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 Itron Announces Fourth Quarter and Full Year 2017 Financial Results
   Wednesday, February 28, 2018 4:05:03 PM ET

Itron, Inc. (ITRI ) announced today financial results for its fourth quarter and full year ended Dec. 31, 2017. Highlights for the quarter and full year include:

-- Quarterly and full year revenue of $551 million and $2.0 billion;

-- Quarterly and full year gross margin of 31.7 percent and 33.5 percent;

-- Quarterly and full year GAAP net income of $2 million and $57 million, which include a charge of $30 million associated with the Tax Cut and Jobs Act ("Tax Act");

-- Quarterly and full year GAAP diluted earnings per share of $0.05 and $1.45, which include the impact of $0.77 per share associated with the Tax Act; and

-- Quarterly and full year non-GAAP diluted earnings per share of $1.01 and $3.06, which exclude the charge associated with the Tax Act.

-- The acquisition of Silver Spring Networks closed on Jan. 5, 2018 and will operate and report as a new Itron Networks segment.

"Our fourth quarter results reflect strong execution of our strategy as we delivered year-over-year growth in revenue and non-GAAP earnings per share," said Philip Mezey, Itron president and chief executive officer. "The progress we made in the quarter and throughout 2017 provides a solid foundation for 2018 as we optimize our operations and integrate Silver Spring Networks. The integration is progressing as planned with active collaboration across our team, a powerful sense of our shared mission and values and positive support from customers and partners."

Summary of Fourth Quarter Consolidated Financial Results

(All comparisons made are against the prior year period unless otherwise noted)

Revenue

Total revenue of $551 million increased 11 percent, or 8 percent excluding the impact of changes in foreign currency exchange rates, compared with the fourth quarter of 2016, driven by strong smart solution business and managed services.

By segment, Electricity revenue increased 20 percent driven by higher smart solution deliveries primarily in North America and Europe, Middle East and Africa (EMEA) regions. Gas and Water revenue increased 2 percent and 3 percent, respectively, primarily due to a favorable impact from changes in foreign currency exchange rates.

Gross Margin

Consolidated gross margin of 31.7 percent increased 10 basis points compared with the fourth quarter of 2016, driven by higher volume and mix of smart solutions primarily in the Electricity segment, offsetting lower gross margins in the Gas and Water segments.

Operating Income, Net Income and Earnings per Share (EPS)

GAAP operating income increased to $47 million compared with $31 million in the fourth quarter of 2016. Non-GAAP operating income increased to $55 million compared with $45 million in 2016. GAAP and non-GAAP operating income improved due to increased revenue at a higher gross margin, offsetting modest increases in operating expenses to support new solutions.

GAAP net income attributable to Itron for the quarter was $2 million, or $0.05 per diluted share, compared with net income of $12 million, or $0.30 per diluted share, in 2016. The lower GAAP net income and EPS were due to a charge of $30 million, or $0.77 per share, to recognize estimated impacts on the company’s deferred tax assets due to the enactment of the Tax Act.

Non-GAAP net income of $40 million, or $1.01 per diluted share, increased compared with $26 million, or $0.68 per diluted share, in 2016. The increase reflects higher non-GAAP operating income and lower tax expense related to tax audit settlements, adjustments to valuation allowances and the timing and mix of taxable income by jurisdiction. Non-GAAP amounts exclude the charge related to the Tax Act.

Cash Flow

In the fourth quarter, cash provided by operating activities of $77 million and free cash flow of $61 million increased $43 million and $40 million, respectively, compared with the fourth quarter of 2016. Full-year 2017 cash provided by operating activities of $191 million and free cash flow of $142 million increased $76 million and $70 million, respectively, from the prior year. These cash flow increases were primarily driven by improved profitability and changes in working capital.

Other Measures

Bookings of $811 million increased 24 percent compared with the fourth quarter of 2016. Total backlog was $1.8 billion and 12-month backlog was $931 million at the end of the quarter, a year-over-year increase of 6 percent and 22 percent, respectively.

Operational Update

On Feb. 22, 2018, the board of directors approved a new restructuring plan to continue efforts to optimize our global supply chain, manufacturing operations and product development, sales and marketing Organizations. Estimated pre-tax restructuring charges are between $100 and $110 million, the majority of which will be recognized in the first quarter of 2018. The projects under this plan are anticipated to result in approximately $45 to $50 million of annualized savings upon completion. The Company expects to substantially complete projects under this plan by the end of 2020.

Many of our employees are represented by unions or works councils, which requires consultation, and potential restructuring projects may be subject to regulatory approval, both of which could impact the timing of planned savings in certain jurisdictions.

Financial Guidance

Itron’s guidance for the full year 2018 is as follows:

-- Revenue between $2.33 and $2.43 billion

-- Non-GAAP diluted EPS between $2.95 and $3.35

Itron’s guidance for the first quarter of 2018 is as follows:

-- Revenue between $575 and $600 million

-- Non-GAAP diluted EPS between $0.10 and $0.15

Guidance assumes an average euro to U.S. dollar foreign currency exchange rate of $1.21 in 2018, diluted weighted average shares outstanding of approximately 40 million for the year, a non-GAAP effective tax rate for the year of approximately 28 percent and total interest expense of approximately $50 million. Operating profitability and Non-GAAP EPS is expected to be weighted to the second half of the year.

The company also confirmed its expectations that the acquisition of Silver Spring Networks will be accretive to gross margin in 2018 and will be accretive to non-GAAP EPS and adjusted EBITDA in 2019.

These assumptions are forward-looking and reflect the estimated impacts of purchase accounting for the acquisition of Silver Spring Networks, adoption of the new revenue accounting standard and the Tax Act on our financial results and are subject to change.

A reconciliation of forward-looking non-GAAP diluted EPS to the GAAP diluted EPS has not been provided because we are unable to predict with reasonable certainty the potential amount or timing of restructuring and acquisition and integration related expenses and their related tax effects without unreasonable effort. These items are uncertain, depend on various factors and could have a material impact on GAAP results for the guidance period.

Earnings Conference Call

Itron will host a conference call to discuss the financial results and guidance contained in this release at 5:00 p.m. EDT on Feb. 28, 2018. The call will be webcast in a listen-only mode. Webcast information and conference call materials will be made available 10 minutes before the start of the call and will be accessible on Itron’s website at http://investors.itron.com/events.cfm . A replay of the audio webcast will be made available at http://investors.itron.com/events.cfm . A telephone replay of the conference call will be available through Mar. 5, 2018. To access the telephone replay, dial (888) 203-1112 (domestic) or (719) 457-0820 (international) and enter passcode 3052187.

About Itron

Itron is a world-leading technology and services company dedicated to the resourceful use of energy and water. We provide comprehensive solutions that measure, manage and analyze energy and water. Our broad product portfolio includes electricity, gas, water and thermal energy measurement devices and control technology; communications systems; software; as well as managed and consulting services. With thousands of employees supporting nearly 8,000 customers in more than 100 countries, Itron applies knowledge and technology to better manage energy and water resources. Together, we can create a more resourceful world. Join us: www.itron.com.

Itron(R) and OpenWay(R) are registered trademarks of Itron, Inc. All third party trademarks are property of their respective owners and any usage herein does not suggest or imply any relationship between Itron and the third party unless expressly stated.

Forward Looking Statements

This release contains forward-looking statements within in the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our expectations about revenues, operations, financial performance, earnings, earnings per share and cash flows. Although we believe the estimates and assumptions upon which these forward-looking statements are based are reasonable, any of these estimates or assumptions could prove to be inaccurate and the forward-looking statements based on these estimates and assumptions could be incorrect. Our operations involve risks and uncertainties, many of which are outside our control, and any one of which, or a combination of which, could materially affect our results of operations and whether the forward-looking statements ultimately prove to be correct. Actual results and trends in the future may differ materially from those suggested or implied by the forward-looking statements depending on a variety of factors. Some of the factors that we believe could affect our results include our ability to achieve estimated cost savings, the rate and timing of customer demand for our products, rescheduling of current customer orders, changes in estimated liabilities for product warranties, adverse impacts of litigation, changes in laws and regulations, our dependence on new product development and intellectual property, future acquisitions, changes in estimates for stock-based and bonus compensation, increasing volatility in foreign exchange rates, international business risks and other factors that are more fully described in our Annual Report on Form 10-K for the year ended Dec. 31, 2016 and other reports on file with the Securities and Exchange Commission. Itron undertakes no obligation to update or revise any information in this press release.

Non-GAAP Financial Information

To supplement our consolidated financial statements presented in accordance with GAAP, we use certain non-GAAP financial measures, including non-GAAP operating expense, non-GAAP operating income, non-GAAP net income, non-GAAP diluted EPS, adjusted EBITDA, adjusted EBITDA margin, constant currency and free cash flow. We provide these non-GAAP financial measures because we believe they provide greater transparency and represent supplemental information used by management in its financial and operational decision making. We exclude certain costs in our non-GAAP financial measures as we believe the net result is a measure of our core business. The company believes these measures facilitate operating performance comparisons from period to period by eliminating potential differences caused by the existence and timing of certain expense items that would not otherwise be apparent on a GAAP basis. Non-GAAP performance measures should be considered in addition to, and not as a substitute for, results prepared in accordance with GAAP. Our non-GAAP financial measures may be different from those reported by other companies. A more detailed discussion of why we use non-GAAP financial measures, the limitations of using such measures, and reconciliations between non-GAAP and the nearest GAAP financial measures are included in this press release.

                                                                                                                                      ITRON, INC.
                                                                                                                         CONSOLIDATED STATEMENTS OF OPERATIONS
                                                                                                                                                                   
(Unaudited, in thousands, except per share data)
                                                                                                             Three Months Ended                                                                                              Twelve Months Ended
                                                                                                                December 31,                                                                                                    December 31,
                                                                           --------------------------------------------------------------------------------                            ----------------------------------------------------------------------------------------
                                                                                         2017                               2016                                                    2017                                   2016
                                                                           ----------------------------------------------------- ---------------------------------                     -------------------------------------------------------- --------------------------------------
Revenues
  Product revenues                                                           $ 492,863                                             $ 451,174                                              $ 1,813,925                                                $ 1,830,070
  Service revenues                                                              57,913          44,539                               204,272              183,116  
                                                                           -------------------------------- -------------------- --------------------------------                      ----------------------------------- -------------------- -------------------------------------
    Total revenues                                                             550,776         495,713                             2,018,197            2,013,186  
                                                                           -------------------------------- -------------------- --------------------------------                      ----------------------------------- -------------------- -------------------------------------
Cost of revenues
  Product cost of revenues                                                     339,114                                               311,023                                                1,205,548                                                  1,239,152
  Services cost of revenues                                                     36,911          28,027                               137,495              113,714  
                                                                           -------------------------------- -------------------- --------------------------------                      ----------------------------------- -------------------- -------------------------------------
    Total cost of revenues                                                     376,025         339,050                             1,343,043            1,352,866  
                                                                           -------------------------------- -------------------- --------------------------------                      ----------------------------------- -------------------- -------------------------------------
                                                                                                                                                                                                                                                 
Gross profit                                                                   174,751                                               156,663                                                  675,154                                                    660,320
                                                                                                                                                                                                                                                 
Operating expenses
  Sales and marketing                                                           43,007                                                39,846                                                  170,008                                                    158,883
  Product development                                                           43,438                                                40,123                                                  169,977                                                    168,209
  General and administrative                                                    36,466                                                32,034                                                  156,540                                                    162,815
  Amortization of intangible assets                                              5,641                                                 6,110                                                   20,785                                                     25,112
  Restructuring                                                                   (999 )                            7,796                                 6,418               49,090  
                                                                           -------------------------------- -------------------- --------------------------------                      ----------------------------------- -------------------- -------------------------------------
    Total operating expenses                                                   127,553         125,909                               523,728              564,109  
                                                                           -------------------------------- -------------------- --------------------------------                      ----------------------------------- -------------------- -------------------------------------
                                                                                                                                                                                                                                                 
Operating income                                                                47,198                                                30,754                                                  151,426                                                     96,211
Other income (expense)
  Interest income                                                                  658                                                   271                                                    2,126                                                        865
  Interest expense                                                              (3,133 )                                              (2,604 )                                                (11,581 )                                                  (10,948 )
  Other income (expense), net                                                     (270 )                             (427 )                                                 (7,396 )                                (1,501 )
                                                                           -------------------------------- -------------------- --------------------------------                      ----------------------------------- -------------------- -------------------------------------
    Total other income (expense)                                                (2,745 )                           (2,760 )                                                (16,851 )                               (11,584 )
                                                                           -------------------------------- -------------------- --------------------------------                      ----------------------------------- -------------------- -------------------------------------
                                                                                                                                                                                                                                                 
Income before income taxes                                                      44,453                                                27,994                                                  134,575                                                     84,627
Income tax provision                                                           (42,079 )                          (15,325 )                                                (74,326 )                               (49,574 )
                                                                           -------------------------------- -------------------- --------------------------------                      ----------------------------------- -------------------- -------------------------------------
Net income                                                                       2,374                                                12,669                                                   60,249                                                     35,053
  Net income attributable to noncontrolling interests                              594           1,020                                 2,951                3,283  
                                                                           -------------------------------- -------------------- --------------------------------                      ----------------------------------- -------------------- -------------------------------------
Net income attributable to Itron, Inc.                                       $   1,780       $  11,649                           $    57,298          $    31,770  
                                                                           === ======= ==================== ==================== === ======= ====================                      ==== ========= ==================== ==================== ====== ========= ====================
                                                                                                                                                                                                                                                 
                                                                                                                                                                                                                                                 
Earnings per common share - Basic                                            $    0.05       $    0.30                           $      1.48          $      0.83  
                                                                           === ======= ==================== ==================== === ======= ====================                      ==== ========= ==================== ==================== ====== ========= ====================
Earnings per common share - Diluted                                          $    0.05       $    0.30                           $      1.45          $      0.82  
                                                                           === ======= ==================== ==================== === ======= ====================                      ==== ========= ==================== ==================== ====== ========= ====================
                                                                                                                                                                                                                                                 
Weighted average common shares outstanding - Basic                              38,745                                                38,283                                                   38,655                                                     38,207
Weighted average common shares outstanding - Diluted                            39,530                                                39,028                                                   39,387                                                     38,643
                                                                                                                                                                                                                                                                  
                                                                                                                           ITRON, INC.
                                                                                                                       SEGMENT INFORMATION
                                                                                                                                              
(Unaudited, in thousands)
                                                                                         Three Months Ended                                                                                              Twelve Months Ended
                                                                                            December 31,                                                                                                    December 31,
                                                       --------------------------------------------------------------------------------                            ---------------------------------------------------------------------------------------
                                                                     2017                               2016                                                   2017                                   2016
                                                       ----------------------------------------------------- ---------------------------------                     ------------------------------------------------------- --------------------------------------
Revenues
  Electricity                                            $ 293,714                                             $ 245,589                                             $ 1,022,939                                                $   938,374
  Gas                                                      138,933                                               135,769                                                 533,624                                                    569,476
  Water                                                    118,129         114,355                              461,634              505,336  
                                                       -------------------------------- -------------------- --------------------------------                      ---------------------------------- -------------------- -------------------------------------
    Total Company                                        $ 550,776       $ 495,713                          $ 2,018,197          $ 2,013,186  
                                                       === ======= ==================== ==================== === ======= ====================                      === ========= ==================== ==================== ====== ========= ====================
                                                                                                                                                                                                                            
Gross profit
  Electricity                                            $  96,726                                             $  71,837                                             $   318,953                                                $   282,677
  Gas                                                       44,267                                                46,907                                                 191,303                                                    205,063
  Water                                                     33,758          37,919                              164,898              172,580  
                                                       -------------------------------- -------------------- --------------------------------                      ---------------------------------- -------------------- -------------------------------------
    Total Company                                        $ 174,751       $ 156,663                          $   675,154          $   660,320  
                                                       === ======= ==================== ==================== === ======= ====================                      === ========= ==================== ==================== ====== ========= ====================
                                                                                                                                                                                                                            
Operating income
  Electricity                                            $  41,937                                             $  17,195                                             $    93,566                                                $    68,287
  Gas                                                       16,357                                                18,002                                                  74,206                                                     66,813
  Water                                                      4,236                                                 8,559                                                  44,494                                                     37,266
  Corporate unallocated                                    (15,332 )                          (13,002 )                                               (60,840 )                               (76,155 )
                                                       -------------------------------- -------------------- --------------------------------                      ---------------------------------- -------------------- -------------------------------------
    Total Company                                        $  47,198       $  30,754                          $   151,426          $    96,211  
                                                       === ======= ==================== ==================== === ======= ====================                      === ========= ==================== ==================== ====== ========= ====================
                                                                                                                                                                                                                            
                                                                                                                                                                                                                            
                                                                                                                    METER AND MODULE SUMMARY
                                                                                                                                                                                                                            
(Units in thousands)
                                                                                         Three Months Ended                                                                                                  Year Ended
                                                                                            December 31,                                                                                                    December 31,
                                                       --------------------------------------------------------------------------------                            ---------------------------------------------------------------------------------------
                                                                     2017                               2016                                                   2017                                   2016
                                                       ----------------------------------------------------- ---------------------------------                     ------------------------------------------------------- --------------------------------------
Meters
  Standard                                                   3,740                                                 3,520                                                  15,740                                                     15,540
  Smart                                                      2,790           2,440                               10,390                9,340  
                                                       -------------------------------- -------------------- --------------------------------                      ---------------------------------- -------------------- -------------------------------------
    Total meters                                             6,530           5,960                               26,130               24,880  
                                                       ================================ ==================== ================================                      ================================== ==================== =====================================
                                                                                                                                                                                                                            
Stand-alone communication modules
  Smart                                                      1,840           1,510                                6,250                5,980  
                                                       ================================ ==================== ================================                      ================================== ==================== =====================================
                                                                                                                                                                                                                                             
                                                                            ITRON, INC.
                                                                    CONSOLIDATED BALANCE SHEETS
                                                                                    
(Unaudited, in thousands)
                                                                           December 31, 2017                       December 31, 2016
                                                                 --------------------------------------------------------- ---------------------------------------
                   ASSETS
Current assets
  Cash and cash equivalents                                          $   176,274                                                 $   133,565
  Accounts receivable, net                                               398,029                                                     351,506
  Inventories                                                            193,835                                                     163,049
  Other current assets                                                    81,604                84,346  
                                                                 ------------------------------------ -------------------- --------------------------------------
    Total current assets                                                 849,742                                                     732,466
                                                                                                                            
Property, plant, and equipment, net                                      200,768                                                     176,458
Deferred tax assets, net                                                  49,971                                                      94,113
Restricted cash                                                          311,010                                              --
Other long-term assets                                                    43,666                                                      50,129
Intangible assets, net                                                    95,228                                                      72,151
Goodwill                                                                 555,762               452,494  
                                                                 ------------------------------------ -------------------- --------------------------------------
    Total assets                                                     $ 2,106,147           $ 1,577,811  
                                                                 ===== ========= ==================== ==================== ======= ========= ====================
                                                                                                                            
           LIABILITIES AND EQUITY
Current liabilities
  Accounts payable                                                   $   262,166                                                 $   172,711
  Other current liabilities                                               56,736                                                      43,625
  Wages and benefits payable                                              90,505                                                      82,346
  Taxes payable                                                           16,100                                                      10,451
  Current portion of debt                                                 19,688                                                      14,063
  Current portion of warranty                                             21,150                                                      24,874
  Unearned revenue                                                        41,438                64,976  
                                                                 ------------------------------------ -------------------- --------------------------------------
    Total current liabilities                                            507,783                                                     413,046
                                                                                                                            
Long-term debt                                                           593,572                                                     290,460
Long-term warranty                                                        13,712                                                      18,428
Pension benefit obligation                                                95,717                                                      84,498
Deferred tax liabilities, net                                              1,525                                                       3,073
Other long-term obligations                                               88,206               117,953  
                                                                 ------------------------------------ -------------------- --------------------------------------
    Total liabilities                                                  1,300,515                                                     927,458
                                                                                                                            
Equity
  Common stock                                                         1,294,767                                                   1,270,467
  Accumulated other comprehensive loss, net                             (170,478 )                                                  (229,327 )
  Accumulated deficit                                                   (337,873 )                               (409,536 )
                                                                 ------------------------------------ -------------------- --------------------------------------
    Total Itron, Inc. shareholders’ equity                               786,416                                                     631,604
  Non-controlling interests                                               19,216                18,749  
                                                                 ------------------------------------ -------------------- --------------------------------------
    Total equity                                                         805,632               650,353  
                                                                 ------------------------------------ -------------------- --------------------------------------
    Total liabilities and equity                                     $ 2,106,147           $ 1,577,811  
                                                                 ===== ========= ==================== ==================== ======= ========= ====================
                                                                                                                                              
                                                                                    ITRON, INC.
                                                                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                                                        
(Unaudited, in thousands)
                                                                                                                                Year Ended
                                                                                                                               December 31,
                                                                                        ------------------------------------------------------------------------------------
                                                                                                       2017                                 2016
                                                                                        ------------------------------------------------------ ------------------------------------
Operating activities
  Net income                                                                               $  60,249                                                $  35,053
  Adjustments to reconcile net income to net cash provided by
  operating activities:
    Depreciation and amortization                                                             63,215                                                   68,318
    Stock-based compensation                                                                  21,407                                                   18,035
    Amortization of prepaid debt fees                                                          1,067                                                    1,076
    Deferred taxes, net                                                                       50,667                                                   13,790
    Restructuring, non-cash                                                                   (2,297 )                                                  7,188
    Other adjustments, net                                                                     3,673                                                    4,309
Changes in operating assets and liabilities, net of acquisitions:
  Accounts receivable                                                                        (17,573 )                                                (27,162 )
  Inventories                                                                                (16,242 )                                                 22,343
  Other current assets                                                                         8,112                                                   20,705
  Other long-term assets                                                                      11,230                                                     (339 )
  Accounts payable, other current liabilities, and taxes payable                              78,463                                                  (37,312 )
  Wages and benefits payable                                                                   1,926                                                    7,808
  Unearned revenue                                                                           (41,309 )                                                (25,810 )
  Warranty                                                                                   (10,554 )                                                (10,246 )
  Other operating, net                                                                       (20,680 )                              18,086  
                                                                                        --------------------------------- -------------------- -----------------------------------
    Net cash provided by operating activities                                                191,354                                                  115,842
                                                                                                                                                
Investing activities
  Acquisitions of property, plant, and equipment                                             (49,495 )                                                (43,543 )
  Business acquisitions, net of cash equivalents acquired                                    (99,386 )                                                   (951 )
  Other investing, net                                                                           702             (3,034 )
                                                                                        --------------------------------- -------------------- -----------------------------------
    Net cash used in investing activities                                                   (148,179 )                                                (47,528 )
                                                                                                                                                
Financing activities
  Proceeds from borrowings                                                                   335,000                                                   15,877
  Payments on debt                                                                           (29,063 )                                                (79,119 )
  Issuance of common stock                                                                     3,609                                                    2,891
  Other financing, net                                                                        (7,587 )                              (2,672 )
                                                                                        --------------------------------- -------------------- -----------------------------------
    Net cash provided by (used in) financing activities                                      301,959                                                  (63,023 )
                                                                                                                                                
Effect of foreign exchange rate changes on cash, cash equivalents,                             8,636             (2,744 )
and restricted cash
                                                                                        -----------  -------------------- -------------------- -------------  --------------------
Increase in cash, cash equivalents, and restricted cash                                      353,770                                                    2,547
Cash, cash equivalents, and restricted cash at beginning of period                           133,565            131,018  
                                                                                        --------------------------------- -------------------- -----------------------------------
Cash, cash equivalents, and restricted cash at end of period                               $ 487,335          $ 133,565  
                                                                                        ==== ======= ==================== ==================== ====== ======= ====================
                                                                                                                                                               

About Non-GAAP Financial Measures

The accompanying press release contains non-GAAP financial measures. To supplement our consolidated financial statements, which are prepared in accordance with GAAP, we use certain non-GAAP financial measures, including non-GAAP operating expense, non-GAAP operating income, non-GAAP net income, non-GAAP diluted EPS, adjusted EBITDA, constant currency and free cash flow. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, and other companies may define such measures differently. For more information on these non-GAAP financial measures please see the table captioned "Reconciliations of Non-GAAP Financial Measures to Most Directly Comparable GAAP Financial Measures."

We use these non-GAAP financial measures for financial and operational decision making and/or as a means for determining executive compensation. Management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our performance and ability to service debt by excluding certain expenses that may not be indicative of our recurring core operating results. These non-GAAP financial measures facilitate management’s internal comparisons to our historical performance as well as comparisons to our competitors’ operating results. Our executive compensation plans exclude non-cash charges related to amortization of intangibles and certain discrete cash and non-cash charges such as purchase accounting adjustments, restructuring charges or goodwill impairment charges, and the impact of the Tax Cuts and Jobs Act ("Tax Act"). We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting and analyzing future periods. We believe these non-GAAP financial measures are useful to investors because they provide greater transparency with respect to key metrics used by management in its financial and operational decision making and because they are used by our institutional investors and the analyst community to analyze the health of our business.

Non-GAAP operating expenses and non-GAAP operating income - We define non-GAAP operating expenses as operating expenses excluding certain expenses related to the amortization of intangible assets, restructuring, acquisition and integration, and goodwill impairment. We define non-GAAP operating income as operating income excluding the expenses related to the amortization of intangible assets, restructuring, acquisition and integration, and goodwill impairment. Acquisition and integration related expenses include costs which are incurred to affect and integrate business combinations, such as professional fees, certain employee retention and salaries related to integration, severances, contract terminations, travel costs related to knowledge transfer, system conversion costs, and asset impairment charges. We consider these non-GAAP financial measures to be useful metrics for management and investors because they exclude the effect of expenses that are related to acquisitions and restructuring projects. By excluding these expenses, we believe that it is easier for management and investors to compare our financial results over multiple periods and analyze trends in our operations. For example, in certain periods expenses related to amortization of intangible assets may decrease, which would improve GAAP operating margins, yet the improvement in GAAP operating margins due to this lower expense is not necessarily reflective of an improvement in our core business. There are some limitations related to the use of non-GAAP operating expenses and non-GAAP operating income versus operating expenses and operating income calculated in accordance with GAAP. We compensate for these limitations by providing specific information about the GAAP amounts excluded from non-GAAP operating expense and non-GAAP operating income and evaluating non-GAAP operating expense and non-GAAP operating income together with GAAP operating expense and GAAP operating income.

Non-GAAP net income and non-GAAP diluted EPS - We define non-GAAP net income as net income attributable to Itron, Inc. excluding the expenses associated with amortization of intangible assets, restructuring, acquisition and integration, goodwill impairment, amortization of debt placement fees, impact from the Tax Act and the tax effect of excluding these expenses. We define non-GAAP diluted EPS as non-GAAP net income divided by the weighted average shares, on a diluted basis, outstanding during each period. We consider these financial measures to be useful metrics for management and investors for the same reasons that we use non-GAAP operating income. The same limitations described above regarding our use of non-GAAP operating income apply to our use of non-GAAP net income and non-GAAP diluted EPS. We compensate for these limitations by providing specific information regarding the GAAP amounts excluded from these non-GAAP measures and evaluating non-GAAP net income and non-GAAP diluted EPS together with GAAP net income attributable to Itron, Inc. and GAAP diluted EPS.

Adjusted EBITDA - We define adjusted EBITDA as net income (a) minus interest income, (b) plus interest expense, depreciation and amortization, restructuring, acquisition and integration related expense, goodwill impairment and (c) excluding income tax provision or benefit. Management uses adjusted EBITDA as a performance measure for executive compensation. A limitation to using adjusted EBITDA is that it does not represent the total increase or decrease in the cash balance for the period and the measure includes some non-cash items and excludes other non-cash items. Additionally, the items that we exclude in our calculation of adjusted EBITDA may differ from the items that our peer companies exclude when they report their results. We compensate for these limitations by providing a reconciliation of this measure to GAAP net income.

Free cash flow - We define free cash flow as net cash provided by operating activities less cash used for acquisitions of property, plant and equipment. We believe free cash flow provides investors with a relevant measure of liquidity and a useful basis for assessing our ability to fund our operations and repay our debt. The same limitations described above regarding our use of adjusted EBITDA apply to our use of free cash flow. We compensate for these limitations by providing specific information regarding the GAAP amounts and reconciling to free cash flow.

Constant currency - We refer to the impact of foreign currency exchange rate fluctuations in our discussions of financial results, which references the differences between the foreign currency exchange rates used to translate operating results from local currencies into U.S. dollars for financial reporting purposes. We also use the term "constant currency," which represents financial results adjusted to exclude changes in foreign currency exchange rates as compared with the rates in the comparable prior year period. We calculate the constant currency change as the difference between the current period results and the comparable prior period’s results restated using current period foreign currency exchange rates.

The accompanying tables have more detail on the GAAP financial measures that are most directly comparable to the non-GAAP financial measures and the related reconciliations between these financial measures.

                                                                                                                                          ITRON, INC.
                                                                                                                        RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
                                                                                                                    TO THE MOST DIRECTLY COMPARABLE GAAP FINANCIAL MEASURES
                                                                                                                                                                             
(Unaudited, in thousands, except per share data)
                                                                                                                                                                                                                                                           
TOTAL COMPANY RECONCILIATIONS                                                                                    Three Months Ended December 31,                                                                                 Twelve Months Ended December 31,
------------------------------------------------------------                      --------------------------------------------------------------------------------------------                     --------------------------------------------------------------------------------------------
                                                                                                 2017                                 2016                                                     2017                                 2016
                                                                                  ------------------------------------------------------ -------------------------------------                     ------------------------------------------------------ -------------------------------------
  NON-GAAP NET INCOME & DILUTED EPS
    GAAP net income attributable to Itron, Inc.                                      $   1,780                                                 $  11,649                                              $  57,298                                                 $  31,770
      Amortization of intangible assets                                                  5,641                                                     6,110                                                 20,785                                                    25,112
      Amortization of debt placement fees                                                  241                                                       245                                                    966                                                       987
      Restructuring                                                                       (999 )                                                   7,796                                                  6,418                                                    49,090
      Acquisition and integration related (recovery) expense                             3,095                                                         5                                                 17,139                                                      (197 )
      Tax Cuts and Jobs Act adjustment                                                  30,424                                            --                                                 30,424                                            --
      Income tax effect of non-GAAP adjustments                                           (391 )                                  608                             (12,544 )                               (8,478 )
                                                                                  --------------------------------- -------------------- ------------------------------------                      --------------------------------- -------------------- ------------------------------------
    Non-GAAP net income attributable to                                              $  39,791           $  26,413                           $ 120,486           $  98,284  
    Itron, Inc.
                                                                                  ==== ======= ==================== ==================== ======= ======= ====================                      ==== ======= ==================== ==================== ======= ======= ====================
                                                                                                                                                                                                                                                           
    Non-GAAP diluted EPS                                                             $    1.01           $    0.68                           $    3.06           $    2.54  
                                                                                  ==== ======= ==================== ==================== ======= ======= ====================                      ==== ======= ==================== ==================== ======= ======= ====================
                                                                                                                                                                                                                                                           
    Weighted average common shares outstanding - Diluted                                39,530              39,028                              39,387              38,643  
                                                                                  ================================= ==================== ====================================                      ================================= ==================== ====================================
                                                                                                                                                                                                                                                           
  ADJUSTED EBITDA
    GAAP net income attributable to Itron, Inc.                                      $   1,780                                                 $  11,649                                              $  57,298                                                 $  31,770
      Interest income                                                                     (658 )                                                    (271 )                                               (2,126 )                                                    (865 )
      Interest expense                                                                   3,133                                                     2,604                                                 11,581                                                    10,948
      Income tax provision                                                              42,079                                                    15,325                                                 74,326                                                    49,574
      Depreciation and amortization                                                     17,215                                                    16,755                                                 63,215                                                    68,318
      Restructuring                                                                       (999 )                                                   7,796                                                  6,418                                                    49,090
      Acquisition and integration related (recovery) expense                             3,095                   5                              17,139                (197 )
                                                                                  --------------------------------- -------------------- ------------------------------------                      --------------------------------- -------------------- ------------------------------------
    Adjusted EBITDA                                                                  $  65,645           $  53,863                           $ 227,851           $ 208,638  
                                                                                  ==== ======= ==================== ==================== ======= ======= ====================                      ==== ======= ==================== ==================== ======= ======= ====================
                                                                                                                                                                                                                                                           
  FREE CASH FLOW
      Net cash provided by operating activities                                      $  76,853                                                 $  33,961                                              $ 191,354                                                 $ 115,842
      Acquisitions of property, plant, and equipment                                   (16,002 )                              (12,980 )                                              (49,495 )                              (43,543 )
                                                                                  --------------------------------- -------------------- ------------------------------------                      --------------------------------- -------------------- ------------------------------------
    Free Cash Flow                                                                   $  60,851           $  20,981                           $ 141,859           $  72,299  
                                                                                  ==== ======= ==================== ==================== ======= ======= ====================                      ==== ======= ==================== ==================== ======= ======= ====================
                                                                                                                                                                                                                                                           
  NON-GAAP OPERATING INCOME
    GAAP operating income                                                            $  47,198                                                 $  30,754                                              $ 151,426                                                 $  96,211
      Amortization of intangible assets                                                  5,641                                                     6,110                                                 20,785                                                    25,112
      Restructuring                                                                       (999 )                                                   7,796                                                  6,418                                                    49,090
      Acquisition and integration related (recovery) expense                             3,095                   5                              17,139                (197 )
                                                                                  --------------------------------- -------------------- ------------------------------------                      --------------------------------- -------------------- ------------------------------------
    Non-GAAP operating income                                                        $  54,935           $  44,665                           $ 195,768           $ 170,216  
                                                                                  ==== ======= ==================== ==================== ======= ======= ====================                      ==== ======= ==================== ==================== ======= ======= ====================
                                                                                                                                                                                                                                                           
  NON-GAAP OPERATING EXPENSES
    GAAP operating expenses                                                          $ 127,553                                                 $ 125,909                                              $ 523,728                                                 $ 564,109
      Amortization of intangible assets                                                 (5,641 )                                                  (6,110 )                                              (20,785 )                                                 (25,112 )
      Restructuring                                                                        999                                                    (7,796 )                                               (6,418 )                                                 (49,090 )
      Acquisition and integration related recovery (expense)                            (3,095 )                                   (5 )                                              (17,139 )                                  197  
                                                                                  --------------------------------- -------------------- ------------------------------------                      --------------------------------- -------------------- ------------------------------------
    Non-GAAP operating expenses                                                      $ 119,816           $ 111,998                           $ 479,386           $ 490,104  
                                                                                  ==== ======= ==================== ==================== ======= ======= ====================                      ==== ======= ==================== ==================== ======= ======= ====================
                                                                                                                                                                                                                                                                           
                                                                                                                                                  ITRON, INC.
                                                                                                                                RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
                                                                                                                            TO THE MOST DIRECTLY COMPARABLE GAAP FINANCIAL MEASURES
                                                                                                                                                                                             
(Unaudited, in thousands)
                                                                                                                                                                                                                                                                           
SEGMENT RECONCILIATIONS                                                                                                        Three Months Ended                                                                                    Twelve Months Ended
                                                                                                                                  December 31,                                                                                                             December 31,
------------------------------------------------------------                      -----------------------------------------------------------------------------------------------------        -------------------- ------------------------------------------------------------------------------------
                                                                                                2017                                          2016                                                             2017                                 2016
                                                                                  ----------------------------------------------------- -------------------------------------------------------                     ----------------------------------------------------- -------------------------------------
  NON-GAAP OPERATING INCOME - ELECTRICITY
    Electricity - GAAP operating income                                             $  41,937                                              $    17,195                                             $  93,566                                                 $  68,287
      Amortization of intangible assets                                                 3,268                                                                       3,223                                                11,618                                                    13,273
      Restructuring                                                                    (1,359 )                                                                     2,283                                                   198                                                     7,694
      Acquisition and integration related (recovery) expense                              471                                     5                             10,258                (197 )
                                                                                  -------------------------------- -------------------- ------------------------------------------------------                      -------------------------------- -------------------- ------------------------------------
    Electricity - Non-GAAP operating income                                         $  44,317        $    22,706                          $ 115,640           $  89,057  
                                                                                  === ======= ==================== ==================== ==== ==================== ======= ====================                      === ======= ==================== ==================== ======= ======= ====================
                                                                                                                                                                                                                                                                           
  NON-GAAP OPERATING INCOME - GAS
    Gas - GAAP operating income                                                     $  16,357                                              $                       18,002                                             $  74,206                                                 $  66,813
      Amortization of intangible assets                                                 1,388                                                                       1,568                                                 5,349                                                     6,456
      Restructuring                                                                       496                                 3,754                              5,213              25,744  
                                                                                  -------------------------------- -------------------- ------------------------------------------------------                      -------------------------------- -------------------- ------------------------------------
    Gas - Non-GAAP operating income                                                 $  18,241        $    23,324                          $  84,768           $  99,013  
                                                                                  === ======= ==================== ==================== ==== ==================== ======= ====================                      === ======= ==================== ==================== ======= ======= ====================
                                                                                                                                                                                                                                                                           
  NON-GAAP OPERATING INCOME - WATER
    Water - GAAP operating income                                                   $   4,236                                              $                        8,559                                             $  44,494                                                 $  37,266
      Amortization of intangible assets                                                   985                                                                       1,319                                                 3,818                                                     5,383
      Restructuring                                                                       254                                   651                                700              13,116  
                                                                                  -------------------------------- -------------------- ------------------------------------------------------                      -------------------------------- -------------------- ------------------------------------
    Water - Non-GAAP operating income                                               $   5,475        $    10,529                          $  49,012           $  55,765  
                                                                                  === ======= ==================== ==================== ==== ==================== ======= ====================                      === ======= ==================== ==================== ======= ======= ====================
                                                                                                                                                                                                                                                                           
  NON-GAAP OPERATING INCOME - CORPORATE UNALLOCATED
    Corporate unallocated - GAAP operating loss                                     $ (15,332 )                                            $                      (13,002 )                                           $ (60,840 )                                               $ (76,155 )
      Restructuring                                                                      (390 )                                                                     1,108                                                   307                                                     2,536
      Acquisition and integration related expense                                       2,624                        --                              6,881      --  
                                                                                  -------------------------------- -------------------- ------------------------------------------------------                      -------------------------------- -------------------- ------------------------------------
    Corporate unallocated - Non-GAAP operating loss                                 $ (13,098 )                         $   (11,894 )                                           $ (53,652 )                            $ (73,619 )
                                                                                  === ======= ==================== ==================== ==== ==================== ======= ====================                      === ======= ==================== ==================== ======= ======= ====================

http://cts.businesswire.com/ct/CT?id=bwnews&sty=20180228006442r1&sid=cmtx6&distro=nx&lang=en

View source version on businesswire.com: http://www.businesswire.com/news/home/20180228006442/en/

SOURCE: Itron, Inc.

Itron, Inc. 
Barbara Doyle, 509-891-3443 
Vice President, Investor Relations 
or 
Rebecca Hussey, 509-891-3574 
Manager, Investor Relations


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