ITRON, INC. - 10-Q Filing Summary
Business Context and Reporting Period
This is a Quarterly Report on Form 10-Q for Itron, Inc., a provider of products and services to utilities for energy and water markets. The report covers the quarterly period ended September 30, 2008, and the nine-month period ended on the same date. The company operates through two primary segments: Itron North America and Actaris (acquired in April 2007).
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2008 | Nine Months Ended Sep 30, 2008 |
|---|---|---|
| Revenues | $484.8 million | $1,477.2 million |
| Gross Profit | $163.0 million | $501.7 million |
| Gross Margin | 34% | 34% |
| Operating Income | $25.3 million | $88.8 million |
| Net Income | $7.7 million | $23.8 million |
| Diluted EPS | $0.21 | $0.68 |
| Cash and Cash Equivalents | $147.4 million | (Balance Sheet Item) |
| Total Debt (Current + Long-term) | $1,204.9 million | (Balance Sheet Item) |
| Operating Cash Flow (9 Months) | N/A | $156.2 million |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 12% quarter-over-quarter and 50% year-over-year (nine months). The nine-month increase is largely due to the inclusion of a full period of Actaris operations compared to the partial period in 2007.
- Profitability: Net income turned positive ($7.7M) compared to a net loss of $3.4M in the prior year quarter. Operating income decreased slightly to $25.3M from $29.0M in the prior year quarter, primarily due to increased operating expenses and amortization.
- Debt Reduction: The company repaid $384.4 million of borrowings during the nine months ended September 30, 2008, utilizing cash flows from operations and proceeds from a May 2008 stock offering.
- Convertible Notes Reclassification: Due to the stock price exceeding the conversion threshold, $345 million of convertible senior subordinated notes were reclassified from long-term to current liabilities, significantly impacting working capital.
Guidance, Outlook, and Risks
- Bookings: Quarterly bookings were $894 million, with a total backlog of $1,012 million. A significant portion ($470 million) relates to an AMI contract with Southern California Edison approved in September 2008.
- Convertible Notes: The contingent conversion threshold for the $345 million convertible notes was met. While convertible at the holder's option through Q4 2008, management believes significant conversion is unlikely as the market value of the notes exceeds the conversion value.
- Accounting Changes: The company expects the adoption of FSP APB 14-1 (regarding convertible debt) in January 2009 to have a material impact on financial statements.
- Risks: Key risks include customer access to capital, foreign currency exchange rate fluctuations (67% of revenue is international), and potential legal contingencies, including a pending appeal in Indonesia regarding a joint venture dispute.
Investor Verification Checklist
- Verify the impact of the $345 million convertible notes reclassification on current liquidity ratios and working capital.
- Monitor the status of the Southern California Edison AMI contract ($470M) to ensure regulatory approvals remain valid and revenue recognition proceeds as scheduled.
- Assess the potential financial impact of the pending Indonesian legal dispute (PT Mecoindo) involving a $13.8 million damages award currently under appeal.
- Review the company's ability to maintain debt covenant compliance as leverage ratios improve following recent debt repayments.
- Confirm the timing and magnitude of the impact from the upcoming adoption of FSP APB 14-1 on convertible debt accounting in Q1 2009.