Q1 2020 Earnings Call

Good day, ladies and gentlemen, and welcome to the I try to incorporated Q1 2020 earnings Conference call. Today's conference is being recorded for opening remarks, I'd like turn the conference over to Ken Gianella. Please go ahead.

Thank you operator, good afternoon, and welcome to ice runs 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.

Greason Taishan to accompany our remarks on this call is also available through the webcast in our corporate website under the Investor Relations tab.

On the call today, we have Tom Dietrich, Itrons, President and Chief Executive Officer, and Joe Hooper Senior Vice President.

Chief Financial Officer.

Following our prepared remarks, well 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 in 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.

Statements are based on current expectations and assumptions that are subject to risks and uncertainties actual results could differ materially from these expectations because the factors that will presented in todays earnings release and the comments made during the conference call and in the risks factors 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 Cobot 19 pandemic company estimates regarding impact with cobot 19 in 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 discuss today May four 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 feature.

Thank you again, good afternoon, and thank you for joining us.

Let me start by saying my heart goes out to the communities in individuals we serve globally, particularly those on the front lines of utilities in 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 Cobot 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 human crisis.

Hi, John in the utility we serve as builds upon the reputation of consistently being there for our communities, especially in the most critical times in is 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 seasonal see maintaining and monitoring those products. So that light to 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 coal today will focus on providing insight into our operating environment. Our decision framework assumptions uncertainties that impacts of the cobot 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 gentlemen, 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 Cobot 19 pandemic, our highest priority has been clear the health and safety in 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.

The company can be 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 Cobot 19 impact our current operating situation remains dynamic and we're continuously refining our outlook is 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 dry.

Lives our business results. It is this prioritization that guides our decisions.

First our employees.

We're 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're 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 in factories, we've instituted specific training additional cleaning per shift and have made sanitizer readily available within our facilities and provided appropriate PD.

We are utilizing social distancing in 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 it added measure during these times. These rules also apply if a person they are living which is not well.

Our employees, 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 that continued operation of Itrons facilities supply chain and contract manufacturers are important pieces to enabling our utility customers to reliably deliver energy.

In 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 Itrons operating systems are built to be operated remotely for a prolonged periods of time or a disaster events such as this.

While the reactions of our customers do vary as they grapple with the impacts of the virus and their communities, we do see some trends emerging.

Larger customers such as Investor owned utilities in 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 developments, new deployments, some of which may need regulatory approvals, particularly in regions hardest hit by the virus.

Turning to smaller customers such as municipalities in water departments. The reaction to the virus has more often resulted in suspending both incoming deliveries and deployment or business with this type of customer is generally book and ship business and as most correlated with our device solutions segment.

Looking ahead, we do expect these general trends to continue into the second quarter of 2020 with the information at the 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 customer.

Yes.

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 as local businesses are reopened it is too early to assess how the current environment might alter our regulatory approvals or customer access to capital for new projects.

[music].

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 that the most urgent matters.

Importantly, while we have seen these varying customer reactions, we have not experienced any contract order cancellations due to cope with 19.

Discussions around the pipeline of new opportunities do continue than 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 contained elevated virus related risks and uncertainties.

We closely monitor the situation and adapt to the conditions on the ground.

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 is 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.

These locations in these locations non essential personnel and those who conform 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 or device solution segment.

The production holds in these facilities have recently been list lifted and we are now in the process of ramping these facilities the ramp procedures very facility to facility, but generally require approximately four weeks.

Our production sites and 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 Cobot 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 in choppy component landscape to continue with the timing of recovery occurring at different points in time and at different rates.

For example, we're 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're 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 classic crossings that our operational are often constrained I.

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'll 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.

Thank you Tom.

Let me begin by echoing Tom's comments on the gratitude, we have for the essential workers are customers employees and the I try to employees around the globe that are working every day to serve our communities as we fight this virus.

On March 11, 2020, the World Health organization declared Kogut 19 pandemic.

The scope in magnitude business event was obviously not anticipated in our full year 2020 guidance provided on February 24.

As you will hear in a moment when I discuss Q1's performance for pandemic has already started to have an adverse effect on our financial results.

Given the continued uncertainty around the duration and impact on the virus on operations. We feel it is prudent to suspend our prior full year guidance for fiscal 2020.

We hope to be in a position to update our annual guidance on a future call when conditions allow.

It is important to note that prior to closing 19 are expected performance for full year 2020 was within the guidance range. We provided in late February.

Now, let me discuss Q1 results.

I will talk predominantly about total company performance for the quarter and the estimated impact those corporate 19 had on our financials.

The segment details that we would normally walked through on this call are in the materials posted on our website.

Well most of the calendar quarter in past buffer operations were impacted by Cobot 19, I time, typically complete shipments installation sign offs and other key operational in sales activity in the last few weeks for the quarter.

Therefore, we did experience a modern impact from curbing 19 in the first quarter, which I will highlight in my comments.

Turning to slide five I'll begin with our bookings and backlog performance.

Bookings in the quarter were 418 million Q1 bookings are traditionally in the lowest quarter the year and we did not see immaterial impact from curbing 19th.

With the lower bookings in Q on our backlog at March 30, Onest was 3.2 billion similar to a year ago and our 12 month backlog is now 1.3 billion.

Our pipeline remains strong and we're in discussions with many customers about new business, but we think it is possible, but the timing of some of these new opportunities could be delayed due to kozik 19 related disruptions.

Moving onto the Q1 financial results a summary of consolidated GAAP results as shown on slide six and non-GAAP results are shown on slide seven.

First quarter revenue of 598 million decreased 3% versus last year and 1% in constant currency.

The year over year decline was primarily driven by Miss shipments for logistic delays due to covert 19 in both the device solutions and network solutions segments.

Gross margin for the quarter was 28.7% 180 basis points lower than last year, primarily due to unfavorable product mix and temporary manufacturing inefficiencies.

Moving to earnings per share GAAP net income was 9 million or 21 cents per diluted share compared with a net loss of 2 million or negative five cents per share in the prior year.

Regarding non-GAAP metrics non-GAAP operating income was 39 million adjusted EBITDA was 52 million, our 8.7% of revenue.

Non-GAAP net income for the quarter was 23 million or 57 cents per diluted share.

Before moving on I'd like to discuss how coding 19 affected us in the first quarter.

Turning to slide eight we have a year over year bridge, including estimated impacts from coated 19 on our Q1 performance.

We have identified approximately 29 million in lost revenue and 10 million in gross profit that we could not fulfill due to customer delays factory closures transportation delays or to supply disruptions all related to covered 19th.

Looking at revenue by business segment device solutions revenue was 202 million, a 12 million, our 6% year over year decline on a constant currency basis. The decline was primarily due to Kobe 19.

Network solutions revenue was $341 million 5 million or 1% increase year over year as content continued strength in North America am I deployments was mostly offset by delays related to curve. It my team.

Revenue in the outcome segment was $55 million a slight decrease from 2019, primarily due to timing of customer deployments.

Lastly, foreign currency changes, resulting inc. million lower revenue versus the prior year.

Moving to the non-GAAP year over year EPS bridge on slide nine our Q1, non-GAAP EPS was 57 cents per diluted share compared with 70 cents in the prior year.

Net operating performance had a negative three cents per share impact versus Q1 2019.

Covance 19 caused an estimated 19 cents reduction in earnings per share due to shipment delays manufacturing closures and inefficiencies as well as some incremental expenses.

Excluding the coping impact Q1, non-GAAP EPS was approximately 76 cents per diluted share.

Continuing with the year over year EPS bridge lower interest expense had a four cents benefit.

A lower non-GAAP tax rate increased EPS by seven cents and lastly changes in foreign currency and share count resulted in a two cents per share decrease year over year.

Turning to slide 10 ill cover liquidity and debt.

As described in our eight can March 26, we drew down 400 million from our revolver in order to maintain financial flexibility during these uncertain times.

It is important to note that we do not have any required debt repayments in twentytwenty.

Regarding metrics for Q1 free cash flow was $6 million cash and equivalents at the end of the first quarter were $555 million.

Our new debt structure with the revolver draw is total gross debt of 1.35 billion in net debt of 795 million.

Trying on our revolver had no effect on our net leverage ratio, which is 3.1 times at the end of Q1.

Our current capital priority is cash conservation.

Once the market returns to pre cobot conditions, we anticipate beginning to repay the revolving credit facility.

We believe we have sufficient liquidity to fund our operations.

Turning to slide 11.

As Tom mentioned, we are monitoring the environment in doing scenario planning based on the situation in each country, including local government mandates are manufacturing case kept capabilities. The overall supply chain and the timing of our customers demand and deployments.

As our visibility improves we expect to update the full year outlook on a future call.

In the meantime, given this unique situation, we will provide some insight unexpected Q2 performance based on the best information and scenarios as we see them today.

For Q2, 2020, we anticipate revenue to be in a range of 475 to 500 million down considerably from Q1 and the prior year due to the coding 19 pandemic.

The associated non-GAAP EPS would be a loss of between 10 cents in 30 cents per share.

We anticipate most of the impact from Cowen 19 related revenue reductions versus the Q1 levels in the device solution segment and this business is most squeeze more concentrated in Europe, where many factories were shut down in mid March.

All of those factories have started the process of reopening we do not expect them to be fully ramped until June.

There was also a sizable impact to the network solutions segment, given local mandates and to our customers deferring some deployments.

There remains significant risk of global factory disruptions as we work through this pandemic and we are managing the situation on a day by day case by case basis.

Since the outside of the pandemic, we have focused on mitigating the financial impact through the levers that we control we have tightened all discretionary spending through hiring freezes reductions and outside services delayed some capital projects and we continue to evaluate all temporary cash conservation measures.

We are also managing cash receipts and disbursements very closely.

But given the revenue and earnings reduction we are projecting for Q2, coupled with more uncertainty around working capital needs. We are projecting a negative free cash flow in the second quarter in a range of 70 to 85 million.

At this point in time, we expect Q2 to be the low point for the year in terms of revenue non-GAAP EPS and free cash flow.

Although we are aggressively managing our response to covert 19, its impact on our full year 2020 results and beyond remains uncertain.

We will continue to monitor the impact of covered 19 on the economy, our customers our operations and the global supply chain.

While our services are essential we expect there will continue to be disruptions beyond Q2, as our customers and suppliers navigate local conditions and economic impacts we're not planning for a snap back recovery and while we do expect Q3 in Q4 revenue to be higher than Q2, it may not recover to Q1 levels.

However, we believe the disruptions in our business created by covered 19 are temporary and do not change the long term earnings and cash generation potential of icon.

As Tom said, we're fortunate to be part of an industry that provides critical infrastructure to society and while there will be challenges ahead. We are confident in our ability to successfully navigate through this crisis now I'll turn the call back to Tom.

Thank you John to reiterate what Joan covered we are prudently navigating through the uncertainties in the current environment with solid controls in place for what we can control, including operating expense and cash.

We have provided insights and the associated key assumptions regarding our second quarter of 2020 in the recovery beyond.

It is clear that many challenges remain but I see strong examples of the benefits of our technology and services present in the community served by our customers.

When utilities around the United States provide large scale discounts on service bills to customers to provide support to cut to struggling families or with other customers in the Midwest provide multiple annual consecutive rate cuts to their consumers I see clear evidence of the economic value gained by our customers.

When I speak with customers in some of the hardest hit regions around the globe and I hear how they are using our technology to monitor for constant power to residences that are known to have extreme high risk consumers during that Tobin 19 crisis I see a bright future for additional applications to save lives that can be scaled using our technology.

Good.

Another example of how we are working to help municipalities in United Utilities through this event and beyond today, we announced in partnership with Keybanc, a financing program backed by key equipment Finance and Keybanc subsidiary key government finance that removes funding is a barrier for itron technology to be.

Deployed in smart utility Smart city, and smart community programs in the United States Keybanc as a leader in equipment and municipal funding provides another tool to help utilities and municipalities modernize critical infrastructure and smart city solutions that creates safer neighborhoods and move our industry for.

Forward in sustainability.

Strategically is itron itron is favored.

By the essential utilities, we serve.

We need to increase the resiliency and reliability of critical infrastructure for cities and for water gas and electric utilities more and more as we move into the future.

Itron technologies continue to demonstrate increasing improvements in operational insights and cost efficiency for our customers with his coded 19 event data analytics and grid forecasting along with finding solutions to reduce the risk to utility and Citi field personnel is in high demand and should be expected as the new.

Normal.

Hi, Tron has never been in a stronger position to support our customers through this crisis over the coming weeks and months, we will continue to monitor and adapt to navigate this dynamic environment our priorities.

Our to ensure the workforce is healthy motivated and focused on serving our customers we will continually.

Worked closely with our global customer base to support the ramp up of ongoing projects as quickly as conditions allow we will closely monitor the pipeline of new opportunities the regulatory landscape and customer access to capital.

We will continue to prudently control operating expenses, we will continue building on the efforts underway to streamline operations, resulting in improved operating results in free cash flow as this crisis abates.

Our long term strategy is unchanged and financial potential while possibly delays remains fully intact.

Now more than ever Itron is supporting our customers to solidify the base of a functioning society that requires the robust and resilient grid for that secure delivery of energy and water I turn is dedicated to creating a more resourceful world and partnering with our key stakeholders to improve the quality of life enhance safety.

And promote the wellbeing of people around the globe.

Thank you for joining our call operator, please open the lines for some questions.

Thank you, ladies and gentlemen, if you like to ask a question, placing all by pressing star one on your telephone keypad using a speakerphone. Please make sure. Your mute function has turned off till you're signaling reach our equipment.

Again start wanted to ask a question I'll pause for just a moment hello, everyone and opportunity to signal for questions.

We'll take our first question from Noah Kaye with Oppenheimer funds. Please go ahead.

Yes. This is not give oppenheimer and company. Good afternoon, everyone. It's good to hear all your voices and I wish you all and all of your families in your employees could help.

I'm glad we can all be on the call.

I guess.

Our understanding is a very fluid situation.

Be helpful to know, how you're thinking a little bit about the cadence of revenues.

In the second quarter, you mentioned, you're doing a reramp process now in Europe, what kind of revenue run rates you can share with us where you at in April.

And where are you hoping to kind of gets you around an exit rate basis by quarter end.

Yes, I don't think I'm able to give you a monthly view of that the revenue estimates that we provided but I did mentioned on the call a couple of points one is that.

The device solutions business, which is.

Significantly based in Europe has essentially had the factories down for two of the three months in the quarters than you would expect that to be somewhat back end loaded.

But I also mentioned expected impacts of the network solutions segment, Thats really a function of our customer deployments and delays, which could be throughout the quarter.

Okay that is helpful. Thanks, John.

Maybe can you help us understand where you're thinking about the dragon free cash flow in the quarter to come from I guess I get 20 cents per share loss is about $8 million of net loss right. So so how how do we get to 70 to 85 million.

Event free cash flow train.

Yes, I mentioned on the call. It's a combination of the earnings guidance, we gave and kind of uncertainty around working capital. So let me expand on that last point on as Tom mentioned the supply chain is actually quite tied in its choppy and so we are expecting to half to invest in some inventory to ensure that we've got that tend to meet customer demand. So it's really I would say the big.

It's working capital impact is is inventory, obviously, we're monitoring receivables very very closely and today, we haven't seen an issue, but theres, a scenario where that slows down a little bit I would say inventory the biggest working capital investments. So it would essentially be timing issues for Q2 that.

Reverse itself in the in the future quarters.

Okay.

And due to the inventory investment that you're making how do you think about that impact is that really.

From a margin perspective going to be contained you'd expect to Twoq. You are set up three Q issue for us to think about as well.

Well again, we didnt really provide any.

Only inside I provided you for Q3 in Q4, as we definitely expect the revenue to be higher than Q2, but it may not recover to Q1 levels.

At this point, it's as Tom says, it's very fluid everyday. It's we're in a position to provide updated guidance in August will be able to talk about what the supply chain looks like at this point, but when we gave the Q2 free cash flow guidance. The assumption is we are investing in inventory to ensure continuity of supply.

Okay. I appreciate that last one from me and I think Tom you were mentioning this in your remarks at the end it seems like.

The current crisis is definitely underscoring the value of having a connected.

Intelligent resilient grids demanded manage it remotely you can limit operational risks, especially the people I'm wondering have you seen that influenced.

The types of conversations you're having with customers in the so can you comment.

Sure. Thank you know I hope you and your family are well also.

Trends that I see in customer conversations obviously, the first one that dominates most of the conversation today tends to be that the tactical one about making sure that.

We as they are doing their job in this critical time, but if I look past that I definitely see a strong trend towards more and more automation.

Some of the basics of their operation intense interest in that I see a lot of interest and increasing levels of interest around forecasting.

As as demand is changing they see new trends in their business and their interest in being able to forecast that better and better insight into.

Great operations, even into the distribution side understanding and gaining insight there. So resiliency reliability forecasting and automation are definitely areas that I will I think we will see an increased level demand as we get on the other side of the current situation.

Thank you very much the color.

I'll hop back.

Please note.

At Star one for questions well go next to.

Pavel channels with Raymond James Please go ahead.

Thanks for taking the question.

You guys have 12 manufacturing plants and actually I think you've mentioned that.

The ones in France, and Italy have been shut down.

Can you give an update on their current status.

And having any of your other facilities also been shutdown due to lockdown.

Okay.

So.

The year, Indeed, correct, our western European facilities and by Count most of those are in France said Theres, a couple and other countries.

Italy, and Spain that we did put on production hold as as a virus sort of swept through those communities. All of those facilities that were on production hold have been lift the production holes have been lifted and we're doing it in a phase and thoughtful manner as that we bring people backup.

With proper training with proper distancing, we bring it back in.

One shift and then two shifts and then eventually we go back to normal operations that ramp time period happens over roughly a four week time period, depending on on the individual facility. The production holds in those larger locations have just been removed in the last couple of weeks. So we're into the meat of that.

Ramp right now.

In terms of other locations, we have not seen any significant.

Disruptions says that we're long lasting.

Do you have a component shortage or logistical challenge here and there but no other.

Large scale production holds outside of Western Europe.

We'll take our next question from Jeff Osborne with Cowen and company. Please go ahead.

Yes. Good afternoon, I had a couple of questions on my end Tom is there any particular component or components that are.

Problematic for an extended duration or is it more kind of a lack of mall game, where there's week to week, it's rolling based on your suppliers production schedules.

So I would say that.

Predominant trend is indeed, the carnival games that you mentioned it is that the game of whack, a mole where things tend to move around a little bit we are closely monitoring exactly how suppliers in western Europe in those locations, where they were government mandated shutdowns, what they will look like as they ramp their facilities, but by and large it is.

It is says that carnival game of whack, a mole, which we.

Work hard to try to mitigate we learned a lot of lessons during some of the component shortages back in in 2018.

And have taken those lessons and have applied them since that time, so it puts us in a reasonably good starting position.

From a playbook as well as from an inventory point of view that we will get through this.

That's good to hear.

Couple other just clarifications are quick questions. So you very helpful detail at the start of your script on the Io you and sort of regional government response versus the smaller customers can you just give us a general sense of maybe over the past year to what that mixes between your revenue profile.

Between this segment characterize them.

I would say that as a larger customers in general correlate to our network solutions and outcomes business Thats, not 100% correct, but predominantly that is how it tends to play out. So if you look at the historical revenue performance and you also look at how much is in our 12 month backlog that gives.

We have pretty good indication of the of the larger versus the smaller and more turns based business.

Got it.

And then speaking of the 12 month backlog is that.

Just I want to understand the methodology better there. So have you scrub that number based on your conversations or if if you have a PEO with a price in a shipment date as of now.

Even if the customer maybe last month delay things.

I wasn't sure if your handicapping that at all or or is it just if it's in the salesforce dot com or whatever you use with a date in the price it gets spit out into that number.

Good question, we're in touch with all of that the customers and try to understand what their deployment schedules to attend intend to to look like.

So I would while we have not heard from 100% of of the customers. So we have to drive we have tried to do our diligence there to understand their deployment schedules there.

Inventory on hand, and how they were looking at it from an ongoing revenue as well as road backlog point of view to make sure. We have the best view on that so it is a vetted view that we have in terms of that backlog.

Got it and that's what I had its just on the broader putting aside corona and what may happen afterwards or or during it.

The broader regulatory environment that we're in around metering do you have any perspective that you can share on either some of the rejections and or approvals certainly it's been a mixed bag.

Around the country in terms of the ability to get to yes, which.

Obviously is important for your longer term growth.

Sure I think that winning business cases are well articulated in our pretty clean the regulatory approval pre co bid.

Was it was easier to add to demonstrate.

If customers had taken a case, where they put a lot of things together it was harder to get to regulatory bodies to fully understand that case. So in general we we think those the environment pre co bid was was looking quite okay for for well articulated business cases, whether it was only am I.

Side of things or whether it was for distribution automation and other services.

With respect to co bid I think it's very difficult to see any trends at this moment as to how the regulatory environment may change.

We havent seen any long term trends, yet, but I do believe that will be a critical parameter to understanding what the shape of the speed of the recovery will look like.

Got it. Thank you that's all ahead.

Ladies and gentlemen, as a reminder, star one for questions. Please start one.

We'll take our next question from Robert Mccarthy with Stephens. Please go ahead.

Hello, everyone. How are you today.

Well how are you Rob good good be safe everybody.

The first question, maybe just amplify some your comments around your financial liquidity position and.

Kind of you said I think you draw down your revolver, you have ample liquidity needs and.

Ample liquidity for your needs and.

Could you talk a little bit about the out years, how we think about the milestones there and how we should think about one year. Thus you got to start generating some some cash flow because obviously.

Given what we see now this is a this is a concern particularly in the context of.

The virus that for rules and we could be seeing a lot of volatility for.

18 to 24 months here.

Yes, so just reiterate some of the comments similar they're made in the prepared remark. So we drew down to 400 million on our revolver really just to ensure that we had the cash in our accounts and to give us financial flexibility. So at the end of Q1, we had 555 million of us cation equivalent in the bank.

I mentioned a range of free cash flow burn in Q2 of $70 million to $85 million, obviously that comes down a little bit, but we expect Q2 to be to low points, our free cash flow and then to improved from there so as I as I look at.

An expectation of Q3 in Q4's earnings being better than Q2 as well as if we're doing strategic investments in inventory, we wouldn't do that every quarter I fully expect to free cash flow to improve from Q2 levels as well so.

Obviously not in a position to predict what does it look like a year from now but at this point in time, we believe we have sufficient liquidity to fund our operations.

Okay, and then I guess.

Just in terms of thinking about.

What this rolling uncertainty could look like have you gotten any comfort from decision makers across the board.

In your respective.

Industries, whether it be.

Use or otherwise, how they're going to make decisions and.

For with an investment in which case, which can be a very difficult environment not only from.

Conception of essential projects, but also from the practical problem of deployment I mean, obviously, we picked up from some of your competitors that this metering issue.

It was very difficult, but how do you get around and will there be any kind of solutions are fixes to see if you can you could continue to deployment and meters and close quarters or in residential spaces.

So I would start by saying that.

Customers that have ongoing projects, which is sort of the biggest piece of our business are are anxious to to get things started to blur and keep things moving.

Customers have responded in different ways, sometimes they've had to slow or.

Suspend in home deliveries as as you point out but in general there trying to work around that by yet.

Doing installations and activities in other areas customers see strong demand for forecasting for Rob insights into the grid operations themselves that those are areas that.

Largely our trends, we see acceleration in the business.

Relative to.

Places that in home installations have been suspended.

That's a temporal point it will recover in time, it's exactly it's hard to know when that will will happen. It will vary location to location and property to property as as the virus.

Serves sweeps through individual communities. So again, I think it's temporary not permanent but difficult to two exactly say when it clears.

I'll leave it there for now thank you.

Thanks, Rob.

Well take our next question from Ben Kallo with Baird. Please go ahead.

Yes.

Hey, guys.

Rob.

Hopefully, it's not to liquids to comp.

If you separate before areas.

Supply chain customer push outs.

Your quick closures.

And then the inability for auto use to allow deployed.

Meters, how would you rate those four.

Things on that surgery visibility and then can you rank them on.

While the impact your.

Most.

Yes, let me tell me to four again, so that I get it right supply chain, so push out which helped your customers. So we can deploy meters grown record right and then supply chain impacts.

Bad year old plant closures.

And then well.

Okay.

Let's work one is over number.

Kevin I'm wondering whether regulatory matters.

Regulatory.

Yes, okay. Okay.

So thank you for for clarifying plant closures is the shortest duration of any of these assuming no major disruptions or or other areas. We think that one kind of clears in the next few weeks assuming that.

There's no new outbreaks or waves of the virus.

Customer push outs I think will follow.

With the time Speyer span that we talked about.

For larger customers, it's maybe a quarter or so for them to ramp backup fully.

The smaller customers. It may take a couple of quarters square for them to put it back into place.

Supply chain I think we'll be bumpy throughout this time period, we'll see some choppy component supply during the period regulatory in my mind is the one that has the longest tale of all of these it will be harder to understand what that looks like and how it will play out.

Over a longer period of time, so plant closures shortest customer push out it varies a little bit by customer type.

Then the supply chain will be fits and starts with regulatory being the longest time.

Recovery.

And then from a margin perspective.

Which are the biggest duplex.

Well again it depends on the part of the World. So I don't know that I can give you an impact by by that piece part.

But I think the most important piece of this is to ensure that our factories continue to run that obviously is the one that generates the most near term margin.

Associated with the business, so ensuring that our factories continue to run this is a very important job.

Making sure that we do that in a safe and efficient manner of course is important but that's the one that has biggest margin lever.

And.

You outline those the mix.

Between.

The thrown than smaller utilities could you talk about that over just North America Europe.

As we look forward gives a good reference you to how you budgeted would be a bigger impact onto the negative side the Europe while.

Because they're slowing down deployments or is it moves in the us because you cannot exclude the floor and so as we think about allegory.

Good symmetrical quarters, yes, so I gave some of the comments and remarks, but from a revenue standpoint, if you use Q1 as a baseline the bigger impact would be in our device solutions and thats because of Europe. So although the factories have started to ramp as Tom said, they take let's call. It four weeks or so so we have not assumed that we will have fully.

Functioning ramped factories until June in these numbers.

And then but theres a theres a sizable impact in network solutions, which is primarily going to be to us and that's from the this customer issue of just pushing out.

Taking acceptance of product because of their on unique situations or deployments. So that's the relative size for the Q2, I think devices as the bigger impact.

Thank you Bob just my last one. Thank you my question would grow tedious, but just as I think about deal how we all think about numbers should be now.

We frame as this is we think of employers were 2021 is going to be or.

Not possible yet.

Based on the visibility.

Yes, I think good early to say exactly what.

The back half of 20 looks like in an intent to 21, we tried to give the best color that we have today, but we very much look forward to updating.

Everyone when we get.

Little bit better clarity on this we would anticipate to continue to view, what 20 back half of 20, and 21 look like as as a bit murky at this time.

Great. Thank you guys.

Thank you.

Ladies and gentlemen. This concludes today's question and answer session. At this time I kind of the conference back to Tom Deitrich for any additional or closing remarks.

Thank you everyone for joining the call today I hope you continue to be safe and well I want to finish up by saying that I Tron serves and essentially utility and we're we're well positioned so longstanding customer relationship strong backlog sufficient liquidity and a solid management team in place we will navigate through.

[music] these uncertainties and be sure to control what is in our controller. We look forward to updating you again on our progress on the next call. Thank you all for joining.

Ladies and gentlemen, there won't be an audio replay of today's conference available. This afternoon, you can access the audio replay by dialing 18882, 031112, or 17194 or 570 820 with.

Passcode of 2789 980.

Additionally, it may go to the company's website www dot I try and dotcom.

Thank you. This does concludes today's conference. We appreciate your participation you may now disconnect.

[music].

[music].

[music].

Good day, ladies and gentleman and what kind of the I try to incorporated Q1 2020 earnings Conference call. Today's conference is being recorded for opening remarks, I'd like turn the conference over to catchy Noah. Please go ahead.

Thank you operator, good afternoon, and walking to I Trust 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.

Presentation to accompany our remarks on this call is also available through the web traffic in our corporate website under the Investor Relations tab.

Today, we have told Dietrich hydrants, President and Chief Executive Officer, and drill deeper senior Vice President.

Chief Financial Officer.

Following our prepared remarks, well open the call to take questions usually process. The operator described.

Before I turn the car would have Tom. Please let me remind you of our non-GAAP financial presentation in our Safe Harbor statement.

Our earnings release and financial presentation in the 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 or billable in our earnings release and on our Investor Relations website.

We will be making statements. During this call that are forward looking.

Statements are based on current expectations and assumptions that are subject to risks and uncertainties actual results could differ materially from these expectations because the factors that will present in todays earnings release and 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 Tobin 19 pandemic company estimates regarding impact. So good night G. On current or forward looking statements are made in a good faith that can provide appropriate insight to our current and future operating and financial environment.

Materials discussed today May four 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 feature.

Thank you Ken good afternoon, and thank you for joining us.

Let me start by saying my heart goes out to the communities in individuals we serve globally, particularly those on the front lines of utilities in the cities that are essential to keeping the world's critical infrastructure operational we're extremely grateful to the healthcare workers and first responders, who are bearing the greatest burden in the fight against the Cobot 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 human crisis.

I try to me utility we serve is built upon the reputation up consistently being there for our communities, especially in the most critical times.

And is unprecedented environment I am proud in amazed at the levels of dedication that I've witnessed in our industry and from all members of the icon team I want to personally thank our supply chain team, who continue to building products and our services team who are seasonal thing maintaining and monitoring those products, so that light to stay on and clean.

Our flows I try and takes our responsibility and 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 that impacts of the coded 19 virus on our employees customers and supply chain as well as your ongoing mitigation actions.

After some comments I will hand, the call over to gentlemen, 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 provides insight into our current view of the second quarter 2020, and whats signals, we see as we work through the remainder of 2020.

From before the onset of the Cobot 19 pandemic, our highest priority has been clear the health and safety in support of our employees and the people in the communities we serve.

We're concerned for employees goes beyond the virus in April severe storms impacted the southeastern portion of the United States moving near our operations in a company can be 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, where less fortunate and our thoughts and prayers go out to them.

Turning back to the Kobin 19 impact our current operating situation remains dynamic and we're continuously refining our outlook is 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 dry.

Lives our business results. It is this prioritization that guides our decisions.

First our employees.

We're committed to continuing operations, while balancing employee safety meeting customer demand at hearing to local in country level mandates business travel with gatherings has been gated since January.

We're 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 in factories, we've instituted specific training additional cleaning per shift and have made sanitizer readily available within our facilities and provided appropriate PD.

We are utilizing social distancing at all locations, including at our factories that 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 it added measure during these times. These rules also apply if a person they are living west is not well.

Our employees, 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 I try to does is considered an essential services. We provide critical infrastructure solutions that continued operation of Vitronics facility supply chain and contract manufacturers are important pieces to enabling our utility customers to reliably deliver energy.

In water during and after this pandemic.

We are in contact 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 over 64 million managed endpoints.

Our service teams are fully staffed and Itrons operating systems are built to be operated remotely from prolonged periods of time or a disaster events such as this.

While the reactions of our customers do vary as they grapple with the impacts of the virus and their communities, we do see some trends emerging.

Larger customers such as Investor owned utilities in 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 of 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 developments and new deployments, some 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 or business with this type of customer is generally book and ship business and is most correlated with our device solutions segment.

Looking ahead, we do expect these general trends to continue into the second quarter of 2020.

With the information at the 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 as local businesses are reopened it is too early to assess how the current environment might alter our 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 with the most urgent matters.

Importantly, while we have seen these varying customer reactions, we have not experienced any contract order cancellations due to coded 19.

Discussions around the pipeline of new opportunities do continue than it is too early to see a trend in customer processes for 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 contained elevated virus related risks and uncertainties.

We closely monitor the situation and adapt to the conditions on the ground.

Status of our manufacturing operations differs from country to country.

We fully comply with all appropriate government guidance and work closely with icon team members and associated groups to drive safe and productive working environment.

With respect to our United State based factories, we have been designated as an essential supplier and have remained open to date.

These locations in these locations non essential personnel and those who can form perform their jobs remotely had been directed to do so.

We have been pleased with the strong support that we have had to 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 placed production holds on some of our factories in Western Europe in mid March these actions, primarily impact or device solution segment.

The production holds in these facilities have recently been list lifted and we're now in the process of ramping these facilities the ramp procedures very facilities 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 Cobot 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're 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're 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 bar classic crossings that our operational are often constrained I.

Our 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'll now hand, the call off Joan to discuss the first quarter 2020 results and our current view on the second quarter of 2020.

Thank you Tom.

Let me begin by echoing Tom's comments on the gratitude, we have for the essential workers are customers employees and the I try to employees around the globe that are working every day to serve our communities as we fight this virus.

On March 11, 2020, the World Health organization declared Kogut 19, a pandemic.

The scope and magnitude at this event was obviously not anticipated in our full year 2020 guidance provided on February 24th.

As you will hear in a moment when I discuss Q1's performance. The pandemic has already started to have an adverse effect on our financial results.

Given the continued uncertainty around the duration and impact of the virus on operations. We feel it is prudent to suspend our prior full year guidance for fiscal 2020.

We hope to be in a position to update our annual guidance on a future call when conditions allow.

It is important to note that prior to closing 19 are expected performance for full year 2020 was within the guidance range. We provided in late February.

Now, let me discuss Q1 results.

I will talk predominantly about total company performance for the quarter and the estimated impacted carbon 19 had on our financials.

The segment details that we would normally walked through on this call are in the materials posted on our website.

Well most of the calendar quarter past before operations were impacted by Cobot 19, I try and typically complete shipments installation sign offs and other key operational in sales activity in the last few weeks of the corner.

Therefore, we did experience a moderate impact from covered 19 in the first quarter, which I will highlight in my comments.

Turning to slide five ill begin with our bookings and backlog performance.

Bookings in the quarter were $418 million Q1 bookings are traditionally in the lowest quarter the year and we did not see a material impact from cobot 19th.

With the lower bookings in Q1, our backlog at March 31st was 3.2 billion similar to a year ago and our 12 month backlog is now 1.3 billion.

Our pipeline remains strong and we're in discussions with many customers about new business, but we think it is possible that the timing of some of these new opportunities could be delayed due to kovac 19 related disruptions.

Moving on to the Q1 financial results a summary of consolidated GAAP results are shown on slide six and non-GAAP results are shown on slide seven.

First quarter revenue of 598 million decreased 3% versus last year and 1% in constant currency.

The year over year decline was primarily driven by missed shipments for logistics delays due to cope with 19 in both the device solution and network solutions segments.

Gross margin for the quarter was 28.7% to 180 basis points lower than last year, primarily due to unfavorable product mix and temporary manufacturing inefficiencies.

Moving to earnings per share GAAP net income was 9 million or 21 cents per diluted share compared with a net loss of 2 million or negative five cents per share in the prior year.

Regarding non-GAAP metrics non-GAAP operating income was 39 million adjusted EBITDA was 52 million or 8.7% of revenue.

Non-GAAP net income for the quarter was 23 million or 57 cents per diluted share.

Before moving on I'd like to discuss how Kobin 19 affected us in the first quarter.

Turning to slide eight we have a year over year bridge, including estimated impacts from cobot 19 on our Q1 performance.

We have identified approximately 29 million in lost revenue and 10 million in gross profit that we could not fulfill due to customer delays factory closures transportation delays or to supply disruptions all related to covert 19th.

Looking at revenue by business segment device solutions revenue was 202 million, a 12 million or 6% year over year decline on a constant currency basis will decline was primarily due to covert 19.

Network solutions revenue was 341 million 5 million or 1% increase year over year as contain continued strength in North America. My deployments was mostly offset by delays related to cope with my team.

Revenue in the outcome segment was 55 million a slight decrease from 2019, primarily due to the timing of customer deployments.

Lastly, foreign currency changes resulted in 8 million lower revenue versus the prior year.

Moving to the non-GAAP year over year EPS bridge on slide nine our Q1, non-GAAP EPS was 57 cents per diluted share compared with 70 cents in the prior year.

Net operating performance had a negative three cents per share impact versus Q1 2019.

Covance 19 caused an estimated 19, Jeff reduction in earnings per share due to shipment delays manufacturing closures and inefficiencies as well as some incremental expenses.

Excluding the Kogan impact Q1, non-GAAP EPS was approximately 76 cents per diluted share.

Continuing with the year over year EPS bridge lower interest expense had a four cents benefit.

A lower non-GAAP tax rate increased EPS by seven cents and lastly changes in foreign currency and share count resulted in a two cents per share decrease year over year.

Turning to slide 10 ill cover liquidity and debt.

As described in our 8-K on March 26, we drew down 400 million from our revolver in order to maintain financial flexibility during these uncertain times.

It is important to note that we do not have any required debt repayments in twentytwenty.

Regarding metrics for Q1 free cash flow was $6 million cash and equivalents at the end of the first quarter were 555 million.

Our new debt structure with the revolver draw is total gross debt of 1.35 billion net debt of 795 million.

Drawing on our revolver had no effect on our net leverage ratio, which is 3.1 times at the end of Q1.

Our cost capital priority is cash conservation.

Once the market returns to pre kogan conditions, we anticipate beginning to repay the revolving credit facility.

We believe we have sufficient liquidity to fund our operations.

Turning to slide 11.

As Tom mentioned, we are monitoring the environment in doing scenario planning based on the situation in each country, including local government mandates are manufacturing case kept capabilities. The overall supply chain and the timing of our customers demand and deployments.

As our visibility improves we expect to update the full year outlook on a future call.

In the meantime, given this unique situation, we will provide some insight unexpected Q2 performance based on the best information and scenarios as we see them today.

For Q2, 2020, we anticipate revenue to be in a range of 475 to 500 million down considerably from Q1 and the prior year due to the coding 19 pandemic.

The associated non-GAAP EPS would be a loss of between 10 cents and 30 cents per share.

We anticipate most of the impact from Cowen 19 related revenue reductions versus the Q1 levels in the device solution segment and this business is most squeeze more concentrated in Europe, where many factories were shut down in mid March well all of those factories have started the process of reopening when do not expect them to be fully.

Until June.

There was also a sizable impact to the network solutions segment, given local mandates and or customers deferring some deployments.

There remains significant risk of global factory disruptions as we work through this pandemic and we are managing the situation on a day by day case by case basis.

Since the outside of the pandemic, we have focused on mitigating the financial impact through the levers that we control we've tightened all discretionary spending through hiring freezes reductions and outside services delayed some capital projects and we continue to evaluate all temporary cash conservation measures.

We're also managing cash receipts and disbursements very closely.

But given the revenue and range reduction we are projecting for Q2, coupled with more uncertainty around working capital needs. We are projecting a negative free cash flow in the second quarter in a range of 70 to 85 million.

At this point in time, we expect Q2 to be the low point for the year in terms of revenue non-GAAP EPS and free cash flow.

Although we are aggressively managing our response to covert 19 impact on our full year 2020 results and beyond remains uncertain.

We will continue to monitor the impact of cobot 19 on the economy, our customers our operations and the global supply chain.

While our services are essential we expect there will continue to be disruptions beyond Q2, as our customers and suppliers navigate local conditions and economic impacts we're not planning for a snap back recovery and while we do expect Q3 in Q4 revenue to be higher than Q2, it may not recover to Q1 levels.

However, we believe the disruptions in our business created by covert 19 are temporary and do not change the long term earnings and cash generation potential of Itron.

As Tom said, we're fortunate to be part of an industry that provides critical infrastructure to society and while there will be challenges ahead, we are confident our ability to successfully navigate through this crisis now I'll turn the call back to Tom.

Thank you Jim to reiterate what Joan covered we are prudently navigating through the uncertainties in the current environment with solid controls in place for what we can control, including operating expense and cash.

We have provided insights and the associated key assumptions regarding our second quarter of 2020 in the recovery beyond.

It is clear that many challenges remain but I see strong examples of the benefits of our technology and services present in the community served by our customers.

When utilities around the United States provide large scale discounts on service bills to customers to provide support to cut to struggling families or with other customers in the Midwest provide multiple annual consecutive rate cuts to their consumers I see clear evidence of the economic value gained by our customers.

When I speak with customers in some of the hardest hit regions around the globe and I hear how they are using our technology to monitor for constant power to residences that are known to have extreme high risk consumers during that Tobin 19 crisis I see a bright future for additional applications to save lives that can be scaled using our technology.

Good.

Another example of how we are working to help units of holiday season to utilities through this event and beyond today, we announced in partnership with Keybanc, a financing program backed by key equipment Finance and Keybanc subsidiary Keyed government finance that removes funding is a barrier for itron technology to be.

Floyd in smart utility Smart city, and smart community programs in the United States Keybanc as a leader in equipment and municipal funding provides another tool to help utilities and municipalities modernize critical infrastructure and smart city solutions that create safer neighborhoods and move our industry for.

Board in sustainability.

Strategically despite strong itron is favored.

By the essential utilities, we serve.

We need to increase the resiliency and reliability of critical infrastructure for cities and for water gas and electric utilities more and more as we move into the future.

Hi, Tron technologies continue to demonstrate increasing improvements in operational insights and cost efficiency for our customers with this cobot 19 event data analytics and grid forecasting along with finding solutions to reduce the risk to utility and Citi field personnel is in high demand and should be expected as the new.

Normal.

Hi, Tron has never been in a stronger position to support our customers through this crisis over the coming weeks and months, we will continue to monitor and adapt to navigate this dynamic environment our priorities.

Our to ensure the workforce is healthy motivated and focused on serving our customers we will continually.

Worked closely with our global customer base to support the ramp up of ongoing projects as quickly as conditions allow we will closely monitor the pipeline of new opportunities the regulatory landscape and customer access to capital.

We will continue to prudently control operating expenses, we will continue building on the efforts underway to streamline operations, resulting in improved operating results and free cash flow as this crisis abates.

Our long term strategy is unchanged and financial potential while possibly delays remains fully intact.

Now more than ever I, trona supporting our customers to solidify the base of a functioning society that requires the robust and resilient grid for that secure delivery of energy and water I Trust is dedicated to creating a more resourceful world and partnering with our key stakeholders to improve the quality of life enhance safety.

Promote the wellbeing of people around the globe.

Thank you for joining our call operator, please open the lines for some questions.

Thank you, ladies and gentlemen, if you would like to ask a question. Please signal by pressing star one on your telephone keypad using a speaker phone. Please make sure. Your mute function is turned off till you're signaling reach our equipment.

Again start wanted to ask a question, we'll pause for just a moment hello, everyone and opportunity to signal for questions.

Well take our first question from Noah Kaye with Oppenheimer funds. Please go ahead.

Yes.

Oppenheimer and company. Good afternoon, everyone. It's good to hear all your voices and I wish you all and all of your families and your employees could help.

I'm glad we can all be on the call.

I guess.

Our understanding is a very fluid situation.

Helpful to know, how you're thinking a little bit about the cadence of revenues.

In the second quarter, you mentioned, you're doing a reramp process now in Europe, what kind of revenue run rates you can share with us where you add in April.

And where are you hoping to kind of gets you have an exit rate cases by quarter end.

Yes, I don't think I'm able to give you a monthly view of the revenue estimates that we provided but I did mentioned on the call a couple of points one is that.

The device solutions business, which is.

Significantly based in Europe has essentially had the factories down for two of the three months in the quarters than you would expect that to be somewhat back end loaded.

But but I also mentioned expected impacts of the network solutions segment, Thats really a function of customer deployments and delays, which could be throughout the quarter.

Okay that is helpful. Thanks.

Maybe can you help us understand where you're thinking about the drag on free cash flow in the quarter to come from I guess I get 20 cents per share loss is about $8 million.

Loss right. So so how how do we get a 70 to 85 million.

Free cash flow train.

Yes, I mentioned on the call. It's a combination of the earnings guidance, we gave and kind of uncertainty around working capital. So let me expand on the last point as Tom mentioned the supply chain is actually quite tight and its choppy and so we are expecting to half to invest in some inventory to ensure that we've got that to meet customer demand. So it's really I would say the big.

It's working capital impact is is inventory, obviously, we're monitoring receivables very very closely and today, we haven't seen an issue, but theres, a scenario where that slows down a little but I would say inventory is the biggest working capital investments. So it would essentially be timing issues for Q2 that would reverse itself in the in the future quarters.

Okay.

And due to the inventory investment that you're making how do you think about that impacting that really.

From a margin perspective going to be contained you would expect to twoq or Threeq you issue press to think about as well.

Well again, we didnt really provide any.

Only inside I provided you for Q3 in Q4, as we definitely expect the revenue to be higher than Q2, but it may not recover to Q1 levels.

At this point, it's as Tom says, it's very fluid everyday if we're in a position to provide updated guidance in August will be able to talk about what the supply chain looks like at this point, but when we gave the Q2 free cash flow guidance. The assumption is we are investing in inventory to ensure continuity of supply.

Okay. I appreciate that last one from me and I think Tom you were mentioning this in your remarks at the end it seems like.

The current crisis is definitely underscoring the value of having a connected.

Intelligent resilient reduced demand management remotely you can limit operational risks, especially the people I'm wondering have you seen that influence that the types of conversations you're having with customers in the so can you comment.

Sure. Thank you know I hope that you and your family are well also.

The trends that I see in customer conversations obviously, the first one that dominates most of it the conversation today tends to be that the tactical one about making sure that.

We and they are doing their job in this critical time, but if I look past that I definitely see a strong trend towards more and more automation.

Some of the basics of their operation intense interest in that I see a lot of interest and increasing levels of interest around forecasting.

As as demand is changing they see new trends in their business and they're interested in being able to forecast that better and better insight into.

Great operations, even into the distribution side understanding and gaining insight there. So resiliency reliability forecasting and automation are definitely areas that I will I think we will see an increased level demand as we get on the other side of the current situation.

Okay. Thank you very much the color.

I'll hop back.

Thanks No.

At Star one for questions well go next to.

Pavel channel with Raymond James Please go ahead.

Thanks for taking the question.

You guys have 12 manufacturing plants, and I think you've mentioned that.

The ones in France, and Italy have been shut down.

Can you give an update on their current status.

And having any of your other facilities also been shut down due to lock down.

Okay.

So.

You are indeed, correct, our western European facilities and by Count most of those are in France, Theres, a couple and other countries.

Italy, and Spain that we did put on production hold.

The virus sort of swept through those communities all of those facilities that were on production hold have been lifts the production holes have been lifted.

We are doing it in a phase and thoughtful manner. So we bring people back.

With proper training with proper distancing and we bring it back in.

One shift and then two shifts and then eventually we go back to normal operations that ramp time period happens over roughly a four week time period, depending on on the individual facility. The production holds in those larger locations have just been removed in the last couple of weeks. So we're into the beat of.

That ramp right now.

In terms of other locations, we have not seen any significant disruptions that were long lasting maybe you have a component shortage or logistical challenge here or there, but no other.

Our scale production holds outside of Western Europe.

We'll take our next question from Jeff Osborne with Cowen and company. Please go ahead.

Good afternoon, I had a couple of questions on my end Tom is there any particular component or components that are.

Problematic for an extended duration or is it more kind of a whack a mole game, where there's week to week, it's rolling based on your suppliers production schedules.

So I would say that.

Predominant trend is indeed, the carnival games that you mentioned it is that the gave a workable where things tend to move around a little bit we are closely monitoring exactly how.

Suppliers in Western Europe in those locations, where there were government mandated shutdowns, what they will look like as they ramp their facilities, but by and large. It is it is says that carnival game of whack, a mole, which we.

Worked hard to try to mitigate we learned a lot of lessons said during some of the component shortages back in in 2018.

And have taken those lessons and have applied them since that time, so it puts us in a reasonably good starting position.

From a playbook as well as from an inventory point of view that we will get through this.

That's good to hear.

A couple other just clarifications are quick questions. So you very helpful detail at the start of your script on the Io you and sort of regional government response versus the smaller customers can you just give us a general sense of maybe over the past year to what that mixes between your revenue profile.

Between the segment characterize them.

I would say that the larger customers in general correlate to our network solutions and outcomes business Thats, not 100% correct, but predominantly that is how it tends to play out. So if you look at the historical revenue performance and you also look at.

How much is in our 12 month backlog that gives you a pretty good indication of the of the larger versus the smaller and more turns based business.

Got it.

And then speaking of the 12 month backlog is that.

Just I want to understand the methodology better there. So have you scrub that number based on your conversations or if you have a PEO with a price in a shipment date as of now.

Even if the customer maybe last month delay things.

I wasn't sure if your handicapping that at all or or is it just if it's in the salesforce dot com or whatever you use with a date in the price it gets spit out into that number.

Good question, we're in touch with all of that the customers and try to understand what their deployment schedules to Ted intend to to look like.

So I wouldnt, while we have not heard from 100% of the customers. So we have to drive we have tried to do our diligence there to understand their deployment schedules there.

Inventory on hand, and how they were looking at it from an ongoing revenue as well as throat backlog point of view to make sure. We have the best view on that so it is a vetted view that we have in terms of that backlog.

Got it so that's what I had is just on the broader putting aside corona and what may happen afterwards or during it.

The broader regulatory environment that we're in around metering do you have any perspective that you can share on either some of the rejections and or approvals certainly it's been a mixed bag.

Around the country in terms of the ability to get the switch.

Obviously is important for your longer term growth.

Sure I think that winning business cases are well articulated and are pretty clean.

Regulatory approval pre co bid.

Was it was easier to to demonstrate.

If customers had taken a case, where they put a lot of things together it was harder to get to.

Regulatory bodies to fully understand that case. So in general we think the the environment pre co bid was with looking quite okay for for well articulated business cases, whether it was only a abi side of things or whether it was for distribution automation and other services.

With respect to co bid I think it's very difficult to see any trends at this moment as to how the regulatory environment may change.

We havent seen any long term trends, yet, but I do believe that will be a critical parameter to understanding what the shape and the speed of the recovery will look like.

Got it. Thank you that's all I had.

Ladies and gentlemen, as a reminder start one for questions. Please start one.

We'll take our next question from Robert Mccarthy with Stephens. Please go ahead.

Good.

Hello, everyone. How are you today.

Well how are you Rob good good be safe everybody.

I guess first question, maybe just amplify some of your comments around your financial liquidity position and.

Kind of you said I think you draw down your revolver, you have ample liquidity needs and.

Ample liquidity for your knees, and but can you talk a little bit about the out years, how we think about the milestones there and how we should think about one year. Thus you got to start generating some some cash flow because obviously.

Given what we see now this is a this is a concern particularly in the context of.

The virus that for rules and we could be seeing a lot of volatility for.

18 to 24 months here.

Yes, so just reiterate some of the comments that were made in the prepared remarks. So we drew down the 400 million on our revolver really just to ensure that we had the cash in our accounts and to give us financial flexibility. So at the end of Q1, we had 555 million of cation equivalent in the bank.

I'd mentioned, a range and free cash flow burn in Q2 of 70 to 85 million. So obviously that comes down a little bit, but we expect Q2 to be to low point for free cash flow and then to improve from there so as I as I look at.

An expectation of Q3 in Q4 earnings being better than Q2 as well as if we're doing strategic investments in inventory, we wouldn't do that every quarter I fully expect the free cash flow to improve from Q2 levels as well so.

Obviously not in a position to predict what does it look like a year from now but at this point in time, we believe we have sufficient liquidity to fund our operations.

Okay, and then I guess.

Just in terms of thinking about.

What this rolling uncertainty could look like have you gotten any comfort from decision makers across the board.

In your respective.

Industries, whether it be.

Use or otherwise, how they're going to make decisions and.

For with an investment in which case, which can be a very difficult environment not only from.

Exception of essential projects, but also from the practical problem of deployment I mean, obviously, we picked up from some of your competitors that this metering issue.

It was very difficult, but how do you get around and will there be any kind of solutions are fixes to see if you can you could continue to deployment of meters and close quarters or in residential spaces.

So I would start by saying that.

Customers that have ongoing projects, which is sort of the biggest piece of our business are are anxious to to get things started and keep things moving.

Customers have responded in different ways said, sometimes that had to slow or.

Suspend in home deliveries as as you point out but in general they are trying to work around that by yet.

Doing installations and activities in other areas customers see strong demand for forecasting for Rob insights into the grid operations themselves that those are areas that.

Largely our trends, we see acceleration in the business.

Relative to.

Places that in home installations had been suspended.

That's a temporal point it will recover in time, it's exactly it's hard to know when that will will happen it'll vary location to location and property property as as the virus.

Suites through individual communities. So again, I think it's temporary not permanent but difficult to two exactly say when it clears.

I'll leave it there for now thanks.

Thanks, Rob.

Well take our next question from Ben Kallo with Baird. Please go ahead.

Hey, guys.

Hopefully that's not too.

To call because if you separate before areas.

Supply chain customer push outs.

You're correct closures.

And then the inability.

To allow deployed.

Meters, how would you rate bodes for.

It's almost surgery visibility.

But can you break them on.

How the impact your your margin lows.

Yeah, maybe tell me the four again said that I get it right supply chain. So push out consult your customers. So we can't deploy meters grown record right and then supply chain of that's embedded your old plant closures.

And then well.

Okay.

Let's work one is our number.

Well the regulatory Ben.

Regulatory.

Yes, okay, okay and so.

Thank you for clarifying plant closures is the shortest duration of any of these assuming no major disruptions or or other areas. We think that one kind of clear is in the next few weeks assuming that.

There's no new outbreaks or waves of the virus.

Customer push outs I think will follow.

With the time Speyer expand that we've talked about.

For larger customers, it's maybe a quarter or so for them to ramp backup fully.

The smaller customers. It may take a couple of quarters square for them to put it back into place.

Supply chain I think we'll be bumpy throughout this time period, what we'll see some choppy component supply during the period regulatory in my mind is the one that has the longest tale of all of these it will be harder to understand what that looks like and how it will play out over a longer period of time, so plant closures Sean.

Artist customer push out it varies a little bit by customer type.

And then the supply chain will be fits and starts with regulatory being the longest time to recovery.

And then from a margin perspective.

What sort of the biggest subjects.

Well again it depends on the part of the World. So I don't know that I can give you an impact by by that piece part.

But I think the most important piece of this is to ensure that our factories continue to run that that obviously is the one that generates the most near term margin.

Associated with the business, so ensuring that our factories continue to run this is a very important job.

Making sure that we do that in a safe and efficient manner of course is important but that's the one that has biggest margin lever.

The.

How long does the mix.

Between.

Investor owned smaller utilities could you talk about that over.

North America Europe.

As you look forward gives a good Q2, how you budgeted will be a bigger impact onto the mega size in Europe.

Because there are slowing down deployments or is it in the us because each actually the floor and so as we think about category.

Goods in Mexico quarters, Yes, So I gave some of the comments and remarks, but from a revenue standpoint, if you use Q1 as a baseline the bigger impact would be in our device solutions and thats because of Europe. So although the factories have started to ramp as Tom said, they take let's call. It four weeks or so so we have not assumed that we will have fully.

Functioning ramped factories until June in these numbers.

And then but theres a theres a sizable impact in network solution, which is primarily going to be to us and thats from this customer issue of just pushing out.

Taking acceptance of product because of their on unique situations or deployments. So that's the relative size for for the Q2, I think devices the bigger impact.

Thank you, Bob just more or less water and thank you my question would grow tedious, but just as I think about.

Hello, We all think about numbers should be now.

We frame as this is.

Think of employers were 2020 one's going to be or is that not possible yet.

Based on the visibility.

Yes, I think it is early to say exactly what.

The back half of 20 looks like and into to 21, we tried to give the best color that we have today, but we very much look forward to updating.

Everyone when we get.

A little bit better clarity on this we would anticipate to continue to view, what 20 back half of 20, and 21 look like as as a bit murky at this time.

Great. Thank you guys.

Thank you.

Ladies and gentlemen. This concludes today's question and answer session. At this time I turn the conference back to Tom do you stretch for any additional or closing remarks.

Thank you everyone for joining the call today I hope you continue to be safe and well I want to finish up by saying that I tried to serves and essentially utility and we're well positioned so longstanding customer relationships strong backlog sufficient liquidity and at a solid management team in place we will navigate through.

[music] these uncertainties and be sure to control what is in our control. We look forward to updating you again on our progress on the next call. Thank you all for joining.

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