business context and period. Itron provides devices, connected networks, software and services for utilities and municipalities. This unaudited filing covers the quarter and six months ended June 30, 2021; comparisons are with the same 2020 periods. Amounts below are in U.S. dollars unless stated otherwise.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $489.4M | $509.6M | $1,009.0M | $1,108.0M |
| Gross profit / margin | $149.9M / 30.6% | $138.5M / 27.2% | $316.9M / 31.4% | $310.1M / 28.0% |
| Operating income (loss) | $(6.9)M | $(45.4)M | $24.0M | $(19.0)M |
| Net loss attributable to Itron | $(33.1)M | $(62.8)M | $(20.5)M | $(54.1)M |
| Diluted loss per share | $(0.73) | $(1.56) | $(0.47) | $(1.35) |
| Operating cash flow | Filing provides six-month figure only | — | $122.7M | $25.8M |
| Free cash flow (non-GAAP) | Filing provides six-month figure only | — | $102.2M | $(3.3)M |
Q2 non-GAAP net income attributable to Itron was $12.6M and non-GAAP diluted EPS was $0.28, versus $1.3M and $0.03, respectively, in Q2 2020. Six-month non-GAAP net income was $34.6M and diluted EPS was $0.79, versus $24.3M and $0.60. Adjusted EBITDA was $36.1M for Q2 and $85.9M for the six months. These are company-defined non-GAAP measures, not substitutes for GAAP results.
At June 30, cash and cash equivalents were $207.1M, compared with $206.9M at year-end 2020. Current assets were $842.9M and current liabilities $514.4M. Debt totaled $491.1M before unamortized fees ($479.0M net long-term carrying value); the revolving credit facility had no borrowings and $434.5M available, subject to facility terms. Itron reported compliance with its debt covenants.
Material changes and drivers
- Revenue fell 4% in Q2 and 9% year to date. Product revenue declined, partly offset by 10% growth in service revenue in both periods. Networked Solutions revenue fell 18% in Q2 and 17% year to date; Device Solutions and Outcomes grew in Q2.
- Management attributed softer revenue primarily to customer project timing, COVID-19 effects and global component shortages that constrained shipments. Foreign exchange favorably affected reported revenue by $15.6M in Q2 and $33.3M year to date.
- Gross margin improved year over year, which management attributed to product and solution mix and manufacturing efficiencies. Q2 segment margin gains occurred across Device Solutions, Networked Solutions and Outcomes.
- Operating expenses declined, substantially reflecting lower loss-on-sale charges compared with 2020. However, Q2 included a $24.7M loss on sale of business from fully reserving deferred Latin America divestiture receivables. The six-month charge was $26.1M.
- Other expense increased: Q2 included a $10.0M debt-extinguishment charge and a $11.1M write-off of prepaid debt fees. Itron redeemed its $410M senior notes in April 2021 and issued $460M of 0% convertible notes due 2026. It also completed a $389.4M net common-stock offering and related hedge and warrant transactions.
- Six-month operating cash flow improved to $122.7M, which management attributed mainly to lower variable-compensation payments, improved working-capital cash use and lower interest payments. Financing cash flow included substantial debt repayment; cash was nearly unchanged over the period.
Outlook, risks and contingencies
The filing does not provide a specific full-year revenue or earnings forecast. Management said existing liquidity should fund operations and obligations for the next 12 months and into the foreseeable future, while cautioning that there are no assurances. Q2 bookings were $596M; total backlog was $3.53B and twelve-month backlog $1.38B at June 30. Backlog is not a complete measure of future revenue and may be rescheduled or cancelled in some circumstances.
Management highlighted continuing COVID-19 uncertainty, supply-chain constraints and delayed customer deployments as risks to shipment timing and results. Other disclosed risks include customer demand and order timing, key-vendor dependence, restructuring execution and savings, foreign-exchange volatility, litigation, warranty estimates and international operations. Itron estimated $55M–$65M of pre-tax charges for its 2020 restructuring projects, expected to be substantially complete by the end of 2022; $53.8M was accrued at June 30, with $26.5M expected to be paid within 12 months.
The Latin America divestiture receivables were fully reserved after the buyer missed payments and sought further deferrals; collection remains uncertain. Itron disclosed tax examinations and $135.4M of unrecognized tax benefits, but said it did not expect examination outcomes to materially adversely affect its financial condition, results or cash flows. It also reported standby letters of credit, bonds and customary contractual indemnities; management did not believe any outstanding letter of credit or bond would be called.
Investor verification priorities
- Track whether component availability improves and delayed customer projects convert into shipments, especially in Networked Solutions.
- Verify the recoverability and any subsequent collections of the reserved Latin America divestiture receivables.
- Monitor cash generation, working capital, available revolver capacity, debt covenant headroom and the terms and potential dilution of the convertible notes and warrants.
- Assess whether improved gross margins and segment profitability persist, and distinguish GAAP results from company-defined non-GAAP adjustments.
- Follow restructuring charges, cash payments, completion timing and realized savings, alongside tax exposures and any material legal or warranty developments.