Itron Q1 2010 Earnings Call Transcript

Itron Q1 2010 Earnings Call Transcript
Author:
Publish date:

Itron (ITRI)

Q1 2010 Earnings Call

April 28, 2010 5:00 pm ET

Executives

Ranny Dwiggins -

Malcolm Unsworth - Chief Executive Officer, President and Director

Steven Helmbrecht - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

Analysts

Benjamin Kallo - Stanford Group

Stuart Bush - RBC Capital Markets Corporation

Charles Fishman - Pritchard Capital Partners, LLC

Stephen Sanders - Stephens Inc.

Michael Coleman - Sterne Agee & Leach Inc.

Jake Greenblatt - Barclays Capital

Colin Rusch - ThinkEquity LLC

Carter Shoop - Deutsche Bank AG

Sanjay Shrestha - Lazard Capital Markets LLC

Mark Rogers - Gagnon Securities

Sean Hannan - Needham & Company, LLC

John Quealy - Canaccord Adams Ltd.

Jeff Osborne - Thomas Weisel Partners Equity Research

Scott Graham - Bear Stearns

Andrew Weisel - Macquarie Research

Benjamin Schuman

Presentation

Operator

Compare to:
Previous Statements by ITRI
» Itron, Inc. Q4 2009 Earnings Call Transcript
» Itron, Inc. Q3 2009 Earnings Call Transcript
» Itron Inc. Q2 2009 Earnings Call Transcript

Good day, everyone, and welcome to the Itron Inc. First Quarter 2010 Earnings Conference Call. For opening remarks, I would like to the call over to Ranny Dwiggins. Please go ahead, sir.

Ranny Dwiggins

Okay, thank you. Good afternoon, everyone, and thank you for joining us. On the call today, we have Malcolm Unsworth, our President and CEO; and Steve Helmbrecht, our Chief Financial Officer. Steve will begin by giving us a financial review of the quarter, and then Malcolm will provide a business update. After that, we'll take your questions.

Our earnings release includes non-GAAP financial information that we believe enhances your overall understanding of our current and future performance. We also a supplemental slide deck that is intended to augment our prepared remarks as well as provide a reconciliation of differences between our non-GAAP and GAAP financial measures that we will talk about today. You can find the supplemental information at our corporate website under the Investor Relations tab.

We will be making statements during this call that are forward-looking statements. These statements are based on current expectations options that are subject risks and uncertainties. Actual results to differ materially from these expectations because of factors discussed in today's earnings release and the comments made during this conference call any the risk factors section of our 10-K, our Form 10-Q and other reports and filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement. With that, I would like to turn the call over to Steve.

Steven Helmbrecht

Thank you, Ranny, and good afternoon. I will give an overview of our results for the first quarter, and we'll talk about cash flow and repayment of debt.

First, I would like to make a comment on the tax benefit for the quarter. The benefit resulted in part from the receipt of a Clean Energy manufacturing tax credit, awarded as part of the American Recovery and Reinvestment Act. In addition, we had a benefit related to the reduction of tax reserves for certain foreign subsidiaries. In total, these tax-related items positively impacted non-GAAP EPS by about $0.26.

With that, I will move to our operating results. We had a good quarter with strong earnings and cash flow from operations, as well as a sizable increase in our 12-month backlog. Revenue in the quarter was $499 million, which was $111 million or 29% higher than the first quarter of 2009 and about $22 million higher than the fourth quarter of 2009. Our revenue growth was driven primarily by record revenue of $243 million in Itron North America. We had significant growth with OpenWay shipments in the first quarter equal to our total OpenWay shipments for all of 2009.

Our increased level of research and development spending over the past few years is beginning to produce strong returns, with OpenWay revenue contributing approximately 45% of total Itron North America revenue for the quarter.

Although international revenues increased by about 3% compared to the first quarter of 2009, they declined about 6% in constant U.S. dollar, due to continued soft demand and economic conditions in certain markets. The euro to U.S. dollar increased to an average of $1.38 in Q1 versus $1.31 in Q1 2009. And the dollar depreciated against other major currencies we do business in as well. Stronger foreign currencies resulted in approximately $22 million in additional international revenue compared to Q1 '09.

Gross margin for the quarter was 31.8% compared with 33.4% in the first quarter of 2009. Itron North America gross margins were 4.6 percentage points lower this quarter than last year. The decline in margin in North America was primarily due to a change in product mix, with increased shipments of first-generation OpenWay meters at lower gross margin. In addition, we have increased low-margin service revenue as well as increased competition expense.

In Itron International, gross margin for the quarter was 31%, comparable with the prior year. Total operating expenses, excluding amortization of intangible assets, were about $108 million, an increase of about $10 million, due mostly to increased competition expense resulting from the reinstatement of bonus and profit-sharing, 401(k) match and regular compensation reviews. As a percentage of revenue, operating expenses decreased to 21.6% in 2010 compared to 25% in 2009.

Amortization expense declined from $23.5 million last year to $17.8 million this year. Non-GAAP operating margin was 10.3% for the quarter, up from 8.3% in the first quarter of 2009, due primarily to the much higher revenue and lower growth in operating expenses. We had a non-GAAP tax benefit of 4% in the quarter compared with an expensive 32% in the first quarter of 2009 due to the tax items I mentioned.

Non-GAAP diluted EPS was $1.01 for the quarter, compared with $0.33 in the first quarter of 2009. Our non-GAAP fully diluted share count for the quarter was 40.9 million shares compared with 36.5 million shares in 2009, primarily as a result of a convertible debt exchange and an equity offering in 2009. Our diluted share count included approximately 130,000 shares related to our $224 million in convertible notes, as our average stock price during the quarter was approximately $67 per share. At a stock price above $65, the convertible notes will continue to be a factor in dilution going forward.

Read the rest of this transcript for free on seekingalpha.com