ITRON, INC. 10-Q Summary: Quarter Ended June 30, 2009
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 the energy and water markets. The report covers the three and six-month periods ended June 30, 2009. The company operates through two segments: Itron North America and Itron International. The filing reflects the adoption of FSP 14-1 regarding the accounting for convertible debt, which was applied retrospectively.
Key Financial Metrics
| Metric | 3 Months Ended June 30, 2009 | 6 Months Ended June 30, 2009 |
|---|---|---|
| Revenues | $413.7 million | $802.3 million |
| Gross Profit | $133.1 million | $262.7 million |
| Gross Margin | 32% | 33% |
| Operating Income | $11.7 million | $20.7 million |
| Net Income (Loss) | $15.3 million | $(4.4) million |
| Diluted EPS | $0.40 | $(0.12) |
| Cash and Cash Equivalents | $276.1 million | $276.1 million (Balance Sheet) |
| Operating Cash Flow (6mo) | N/A | $67.4 million |
| Total Debt (Long-term + Current) | $974.1 million | $974.1 million (Balance Sheet) |
Material Changes vs. Prior Period
- Revenue Decline: Revenues decreased 19% year-over-year for both the three and six-month periods. A strengthening U.S. dollar accounted for approximately 52% to 57% of the revenue decrease.
- Profitability: Operating income dropped significantly from $36.2 million in Q2 2008 to $11.7 million in Q2 2009. The six-month period resulted in a net loss of $4.4 million compared to net income of $12.0 million in the prior year, largely due to a $10.3 million loss on extinguishment of debt in Q1 2009.
- Debt Reduction: The company reduced borrowings by $191 million during the first half of 2009. This included an exchange of $121.0 million of convertible notes for common stock and cash repayments of term loans.
- Capital Raise: The company issued $286 million in common stock during the first half of 2009, including a public offering of 3.2 million shares in June 2009 for net proceeds of $160.4 million.
Outlook, Risks, and Unusual Items
- Subsequent Event: On July 17, 2009, the company redeemed all outstanding 7.75% senior subordinated notes ($109.6 million principal) at 101.938% of par. A loss on extinguishment of approximately $2.5 million is expected to be recognized in Q3 2009.
- Market Risks: Management cites economic uncertainty, foreign exchange volatility, and a shift in customer technology preferences from AMR to AMI systems as headwinds. Customers are also delaying purchases pending approval for stimulus funding.
- Backlog: Total backlog was $1.573 billion at June 30, 2009, with a 12-month backlog of $646 million. Significant AMI contracts (e.g., San Diego Gas & Electric) are included in backlog but are multi-year and not fully reflected in the 12-month figure.
- Cost Containment: The company is implementing cost containment measures, including suspended compensation increases and selective headcount reductions, to mitigate revenue declines.
Investor Verification Checklist
- Debt Structure: Verify the impact of the July 2009 redemption of senior subordinated notes on Q3 2009 earnings and the remaining debt service obligations.
- Foreign Exchange Impact: Assess the sensitivity of future revenues to the strengthening U.S. dollar, which drove over half of the recent revenue decline.
- AMI Transition: Monitor the shift in product mix from AMR to AMI/smart metering and the associated margin compression noted in the North America segment.
- Convertible Debt Accounting: Review the retrospective application of FSP 14-1 and its effect on interest expense and equity components.
- Liquidity Position: Confirm the utilization of the $115 million revolving credit facility (currently $51.3 million utilized by letters of credit) and the availability of the additional $75 million uncommitted option.