ITRON, INC. - 10-Q Filing Summary
Business Context and Reporting Period
Company: ITRON, INC.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2009
Business Overview: Itron provides a portfolio of products and services to utilities for the energy and water markets globally, including hardware, software, managed services, and consulting. The company operates through two segments: Itron North America and Itron International.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended Sep 30, 2009 | Nine Months Ended Sep 30, 2009 | Nine Months Ended Sep 30, 2008 |
|---|---|---|---|
| Revenues | $408,358 | $1,210,624 | $1,477,225 |
| Gross Profit | $129,479 | $392,172 | $501,729 |
| Gross Margin | 32% | 32% | 34% |
| Operating Income | $9,006 | $29,674 | $88,798 |
| Net Income (Loss) | $(2,962) | $(7,402) | $17,642 |
| Diluted EPS | $(0.07) | $(0.19) | $0.50 |
| Cash and Equivalents (Sep 30, 2009) | $124,721 | ||
| Long-Term Debt (Sep 30, 2009) | $812,991 | ||
| Working Capital (Sep 30, 2009) | $299,400 |
Material Changes vs. Prior Period
- Revenue Decline: Revenues decreased 16% ($76.4 million) for the quarter and 18% ($266.6 million) for the nine months compared to 2008. A strengthening U.S. dollar accounted for 32% and 50% of the revenue decrease for the respective periods.
- Profitability Shift: The company reported a net loss of $2.96 million for the quarter and $7.4 million for the nine months, compared to net income of $5.6 million and $17.6 million in the prior year periods. This was driven by lower operating income and significant non-operating expenses.
- Debt Reduction: Total borrowings were reduced by $357 million during the nine months ended September 30, 2009. This included the redemption of $109.6 million in senior subordinated notes and an exchange of $121.0 million in convertible notes for common stock.
- Segment Performance: Itron North America revenues fell 22% due to the completion of major AMR contracts in 2008 and delayed orders. Itron International revenues fell 12%, with organic declines of 4% excluding currency effects.
Guidance, Outlook, and Risks
- Backlog: Twelve-month backlog increased significantly to $749 million at September 30, 2009, compared to $436 million at September 30, 2008. Total backlog stood at $1,577 million.
- Outlook Factors: Management cites economic uncertainty, a shift in technology choice from AMR to AMI, foreign exchange volatility, and delays in customer purchases awaiting stimulus funding approval as key factors impacting results.
- Capital Actions: The company issued $289 million in common stock (including a $160.4 million public offering in June 2009) to strengthen its financial position. The credit facility was amended in April 2009 to adjust leverage and interest coverage ratios.
- Risks: Key risks include the rate of customer demand, competition, foreign currency exchange rate fluctuations, and the potential for goodwill impairment given the decline in market capitalization.
- Unusual Items: A net loss on extinguishment of debt of $12.8 million was recorded for the nine months ended September 30, 2009, primarily due to the induced conversion of convertible notes and the redemption of senior subordinated notes.
Investor Verification Checklist
- Debt Structure: Verify the terms of the amended credit facility and the remaining balance of the convertible senior subordinated notes ($205.8 million carrying value).
- AMI Transition: Assess the impact of the shift from AMR to AMI on gross margins, specifically regarding the higher costs of first-generation AMI meters in North America.
- Currency Exposure: Review the sensitivity of future earnings to foreign exchange rates, given that 66-68% of revenues are international.
- Goodwill Impairment: Monitor the annual goodwill impairment test (October 1) given the significant decline in market capitalization and the large goodwill balance ($1.32 billion).
- Stimulus Funding: Track the status of customer projects awaiting approval for funding under the American Recovery and Reinvestment Act of 2009.