Itron, Inc.

2025 earnings conference call. At this time, all participants are on the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. Please note that today's conference is being recorded. I will now hand the conference over to your speaker host, Paul Vincent, Vice President of Investillations. Please go ahead.

Good morning, and welcome to ITRON's third quarter 2025 earnings conference call. Tom Dietrich, ITRON's president and chief executive officer, and Joan Hooper, senior vice president and chief financial officer, will review ITRON's third quarter results and provide a general business update and outlook. Earlier today, the company issued a press release announcing its results. This release also includes details related to the conference call and webcast replay information. Accompanying today's call is a presentation that is available through the webcast and on our corporate website under the Investor Relations tab. Following prepared remarks, the call will open for questions using the process the operator described. Before Tom begins, a reminder that 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. 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 comments made during this conference call, as well as those presented in the risk factor section of our Form 10-K and other reports and filings with the Securities and Exchange Commission. All company comments, estimates, 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, October 30th, 2025, may materially change, and we do not undertake any duty to update any of our forward-looking statements. Now, please turn to page four of our presentation. As our CEO, Tom Dietrich, begins his remarks.

Thank you, Paul. Good morning and thank you for joining our call. During the third quarter, ITRON set new records for margins, profit, and free cash flow on revenue in line with expectations. Financial highlights on slide four include revenue of $582 million, adjusted EBITDA of $97 million, non-GAAP earnings per share of $1.54, and free cash flow of $113 million. On slide five, our third quarter bookings were $380 million with a total backlog at the end of the quarter of $4.3 billion. Turning to slide six, utilities are operating in an increasingly complex environment marked by accelerating load growth, rising costs, heightened regulatory scrutiny, and greater technical demands. Customers are adapting to this landscape by sequencing initiatives and, in some cases, extending project deployment schedules. While regulators generally share utility strategic objectives, growing sensitivity to consumer costs is leading to more rigorous evaluation of project investments. Despite a slower pace on some projects, our customers remain focused on enhancing grid performance and reliability through the adoption of grid edge technology that delivers greater visibility and control at the edge. This is reflected in the ongoing expansion of distributed intelligence-enabled endpoints, which topped 16 million deployed by the end of the third quarter, with more than 10 million additional units in backlog. Licensed DI applications grew 119% year-over-year to 20 million at quarter end. Grid edge intelligence defines the future of agile data-driven distribution infrastructure and continues to expand opportunities for our outcome segment, which grew 11% year-over-year, led by higher recurring revenue. With respect to recent federal funding actions, ITRON has seen no project cancellations, stoppages, or decline in customer interest. However, these deployments introduce greater near-term market uncertainty and add to the complex challenges our customers face. Lower than expected Q3 bookings and heightened uncertainty have tempered our year-end booking expectations. While achieving a one-to-one book-to-bill ratio for 2025 remains possible, we anticipate current dynamics to persist this quarter resulting in bookings below that target. Although project conversion to backlog is taking longer, Lumpy bookings are a familiar pattern and do not alter our long-term business trajectory. Importantly, these changes are not due to competitive dynamics nor fundamental changes in the market. Our opportunity pipeline has expanded by over 25% since the start of the year. Moreover, outcomes-related bookings continue to lead relative backlog growth across our three segments. Lastly, we recently announced the acquisition of Urbant with the transaction expected to close during the fourth quarter of 2025. The Urban business aligns well with our M&A priorities. Its software-oriented, scalable platform complements our current portfolio and addresses the needs of critical infrastructure providers. Urban's SaaS business model delivers solutions for emergency preparedness and response, damage prevention, and worker safety. We are excited to welcome the Urban team on board soon. We will share more details about IRBINT and the expanded ITRON portfolio on our next quarterly call. Now Joan will provide details about our third quarter and our outlook for the fourth quarter.

Thank you, Tom. Please turn to slide seven for a summary of consolidated GAAP results. Third quarter revenue of $582 million was near the top end of the range we provided and lower than the prior year due to planned portfolio changes and the timing of large project deployments. Gross margin of 37.7% set a company record of the second consecutive quarter and was 360 basis points higher than last year due to favorable customer and product mix. GAAP net income of $66 million or $1.41 per diluted share compared to $78 million or $1.70 per diluted share in the prior year. The decrease was due to higher tax expense with the prior year benefiting from favorable resolution of a foreign tax audit. This was partially offset by higher GAAP operating income. Regarding non-GAAP metrics on slide eight, non-GAAP operating income of 89 million or 15.3% of revenue was an all-time quarterly record and increased 13% year over year. Adjusted EBITDA of $97 million, or 16.7% of revenue, were both all-time records, and EBITDA dollars increased 10% year over year. Non-GAAP net income for the quarter was $72 million, or $1.54 per diluted share versus $1.84 a year ago. Higher income tax expense more than offset higher non-GAAP operating income. Q3 free cash flow of $113 million, or 19.5% of revenue, is a new company record and compares to $59 million a year ago. This increase reflects improved working capital, lower tax payments, and higher operational earnings growth. Year-over-year revenue growth by business segment is on slide nine. Device Solutions revenue decreased 19% on a constant currency basis, due to the expected decline in legacy electricity products in EMEA and lower water volumes in North America. Network solutions revenue decreased 6% year-over-year, primarily due to the timing of project deployments. Outcomes revenue increased 10% on a constant currency basis due to the continued growth of recurring revenue. Moving to the non-GAAP year-over-year EPS bridge on slide 10, Our Q3 non-GAAP earnings per share decreased 30 cents year-over-year to $1.54 per diluted share. Higher taxes, the driver of the year-over-year EPS decline, contributed negative 51 cents per share. Prior year tax expense was unusually low due to a favorable resolution of a foreign tax audit. Pre-tax operating performance contributed a positive 22 cents per share improvement driven by the fall-through of higher gross profit. Turning to slides 11 through 13, I'll review Q3 segment results compared with the prior year. Device Solutions revenue was $104 million with a record gross margin of 30.9% and operating margin of 24%. This segment continues to deliver strong profitability improvement. Gross margin increased 370 basis points year-over-year and operating margin was up 240 basis points due to the favorable change in customer and product mix. Network solutions revenue was $394 million with gross margin of 39.3% and operating margin of 31%. Gross margin increased 340 basis points year-over-year and operating margin was up 330 basis points due to improved customer and product mix. Outcomes revenue was 84 million with gross margin of 38.9% and operating margin of 19.9%. Gross margin increased 390 basis points year over year and operating margin was up 520 basis points due to a higher margin revenue mix and operating leverage. Turning to slide 14, I'll review liquidity and debt at the end of the third quarter. Total debt was 1.265 billion and cash and equivalents were $1.332 billion. Please note that our recently announced $325 million all cash acquisition of Urban is expected to close during the fourth quarter. During the third quarter, we amended and increased our revolving light of credit to $750 million, which now matures in 2030. Now, please turn to slide 15 for our fourth quarter outlook. We anticipate fourth quarter revenue to be between $555 to $565 million. The midpoint of this range represents a decline of 9% year over year. For non-GAAP earnings per share, we expect a range of $2.15 to $2.25 per diluted share, which assumes a negative effective tax rate of approximately 19%. This negative tax rate is driven by the favorable conclusion of an uncertain tax position. which will be recorded in Q4. At the midpoint, this EPS implies an increase of 85 cents versus Q4 of last year. Normalized for the tax rate, the midpoint EPS estimate is up approximately 7% versus last year. Please note our fourth quarter outlook does not include any impact from the urban acquisition. Now, please turn to slide 16 for an update to our annual 2025 outlook. We now anticipate 2025 full-year revenue to be within a range of 2.35 to 2.36 billion. At the midpoint, this is down 3% versus 2024, which had approximately 125 million of catch-up revenue. Normalizing for the 2024 catch-up revenue, the midpoint of the updated guidance is approximately 2% year-over-year growth. Our non-GAAP earnings per share full-year outlook range is increasing versus prior estimates, due to the favorable tax item I just mentioned. Our current expectation for full year 2025 non-GAAP earnings per share is a range of $6.84 to $6.94 per diluted share, with an expected annual effective tax rate of approximately 12%. At the midpoint, the updated non-GAAP EPS estimate is up 23% versus 2024, or 16% when normalized for the tax rate. While our revenue growth has been challenged with lower than expected bookings and the push out of ongoing project deployments, we are proud of our progress to improve the margin profile of the business, which has allowed us to drive higher profitability on lower revenue. And now I'll turn the call back to Tom.

Thank you, Joan. The market we serve is unique, and although recent volatility has increased,

The industry's long-term growth trajectory remains unchanged. Our record financial results, despite industry headwinds, reflect our multi-year strategic efforts to optimize the product portfolio and global supply chain. The team is performing well, and our grid edge intelligence solution leadership is undeniable. The opportunity pipeline continues to grow and is at record levels. Together, these factors reinforce our confidence that we remain on track to achieve our 2027 targets. Finally, Urban adds a new dimension centered on operational resilience solutions with strong growth potential. As we build out this solution set, including cross-pollination of data streams to create new offerings, significant opportunity lies ahead. Leveraging the strength of our balance sheet, we remain actively engaged in pursuing inorganic growth opportunities. We are in the early stages of the digital transformation in energy and water systems. ITRON is well positioned to expand its business alongside these global infrastructure shifts and ongoing growth in the years ahead. Thank you for joining our call today. Operator, please open the line for some questions.

Thank you. Ladies and gentlemen, as a reminder, to ask a question at this time, you will need to press star 11 on your telephone. and wait for your name to be announced. To withdraw your question, simply press star 11 again. Please stand by while we compile the Q&A roster. Our first question coming from the line of Noah Kay with Oppenheimer. Your line is now open.

Good morning. Thanks for taking the questions. You know, first I just want to get the modeling right. Joan, thanks for giving us the color on the tax rate for 4Q. Can you just give us an understanding on the delta for revenues versus the prior implied guide? Is the lower rev primarily in networks or is it elsewhere? And then how to think about gross margins. If we back out the tax impact, it would seem like gross margins might go down sequentially, but just want to make sure we're thinking about it directionally right.

Yeah, I would say the biggest weakness is in networks, and it's the commentary we made about deployments that are just pushing to the right. They're going a little bit slower than we would have expected. From a standpoint of gross margin, I would expect Q4 to look pretty close to what Q3 is. The impact of the tax is it's a $39 million discrete benefit, so it had a statute of limitations that expired on October 15th. That is worth about 84 cents a share.

Okay, perfect, thank you. And then just to dovetail off of that, you know, Tom, I want to aggregate a little bit between the impact of project delays on revenues and the overall demand environment in bookings. So to take the second part of that first, I mean, the metric you provided on the 25% pipeline growth from the start of the year is helpful. Can you give us some color on what's impacting some of the conversion delays from pipeline into bookings and how you see this pop trending over the next couple of quarters?

Sure. So I think it's undeniable the demand is coming. That record pipeline and being up 25% since the start of the year is pretty clearly a strong signal of where the market is going. If I look at it through the lens of win rates, our win rates are at or above historical rates, so the competitiveness of the portfolio remains very strong and good. If you dig one level deeper, the rate at which recurring revenue bookings are happening, meaning software and service types of things, we passed our goal for the year in Q3. that's very strong. So outcomes backlog is up 36% year-over-year. It's well over 20% of the total backlog. We're very pleased with our progress there. Where we have seen some delays in decisions, so they're just sort of getting pushed out, is on the more hardware-oriented projects. So that's really due to some of the complex operating environment that I talked about earlier. I definitely see increased interest in the part of the customers on trying to find good ways to move forward and live within the regulatory constraints or perhaps some of the operational constraints that they have. So I would think about it as moving much more towards buying a Jeep a piece at a time rather than buying the whole Jeep. And that really plays to the platform that we have with forward-backward compatibility. And it really is good for the customer as they get to manage that cost. But it also is good for the incumbent as the way that business tends to roll through. So, again, I still see the environment as very robust. Our 27 targets are clearly on track. A couple of places we're already achieving it are ahead. Lumpiness in the bookings, okay, we've seen this before, and it doesn't really give us pause on the strength and the outlook of the business.

All right, I appreciate you reiterating that 27 targets confidence. I'll turn it over.

Thank you. Our next question, coming from the line of Ben Callen with Baird, your line is now open.

Then please check your mute button. Your line is open.

Okay, I'll go to the next person in queue. Coming from the line of Jeff Osborne with TD County, your line is now open.

Great, thank you. Just a couple quick ones on my side. Tom, on the 6% decline in networks and the rationale you gave, Could you just be more descriptive? Is that new customers that were commencing new rollouts for DI or are these people that were underway maybe on a three or four year cadence and have just elongated that to sort of look more disciplined in front of the regulator on their existing CapEx budgets that might be a bit overextended because of tariffs or whatever reasons?

Right. On the revenue side for booked projects specifically is what I think you're asking about. Again, I think it's software and services growing nicely, double-digit growth year over year. What we saw from, let's say, first half, second half is the catch-up of the constrained revenue from prior years when you lap it year over year. We also had a completion of a major deployment in the networks business that rolled off. And we have seen customers in some occasions spreading projects, what used to be a three-year project over four years or something like that. So I don't think it causes any loss of backlog or loss of revenue. It certainly does spread things out on some of those projects. And that's what you see rolling through the P&L.

And our are they giving you more clarity as to when they, you know, if you've thought things were going to be at X run rate, um, you know, when things will resume or like what visibility are they giving you as it relates to their plans as we head into the spring of next year?

The, uh, I guess I'm trying to read through the lines of what you're asking. I mean, we know what their deployment rates are and those get reprofiled, uh, on a, on a regular basis. So, uh, It's not every project. It's a few that tend to spread over a longer period of time, and we know what that looks like. No projects have stopped, so it's not like there's a complete stop on anything that was intended to be ongoing on the revenue side at all. I do think that higher costs and capital budgets within the year clearly have something to do with it in cases where some of the government funding may have disappeared. the customers have to make decisions on how they handle that, whether they go back and make appeals to the government. I would suggest even the projects that are listed as canceled may or may not be canceled. But in all cases, customers absolutely intend and are continuing to work through that process. It just creates a little bit of churn in the near term. I suspect that this levels out in the quarters ahead. So again, it's not something that gives us any pause on what 27 targets will really look like and remain tremendous confidence in where the business is going.

Got it. No, just two rapid fire ones. I know you're not giving guidance for 26, but could just Joan comment on what tax rate we should be assuming given all the moving parts you've had this year. And then I also just want to confirm if I heard you right, I think you said that outcomes is 20% of the 4.3 billion. backlog and up 36% year-on-year, that would be a number greater than 800 million. Is that over seven to 10 years, or what's the duration of that 800 million, if I heard you right?

Yeah, so again, it's well over 20%, and it is up 36% year-over-year, so you're kind of in the right zip code there. The backlog is generally three, four years in length overall. So even though we might have longer-term deals, we generally stick to our traditional way of thinking about what is counted in backlog. Those outcomes, long-term recurring revenue contracts tend to be, in many cases, nearly evergreen as there are provisions to allow extensions in the contracts themselves. So think of it as a three-, four-year visibility.

Yeah, and on 26, as you say, it's really too early to tell. I mean, we end up building up the tax rate based on jurisdictional mix of revenue, everything we know at the time. I think the top end would be like the 25%, which we typically use as a placeholder.

Perfect. That's all I have. Thank you.

Thank you. And as a reminder, to ask a question, please press star 11. Our next question coming from the lineup, Chip Moore with Rod Capital Partners. Your line is now open.

Morning. Thanks for taking the question. Tom, I want to follow up on your commentary on bookings. You know, it sounds like it's possible, right, you could put up a billion, but less likely you get to one-to-one for the year. Just, you know, with your comments on 27 being intact, it's too early for guidance, obviously, but Any way to help us think about growth trajectory next year with some of these moving pieces? Would we expect growth or how should we think about that?

Yeah, again, I think it's way too early to think about where we will land on 2026. We'll get to that when we officially set guidance early next year. I think there will be growth. It's just a question of what level it would be. And that's what we're working through with our customers and the team right now.

Great. If I could ask one more just on Urban. I know it hasn't closed, so you're limited on what you can say. But just maybe speak to, you know, how the deal came about and, you know, any customer overlap and potential synergies there and anything else you can provide. Thanks.

Sure. So Urban, just a quick background on what it is. It's a SaaS-based business. Their customers are essentially utilities. Tremendous overlap between the customers that they have and that we have. What do they do? They really help the customer with things like emergency preparedness and response. So if a storm is going to roll through a particular territory, How can you use the power of AI to predict the storm path so you can pre-position crews? How do you recruit those crews? How do you make sure that you manage workflows? right down to things like making sure you're getting the crew paid and they've got a place to sleep to make sure that you've got a closed-loop process there. When you're in the heat of battle, how do you keep good records as to what you're actually doing? How do you keep the workers safe is another module, whether it's in a normal field deployment kind of activity or whether it's in the heat of battle in a restoration kind of environment. And there's a damage prevention module as part of it as well. So tremendous potential there as we combine operational data that generally comes out of our systems to make those algorithms and services much more robust. And you can think about the cross-pollination the other direction, which is our restoration services and vegetation management services. You can apply some of the same analytics and thought process around how that works. We're excited about where this business will go and be able to expand share of wallet with existing customers and certainly be able to take those capabilities from Urbant to our 8,000 customers around the globe as well. So again, I think there's great potential here. We'll talk about more as to what it means and how it looks after we get through the close during this quarter.

Great. Look forward to that. Thanks.

Thank you. Our next question, coming from the lineup, Scott Graham with Seaport Research Partners.

Hi, good morning. A question about your backlog was up year over year, and I think that the hope here was that a strong third quarter bookings number would mean that you have a better organic in 26, and then if you didn't get that, the organic could be, you know, fairly muted once again in 2026. I'm going to assume that that still holds unless, of course, you have some extraordinary fourth quarter of bookings. But even then, I think that that's more of a 27 event. So my question is, is it possible, Tom, in six months' time, that we could be revisiting the 27 targets and perhaps leaning more into margin than sales?

Yeah, no, I don't anticipate that we're going to be revisiting the 2027 targets. Okay, what you potentially could see is maybe you're on the lower end of those 27 numbers. uh in on the revenue line you know maybe on the high end on some of the other numbers that that were in that overall model whether you're talking about free cash flow or uh gross margin kinds of numbers but uh well within the range is really what we are thinking and seeing overall um recall you know we had this conversation probably two years ago where there was a fair amount of skepticism whether the uh gross margin numbers were realistic or not i think we've probably more than erase those doubts given where we're operating today and what the future looks like. I would say that lumpy bookings are kind of normal in our business. It's just the way things work. We're obviously a doing a much better job of growing that nice, stable, recurring revenue on the software side. So some of that lumpiness does even out in the years ahead. But again, I wouldn't get too worried about lumpiness in the bookings in the short run.

All right. I appreciate that. If I could just maybe follow up sort of a corollary question to that. And as you look at your backlog and the delivery process, times that are in those orders, let's call it in the first half of the year, are you now seeing those delivery times changed by, let's say, you know, pushed out by two quarters, four quarters? How much of the backlog have had delivery times pushed out? Just give us a little bit of a better feel for that.

Yeah, I would say that you think about it in a more holistic sense than that. If you had a project that you were planning on doing the deployment over three years, maybe you're now profiling it over four years in some particular cases. That's kind of what it would look like. So you're really kind of taking the same area under the curve and perhaps spreading it a little bit for some of those projects. So it's less discreet than perhaps the way I'm interpreting your question. And again, this is not every project. This is a few larger projects which slowed down the revenue. on the hardware side of things. Meanwhile, the software portion and services portion of the business continues to grow nicely and continue to do exactly what we want it to do inside of the business. So I think you've got to look at it through both lenses and think about how that expresses itself through the P&L as well as how we can help our customers with the types of things they need to get done.

Appreciate that. Thank you.

Thank you. And I'm showing 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.

Very good. Thank you all for joining the call today. We look forward to updating you again at the end of the year. Thanks.

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