Itron, Inc.

and outcomes overall. So the parts of our business that we're starting to grow or targeting to grow rather continue to do so. Relative to the regulatory environment, it's still very constructive. So clearly the interest rates are a little bit higher than people were hoping. Higher for longer perhaps is a decent way to think about it, but utility commissions are absolutely still proven deals and we see it as a very constructive environment on a global basis.

Thanks. Thank you. Circling back to the comment you made about competitive mode, I don't know if the word is the word you used, but about applications being written on your network. Could you just talk about that maybe in a little more depth? I assume competitors don't have that. And then just a competitive environment, I know there's a water business to be for sale and There's kind of some turnover at Landis and just how you guys think of the competitive environment.

So I certainly think we have a pretty substantial lead in the grid edge intelligence in our language, distributed intelligence, downloadable agents and applications into 10 points. I don't think the competition is anywhere close to the 13 million endpoints in the field. already landed today. So there are competitors, clearly, that are talking about these types of capabilities and will, of course, respect the competition. But we want to play our game and make sure we continue to innovate in the marketplace overall. So I think that it is good for our customers and good for us and good for our investors when people add incremental applications and use cases on top of infrastructure that's already landed in the field. And that is a pretty nice scenario for us overall. There is a lot of, I would say, uncertainty in the marketplace with various competition making changes in their business model as everyone is looking to find ways to be more competitive in the future. So spending less time thinking about competition and more time about what we can do to help our customers and grow our business a lot faster.

Sounds good. Thank you, guys.

Thanks, Ben.

Thank you. Our next question, coming from the lineup, Jeff Osborne with C.D. Cullen. Your line is now open.

Great. Excuse me. Good morning. Just a couple quick ones. Rapid fire here. But on the bookings for 25, Tom, heard you on the book to bill above one. Would you expect a similar back-end loaded nature of the year or a bit more even spread out throughout the year?

Yeah, I would say that it is always difficult to predict quarter to quarter as to what things would look like. So right now, I wouldn't necessarily forecast the big hockey stick like we had in 24, but I wouldn't expect it to be perfectly linear quarter to quarter either. But definitely see a rich pipeline of opportunities, and that one-to-one for the year still makes a lot of sense based on what visibility we have today.

Got it. And then just can you articulate, given there may be some tariffs on Mexico, I don't believe you have any notable manufacturing there, but I wasn't sure on supply chain, copper, steel enclosures, anything like that that comes from that region. How should we think about if there is a Mexico tariff of 25% impact to you folks?

Yeah, I think it's going to depend on the details as to what it looks like. We definitely... are operating with a fair amount of components coming in from Mexico. So that is something that we'd have to watch out for the details on. China isn't a meaningful import market for us. We don't have any meaningful amount of metals in a raw sense coming in. So those aren't necessarily important. But Mexico, we are mindful as to what that might look like in the quarters ahead. And just to follow up on the terms of, sorry, just one last comment I would make there is we do carry a bit more inventory to try to make sure we're in a position to give us as much supply chain flexibility in the event tariffs could be on again, off again. That is certainly a possibility that we're cognizant of and make sure we plan our supply chain accordingly.

Got it. That's helpful. And just maybe a quick follow-up on that topic. Have you started any intermediate of alternative suppliers, not from that jurisdiction, in the event that they're more permanent or not at that point, not at that juncture yet?

Yeah, we do have a very strong multi-sourcing program around the globe. It is, I would say, part of the solution, but it isn't a perfect solution. It takes a bit more engineering, I think, to create a meaningful world. It's just uncertain, and it's really hard to make large investments one way or the other in the current environment.

The last one I had, if I could squeeze it in, is just one of your competitors is certainly highlighting outcomes, similar type applications and services as well as a percentage of their revenue. I'm just curious, could you remind us how you folks describe or define services, maybe relative to peers? I know both parties aren't. maybe on the same page as it relates to network services. But when you talk about 90% being networks and outcomes, is there any type of managed services that you may be including or excluding or they may be including or excluding that makes you focus on different pages as it relates to those metrics that people are reporting?

Yeah, for our numbers and facts and figures, let me make sure that I'm clear on it. So of the new bookings in Q4 and our total backlog, 90% of that is networks and outcomes. So that's the 90% plus kind of number. Where we run in terms of software and services as a total percentage of revenue is probably in the It can vary quarter to quarter, but 15 to 20% overall is software and services. The majority of software and services are indeed in outcomes, but there is a small slice that oftentimes is in the network's P&L. Software and services and outcomes obviously both have a portion of that revenue, which is managed services overall. So I do believe there's probably some differences in terms of what Uh, competition classifies in different areas, but, uh, I don't know that I could do the accounting for them. I just am clear on what it is for, for us.

Appreciate it. That's all I had. Thank you. Thank you.

Thank you. Our next question coming from the line of most sun would be NP Paribas. Your line is now open.

Hi, this is Joe Nussbaum. I'm for Moses Sutton. Congrats on the quarter. How should we think about lumpiness for outcomes margins into 25 as the business continues to ramp? As quarter moves, you can move closer to your 27 targets, but just trying to get a near-term picture as the recurring base builds and how one of those servicings will continue to impact lumpiness.

Yeah, if I think about the full year, I would certainly expect outcomes gross margins to increase versus the full year 24. But given the kind of the subscale nature we've talked about, you're going to have variability from quarter to quarter. We did have a lot of one-time license revenue in Q4, which allowed us to get to the 44%. I wouldn't caution you not to think that's the new baseline that we go off of. It's going to continue to be lumpy. But again, for the full year, I would expect outcomes to continue to improve their gross margin percent.

Thank you. Our next question coming from Delaina. Martin Molloy with Johnson, Rice & Company. Your line is now open.

Good morning. Congratulations on the strong year you put together. I wanted to ask, first question, if you could maybe give us an update on the partnerships you've got with companies like GE, Vernova, and ABB and how those are progressing.

Sure. They are in the stage that is, I will call them pilots with customers today. So a lead customer really starting to think about how to use the technology. We want to make sure we've got the platforms from both of the partners wired together properly to be able to help the customer. So not yet in a stage where it is generating revenue through the P&L, but certainly strong interest on the part of customers. The thesis behind those partnerships very much is to help our customers absorb new technology faster. And we definitely continue to get strong customer feedback that this is one of the helpful ways we can do that. And we continue to work closely with various partnerships, GE, Vrnova, Schneider, Microsoft, Mobility House, Voda AI, or just a couple of them that are top of mind as I answer your questions.

Okay, and thank you for that. And then, follow-up question. I wanted to ask about the LUMA press release from December, if you can give us any more color there in terms of what's gone in the backlog, maybe timing of installation.

Sure. Very pleased to support LUMA, PREPA, and the modernization of their distribution grid. That is an important project to improve the resiliency and reliability of the electrical service. on the island. It is our full great edge intelligence platform, so it's got strong content for both networks and outcomes in it. The project is really just getting started. So I think most of the revenue is in the years ahead rather than something that is immediately a big pop for 2025. So think of it as probably a three- to four-year project overall, and it'll roll out in that typical timeframe.

Great. Thank you. I'll turn it back.

Thank you. Thank you. Our next question, coming from the line of Chip Moore with Rudd Capital Partners, Elon is now open.

Morning. Thanks for taking the question. I wanted to ask one on just the outlook for 2025. You factored in the back-end loaded bookings last year, and I think you called out some conservatism around the European water meter business. Just maybe help us think about biggest risks to that outlook and then, you know, what you think you could drive better than expected results.

Yeah. Just to give a little bit more color again, I caution you not just to look at the flat year over year, you really do have to normalize 24 for the catch up revenue. So it gets you at about 6% growth within our segments. Um, I would expect devices to probably be down year over year. They had an unusually strong 24 with water. And as Tom said, We're being cautious there because certainly the economies in Europe are suffering a little bit. Networks, I would expect to be flat to very, very low growth because of the catch up. That's really all networks revenue that came in 24, the 125 million. And as Tom indicated, we expect outcomes to have another strong year. I don't know that there's a lot of risk to the top line. As we mentioned in the earnings outlook is we haven't assumed any new trade policy. So Again, to the extent that really happens, we'll update accordingly, but that would probably be the biggest risk is if the macro trade environment gives us a big headwind.

Very helpful, Joan, and maybe just a follow-up on margins and trajectory on those 2027 targets. You just completed some cost actions, I think, at the end of last year. Just kind of revisit those and how you think about that path. Thanks.

Yeah, I mean, I think we're in a good place relative to our trajectory to get to 2027. Again, the top line, you know, at the time we did it off 23 actuals and it was a 5% to 7% revenue CAGR from 23 to 27. Well, if you update for the strong 24 and the guidance I just gave for 25, you really just need something like 3% to 7% range to get to 27. So we're well on our way. No issues in my view of hitting the top line targets. Also, we're doing really good, I think, on hitting the increased profile for gross margin and free cash flow generation. So not too worried about hitting those targets as well. Caution everybody to try not to accelerate them into an earlier year. Let us continue to see how things evolve. As you mentioned, we did shut two factories down at the tail end of 2024. In aggregate, that's maybe $10 million of cost savings 2020. 25 over 24, and then there is still a little bit of the backlog that does not have indexation, so that's maybe a headwind going the other way. But as I mentioned in an earlier question, I do expect gross margin to improve year over year and get us on the pathway toward the 27 targets.

Perfect. Appreciate it. Thanks.

Thank you. And our next question, coming from the lineup, Andrew Steinhardt with Ken Accortunity. Ylanis Malepin.

Good morning. We have Andrew on for Austin Moeller. Thanks for taking the questions. Just first here, you know, with the record quarterly bookings in mind and the regulatory delays mentioned in previous quarters, it appears, you know, the approval process ended given, you know, the $1.4 billion in bookings this quarter. In terms of, you know, the revenue recognition from these contracts, do you see these deals flowing through the P&L in the second half of the year? I think you mentioned maybe 2026. So if you could provide some color there, I'd appreciate it.

Yeah, just let me reiterate what I said in the prepared comments is our typical kind of bookings to starting the revenue is 9 to 12 months. So that's why the high end, you know, 52%, I think, of our 2024 annual bookings came in Q4. And so as we've been signaling for the last several quarters, we didn't expect much of that to come into revenue in 25. So nine to 12 months is sort of that timeframe in terms of getting the revenue started. And then typically within a project, there's a start and then a kind of increases over time and then kind of goes down. we took all that into account in the 2025 revenue guidance and if you look at the CAGR required off the as I just mentioned to get from the 25 targets to 27 it's three to seven percent off 25 so we expect growth to accelerate again in 26 and 27. got it thank you and uh just a follow-up um just looking at the the 1.4 billion in bookings this quarter again uh you know removing

They call it a billion dollars in bookings that were going through that regulatory approval process over the past couple of quarters. You know, for the year, the business did like 425 million per quarter in bookings. Is this, you know, a cadence that can be expected in 2025 or how should we be thinking about that?

Yeah, the bookings will be a little bit lumpy quarter to quarter. So it's very difficult given that the bookings discipline we use for us to call it down to an exact quarter as to when something will happen. So I would brace you for a little bit of lumpiness quarter to quarter, but I would not expect it to be quite as much of a hockey stick, everything waiting until Q4 to book this year. So a little bit flatter kind of profile. But in total, I would expect it to be a book to bill of one to one or greater for the year. So If our outlook on revenue is 2.4 to 2.5 kind of range, you can do the math on what the bookings really ought to be and go from there.

Got it. Thank you. And if I could just squeeze one more in. Just looking at Q125, has there been any uptick in demand for endpoints and grid edge intelligence in California in the aftermath of the wildfires?

Certainly, yeah. California wildfires is a very tragic situation and our hearts go out to everybody that's been affected by that. The technology that we provide our customers is absolutely helpful in dealing with all sorts of environmental impacts, whether it's floods or fires or Hurricanes, it doesn't really matter. You've got to have better visibility out at the edge of the grid, and that's clearly what we're working with our customers on across the country, including up and down the coast in California. A lot of our wildfire mitigation technology was originally developed with Northern California, PG&E, quite honestly, in mind, and I think we've got room to grow in wildfire-prone areas to deploy that technology more widely.

Got it. Thank you so much.

Thank you. And as a reminder, to ask a question, please press star 1-1 and wait for your name to be announced. Our next question coming from the lineup, Scott Graham with Seaport Research Partners. You're on this now, Finn.

Yeah, hi. Good morning. Thanks for taking the question. I actually have two or three questions. I'll keep it to two. the operating expenses that were a little bit higher in the two segments. What, what was that about? Did you, is it that you just kind of saw that maybe you had a better than expected quarter underway and then maybe spend some money in December to spend some of that off?

Not really. Again, we, we, we monitor our expenses throughout the year and sometimes the timing of whether it's outside services or some of the investments both our corporate team and our segments are making, they can go through the year. So we focus more on the annual level of spending for the segments. And if I look across the company, we ended up at 22.7% of revenue, which is right within that range of 22 to 23 that we've been targeting.

Yes, thank you. The other question is, simply kind of about the environment where, obviously, we'll call them the power stocks, if you will, the industrial companies that service in some way direct or indirect the data center markets. And obviously, with the deep-seek news a month and a half ago, cheaper AI, you know, more cooler burning, call it AI. There's been a lot of speculation about utilities rolling back their load capital spending needs in years ahead. Obviously, I'm not talking about right now, but are you hearing anything from your customers? You have so many of them. You serve such a wide base of electric utilities out there. Are you hearing them talk about maybe the need to roll some things back in light of this product?

Not at all, no. So we haven't seen any trends in that direction at all. The amount of, if I just use electricity as the As the poster child here, the amount of electricity growth is dramatic over the next years. We need 40% more by 2040, 50% more by 2050. That is a very strong trend. That growth is certainly driven by multiple factors. It's driven by AI data centers, as you notice, but it's also driven by reshoring of manufacturing. So I would say alive and well and no change. utilities are very much struggling to keep up with the demand increase and find out a way to deal with it. So quarter-to-quarter ebb and flow, it's a long-term trajectory, and building infrastructure takes a long time. So alive and well, and I don't expect that to change in the quarters and years ahead. That's helpful.

Thanks, Tom.

Thank you. Our next question, coming from the line-up, Kashi Harrison with Piper Center.

Good morning, everybody. Thanks for taking the question and congrats on the results in the 2024 commercial momentum. So, you know, my first question is on the guidance. You know, the 12-month backlog was down, call it 10-ish percent year over year. But you're guiding the flat revs, which suggests maybe perhaps more projects that you expect to book and ship in 25 than 24, or maybe some other factor at play. I was wondering if you could just help us unpack what drives that, what's behind that, and what you're seeing in the market that gives you the confidence that you can have flat revenues with a lower 12-month backlog this year.

I was going to say, we have quite a bit of visibility by customers. So, again, part of the reason the 12-month is so lower compared to the bookings we have for the quarter is what I mentioned, which is they're very back-end loaded, and much of the Q4 bookings we are not expecting in revenue in the next 12 months. So, therefore, they're in the post-12 months piece of the backlog. So, yes, there is some element of kind of book and ship in the fiscal year, but again, you know, we're confident with the outlook that we gave in terms of seeing the pipeline and understanding the current timing of projects.

Yeah. And I think it's also important that you look at the catch-up revenue. So, December 31, 2024 was higher 12-month backlog by that $125 million or so compared to where we stand today. So, there's a little bit of that. 12-month backlog was up slightly from the from Q3 to Q4, so the visibility that Joan talked about is exactly what we note and how we see our customers rolling things out. That 12-month backlog is also very much based on what customers are forecasting in terms of their project deployments. timeframes. So it can move up and down depending on how projects are progressing through the installation and development phase in their profiles as well.

Got it. Appreciate the commentary there. And then on the bookings front, Tom, I know you indicated book the bill above one. Wondering if I could help us or if you could help us maybe refine that a little. Do you think that you can build on the $2.7 billion last year in 25? So would the bookings on an absolute basis be up year over year just because more than one is a very wide range? And then as it pertains to all the business that you won in 24, just curious how much of that is market growth versus market share gains. Maybe if you could talk about win rates, that would also be helpful.

Sure. So, a book-to-bill of one-to-one or greater is still about as good an estimate as we can give you today. It becomes very difficult to predict exact regulatory cycles and things beyond that point. So, if our outlook on revenue is 2.4%, to 2.5, that gives you some sense of where the bookings number would be. So I don't want to hazard a guess of year-over-year bookings at this point. As we progress through the year, it will become much more clear as to what the pace of wins really would look like. On the notion of share gains and win-loss ratios, we definitely see strong take-up of our portfolio offerings, certainly in the electricity space. The need for better visibility and control out at the edge of the grid, the need for agile infrastructure is fueling a very nice pipeline of opportunities and a strong win rate for us. So I think certainly in the electricity and in the gas space, there's probably a little bit of share shift there, but... very reflective of the strength of the portfolio and fueled by the growth in the marketplace.

That's helpful. Thank you. If I could just maybe sneak one more in, just a question on trade. Understanding that you have a natural inventory buffer that you've been working on for, I think, over a year now, You know, so that gives you a little bit of cushion. But I'm just curious, how quickly can you pass on any tariffs to your customers? And then, you know, are there any sensitivities that you can give us that would help us think about risk from Mexico to gross margins? Thank you.

Yeah, on the notion of pricing and what we do with customers, clearly we want to be responsible business people and help our customers in both directions. So the ability to pass on costs It very much depends on the fact patterns and the specifics overall. So, it's difficult to forecast in the absence of any real details of what the tariff regime may look like. What I would say is that it's very clear that the customers need to improve their grid performance, their resiliency and reliability. and that doesn't change based on the trade policy in place. It certainly could alter the timing and pace of projects in a capital-constrained world that exists, but I don't think it ultimately changes the destination overall. We've got strong support in the administration for grid resiliency and reliability. You heard that from Secretary Wright during his confirmation testimony of grid resiliency is fundamentally important. And I think that that's something that is important for the country and important for a larger reshoring strategy.

Thank you.

Thank you. And there are no further questions in the queue at this time. I will now turn the call back over to Mr. Tom Dietrich for any closing remarks.

Thank you all for joining our call today. We look forward to updating everyone after Q1. Until then, thanks.

This concludes today's conference call. Thank you all for participating, and you may now disconnect.