Itron, Inc.

Good day, everyone, and welcome to the ITRON, Inc. Q2 2022 Earnings Conference Call. Today's call is being recorded. For opening remarks, I would like to turn the call over to Ken Gianella for opening remarks. Please go ahead, sir.

Thank you, Operator. Good morning and welcome to ITRON's second quarter 2022 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 Dietrich, 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 on our earnings release and on our investor relations website. We'll be making statements during this call that are forward-looking. These 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 and the comments made during this conference call and in the risk factor section of our Form 10-K and other reports and filings with the Security and Exchange Commission. All company comments, estimates, or forward-looking statements are made in a good-faith attempt to provide appropriate insights to our current and future operating and financial environment. Materials discussed today, August 4th, 2022, 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 Dietrich.

Thank you, Ken. Good morning, and thank you for joining us. You will hear second quarter details from Joan coming up shortly, but here's a brief overview of the quarter. Revenue was $432 million. Adjusted EBITDA was $17 million. Non-GAAP earnings per share was 7 cents, and free cash flow was $10 million. Turning to slide five, our second quarter bookings were $612 million for a book-to-bill ratio of approximately 1.4 to 1. This quarter's bookings performance is highlighted by an agreement with First Energy Corporation, for their New Jersey territory to provide our network and outcome solutions for AMI combined with grid operations and data management. ITRON is a key partner supporting First Energy's efforts to modernize their distribution network. Next, an example of content expansion on top of an existing network footprint. AEP Ohio will be deploying our demand response offering to enhance the reliability of electricity services, especially during peak periods. They also will be deploying our market-leading streetlight vision solution for the management and control of streetlights and other smart city applications across the territory. Both solutions will give AEP greater control and drive operational savings in the management of their critical infrastructure assets. And finally, we are pleased to announce a long-term agreement with Malaysian utility Shaharakat Sesko Berhad for selecting ITRON's Network as a Service offering for AMI, which will enhance their analytical insights and improve their operational performance. These are just a few examples of bookings that have driven our total ending backlog to a new record level of $4.1 billion and our 12-month backlog up to $1.7 billion, which is also a new record for the company. Now turning to slide six, I will provide some operational insights on the second quarter. As is apparent from our bookings and backlogs this quarter, market demand continues to be strong for our solutions, particularly in the networks and outcomes segment. Most of our new bookings and backlogs are based on our latest generation network enhanced by distributed intelligence. These are precisely the type of bookings we want as we continue to focus on higher value network solutions that drive our analytics and software applications for the outcomes business. While demand for our offerings is strong, we continue to proactively prune non-connected, commoditized products to sharpen our R&D focus. These decisions have reduced our device segment revenue by approximately $50 million year-to-date versus the prior year. While these actions do have near-term impact on revenue, they focus and accelerate our growth into higher margin solutions and continue to move towards an asset-light manufacturing model. Next, I would like to give an update on our supply constraints. Semiconductor component supply continues to impact our business. We anticipated this impact would gate first half revenue, reducing it. While we continue to make progress on component supply constraints since our last call, the conditions we anticipated for the second quarter and the level of improvement for the back half of the year have not yet materialized. Particularly, we are disappointed by persistent shortages associated with analog semi-components, which gated our revenue in the second quarter, particularly for network solutions. The second half improvements signaled by our suppliers earlier in the year have not emerged at a sufficient pace to meet our existing and consistently growing demand. We currently anticipate modest incremental improvement in component supply during the second half and easing constraints as we head into 2023. We continue to take actions that are in our control, such as product redesigns, multisourcing, prudent efforts to secure supply through alternate channels, and building additional inventory when appropriate and available. Finally, I would like to give you some insight on the inflationary pressures and operational inefficiencies impacting our performance and the price-cost actions we are taking to offset them. Our second quarter gross margin was impacted by increased input costs and factory inefficiencies due to uncertain and evolving component constraints. Some of these costs are temporal and will reduce as component supply and factory utilization improves. Structurally, we have made strides in reducing manufacturing overhead, streamlining our operations, and moving to a more asset-light model over the last few years. These continued efforts, combined with our ongoing pricing actions, will improve our margin performance towards our operating model as component supply availability improves. Now we'll hand off to Joan to cover our second quarter results and updated 2022 outlook in more detail.