Cooper and Zane

Recommendation: Buy• Stock Ticker: ITRI• Current Price: $63.60• Target Price: $81.95 (28.8% upside)• 52-week range: $29.02-$66.10• Market Cap: $2.46B• Beta (3 year weekly): 1.03• *February 17 Q4 earnings release

What is meter reading?

Company Overview• The global leader in utility smart meters• Electric• Natural gas• Water

• Projections/manage• Install• Implement• Operate• Maintain systems

History of Transformation

FIRST TO BRING HANDHELDS

Removing paper

INVENTED AMRRemote reading

LEADER IN SMART METERINGContinued commitment to utilities

and cities

NOWIoT Infrastructure

and Cloud Services

Global Operation

Stock and Company History

Revenue by Region (2015)

North America

53%EMEA37%

Other10%

Philip MezeyHistory:Senior VP of Product Development at Silicon Energy Corp.• 2003 joined as Director of Software Development for Energy Management Solutions Group• 2004 VP of software solutions• 2005 Senior VP Software Solutions• 2007 Senior VP and CEO of North America• 2011 President and CEO of Itron’s Energy segment • 2013 President, Chief Executive Officer, Board member

Appointed CEO

Why are Utilities Looking for Change?

Consumers are being more aware of spending less on utilities

Pressures from the state and federal governments to do more with less energy

Pressure to improve operating margins• industry is notorious for being slow to adapt

Trend of Grants for City Modernization• Germany to end nuclear power energy sources in 2022• Looking for ways to use less energy• In 2011, 20% of electricity came from nuclear power

• Jay Inslee approves bill to give $12 million in grants for smart grid technology• Trump infrastructure plan: “investments in transportation, clean

water, a modern and reliable electricity grid, telecommunications, security infrastructure”

RestructuringNon-recurring expense• Laying off manufacturing jobs as they transition towards software focus• Severance packages• Loss on sale or disposal of assets

• Expected completion in 2018• Pre-tax restructuring charges for 2016 projects $66 M• +90% cash expenditure

• Annualized savings of $40M upon completion• $49M accrued for restructuring• $20.3M to be paid in next 12 months (as of Sept 30)

Declining Revenues

2011 2012 2013 2014 2015 -

500

1,000

1,500

2,000

2,500

3,000

Revenue Cost of Goods Sold Gross Income

Q3 Revenues Broke the Trend

2013 2014 2015 20160

200

400

600

800

1000

1200

1400

1600

Revenue COGS Gross Profit

Meters and Modules Sold

Standard51%

Smart49%

Revenue Breakdown

Electricity46%

Gas29%

Water26%

Gross Margin

Electricity Gas Water27%

28%

29%

30%

31%

32%

33%

34%

35%

36%

37%

AssetTotal Assets: $1.7B

Cash

Reveiva

bles

Inventorie

sOther

PPE

Deferred ta

x asse

ts

Long te

rm asse

ts

Intangibles

Goodwill0

50000100000150000200000250000300000350000400000450000500000

Sales

Current LiabilitiesTotal current liabilities: $479M

Payables

Other Curre

nt Liabiliti

es

Wages and benefits

payable

Taxes p

ayable

Current p

ortion of debt

Current p

ortion of warra

nty

Unearned reve

nue0

50000

100000

150000

200000

250000

Long term liabilitiesTotal long term liabilities: $566.9MTotal liabilities: 1.046B

Long term debt

long term warranty

Pension benefit

obligation

Deferred tax liabilities,

noncurrent

Other0

50000

100000

150000

200000

250000

300000

350000

Debt2015 Credit facility• Revolving credit line• $725M total• $250M standby letter of credit sub facility• $50M swing line sub facility (available for immediate cash needs at a higher interest rate)• Both the term loan and the revolver mature on June 23, 2020• 1.75% cost of debt

Cash Flow Q3 9 months ended

Operating Investing Financing

-40000

-20000

0

20000

40000

60000

80000

100000

Segment Revenues(In Thousands)

2012 2013 2014 2015$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

ElectricityGasWater

Segment Gross Profit

2012 2013 2014 2015$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

ElectricityGasWater

Segment Operating Expenses

2012 2013 2014 2015$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000

$500,000

ElectricityGasWater

Segment Operating Income

2012 2013 2014 2015

$300,000

$250,000

$200,000

$150,000

$100,000

$50,000

$0

$50,000

$100,000

$150,000

ElectricityGasWater

Competitors

• Market Cap: 2.41B• Revenue: 1.884B• P/E: 82.53• P/CF: 17.86• Beta: 1.03• EV/Sales: 1.3• Operating Margin: 7%• ROA: 2.3%

• Market Cap: 682M• Revenue: 489M• P/E: 12.85• P/CF: 36.04• Beta: 1.72• EV/Sales: 1.3• Operating Margin: 16.9%• ROA: .9%

• Market Cap: 4.03B• Revenue: 1.225B • P/E: 46.90• P/CF: 20.65• Beta: 1.05• EV/Sales: 3.0• Operating Margin: 11.1%• ROA: 6.6%

Backlog

2012 2013 2014 2015 42643 $-

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

Partnerships

Itron IdeaLabs• Itron Mobile• Can securely collect data on the device of their choice, including smartphones, tablet and laptop

• Group of 30 entrepreneurs who present new ways of utilizing Itron’s smart grid infrastructure• Led by a current advisor to Google• Made apps that securely transfer data to smartphones/tablets/laptops • Dedicated to finding and designing/high margin business ideas• Centered around data analytics

DCF

Investment ThesisHigher margin data management services from restructuring• Improvements in gross margin• Operating margin• Revenue• Trends are solidified by global governments commitment to infrastructure and grid modernization

Questions?

Income Statement3 Months Ended 9 Months Ended

Sep. 30, 2016 Sep. 30, 2015 Sep. 30, 2016 Sep. 30, 2015Revenues $ 506,859 $ 469,528 $ 1,517,473 $ 1,387,085 Cost of revenues 336,110 322,238 1,013,816 982,819 Gross profit 170,749 147,290 503,657 404,266 Operating expensesSales and marketing 38,894 39,217 119,037 123,302 Product development 39,386 41,559 128,086 126,399 General and administrative 40,384 31,118 130,781 103,195 Amortization of intangible assets 4,996 7,869 19,002 23,730 Restructuring 40,679 587 41,294 (8,828)Total operating expenses 164,339 120,350 438,200 367,798 Operating income 6,410 26,940 65,457 36,468 Other income (expense)Interest income 102 180 594 440 Interest expense (2,691) (2,799) (8,344) (9,336)Other income (expense), net 707 (1,119) (1,074) (3,003)Total other income (expense) (1,882) (3,738) (8,824) (11,899)Income before income taxes 4,528 23,202 56,633 24,569 Income tax provision (13,430) (9,932) (34,249) (19,060)Net income (loss) (8,902) 13,270 22,384 5,509 Net income attributable to noncontrolling interests

983 630 2,263 1,817

Net income (loss) attributable to Itron, Inc. $ (9,885) $ 12,640 $ 20,121 $ 3,692

BSConsolidated Balance Sheets - USD ($) $ in Thousands Sep. 30, 2016 Dec. 31, 2015

ASSETSCash and cash equivalents $ 151,380 $ 131,018 Accounts receivable, net 368,710 330,895 Inventories 189,553 190,465 Other current assets 122,037 106,562 Total current assets 831,680 758,940 Property, plant, and equipment, net 180,867 190,256 Deferred tax assets noncurrent, net 91,808 109,387 Other long-term assets 45,332 51,679 Intangible assets, net 82,733 101,932 Goodwill 475,705 468,122 Total assets 1,708,125 1,680,316 LIABILITIES AND EQUITYAccounts payable 203,986 185,827 Other current liabilities 49,340 78,630 Wages and benefits payable 88,519 76,980 Taxes payable 18,295 14,859 Current portion of debt 12,656 11,250 Current portion of warranty 26,084 36,927 Unearned revenue 80,342 73,301 Total current liabilities 479,222 477,774 Long-term debt 330,042 358,915 Long-term warranty 18,702 17,585 Pension benefit obligation 86,310 85,971 Deferred tax liabilities noncurrent, net 1,680 1,723 Other long-term obligations 130,177 115,645 Total liabilities 1,046,133 1,057,613 Commitments and contingencies (Note 11) EquityPreferred stock, no par value, 10 million shares authorized, no shares issued or outstanding 0 0 Common stock, no par value, 75 million shares authorized, 38,259 and 37,906 shares issued and outstanding

1,259,704 1,246,671

Accumulated other comprehensive loss, net (194,694) (200,607)Accumulated deficit (421,185) (441,306)Total Itron, Inc. shareholders' equity 643,825 604,758 Noncontrolling interests 18,167 17,945 Total equity 661,992 622,703 Total liabilities and equity $ 1,708,125 $ 1,680,316

CFConsolidated Statements of Cash Flows - USD ($) $ in Thousands 9 Months Ended

Sep. 30, 2016 Sep. 30, 2015Operating activitiesNet income (loss) $ 22,384 $ 5,509 Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization 51,563 57,790 Stock-based compensation 13,300 10,879 Amortization of prepaid debt fees 806 1,851 Deferred taxes, net 17,772 14,744 Restructuring, non-cash 5,153 1,018 Other adjustments, net (734) 1,877 Changes in operating assets and liabilities:Accounts receivable (32,652) (14,193)Inventories 3,207 (73,464)Other current assets (15,591) (998)Other long-term assets 8,499 (2,529)Accounts payable, other current liabilities, and taxes payable (5,830) (11,119)Wages and benefits payable 11,516 3,787 Unearned revenue (8,684) 6,536 Warranty (9,900) 20,207 Other operating, net 21,072 (1,741)Net cash provided by operating activities 81,881 20,154 Investing activitiesAcquisitions of property, plant, and equipment (30,563) (33,324)Business acquisitions, net of cash and cash equivalents acquired (951) (5,754)Other investing, net (1,258) 545 Net cash used in investing activities (32,772) (38,533)Financing activitiesProceeds from borrowings 0 89,709 Payments on debt (29,031) (30,186)Issuance of common stock 1,993 2,229 Repurchase of common stock 0 (35,278)Other financing, net (3,658) 1,881 Net cash provided by (used in) financing activities (30,696) 28,355 Effect of foreign exchange rate changes on cash and cash equivalents 1,949 (12,889)Increase (decrease) in cash and cash equivalents 20,362 (2,913)Cash and cash equivalents at beginning of period 131,018 112,371 Cash and cash equivalents at end of period 151,380 Supplemental disclosure of cash flow information:Income taxes, net 17,207 22,578 Interest, net of amounts capitalized $ 7,592 $ 7,549

Debt repayments• At Sept 30• $132.6M outstanding debt under credit facility• $321M available for additional borrowings for additional borrowings

• Debt is expected to be repaid in increments from now until 2020

Important Q3 Metrics• Revenue growth of 9% excluding FX impacts• Non-GAAP adjusted EBITDA margin increased to 12%• Highest quarterly adjusted EBITDA margin since Q3 2012

• Revenue growth & higher mix of smart products• Gross margin improvement to 33.7% • Increasingly realizing operational and restructuring benefits• Completion expected in Q4 2018• $55-65M total• Roughly $40M already paid

• Book-to-bill of 1.3 and ending backlog of $1.5B

HedgingThe key inputs include interest rate yield curves (swap rates and futures) and foreign exchange spot and forward rates

Asset Derivatives (thousands) 2016 2015

Interest rate swaps contracts -- 1,632

Interest rate cap contracts 240 1,423

FX forward contracts 119 27

Interest rate cap contracts 60 --

Total asset derivatives $419 3,082

Hedging

Liability Derivatives 2016 2015

Interest rate swap contracts 3308 868

FX forwards 294 99

Total 3,602 967

Industry Metrics

felt satisfied with the amount of communication from utilities

of consumers

25%Only

of energy utility executives

66%

said electricity and gas grids will grow together

of water utility executives

71%

believed their ability to deliver adequate services will be diminished if inefficiency in the industry persists

of all utility executives79%

said there needs to be a connected energy system that includes gas, solar and wind renewables

of consumers

71%

Were increasingly concerned about cybersecurity and physical attacks on utility systems