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"2007
was a transformational year for Itron," said LeRoy Nosbaum,
chairman and CEO. "We closed the largest acquisition
in the history of the company, expanded our product offering
and geographical footprint, grew revenue by 127% over 2006
and substantially added to shareholder value, while building
a solid platform and infrastructure to support additional
growth in the future."
Fourth
Quarter Statement of Operations Highlights:
Revenues
— Total revenues for the fourth quarter of $481 million
were $321 million, or 200%, higher than 2006 fourth quarter
revenues of $160 million. Itron North America (INA) revenues
for the fourth quarter of $177 million were about $17 million,
or 11%, higher than the fourth quarter of 2006, reversing
a trend in INA sales that we experienced in the first three
quarters of the year. Actaris revenues of $303 million were
comprised of shipments to electric, gas and water utilities
of approximately 40%, 32% and 28%, respectively.
Gross
Margin — Gross margin for the fourth quarter
of 2007 was 33%. This compares with 40% in the fourth quarter
of 2006. Fourth quarter 2007 INA gross margin of 40% was
comparable with gross margin in the fourth quarter of 2006.
Actaris gross margin of 28% was about one percentage point
lower than the previous quarter due to higher indirect costs
from the timing of gas and water production volumes.
Operating
Expenses — Total operating expenses for the
fourth quarter of 2007 were $125 million. INA operating
expenses were $47 million, which was comparable with the
fourth quarter of 2006. INA operating expenses as a percentage
of revenue were 26%, which was lower than the 30% in 2006.
Actaris operating expenses of $70 million were 23% of revenue.
Corporate unallocated expenses of $8.3 million for the quarter
were $553,000 higher than the fourth quarter of 2006. The
increase was primarily attributable to Actaris-related integration
expenses for internal controls for financial reporting and
tax consulting.
Interest
and Other Income — Net interest expense of
$25 million in the fourth quarter of 2007 was substantially
higher than the $118,000 in the comparable period in 2006,
primarily due to the placement of $1.2 billion in senior
secured bank debt for the Actaris acquisition. Debt fee
amortization expense, which is included in net interest
expense, was $1.4 million in the fourth quarter. Other expense
of $5.6 million was comprised primarily of unrealized foreign
exchange losses on working capital accounts including inter-company
interest balances.
Income
Taxes — We had a $3.2 million GAAP income tax
benefit for the fourth quarter of 2007. This compares with
a GAAP income tax provision of $1.5 million in the fourth
quarter of 2006. The benefit in the quarter was primarily
driven by a one-time benefit for acquisition-related tax
planning for Actaris and a tax benefit related to our investment
in Brazilian operations.
GAAP
Net Income/Loss and EPS — Our GAAP net income
and fully diluted EPS for the fourth quarter of 2007 was
$4 million, or 12 cents per share, compared with net income
of $7.3 million, or 28 cents per share, in the same period
in 2006. GAAP net income in the fourth quarter of 2007 was
favorably impacted by the tax benefits.
Non-GAAP
Operating Income, Net Income and Diluted EPS —
Non-GAAP operating income, which excludes amortization expense
related to intangible assets, was $58 million, or 12% of
revenues, in the fourth quarter of 2007, compared with $17
million, or 11% of revenues, in the fourth quarter of 2006.
Non-GAAP net income, which also excludes amortization of
debt fees, was $26.5 million in 2007 compared with $12.5
million in the 2006 period. Non-GAAP diluted EPS, was 81
cents in the 2007 period compared with 48 cents in 2006.
Fully diluted shares outstanding in the fourth quarter of
2007 were approximately 6 million higher than the same period
in 2006 due to the equity offering of 4.1 million shares
in the first quarter and the dilutive effect of our convertible
debt. Non-GAAP net income and diluted EPS were higher in
the fourth quarter of 2007 primarily due to the Actaris
acquisition. Our non-GAAP tax rates were 6% and 28% for
the fourth quarter of 2007 and 2006. The lower 2007 rate
is due to the tax credits discussed above and lower tax
rates for Actaris.
Year-To-Date
Statement of Operations Highlights:
Revenues
— Total revenues for the full year ended December 31,
2007 of $1.464 billion were $820 million, or 127%, higher
than 2006 full year revenues of $644 million. INA revenues
for the full year of 2007 of $630 million were approximately
$14 million, or 2%, lower than the same period in 2006.
Gross
Margin — Total company gross margin for the
year ended December 31, 2007 was 33%. Business combination
accounting rules require the valuation of inventory on hand
at the acquisition date to equal the sales price, less costs
to complete and a reasonable profit allowance for selling
effort. Accordingly, the historical cost of inventory acquired
was increased by $16 million, which lowered gross margins
by one percentage point for the year ended December 31,
2007. INA gross margin of 41% was comparable to full year
2006.
Operating
Expenses — Total operating expenses for the
full year 2007 were $441 million and included $36 million
of expense for in-process research and development (IPR&D)
related to the Actaris acquisition, which is required by
purchase accounting rules and we do not expect to be a recurring
expense. Without this expense, operating expenses would
have been $405 million, or 28% of revenue. INA operating
expenses were $182 million, reflecting a $4 million increase
over the full year 2006. The increase was primarily due
to increased product marketing and product development expenses
related to development of our next generation advanced metering
infrastructure (AMI) technology, OpenWay®. Corporate
unallocated expenses were approximately $32 million for
the full year 2007 or about $5 million higher than the same
period in 2006. The increase was primarily attributable
to higher expenses for internal controls for financial reporting
and consulting services for tax planning related to the
Actaris acquisition, as well as impairment charges of $1.6
million for our former corporate headquarters building,
which was sold in the fourth quarter of 2007.
Interest
and Other Income — Net interest expense of
$79 million for the full year 2007 was substantially higher
than the $8 million net interest expense in the comparable
period in 2006. The increased net interest expense in 2007
was due to the placement of $1.2 billion in debt for the
Actaris acquisition and the accelerated expensing of debt
placement fees. Other income was $435,000 for the twelve
months ended December 31, 2007 compared to a loss of $1.2
million in the same period of 2006.
Income
Taxes — We had a $16 million GAAP income tax
benefit for the full year 2007. This compares with a GAAP
income tax provision of $18 million for the full year 2006.
The benefit in 2007 is due to the pre-tax GAAP loss, legislative
reductions in tax rates in France, Germany and the United
Kingdom and tax benefits for acquisition-related tax planning
for Actaris and the investment in our Brazilian operations.
GAAP
Net Income/Loss and Diluted EPS — Our GAAP
net loss and fully diluted loss per share for the full year
2007 was $16.1 million, or 55 cents per share, compared
with net income of $33.8 million, or $1.28 per share in
the full year 2006. The loss was primarily due to acquisition-related
charges for IPR&D and inventory and the accelerated
expensing of debt fees.
Non-GAAP
Operating Income, Net Income and EPS — Non-GAAP
operating income, which excludes amortization expense related
to intangible assets and excludes acquisition related charges
for IPR&D and inventory, was $182 million, or 12.5%
of revenues, in the full year 2007, compared with $93 million
or 14.4% of revenues, in the same period in 2006. Non-GAAP
net income and diluted EPS, which also excludes amortization
of debt placement fees was $87.3 million or $2.81 per diluted
share in 2007, compared with $55.6 million and $2.12 per
share in the 2006 period. Non-GAAP net income and diluted
EPS are higher in 2007 primarily due to the Actaris acquisition.
Fully diluted shares outstanding for the full year 2007
were approximately 5 million higher than the same period
in 2006.
Other
Financial Highlights:
New
Order Bookings and Backlog — New order bookings
for the fourth quarter were $448 million, compared with
$211 million in the fourth quarter of 2006. Our fourth quarter
2007 book-to-bill ratio was .97 to 1. Total backlog was
$659 million at December 31, 2007 compared with $392 million
at December 31, 2006. Twelve month backlog of $501 million
at December 31, 2007 was higher than twelve month backlog
at December 31, 2006 of $225 million and higher than twelve
month backlog at September 30, 2007 of $494 million. The
increased bookings and backlog amount in 2007 are primarily
due to the Actaris acquisition.
Cash
Flows from Operations — Net cash provided by
operating activities was $133 million for the full year
ended December 31, 2007, compared with $95 million in the
same period in 2006. Adjusted earnings before interest,
taxes, depreciation and amortization (Adjusted EBITDA) in
the fourth quarter of 2007 was $67 million compared with
$21 million for the same period in 2006. Adjusted EBITDA
for the full year 2007 was $225 million, or $118 million
higher than the full year 2006, primarily due to the acquisition
of Actaris.
Forward
Looking Statements:
This
release contains forward-looking statements concerning our
expectations about operations, financial performance, sales,
earnings and cash flows. These statements reflect our current
plans and expectations and are based on information currently
available. They rely on a number of assumptions and estimates,
which could be inaccurate, and which are subject to risks
and uncertainties that could cause our actual results to vary
materially from those anticipated. Risks and uncertainties
include the rate and timing of customer demand for our products,
rescheduling of current customer orders, changes in estimated
liabilities for product warranties, changes in laws and regulations,
our dependence on new product development and intellectual
property, future acquisitions, changes in estimates for stock
based compensation, changes in foreign exchange rates, foreign
business risks and other factors which are more fully described
in our Annual Report on Form 10-K for the year ended December
31, 2007 and other reports on file with the Securities and
Exchange Commission. Itron undertakes no obligation to update
publicly or revise any forward-looking statements, including
our business outlook.
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