Key Highlights

  • Non-GAAP diluted EPS was $1.94, up 26%, versus a $1.56 estimate; GAAP EPS was $1.61, up 14%.
  • Revenue rose 3% to $599.3 million, with annual recurring revenue of $423 million.
  • Adjusted gross margin was 41.3%, up 350 basis points.
  • Bookings were $482 million, a book-to-bill of 0.80, with backlog of $4.3 billion.
  • Fourth-quarter revenue guidance is $621 million to $636 million.

Itron Earnings: Did the Beat Come From Margins Rather Than Orders?

Itron (NASDAQ:ITRI) reported third-quarter results on Tuesday, October 27, with non-GAAP diluted EPS of $1.94, up 26%, against an estimate of $1.56. GAAP diluted EPS was $1.61, up 14%. Revenue rose 3% to $599.3 million, also 3% in constant currency, above a market estimate of about $595.5 million.

The beat came mostly from margin. Adjusted gross margin was 41.3%, up 350 basis points, and GAAP gross margin was 40.9%, up 320 basis points. Management cited favorable customer and product mix, operational efficiencies and cost discipline.

Itron supplies meters, networks and software to electric, gas and water utilities. Orders, however, were softer than sales.

Itron Segments: Where Did Growth and Weakness Sit?

Outcomes revenue rose 9.4% to $92.2 million, with an adjusted gross margin of 40.0%. Resiliency Solutions, a new segment, added $16.1 million at a 74.4% adjusted gross margin. Management said Outcomes growth and the Resiliency contribution drove revenue.

Networked Solutions revenue fell 1.1% to $389.5 million at a 41.8% margin, and Device Solutions fell 2.0% to $101.5 million at a 35.4% margin. Annual recurring revenue reached $423 million.

GAAP operating income rose 17% to $95.5 million. Non-GAAP operating income was $106.8 million, a margin of 17.8%, and adjusted EBITDA rose 18% to $114.5 million, a margin of 19.1%.

Itron Backlog and Cash Flow: Why Did Book-to-Bill Fall to 0.80?

Bookings were $482 million, a quarterly book-to-bill of 0.80, while the trailing twelve-month ratio was 0.97. Ending backlog was $4.3 billion.

Operating cash flow fell 13% to $102.0 million and free cash flow fell 16% to $95.5 million. The company attributed the decline mainly to working capital changes, higher cash tax payments and lower interest income. Net leverage was 1.9 times at September 30.

Management described the market environment as dynamic and constructive and called energy and water infrastructure modernization a durable long-term trend. Second-quarter revenue was $562.9 million, so third-quarter revenue was $36.4 million higher sequentially, as calculated.

Itron Guidance: What Does the Fourth-Quarter Step-Up Require?

Fourth-quarter revenue is guided to $621 million to $636 million, a midpoint up 10% from a year earlier, with non-GAAP EPS of $1.70 to $1.80. Full-year revenue is guided to $2.37 billion to $2.385 billion and non-GAAP EPS to $6.72 to $6.82. Assumptions include a EUR/USD rate of 1.13, a 22% tax rate and trade policies as of mid-October.

The EPS ranges look lower against last year because of tax and interest income. The fourth-quarter midpoint is down $0.71, or 29%, but up $0.14, or 9%, once normalized for tax rate and interest income. The full-year EPS midpoint is down $0.36, or 5%, and up $0.81, or 14%, on the same normalized basis, while the revenue midpoint is up $11 million, or 0.4%.

Investors will watch whether bookings recover toward the trailing ratio and whether the fourth-quarter step-up arrives.