ITRI - Earnings call transcript Q1 2019

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Operator

Good day, everyone and welcome to the Itron Inc. Q1 2019 Earnings Conference Call. Today's call is being recorded.

For opening remarks I would like to turn the call over to Ken Gianella. Please go ahead.

Kenneth Gianella

Operator. you, Thank welcome Call. and First XXXX Quarter Good to Conference Earnings afternoon Itron's We announcing earlier release issued press a today our results. The today's call. replay information includes press release about A website under call Investor Relations on our our and the presentation available webcast corporate also through this our on tab. to accompany is remarks President Chief Deitrich, Vice today's Chief President On Itron's Financial today, Operating Executive Officer; Executive Officer; have we Chief call Tom Vice and and President Joan Officer. Mezey, and Philip and Hooper, Senior

call the open take will we remarks, prepared operator our the using the to process Following questions described.

over Before the our Philip, turn you I remind statement. of harbor non-GAAP call and to presentation please financial let our safe

Our enhances Reconciliations non-GAAP and measures differences include presentation the Investor between are of we financial our earnings available website. overall our earnings understanding current on and believe performance. release that of financial Relations future and non-GAAP GAAP financial release in our information and

Form release, filings and undertake earnings made conference our call based factors this and that forward-looking. to differ making today's will other are Actual the to results update of We duty comments any these These Risk during and of section reports statements. during materially in assumptions and and in that Exchange expectations could from Securities are this expectations, with statements are and current uncertainties. because We Factors statements discussed risks be not subject the call on Commission. the XX-K do forward-looking any

to to turn Page the and over our please Now Mezey. call in turn Philip presentation I'll X CEO, the

Philip Mezey

thanks Ken. afternoon and you, us. joining Good Thank for

operating supply positioned exit marketplace of Outcomes. with signals with Device Network quarter signs and a we continued strong the new Combined demand pleased Solutions, segments our quarter performance. to are chain announce improved and first are productive We under full we well environment and of Solutions second as a recovering in operating strong

$XX million, position in first allowed free and $XX was details $X.XX was quarter. million, results adjusted hear cash $XX was the and from Joan performance, These revenue of non-GAAP to delevering a continue $XXX flow million QX to million. adjusted our plan but a XXXX us a cash share EPS in repurchase EBITDA will to moment You highlight healthy accelerate combined with begin

we in our to for robust bookings strong QX a see with performance, Traditionally million. sales be low and and continue QX customer XXXX to that Turning very demand can continued trend bookings of pipeline. seasonally $XXX have

solution X:X track a However remain solid networks and we and numerous have saw flow, for project to XXXX. deal approximately of ratio on submitted bids, large-scale outcome book-to-bill

prevention the our I'd on was of at total execute sequentially quarter billion we past to our quarter backlog the $X increased continued and like to to strategy. end billion. Our XX-month $X.X backlog This of monthly extending provide the to to will data Utility recovering with leadership the grid them and position. team brief examples network analyze an and our our harness where Itron beyond Analytics improving we overall models outages, our reached Exelon's their that This in In that agreement with Exelon smart Utility the usage implementing supports is every their analytic initiatives. delivered Exelon Itron's move that for will to enable over will Exelon customer by storms advanced Analytics tools able be from analysis meter predictive project customer. of segment terabytes data Outcomes are QX assist create faster reliability help

from and modules. to the a Riva is Louisville distribution market to Another Company network with our our will Company two are new Itron's deal customer its informed utilize nearly examples and detect that XXX,XXX are brief its decisions. with also Itron use just into utility loss visibility These solution, Riva and deliver customers seeing solutions long-term greater IoT Itron's water more Louisville accuracy, our value water modernize for provide Water Open IoT communication improve segments of make solution example increase Water investors. Way, system we're Analytics pleased operations. to to The will announce momentum metering OpenWay including will faster service, we

to supply progress our chain. we're like with the highlight I'd making Next

While component that elevated easing see times chain last six Last at costs year's levels expected. remain with XX% times currently parts year reported an our is down months inventory we some of high. from to we XXX and over as lead supply continue over over in and lead number

improved improvements and we've component customer see significant seeing Through and supply and increase is efforts. improvements ship margin materialize. our underway an on commitments Our component actions we are strategy chain book qualification performance, and of replacement these optimization well progress in to gross multisourced delivering are our our on starting

way While direction standing a to right not margin go our improvement long-term we this still the is and are going on efforts. have still gross in

executing restructuring our Finally our by evidenced year-over-year committed the showing to integration as efforts are results in on and our improvement.

Overall committed We delivering savings cumulative in XXXX. projects to on from continue the Joan progress $XXX full now the we be the to operating to making results. laser efficiency QX full hand and by end to rest improving I'll steady discuss of the are remain of XXXX the in call our the forward strategy we look and year. million on off our focused to

Joan Hooper

Thank Philip. you,

performed the of segments. are on OpEx in on is and and shown by improving under X. A with the orders X% results expectations driven and ship on pleased X customer of quarters results. As results our Revenue timing Solutions to Philip summary versus execution quarter shown mentioned Slide runs acceleration than performance and book last first non-GAAP due year we we better our million the some from spending. increased projects are Slide Operationally related Outcomes GAAP $XXX consolidated in Networks strong

to improved basis primarily product last margin XX points versus year software First quarter favorable of including gross higher due mix a margin XX.X% revenue.

million GAAP year. share per share per in or earnings share loss $X with $X.XX of to Moving loss net the per compared was the a net $X.XX prior

restructuring, in charges. integration by recall million You QX XXXX related may the acquisition, $XXX loss in net driven was

cash net $XX per revenue. XXXX. $XX was $X.XX Regarding flow XX.X% or per quarter the Free non-GAAP income $X.XX EBITDA was adjusted was million $X with metrics, share million compared for share Non-GAAP diluted quarter significantly million of or million quarter higher in or related primarily the end lower in the integration higher million. $XXX outlays. at and first the to earnings $XX of the prior Cash and the due year cash and restructuring, than acquisition, was first equivalents

Turning reduce to This as times. an to down decreased to million in debt $X.X net Slide total X, paid debt. $X.XX we additional billion helped $XX leverage

stock also enabled subsequent period. to a $XX We quarter XXXX. and Our Board the to quarter first million stock during XX-month In the program for March total common we strong million $X completed end the we a repurchase position over cash share repurchased repurchase authorized our quarter. us have that million $XX during of planned

bridge on reported constant to revenue year-over-year grew by decline which to or demand. turning improved business more and in company to was primarily revenue was performance year. volumes, the Outcomes currency X% Now which currency net A particularly share Network managed diluted in growing quarter currency America constant on offerings. and due constant Slide allowed lower was strength improvements per $X.XX Slide non-GAAP recurring our of EPS X% The $X.XX XX, was America down on in XX. ship us compared Year-over-year per up partially year-over-year grew due a in the revenue X% constant XX% EMEA to offset revenue was revenue rate is book solutions first XX% deployments. with expected. driven non-GAAP AMI in operating services total in This fulfil effective added Solutions contributed lower improvement. currency. QX X% tax Device $X.XX as prior share. year-over-year currency North was by XX% North EPS bridge basis. constant non-GAAP The intra-quarter

on by last the at was The rate quarter's of tax QX segment in show You is for Slides XX.X%. prior XXXX non-GAAP revenue full non-GAAP the which year XX Solutions XX may line high call. gross tax with we and was on results million compared XX% recall margin margin of with operating quarter the XX%. year. of through $XXX Device guidance unusually the first business QX XX% XXXX the is effective rate provided tax

we up less Solutions XX.X%. million on million quarter performance. on with of were mix margin seeing The XX.X% Networks. EBITDA was of second improve still QX significant a product we synergies. from supply higher of compared driven were to component are was Silver benefits software sequentially, margin costs XX.X% Spring pleased gross than chain are very offset with higher year-over-year. of improvement first integration from revenue revenue from was with and the The and by points reflecting service benefits with margin $XX sales including lower gross scale $XXX our Network points impacted and XX% other product Operating some was mix. year. basis XX Overall percentage percentage benefits of contribution While OpEx percentage year-over-year the XX driven of environment margin our favorable margins half by favorable by margins by the was flat improved better from last up synergies. XXX margin pulling XXXX. revenue Outcomes the expectations integration Operating points of Results

full the While range. remain it year in is confident guidance in early year the still we

points exit timing gross half and the continue than the higher flat both expect approximately to revenue second QX QX margin could sequentially earnings. XXX I we From the down being be perspective rate expect with Given basis slightly a issues we mentioned, and QX for overachievement level. to QX improvement

normal is QX As our update guidance early to provide official on annual intend call our we in practice, our an to August.

turn the Now call Philip. back to I'll

Philip Mezey

Joan. Thank you,

working outlook is industry and our hard demand Our QX momentum. expectations for continue are results exceeded strong. the we The our to

we supply progress improving and Our chain pipeline executing new on segments our and planned. and as is performing business are execution expanding are our making

join reminder, investor us York at XXth in you our we as our Site on live the Day invite just webcast the City NASDAQ Finally, June Market or on via to a New Investor a page. for

roadmap. delve to business the and the market you an outlook, will our please up take deeper questions? on our We some segments technology update strategy, and call open new Thank you would operator, provide our into

Operator

Please much. our with question We'll [Operator Instructions] very take ahead. you Ben first Kallo Thank from Baird. go

Ben Kallo

as would or to XXX be taking Thanks much Thank mentioned Itron any type Hi if and projects about severe you be give the talk margin? more there questions. gross input confidence afternoon. side or be can offering from and you margin just you. mix gross could maybe with Philip, the the little bit your have then greater have you the large color projects offering more it color exiting both and good? had lean what you you there backlog exiting what may about for there, can Spring talk of the you maybe bps with you is as there bids Silver on out good in well or how And my just

Philip Mezey

North call large a the offering bids. as on electric remind who unified characterize would a technologies. I that question former outlined actually about the Spring mix we I strong Day platform Silver AMI are your about everyone would is distinguishing related a have I customers it American Itron our would between Investor such bids about The Ben. talk we'll that Sure more To convergence moving and of technology technology this plans taking assurance on have forward. versus

pipeline very this we on are the with We pursuing. pleased are progress are making we that

On the one. to take margin gross to pass I'll Tom that

Tom Deitrich

normal to still the of seen feel elevated leverage for the of more we the Thank retract part have look through way terms environment of see times go was our are keep to bit start a the at that progression the inventory point way a is path the replacements normalize. procured a Lots working view we're you, We improving. the year. world. to throughout of we We balance work still the kind year that got business, and some our normal guided of environment but at much half Ben moving cost We to we get more component you will through We've the year. to some that very times year closely good levels, more it would range commercial starting much into way for it. from of and my year. year, design is to start but suppliers as of you lead return the supply characterize I back start lead Philip. last definitely so is chain to work on then reductions The as how go. and the We've in very we managing back track of for about have along

Joan Hooper

we sold, go only to other so I are will plans as those is, the that well. goods thing continuing those both OpEx and through contribute our we've effects got Yes, and would that of in as restructuring of add the cost integration year

Ben Kallo

Joan, Thanks Tom. thanks

Operator

our go ahead. Osha take JMP next Joseph Please Securities. we'll And question from with

Joseph Osha

years with and just have some first or whole wondering and you comparing the soften couple the Hello, not puts seasonality seeing that just be it's is a QX guidance then is and past normal interesting out kind of the takes year business, of questions, then coming the followup. is and acts this bit it a of quarter-to-quarter this is hello. you're of recovery A then necessarily over way could emerging staying have a because to up I there pattern And valid, things strong perhaps the kind where again we year? I'm summer

Joan Hooper

year the Let holding question of me broader guidance. full first take terms in

quarters of is later. practice on So the our and full to two at update then end that guidance QX it the call normal to give year

we're the same We comfortable the on with last did obviously mentioned range do that I that prepared quarter's thing. So the as indicate we remarks call. provided we still will in

the In a and of there later timing related deployments a I that related well is that pattern as expected some we timing quarter, little EBITDA have pulling spending. did OpEx a quarters know things, of issues would a as couple the I to customer terms of emerging. timing don't from revenue around in bit new of mention

flow quite an quarters. So can that's QX. I emerging of there's deployment, color I don't those would calendar is think say and But new I ebb and there a seasonality. any deployments little in kind a would bit customer why but gave to to I unrelated of additional of pattern mean terms say I lot our be a large around

Joseph Osha

changing I'm so just XX-month Ben that a total can a what if also following then it's changes? wondering thank how of talk looking more Okay, mix revenue lumpiness, composition backlog we is about your in And bit at you. bit on backlog asked the specifically as the

Joan Hooper

it's quarter of of on see backlog change that so lot thirds is quarter-to-quarter. I bit kind I which backlog the from Solutions the mean little we changed. about I hasn't changed provided type is color and a don't say that think really hasn't in a would last and We really Network of of two backlog

Tom Deitrich

Right.

the of backlog past into very a revenue. we've of tends business do. quarter in past there's than quarters to more still is backlog coverage, of seen XX where quarter amount to Joe what the similar that go in and work decent so ship seen plenty think device based there, the is shouldn’t and I to just the that up to the read lesser $XXX composition next or but what backlog X.X, be did for you've book we're months devices bit the similar think But other between you fact of around in I around up the the end of obviously start anything and type million

Joseph Osha

right, trying and your that what's is becoming discernible I'm I'm those changing whether that's challenging figure should the the think of how just business know before obviously ring backlog, to are forward? number, because composition all Yes, whether in I though, off asking you we out about going it's you backlog your about trends

Joan Hooper

changed sometimes primarily and we the And one don’t backlog into was, lot again backlog. – customer as budgets still get based put because type full in thing, I in the you the the in I device new a don’t kind a the year. America really think book-to-bill actual there Europe little seasonality I backlog, of Tom the we think no so in about the frame the that's is and pull mentioned say North lot more but is order there's a mentioned that QX trend but is good of would do business for feel because quarter, business, of is in The bookings in thing the Philip of particular

Joseph Osha

Thank you.

Operator

Kaye take ahead. we'll from And Please Noah our next go Oppenheimer. question with

Noah Kaye

very Thanks much.

also forward, just that mentioned a but are I'm to the you is misunderstanding So able and pull orders Am tell that I hearing supply a bit, so to understand to to situation forward. you create on like would that and and I just factors continue little just you and a case improving something if fill your book would that that? execution and going sounds ship me me want wrong, be just improving of called internal presumably couple

Joan Hooper

you're No, I think right.

Tom Deitrich

of at with overall. Clearly, misunderstood amount could chain and ship haven’t an we you improving No, all. the the quarter, book supply pleased of that's business we're condition that may for the be fulfil output

and much ship with. probably deployments I real the the pull to the side better on was that book that, that along of it's than was isn’t and side. slightly that timing of goes project things So the that more quarter would what say timing came book But and forward more a with we ship customer into

of revenue both forward quarter, than around but So for comment was pull the the really ship. projects more the helped factors those much definitely and customer book

Noah Kaye

at looking sequentially. devices $X sequentially then million margins higher about bps down your but XXX revenues gross were And was specifically, in

I know just there, some was sequentially, So to that's it hard a think but forward revenue issue. impressive is is expansion saw pretty pull can that what gross just point on understand the there what you is don’t going that, drove that we timing margin because

Tom Deitrich

we customer took fourth large the issue quarter probably supply pretty took accrual saw sorry, ship more which special really a fulfilment, revenue last the with QX. margin change, Europe chain to do behind accrual a but the the health in in year I'm book change We quarter definitely that and we warranty where we that of in gross had improving sequentially was has for the

So that's gross that's sequential there, margin biggest think factor the in the I improvement.

Noah Kaye

on congratulations submit are for winning are that, water are sounded you opportunity. you point you the sneak Right, like do for a because that bids while any I How that's we you this I one quite a a the to a starting big Water at didn’t lost pretty and Louisville meter clearly market award, with in hear, timing the Intelis there? played in, if award, that you networks for growth more then RFP that, about haven't could business and think

Tom Deitrich

Yes, some they the doing water customers meter are where really with is long-term testing. samples happening now

award. We and of large customers, Water network a Intelis by opportunities in is specifically bids piece forward the not step the that some include but We go that have Louisville water on it for did around network for time. portfolios submitting and for basis expanding based additional primarily we was business. the analytics still This that are the the sales the deal then with

Noah Kaye

Okay, but are to bidding for part water most qualification on meters? you are be clear, through you your mean RFPs I now with processing the and

Tom Deitrich

Yes, ongoing. internal qualification qualification, customer is

Noah Kaye

Okay, much. very you thank

Philip Mezey

Thanks Noah.

Operator

And from we'll next go take question Cowen Please with Co. our Osborne & Jeff ahead.

Jeffrey Osborne

Hey, guys. tariff think side to costs? other how there we you XX% on impact do Was good proposed the about the either component – afternoon guys or

Tom Deitrich

how think I. government one. in back was know into as than lot Yes that to the half came what of in about of included of we kind we the you policy to in To the be actually it's volatility are tariffs as the you – a year. officially from man honest wiser year a that Probably saw this stabilized last

as going reasonably would could about can has about we're of we where very being on remain that are running something for will exactly they be negotiation environment positions thinking change, as thus down, still think adapting talk year us tariffs happen. and it still very We predict ready what pull and the but there's that been plenty overall. in we of very, should expected much how but is far I difficult negotiating That's stable. to focused or plenty there's up on the in now actually

Jeffrey Osborne

come followup margins Noah's Spring company out a more having utility so that's helpful gross it, IQ a on once Tom. Maybe to Silver the they maybe two away deployment. or when quarters a just question, cynic, would in public to was a the of six software big here, not but one license be Got revenue every blow by

the this that in understand response sort of if accelerating of warranty kick – you was a accrual progress. it normalized want if last the wouldn’t environment just onetime this thought about would is in but or would in continue mix you I there goodness terms have quarter of no because quarter, to I that have get you of margin change, his for more to gross then ball was rolling sequential quarter, post just one that So will and you deployments case the would question

Joan Hooper

of there still revenue So a you software have recognition. lumpiness terms is when some customer upfront in deployment

in more because Spring very of projects mentioned as different, pull it's would it terms the of software. much of I scale customer heavily much Spring Itron forward when our some have So say scale now they versus was in of we timing that it numbers of of the Silver lumpiness so Silver would smaller. are just part obvious

so is still so recognized margin last say you bit expect discussion bps but the relatively QX current changed from that, is we was about will very margin see would to of view gross higher for software quarter our guidance this the why last bps get roughly the XX is the than some to at little exit be QX. – XX%, So to there that still we lumpiness, our of would similar you and if than has margins a rate XXX we flat higher gross our I They the year quarter. indicated that of were looked assuming about which not but were

Jeffrey Osborne

is versus the OpEx remind just $XX last it changed? track I split Got cost for much has you then it, years, of the you've the of one is about that's on between cost sense. can for have talked two and the and and what us was just reaffirm anything how XXXX you makes year in goods by that of XXXX think the past in I Joan savings million And

Joan Hooper

it's yes, track. still no still, on yes Sure, so

in equally maybe well. actually remaining total split last as OpEx split a we we equally complete. XXXX, but cogs more it's The million had quarter it $XXX the bit as and million reported in $XX between in pretty are puling about and roughly we roughly little of So is XX%

be you quarter-over-quarter one go of QX is Now as we to and this imagine the report through the biggest had year QX few and for example in versus type OpEx. the it's you year as of the between going year in thing, synergies Spring prior XX-XX that to very of I two might say, look, you we but year was of gross thing last and get from we XX-XX Silver last the benefit because mindful split synergy across years about year margin the basically

Jeffrey Osborne

Got the talked it, very Philip can share? observations activity you and then any about just may of robust kind be North quickly, internationally you in a America, lot that

Philip Mezey

Well, and we're of business, we'll the opportunities ongoing scale of across is progress. so North activity those book extensions would comment not project be project as is are seen sort on in looking a and ship there that but are I just we've Asia that as America, nice they say to that couple at of that happy based America and Europe regional absolutely in Europe Latin opportunities well,

Jeffrey Osborne

thank hear, to great Perfect you.

Philip Mezey

Jeff. Thanks

Operator

take next James. question We'll Instructions] go Please Raymond with ahead. from [Operator our Pavel Molchanov

Pavel Molchanov

Thanks for question. taking the

the front loaded shortly the looks On like just a ago. guys it you months deliberately buyback after end few announcement

than better-than-expected least it waiting XXXX rather the board consider upsizing perhaps metrics at your of million the in the the across you buyback until the next to Given year year? in $XX start or would completing rest

Joan Hooper

Yes, debt from us covenants doing that. preclude actually would

we year we capped next will complete so we're million XXXX for in first months of $XX additional have essentially million authorization in so flexibility but was this the we then Board later the and don't XX but So flexibility, next have XXXX. more in week later quarter can see any when details, the file $XX at our the the Q year, this you'll

Pavel Molchanov

I on comments softened the and companies margin The from demand component what hearing obviously any well. lot made I'm basis Okay last upside softness changed kind the understood. semiconductor that or a months perhaps is, four result there targets? that from that you $XXX has improvement expectation? of more seeing to we're comments perhaps situation. in to as electronics we guess markedly point some consumer the is as lower on and back And asking side are of the the on Is March original the a has then question one versus higher component throughout bias three anything

Tom Deitrich

normally deliver Pavel, we we year to update track are year I say in are would of extent middle the the update here. we be the itself. that do to we to our guidance what it for Tom on would the said going when

that see see what we inventory at and expect into we the is last beginning procured what prices you which year the year through think now I slightly burning right than probably was us this higher rest the that of for of some the to of year.

So in we'll goes. the the of it do now for year there, the tailwind we said to extent middle but a we update see

Pavel Molchanov

Okay, appreciate I it.

Operator

Philip any additional or further Instructions] remarks. Mezey turn And [Operator to Mr. seeing no questions, I'd to closing like the call over back for

Philip Mezey

Thanks forward this quarter A and think I and day. said good at much, and our very year, good a bye-bye. of pleased. start to upcoming the investor us very in doesn’t we're make mean start but they you overall I marketplace is the for good everyone. all you as look seeing overall demand Thank momentum I

Operator

afternoon. be will conference of today's this audio replay an available There

replay past the code the participation. or XXXXXXX can of You to access you concludes This audio conference. X-XXX-XXX-XXXX for thank X-XXX-XXX-XXXX, with by the We or dialing today's www.itroncom. company's go your website

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Itron (ITRI) 6 May 192019 Q1 Earnings call transcript