SPOKANE, Wash., April 23, 2003 — Itron Inc. reported that its first quarter revenues were up 20 percent from those in first quarter 2002.
The company reported revenues of $74.6 million for the quarter ended March 31, 2003. Approximately half of the year over year growth came from four acquisitions completed in the last twelve months.
First quarter 2003 results include approximately 27 days worth of operations for Silicon Energy, which Itron acquired on March 4, 2003, as well as certain costs related to the acquisition. Also included are the results of three other acquisitions in the past year, two of which closed on October 1, 2002, and one that closed March 12, 2002.
* Hardware sales were approximately 72% of first quarter 2003 revenues compared with 66% in 2002.
* Software license sales were slightly higher in the first quarter of 2003 compared with 2002, due primarily to two installations of Itron’s transmission and distribution software, which Itron began selling with the acquisition of LineSoft in March 2002.
* In addition, consulting services revenue increased slightly in the 2003 quarter while installation and service revenues were lower.
On a GAAP basis, Itron had net income of $2.9 million in the first quarter of 2003, or 14 cents per diluted share, compared with a net loss of $3.0 million in the first quarter of 2002, or (18) cents per diluted share.
Pro forma net income for the first quarter of 2003 was $6.3 million, or 29 cents per diluted share, compared with $4.6 million, or 24 cents per diluted share, in the first quarter of 2002. A schedule reconciling income between GAAP and pro forma is attached to this release. Pro forma results in 2003 exclude intangible amortization expenses of $1.9 million, restructuring charges of $2.2 million and in-process R&D charges of $900,000. Pro forma results in 2002 exclude intangible asset amortization expenses of $337,000 and in-process R&D charges of $7.4 million.
“With strong first quarter results like these, we are off to a good start in 2003,” commented LeRoy Nosbaum, chairman and CEO. “Our results for the first quarter were better than we had expected coming into the quarter, partially as a result of two new orders during the quarter from large utilities for AMR deployments. In addition, distributor sales in our Water and Public Power business unit were stronger than we had forecast.”
Gross margin for the first quarter of 2003 was 49%, slightly higher than fourth quarter 2002 gross margin of 48% and represents a new quarterly high. On a comparative basis, gross margin was 44% in the first quarter of 2002. Gross margin improved from the prior quarter due to a more favorable mix of hardware product and higher software license sales. Those same factors, along with less installation revenues in the first quarter of this year, resulted in the improvement in first quarter gross margin in 2003 compared with 2002.
Sales and marketing, product development and general and administrative expenses combined were $26.4 million in the first quarter of 2003, or 35% of revenues compared with $19.0 million, or 31% of revenues in the first quarter of 2002. Increases in sales and marketing, product development and general and administrative expenses were primarily driven by the four acquisitions completed in the last twelve months as well as increased headcount.
In addition, general and administrative expenses in 2003 reflect higher defense costs related to the Benghiat patent litigation, and increased IT spending.
We recorded a restructuring charge of $2.2 million in the first quarter of 2003, primarily related to a reorganization of our Energy Information Solutions (EIS) product group in Raleigh, NC to enable more of a focus on the utility and large energy user sector, with a reduced focus on custom data collection software for regional transmission organizations and other wholesale energy market participants. By comparison, there were no restructuring related charges in the first quarter of 2002.
We completed the acquisition of Silicon Energy, a provider of enterprise energy management software and services to utilities and large energy users, on March 4, 2003 for approximately $71.2 million.
Itron financed a portion of the purchase price with a $50 million term bank loan, with a current floating interest rate of approximately 3.8% per year, payable over three years. In connection with the acquisition, we recorded approximately $41.3 million of goodwill and $16.3 million of intangible assets, after the write-off of approximately $900,000 of in-process R&D. The majority of the acquired intangible assets will be amortized within approximately three years. These amounts are preliminary estimates based on independent valuations, which are being finalized, and which are subject to adjustments based on review by our outside auditors.
Intangible asset amortization expense was $1.9 million in the first quarter of 2003, compared with $337,000 in the first quarter of 2002, the increase resulting from amortization of acquisition related intangible assets. In-process R&D charges were $900,000 in the first quarter of 2003, related to the Silicon Energy acquisition, compared with $7.4 million in the first quarter of 2002 related to an acquisition in that quarter.
Net interest expense for the first quarter of 2003 of $287,000 included approximately one month of interest expense for the term bank debt related to the Silicon Energy acquisition. First quarter 2002 net interest expense of $971,000 included interest expense for $53.2 million in subordinated debt, which was converted to common stock during the second quarter of 2002.
Additional highlights for the first quarter include:
* Operating cash flow for the first quarter was $6.4 million in 2003, compared with $6.7 million in 2002.
* New order bookings were $60 million during the quarter compared with $38 million in the first quarter of 2002.
* Included in 2003 bookings was an order from one of the largest electric and gas utilities in the U.S. for an initial AMR deployment of approximately 100,000 endpoints.
* Also included in 2003 bookings is an order from an existing AMR customer, another large electric and gas utility, to deploy Itron’s AMR technology on an additional 500,000 endpoints, approximately half of which will be supplied directly by Itron.
* Total backlog, which represents the value of undelivered contractual orders, excluding annual maintenance, joint pole use and engineering services contracts, was $203 million at March 31, 2003, up from $197 million at December 31, 2002. Twelve-month backlog represents the portion of backlog that will be earned over the next twelve months and was $102 million at March 31, 2003, compared with $100 million last quarter.
The following statements are based on management’s current expectations. These statements are forward-looking and are made as of the date of this press release. Actual results may differ materially due to a number of risks and uncertainties. Itron undertakes no obligation to update publicly or revise any forward-looking statements.
The Company’s guidance for the full year 2003 remains unchanged, with revenues expected to be between $330 to $340 million, and pro forma EPS expected to be between $1.20 and $1.25. Second quarter expectations are for revenues between $75 and $80 million, with proforma EPS of 24 to 28 cents. Pro forma results for the year and quarter exclude restructuring charges, intangible asset amortization, and in-process R&D.
Nosbaum commented that, despite such a strong first quarter, the Company was leaving its guidance for the year unchanged. “While it is a rare event, we did have one large order get rescheduled late in the quarter from a 12 month to an 18 month installation, which will push about $8 million in revenues out of 2003 to 2004. However, we are still on track for a good year in 2003, despite a weak overall economy and a tough environment for many of our customers.”
Itron is a technology provider and critical source of knowledge to the global energy and water industries. More than 2,800 utilities worldwide rely on Itron technology to deliver the knowledge they require to optimize the delivery and use of energy and water. Itron delivers value to its clients by providing solutions for meter data collection, energy information management, demand side management and response, load forecasting, analysis and consulting services, transmission and distribution system design and optimization, Web-based workforce automation, commercial and industrial customer care and residential energy management. More information: www.itron.com.