Itron, Inc.

Good day, ladies and gentlemen, and welcome to the ITRON Incorporated Q1 2020 Earnings Conference Call. Today's conference is being recorded. For opening remarks, I'd like to turn the conference over to Ken Gianella. Please go ahead.

Thank you, operator. Good afternoon and welcome to ITRON's first quarter 2020 Earnings Conference Call. We issued a press release earlier today announcing our results. The press release includes replay information about today's call. A presentation to accompany our remarks on this call is also available through the webcast and on our corporate website under the investor relations tab. On the call today, we have Tom Deitrich, ITRON's President and Chief Executive Officer, and Joan Hooper, Senior Vice President and Chief Financial Officer. Following our prepared remarks, we'll open the call to take questions using the process the operator described. Before I turn the call over to Tom, Please let me remind you of our non-GAAP financial presentation and our safe harbor statement. Our earnings release and financial presentation include non-GAAP financial information that we believe enhances the overall understanding of our current and future performance. Reconciliations of differences between GAAP and non-GAAP financial measures are available in our earnings release and on our investor relations website. We will be making statements during this call that are forward-looking. The statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially from these expectations because of factors that were presented in today's earnings release, in the comments made during the conference call, and in the risk factor section of our Form 10-K and other reports and filings with the Securities and Exchange Commission. In addition, due to the fluid nature of the COVID-19 pandemic, Company estimates regarding the impact of COVID-19 on current or forward-looking statements are made in a good faith attempt to provide appropriate insight to our current and future operating and financial environment. Materials discussed today, May 4, 2020, may materially change, and we do not undertake any duty to update any of our forward-looking statements. Now, please turn to page four in the presentation, and I'll turn the call over to our CEO, Tom Deitrich.

Thank you again. Good afternoon and thank you for joining us. Let me start by saying my heart goes out to the communities and individuals we serve globally, particularly those on the front lines of utilities and cities that are essential to keeping the world's critical infrastructure operational. We are extremely grateful to the healthcare workers and first responders who are bearing the greatest burden in the fight against the COVID-19 virus. During the call today, we will largely talk about the economics of the virus from both a supply and demand perspective, but this pandemic is first and foremost a human crisis. ITRON and the utility we serve is built upon the reputation of consistently being there for our communities, especially in the most critical times. In this unprecedented environment, I am proud and amazed at the levels of dedication that I have witnessed in our industry and from all members of the ITRON team. I want to personally thank our supply chain team who continues building products and our services team who are ceaselessly maintaining and monitoring those products so that lights stay on and clean water flows. ITRON takes our responsibility in these essential processes seriously and our teams are fulfilling this duty. Given the events going on around us, our call today will focus on providing insight into our operating environment, Our decision framework, assumptions, uncertainties, and impacts of the COVID-19 virus on our employees, customers, and supply chain, as well as our ongoing mitigation actions. After some comments, I will hand the call over to Joan and she will briefly touch on our first quarter of 2020 performance. We will focus most of today's remarks on the current operating environment, provide insight into our current view of the second quarter of 2020, and what signals we see as we work through the remainder of 2020. From before the onset of the COVID-19 pandemic, our highest priority has been clear, the health and safety and support of our employees and the people in the communities we serve. Our concern for our employees goes beyond the virus. In April, severe storms impacted the southeastern portion of the United States, moving near our operations in Oconee County, South Carolina. While we are grateful that each of our employees are safe and our facilities were not impacted, some of our neighbors in South Carolina were less fortunate and our thoughts and prayers go out to them. Turning back to the COVID-19 impact, our current operating situation remains dynamic and we are continuously refining our outlook as information is changing daily. Allow me to give you an update as to where we stand today. To start, let us frame the conversation around our employees, Our customers and our supply chain. We established our pandemic crisis management and business continuity team in late January. This team has been making decisions with the understanding that healthy, safe and productive employees enables the success of our customers and this in turn drives our business results. It is this prioritization that guides our decisions. First, our employees. We are committed to continuing operations while balancing employee safety, meeting customer demand, and adhering to local and country level mandates. Business travel and gatherings has been gated since January. We are also instituting and have instituted a work from home policy for all employees that can productively do so and would expect to continue this approach so long as conditions require. For the safety of our employees at our facilities and factories, we have instituted specific training, additional cleaning per shift, and have made sanitizer readily available within our facilities and provided appropriate PPE. We are utilizing social distancing at all locations, including at our factories and within production lines, wherever possible. We are actively encouraging any employee who is not well to stay home and have extended sick leave to avoid unwarranted employee pressures. As an added measure, during these times, these rules also apply if a person they are living with is not well. Our employees are our greatest asset, and we want to give them a peace of mind that they can take care of themselves and their families during this difficult time. Turning to our customers. In most regions around the globe, the work that ITRON does is considered an essential service since we provide critical infrastructure solutions. The continued operation of ITRON's facilities, supply chain, and contract manufacturers are important pieces to enabling our utility customers to reliably deliver energy and water during and after this pandemic. We are in contact and work daily with our customers to ensure alignment on shipments, deployment schedules, and ongoing operational activities. Our outcomes team continues to monitor, support, and perform services with our customers on over 64 million managed endpoints. Our service teams are fully staffed and ITRON's operating systems are built to be operated remotely for prolonged periods of time or in disaster events such as this. While the reactions of our customers do vary as they grapple with the impacts of the virus in their communities, we do see some trends emerging. Larger customers, such as investor-owned utilities and state-owned grids, have generally tended to continue to accept product deliveries within practical constraints such as warehousing space. These customers have employed various strategies regarding deployment, but most have adjusted and slowed installation plans and suspended in-home work. It is important to note these temporal deferrals will predominantly impact near-term growth projects in our network solutions and outcomes segments, and potentially with the start of new deployments, some of which may need regulatory approvals, particularly in regions hardest hit by the virus. Turning to smaller customers, such as municipalities and water departments, the reaction to the virus has more often resulted in suspending both incoming deliveries and deployment. Our business with this type of customer is generally book and ship business and is most correlated with our device solution segment. Looking ahead, we do expect these general trends to continue into the second quarter of 2020. With the information at hand, it is impossible to predict the recovery rates with precision, but we think it is likely that larger customers should be able to return to more normalized operations more quickly than smaller customers. Most of the recovery ramp for larger customers with ongoing projects seems possible within a quarter or so after shelter-in-place orders are lifted and local businesses are reopened. It is too early to assess how the current environment might alter regulatory approvals or customer access to capital for new projects. For some of the smaller customers and municipalities, we anticipate the recovery ramp is more likely to require multiple quarters as it seems likely to expect pressure on city budgets which could slow all but the most urgent matters. Importantly, while we have seen these varying customer reactions, we have not experienced any contract or order cancellations due to COVID-19. Discussions around the pipeline of new opportunities do continue and it is too early to see a trend in customer processes or the longer term regulatory cadence. Finally, permit me to discuss the current view of our supply chain environment. The picture is also very fluid and changes day by day. The information we are providing today does make assumptions around our operations, and these assumptions contain elevated virus-related risks and uncertainties. We closely monitor the situation and adapt to the conditions on the ground. The status of our manufacturing operations differs from country to country. We fully comply with all appropriate government guidance and work closely with ITRON team members and associated groups to drive a safe and productive working environment. With respect to our United States-based factories, we have been designated as an essential supplier and have remained open to date. In these locations, non-essential personnel and those who can perform their jobs remotely have been directed to do so. We have been pleased with the strong support that we have had from local, state, and federal government agencies in these matters as they readily recognize the essential role of utilities and ITRON in society. We did place production holds on some of our factories in Western Europe in mid-March. These actions primarily impact our device solution segment. The production holds in these facilities have recently been lifted and we are now in the process of ramping these facilities. The ramp procedures vary facility to facility, but generally require approximately four weeks. Our production sites in other locations in Europe, Brazil, as well as our key contract manufacturing partner locations have continued to operate, albeit with some constraints. With respect to our supply base, our dedicated crisis management material team has also been in place since January and continues to actively work to assess and mitigate the temporal disruptions and risks in our global supply chain created by the COVID-19 pandemic. We are in close contact and actively monitor our suppliers and logistics providers. Supplier impacts do vary by country. We do expect The current constrained and choppy component landscape to continue with the timing of recovery occurring at different points in time and at different rates. For example, we are already seeing some meaningful recovery underway from the supply base in China as they were among the earliest to experience and begin recovery from the virus. Subsequently, we expect regions impacted later to begin recovery later. We are also navigating disruptions in the global logistics network where air capacity is constrained by limited passenger flights, medical supplies shipments being prioritized, and international ports and border crossings that are operational are often constrained. As supply chain disruptions are identified or can be predicted, we are managing our factories and communicating with our customers to minimize any interruption. These factors have impacted our first quarter of 2020 and remain present in the second quarter of 2020. I will now hand the call off to Joan to discuss the first quarter of 2020 results and our current view on the second quarter of 2020.