Q4 2020 Itron Inc Earnings Call

February 24, 2021

[music].

Please standby.

And one and welcome to the eye Thomas incorporated and kill for 'twenty and 'twenty Earnings Conference. Today's call is being recorded and now for opening remarks, and introductions I would like to turn the call over to Ken GNL up. Please go ahead.

Thank you operator, good morning, and welcome to <unk> fourth 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 webcast and on our corporate website under the Investor Relations tab.

On the call today, we have <unk>, <unk>, President and Chief Executive Officer, and Joseph <unk>, Senior Vice President and Chief Financial Officer.

Following our prepared remarks, we will open the call to take questions using the process. The operator described before I turn the call over to Tom. Please let me remind you of our non-GAAP financial presentation, and our Safe Harbor statement.

Our earnings release and financial presentation include non-GAAP financial information that we believe enhances the overall understanding of our current and future performance reconciliations of differences between GAAP and non-GAAP financial measures are available in our earnings release and on our Investor Relations website.

We will be making statements. During this call that are forward. Looking 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 present in today's earnings release and the comments made during this conference call and and the risk factor.

For section of our form 10-K, and other reports and filings with the Securities and Exchange Commission and.

In addition, due to the fluid nature of the COVID-19 pandemic company estimates regarding the impact of COVID-19 on current or forward looking statements are made and a good faith attempt to provide appropriate insight to our current and future operating and financial environment.

Materials discussed today February 2000, and for 2021 may materially change and we do not undertake any duty to update any of our forward looking statements.

Now please turn to page four and the presentation and I'll turn the call over to our CEO Tom Dietrich.

Thank you Ken good morning, and thank you for joining us exiting 2020, iPhone is stronger and focused on the future entering 2021, we are cautiously optimistic that the near term pandemic impacts are beginning to ease and we remain bullish on our trajectory.

During the fourth quarter, our team continued to focus on the success of our customers and safely delivered results with the second waves of COVID-19, gaining access and both our European and North American markets, we saw slower book and ship business from our expectations from mid summer, but we were extremely encouraged by closing out the year with very.

<unk> bookings in the fourth quarter, we are entering 2021 with total backlog at record levels. We are pleased with our industry position and direction.

You will hear details from Joan shortly but to summarize our fourth quarter performance revenue was $525 million adjusted EBITDA was $56 million non.

Non-GAAP earnings per share was <unk> 65, and.

And free cash flow was $29 million.

Sure.

While these results still reflect the ongoing effects of the pandemic, we see and operating outlook that is weighted towards the second half and should improve in 2021 and beyond.

To add some color on this let me give a brief update on the customer and operating environment as we see it today beginning with our customers consistent with the last few quarters, we have not seen contract cancellations and collections have continued as expected we had strong bookings in Q4 that reflects accelerating intra.

And our reader distributed intelligence platform automation solutions grid, resiliency and data analytics, we continue to see robust activity from our customers looking to deploy higher value solutions and applications debt increase efficiency and insight into their operations.

Turning to slide five for the year, we achieved a book to bill ratio of over one to one driven by bookings and the fourth quarter of approximately $973 million keeping.

Giving us a record total backlog of approximately $3 3 billion and a 12 month backlog at approximately $1 2 billion.

Sure.

I would highlight that the $1 $2 billion 12 month backlog. This quarter is approximately $100 million more than the prior quarter. However, it is still approximately $300 million less and the view we had pre pandemic entering 2020.

This data aligns with our prior commentary the desire for our solutions is increasing and our customers' intent to deploy at rate is improving but it is also clear some of the pandemic constraints are still present, we continue to see only a modest recovery and deployment pace in 2021 with more.

For projects poised to ramp in the years ahead.

Strategically despite these near term cross wins, we have made solid progress on our company priorities that we laid out a year ago.

During Q for the cumulative number of distributed intelligence capable and points exceeded $2 7 million as we expanded our footprint with over 20 for customers actively deploying our flexible and agile platform with dozens more and the pipeline.

By deploying our advanced network it enhances our ability to expand our value with our outcomes segment in 2020, we increased our endpoints under management to over $74 million, which is an increase of 15% from 2019. This metric is the foundation of our strategy to grow our revenue base beyond <unk>.

One time sale of our solution and into recurring revenue from data analytics, and water and grid management and consumer engagement smart cities and other applications that increase service resiliency and operational leverage of our utility and municipal customers.

To accelerate our vision, we've assembled an ecosystem of hundreds of global partners to expand our reach and assist and deploying more advanced application sufficiently and effectively on our secure multipurpose multi tenant network.

To highlight two examples of our partners progress in 2020.

U S. <unk> was awarded the Iot evolution product of the year for their wastewater detection and management solution seamlessly, adding capability to our water and points.

Another example of our partners and action as new Cosmos, there methane detection sensors are being deployed on our existing network infrastructure and have definitely sidestepped hundreds of potential safety incidents across gas deployments.

Notably some of our most for we're thinking investments and 2020 included expanding the offerings on our distributed intelligence platform with several new technology partners that are building a pipeline of new applications that we are onboarding and 2021 and beyond.

As the leader and distributed intelligence for critical infrastructure, our platform, including edge computing downloadable applications application orchestration and management provides both our customers and partners flexibility that can be deployed today with a path for tomorrow as their needs and wants change over time.

Many of our partners see distributed intelligence as a means of augmenting existing solutions like Volkmer, our optimization increased flexibility in thin client prepaid offerings and rapid integration of renewables and distributed energy resources into the grid, others see it as an opportunity to replace their existing.

And hardware based solutions or improved capabilities, such as low disaggregation and consumer engagement that can be used to detect anomalies and behavior for seniors living on their own.

The most exciting prospect of our <unk> technology is that we future proof our customers by enabling them to download and enable support for new use cases at a pace not previously seen in our industry.

These greenfield opportunities to create new use cases for utility customers are coming from partners that include large system integrators consumer technology companies established utility technology vendors startups and even from the utilities themselves. For example, we have a utility customer in Australia.

William who is the first to write their own DIY application, our Gi platform brings new levels of innovation and agility to the industry.

These are just a few examples of the progress and innovation that we have made possible. During this past year and why we remain positive that our efforts will continue to create value for our stakeholders and 2021 and beyond.

With that let me hand off to Joan to discuss our fourth quarter earnings results.

Thank you Tom while we face significant challenges in 2020 due to the pandemic. We are beginning to see indications that conditions are improving and are cautiously optimistic for a return to growth and operational improvement in 2021.

First let me cover Q4 results.

To begin please turn to slide seven for a summary of consolidated GAAP results.

Fourth quarter revenue of $525 million decreased 16% from last year or 18% and constant currency.

For year over year decline was primarily due to the timing of customer projects and continued operating constraints, resulting from COVID-19.

Gross margin for the quarter was 28, 3% 10 basis points higher than last year, primarily due to favorable product mix of higher margin software license sales and the outcomes segment offsetting increased inventory reserves.

The GAAP net income of $22 million or <unk> 53 per diluted share compares with net income of $15 million or <unk> 36 per diluted share in the prior year.

Regarding non-GAAP metrics on slide eight non-GAAP operating income was $44 million adjusted EBITDA was $56 million or 11% of revenue non-GAAP net income for the quarter was $26 million or <unk> 65 per diluted share.

Looking at revenue by business segment on slide nine device solutions revenue was $186 million or $27 million or 13% year over year decline on a constant currency basis.

The decrease was due to lower customer demand in EMEA and COVID-19 related delays as well as the impact of the Latin America transaction completed in Q2 of 2020.

Network solutions revenue was $277 million and $93 million or 25% decrease year over year due to the delay of large customer projects caused in part by COVID-19.

Revenue and the outcome segment was $61 million, a $7 million or 13% increase and constant currency for 2019, the increase was driven by higher software license sales.

Lastly, foreign currency changes resulted in $10 million higher revenue versus the prior year.

Moving to the non-GAAP year over year EPS Bridge on Slide 10, our Q4 non-GAAP EPS was <unk> 65 per diluted share down <unk> <unk> from the prior year.

On a year over year basis, there were some puts and takes net.

Net operating performance had a negative <unk> <unk> per share impact versus Q4 2019.

The reduction in gross profit was partially offset by lower discretionary spending including variable compensation.

Our interest expense resulted in a <unk> <unk> benefit year over year.

Higher non-GAAP tax rate decreased EPS by <unk> <unk> versus Q4 2019 the.

And the higher year over year tax rate was primarily due to a more favorable jurisdictional mix and higher discrete benefits in 2019.

And finally changes in foreign currency and share count resulted in a <unk> <unk> per share decrease year over year.

Turning to slides 11 through 13, I'll now discuss for Q4 results by business segment compared with the prior year debt.

<unk> solutions revenue was $186 million with gross margin of 12% and operating margin of 7%.

Gross margin decreased 280 basis points due to COVID-19 related inefficiencies and increased inventory and special warranty reserves.

Operating margin decreased 100 basis points due to the fall through of lower gross margin, partially offset by lower operating expenses.

Network solutions revenue was $277 million with gross margin of 36% gross margin was up 90 basis points from the prior year due to improved efficiencies and implementation and maintenance services.

Operating margin of 25% was below last year due to reduced operating leverage.

We anticipate Q4 revenue to be the low point for network solution.

Outcomes revenue was $61 million with gross margin of 43% gross margin increased 10 seven points from the prior year due to an increase and higher margin software license sales and a favorable compare due to a onetime customer adjustment recorded in the prior year.

Operating margin was 30% 14, three points higher than last year due to the thoughts for a higher gross profit and reduced discretionary spending.

Turning to slide 14, and I'll cover liquidity and debt.

Free cash flow was $29 million and the fourth quarter up 2% from the prior year due to lower capital expenditures, we have tightened the spending for capital projects given the current environment cash.

Cash and equivalents at the end of the fourth quarter were $207 million.

Total debt decreased to $936 million and net debt decreased to $729 million.

This was due to the 400 million repayment on the revolving credit facility in the fourth quarter. In addition, we prepaid $14 million and the term loan, which fulfilled any required debt payments until the second half of 2021.

Net leverage was four one times at the end of Q4 down from four three times at the end of Q3 now.

And now to briefly recap full year 2020 results on slide 15.

Full year results were significantly impacted by the COVID-19, pandemic with lower revenue profitability and free cash flow.

Revenue of $2 2 billion was down 13% from 2019 due to lower customer demand and operating constraints, resulting from COVID-19.

Gross margin was 27, 7% 240 basis points lower than 2019 adjust.

Adjusted EBITDA was $178 million or 8% of revenue compared with $270 million or 11% of revenue in the prior year.

Non-GAAP earnings per share was $1 85, compared to $3 32 and 2019.

Free cash flow was $63 million down from $112 million and 2019.

Our team did a good job managing cash and 2020, and we delivered very strong collections performance.

During 2020, we continued to execute and ongoing cost reduction initiatives and also introduced our 2020 project to further reduce our fixed costs and improve operational efficiencies.

In addition, we took actions to reduce all discretionary spending including eliminating variable compensation for 2020.

These actions helped mitigate the impact of it dependent mccann and our profitability and cash flow.

We anticipate that these temporal reductions taken in 2020 will revert in 2021, but still expect to be at our target operating expense level of 22% to 23% of revenue.

On slide 16, I'd like to provide some color on our 2021 expectations. We anticipate full year 2021 revenue to be and a range of two to three to $2. Three 3 billion, we expect revenue to improve and the second half of the year and the virus impacts continue to <unk>.

Side.

The revenue level for the first half of 'twenty, one should be similar to the first half of 2020.

At the midpoint for 2021 annual revenue guidance is approximately 5% year over year growth.

This was driven by high single digit growth and outcomes low to mid single digit growth and network solutions and with devices essentially flat year on year.

We anticipate full year non-GAAP EPS to be within a range of $2 15 to $2 55 per diluted share.

At the midpoint this represents 27% increase over our 2020 performance.

We expect the EPS to be even more backend loaded and revenue due to COVID-19 related inefficiencies continuing in the first half of the year.

Other guidance assumptions are euro to U S dollar foreign currency exchange rate of one two.

And average non-GAAP effective tax rate of approximately 30%.

Expected interest expense of approximately $36 million and average shares outstanding for the full year of approximately $41 million.

In summary, we successfully managed through a very challenging 2020 and are cautiously optimistic and the outlook for 2021 and beyond we will continue to focus on operating initiatives to make us stronger and more agile now I will turn the call back to Tom.

Thank you Joan.

On a final note prior to turning to Q&A. While we are excited about the opportunity ahead of us I would like to take a moment to thank all those who brought us to this point.

Over the last year, <unk> global workforce partners and customers have put forth a tremendous effort to keep our energy water and cities critical infrastructure intact and operational.

As a community we were forced to adapt and overcome.

These efforts have collectively made us much more agile and capable for the journey ahead at <unk>, we are emerging stronger with and energized focus on innovation resiliency and sustainability to better serve our customers and communities.

And for joining us today, operator, let's open the line for some questions.

Thank you if you'd like to ask a question simply press the star key follow up visit day one.

And on your telephone keypad.

So if you're using a speaker phone. Please make sure. Your mute function is turned off to a later signaled for each of our equipment. Once again press star one at this time, we will pause for a brief moment.

And well first hear from Jeff Osborne of Cowen and company.

Hey, good morning, guys and great to see the progress there with with bookings had a couple of questions on my end.

Bookings for and certainly Theres been a lot of activity and the northeast and the mid Atlantic.

And we've been tracking over the past couple of quarters and years.

And those had regulatory delays and some that haven't.

Was just wondering is there a way you can give us more detail as to the nature of the bookings I assume thats domestic.

But as a gas and electric.

It looks like oven grid national grid, Dominion et cetera, all have been pursuing opportunities over the past couple of quarters. It would be great to get from <unk>.

Incremental color if you can as to.

And where it's coming from.

Good morning, Jeff and Tom Dietrich here I can jump in and take that one.

Indeed, we were very pleased with our fourth quarter bookings, we had talked about it during a couple of our earnings calls during.

2020 that we expected to have a number of those.

Delayed bookings come in during the fourth quarter and they did.

The bookings as you correctly pointed out our prey predominantly North America. They are scattered around different regions from the northeast to the Midwest.

And so on but one of the bookings that is included in there is often grid. We were very pleased to partner with <unk> and grid for their network for both gas and electric Ami endpoints as well as the the meter data management system, that's underneath that.

Deal does include our distributed intelligence platform to give a little bit more flexibility and enhance the performance and the <unk>.

Value of the network over time, so that is a meaningful portion of the.

The bookings that you saw during the fourth quarter again, there are others, but that's one that I think is particularly worthy of calling out.

Networks.

Thanks, John and just.

A clarification on the op and great great to hear and thanks for my personal utility here in New York is it for New York or their Connecticut properties or both.

It is but both the New York State.

And why Etsy and G as well as the Rochester gas and electric those are the ones that are in the bookings for.

For Q4.

Got it obviously will continue to work closely and and.

And then expand from there.

Makes sense and then my last question is on the semiconductor issues.

Plaguing auto and some other consumer electronics, you folks had some challenges and late 2018.

That caused some obstacles for yourselves and competitors can you just talk about the current situation as it relates to semiconductor supply chain and sourcing is that and issue that we need to monitor closely for you folks like the auto analyst day to for that industry.

Sure.

We did see the supply chain and in semiconductors tighten up and the second half of last year and indeed, you tend to read a lot about it in the press today to.

To this point, we have stayed ahead of it some of the lessons learned and in 2018 in terms of anticipating orders and.

Building up a little bit of buffer inventory and critical components served us well and the back half of <unk>.

And last year.

It is an ongoing situation. So it's one that we'll continue to monitor during 2021, depending on how long that will last but.

Sudden change and orders in a number of industries certainly.

Consumer electronics, Pcs and phones were pretty hot during the pandemic and automotive turned up quite unexpectedly.

In the latter months of 2020, that's one that has put a strain on the supply chain across the globe and and one to monitor we're not immune to it but we've been pleased with our performance to this point.

Great to hear that's all I had thank you.

Thanks, Jeff.

Total Nelson of Raymond James and our next question.

Okay.

Thanks for taking the question.

All saw what happened in Texas last week.

And I thought it would app and a more broadly what are the demand response Keith.

Capabilities of <unk> and <unk>.

What slice of the outcomes segment.

As the Dr business represent.

Very good good morning Pablo.

It was some and most everyone watched some of US were really live and in the middle of it we're and gloves during meetings, because it was pretty chilly for Texas, but.

My jokes aside it certainly was a pretty severe storm and.

And is part of some of the Megatrends that we've spoken about in the past where our customers are under pressure for environmental as well as infrastructure and social kinds of considerations.

Overall as you correctly pointed out one of the tools that is indeed possible.

To combat some of those those trends that are out there is a dr. A demand response program.

And this particular case, we saw several of our customers triggering Dr events to shed load. During this period to enhance grid stability. There is obviously, a tradeoff and doing so but it is something that our customers did use and it is part of our outcomes offering.

Today that capability is is about 15% or thereabouts of our total outcome segment and in terms of the size plus or minus.

Will vary a little bit quarter to quarter, depending on how the events trigger all the way through so it is a mean.

For part of our portfolio and one that we look to continue to enhance as we think these types of events. Unfortunately will continue to plague the globe all around the world and it's a good part of what our offering would be and how to help our customers cope with the situation.

Got it let me follow up on.

Covid situation and in Europe of course, a year ago, a lot of manufacturing capacity will shut down.

We are seeing some.

Concerning signs in Germany, Italy.

And Central Europe, Slovakia.

Talk about your physical presence.

In Europe, specifically and the level of production at your sites there.

Sure. So we do have.

Meaningful presence in France, and Germany, specifically those are our biggest countries of employment for our European operations.

And we do have plenty of essential workers that are go into the planned every day to carry on production throughout the pandemic, we have put in place.

All of the appropriate safety procedures and monitor it closely we did have a ways that we could keep production running and in a safe way and the data would suggest that we have done a really good job in terms of.

Maintaining a good balance between supply continuity to our customers as well as the safety.

For our employees, we havent seen spread inside of our facilities that said.

Your question goes goes beyond that our internal operations and starts to think about the environment that we operate in and we've definitely seen I'll say slowdowns in and deployments themselves as access to markets and into homes and things of that sort has been pretty limited.

Given that the ongoing situation things did slow down a little bit and Q4, and I think we referenced that and some of our prepared remarks that it was part of.

The revenue story for Us and in Q4, we'll continue to watch it we do anticipate.

That will have a path back to more normalized deployment operations as we go through 2021, but its certainly something thats still with us.

During this quarter and probably the first half of the year, which is giving you a little bit of insight into the shape of what our revenue profile would look like for the year.

Thank you very much.

Okay.

Noah Kaye with Oppenheimer.

Thank you good morning appreciate taking the question Robert.

And I think you've given us all the pieces to do that.

But just so that everybody has are math straight as we think about bridging about 50.

EPS growth year over year for mid point can you kind of give us the pieces of debt.

Interest rate.

Interest expense tax rate and then kind of core operating performance.

Yes, well I think I gave you the interest dollars and the tax rates I think you should be able to get that I haven't tried to calculate net in terms of actual EPS and prevent but it is driven by roughly at the midpoint, 5% revenue growth and the 27% EPS growth is even with.

And that tax rate being higher in 2021 versus 2020. So there is obviously gross margin improvement and there as well and his direction. We would expect our opex for 'twenty, one to be in that range of 22% to 23%. So.

Again, I haven't done a specific bridge to that math, but I think you've got all of the.

And the numbers you need to be able to do that.

And at the point.

Or is that the biggest driver is for the core operating performance and the margin uplift, particularly on correct Mark correct. So for the follow up question here is really how much of that improved margin is.

Due to just $100 million of revenue coming back here for a year versus COVID-19.

And inefficiencies being ironed out versus something that you mentioned in your prepared remarks, which is what I really want to pick up on around structural cost improvements and the business.

Well we.

We have continued to execute on the previous restructuring plans, we had benefits this year that debt accrued to the P&L for 2020 plan that we announced in September is really just kicking off we expect that to have improvements in 2021, and if you recall most of the improvements from the 2020 plan are in the margin line.

So that that certainly will help so we are expecting gross margin to improve in 2021 over 2020.

As I mentioned the earnings.

Linearity and is even more back and loaded and the revenue and that is because some of the COVID-19 stuff. Tom just mentioned, we are still seeing the inefficiencies of Covid and our operations in the first half and net debt primarily effects gross margin. So if I think about the full year I think for the full year and we'll be back to pre COVID-19 kind of like for 2019 led.

And will have gross margin, which would be an improvement for over 2020.

Yeah and.

Just so unclear.

And related inefficiencies are you, primarily describing those and I think thats, what youre, saying, Tom but this is really due to two deployment schedules and the ease of deployments or is it something and your own and.

And is it sort of like a throughput utilization issue for the business or is there.

Some kind of COVID-19 costs.

Within your own operations, and you're still having to deal with.

Yes. It is primarily due to I'll say generally that the revenue level deployments are slower, which means we're putting less product and there. So we're producing less product and the factory and therefore your utilization is a little bit lower there are some other costs and in terms of inefficiencies for safety protocols and such but those.

And we're a much smaller piece that primary driver is just think of it as gross revenue level and utilization.

Okay great.

Last question.

And.

Creating exceptional and hopefully and never to be repeated year.

But.

Sitting here a year later and you just compare your pipeline of new opportunities for what it was a year ago.

Given everything that's happened in the past year, both in terms of grid resiliency and being tested more renewables Moore.

How does the pipeline compare how are you thinking about bookings levels for 2021.

And what should investors be expecting.

Okay.

The record backlog level I think is a pretty good.

Q to take in terms of the level of activity and the size of the pipeline of what's still ahead of us.

Customers are indeed, somewhat tentative to start new projects, which slows down that the revenue and in the near term. So that's one dynamic to look at but the level of market activity that flows through in terms of pipeline a few future opportunities is very robust.

Our booked backlog is good.

And at record levels in terms of the total backlog, we saw sequential improvement and the 12 month backlog. So we've turned the corner I will say within the next year.

In the backlog so that's a way to think about it and that is a decent way to think about the overall pipeline of opportunity customers have a lot of interest in automating per.

Procedures.

And getting better insight into the grid, adding resiliency into <unk>.

Their operations to deal with Crazy things like that the storm itself better forecasting tools.

And better understanding of how to operate in.

In the new World all of those are good things for our business.

And the last Mega trend that I would mention that I think is very relevant has to do with.

A much deeper focus in terms of how to handle renewables and distributed energy resources. So a lot of the push for and the commitments that our customers are making around cash.

Carbon reduction and carbon neutrality net neutral types of situations flows through clearly the generation side, but also the portion of their business that we can help them with debt and again renewing and helping them integrate renewables much more seamlessly into the network is an area that we're pretty excited about.

Alright, thanks, so much for taking the questions.

Okay.

Yes.

Next we'll hear from Ben <unk> of Baird.

Payable.

Thank you.

Nice backlog.

And nice numbers on the outcomes.

Can we talk a little blue belt.

Opex.

And.

Seemed like a big step down.

Thank you said that reverses next year, but.

Controlling that much for both.

And as Chile.

As far as far as our key as well.

Yes, I'll take a stab at that so obviously very early on and the pandemic.

And we put brakes on all discretionary spending some was was obvious right. So if you have travel and things of that nature. So.

And we didn't all of our conferences et cetera, where virtual like everybody else and so there was a significant amount abnormal travel that people would have done.

Another big item was the variable compensation and so we mentioned and a couple of times and the script.

We did not earn any variable compensation. So it is performance based and given where we started the year with our budget and our commitment to our board, we werent able to hit those numbers and so throughout the year and we were accruing some variable compensation by the time, we got to the end of the year, we made the decision that it.

We were not going to ask for any kind of exception and therefore all of the variable compensation was was reversed and so that's that's why we mentioned it a couple of times.

We are now starting and new here, we have a new budget that our board has approved and if we hit that budget, we would expect to to accrue and earn variable compensation. So those are the two biggest levers kind of discretionary teeny type things.

Obviously, and investor marketing events, sorry, and marketing events as well as variable compensation and the biggest.

Got it.

Outcomes, I think Tom and I heard you say that this is a low point.

For that could you just talked about.

And I think that's something that we are all watching keenly.

Going forward as your growth the margin expansion.

Spirits and there.

For a while.

And from our standpoint for to take hold.

And I think you said was a low point.

So could you talk about your how we should expect debt to go forward and thank you.

And for this year and then also moving the margin trajectory and then all of that lines up with.

You said the EPS was backend loaded and then.

The final point on guidance and the <unk>.

Backlog, how much visibility do you have on the outcome side. Thank you guys.

Very good and a number of things to unpack there so first.

We didn't confuse things, but that the low point was more on the networks side in Q4, rather than outcomes. So networks revenue in Q4 was kind of a low point and and we would expect it would sequentially grow from there. So that was networks not outcomes with respect to outcomes. We were pleased with.

With the performance in Q4, and you sell debt the revenue held up pretty nicely. If you think about it and a year over year sense, our hardware oriented businesses and networks and devices was down double digit percentages. Meanwhile, our outcomes business was up what was up a couple of points, so that recurring revenue and <unk>.

Long term visibility you get with and outcomes business model served us well using the pandemic as a quick example, overall the margin for outcomes. In Q4 was benefited with some one time licensing revenue, which was particularly good margin. So I think the margin was a was a little higher even and in Q4, which.

And again was great to see but we.

And we would still want to make sure that it's clear and People's minds. The size of the business isn't quite at scale just yet so the margin profile might be a little lumpy on an ongoing basis, so relative to what you should expect going forward.

Revenue wise, we expect.

Let's call it high single digit growth for outcomes. This year it'll continue to perform nicely for us.

Margin will be a little bit lumpy, but we certainly think as we continue to scale that business. It will lead our three businesses in terms of what the gross margin percentage would be on the bookings and the backlog side of things.

What we saw in Q4 that $970 million of bookings thats very tilted towards.

Our networks and outcomes business. So we continue to have a good pipeline and are bullish on where outcomes will grow going forward. You noticed one last thing that I would mention as we talked about a couple of really really interesting guidepost metrics that were part of our prepared remarks, so the $2 seven.

7 million cumulative di distributed intelligence enabled end points are now and the market. So that gives us opportunity with our installed hardware base to add new capability into the marketplace and add applications into their which is outcomes revenue and also we are now over $74 million managed.

And points in the marketplace and again thats good indication of where the outcomes business is growing outcomes will grow based on expanding those two numbers meeting more new endpoints under management more new endpoints that are highly capable and the field.

So a volume expansion, but then and application expansion on each one of those.

Types of endpoints, we can add new capability, which is good for the outcomes growth and that's really the thesis for why we think we'll continue to expand that portion of our portfolio.

That's great and maybe I'll slip one more and the regulatory cost.

A big topic for 2020.

Any changes there as far as.

Willingness to approve projects and the U S or.

Just to be able to meet.

Doug.

I would say that the regulatory environment, certainly we had anticipated throughout the second half of last year that it would come back into focus and normalize and indeed, we saw a lot more decisions being made in Q4, which it really helped.

The big bookings number that we had I would say that certainly it continues to move at pace that the new information or the new things to think about in terms of the regulatory environment at least for the U S. Certainly would be that the new administration and some of their push and or consideration around potential infrastructure spend.

<unk>.

Types of things and then any lessons learned out of some other things that happened and in Texas over the last couple of weeks I do think those would be regulatory considerations going forward, but for now I think it's really started to normalize quite a bit more than what we saw where things really paused and the first half of last year, we're back to a more.

Our normal cadence as it as of today with those two caveats that I mentioned.

Perfect. Thank you Tal Joan.

Thanks Ben.

Fire Canaccord genuity.

Hi, Thanks for taking my question.

To kind of.

Separate but I guess related topics I guess first.

Tap into.

The issue of curtailment.

Which is becoming a more topical, particularly with the advent of renewables and California seems to be a poster child for this so I was wondering if you could maybe just unpack the value proposition across.

Outcome and network solutions.

And in particular.

In terms of how <unk> captures that.

And value and improve that for the isos and the.

And the utilities, if you would.

Sure. So I think that there is there's a couple of trends there that are really interesting to us.

I'll start at that the last mile and work my way back up the chain so the more.

Individual residences or individual buildings have there their own sources of power, whether it would be a PV solar panel and someone's rooftop or power wall and someone's garage and things of that nature. That's the equivalent of other new source of generation on the grid and.

And the utility needs to have the ability to balance supply and demand would that kind of environment, given our position oftentimes on the side of someone's house, we are and a pretty good spot to help provide insight into what's going on and the grid, so having more view and more capability.

And what's happening at the last mile.

And is an area that we can really help balance supply and demand you have programs like demand response, where you can shed load again to help and a balancing of supply and demand types of things for your generation level is a bit more volatile where youre wanting to bring capability.

Up and down the ability to react quickly on the demand side too to balance supply and demand is an area that we also can help our customers day.

With the third is really around distribution automation. It is giving the utility much better insight into what's happening inside of their grid. So much more cost effective way to put monitoring points in the network and again truly understand what's going on with outage or loading levels.

And whether it transformers is nearing its breaking point.

Trying to understand what's happening with power quality with with volt var optimization, our da distribution and outpatient solutions help with our customers to be able to do that all of those types of things.

And really help when you have a bit more variability or volatility in both the demand side as well as the generation side overall.

And the utilities are definitely up against it and have pressure in terms of being cost effective so wanting to balance that supply and demand, but also having to cope with natural disasters and and things of that sort as press.

Pressure and it comes to their grid and a number of different ways, so helping to monitor that understand it and respond to those those quick changes is really what we are in a very good position to help with and it is a growth area for our business.

So.

Thank you by the way for for kind of going through then taking the time it kind of sets up for the next question I mean, when we look at the forensic analysis, that's coming out of Texas It really.

Objectively.

Is and abject failure of policy and and.

And resiliency.

For the cost trade off so.

You start to think through the appetite of.

Other utilities around the country.

And as well as foreign to power providers.

Arent going to want to be in that.

To have a system failure it could have been avoided and.

And looking at what Youre demonstrating in terms of that value in the last mile as well as utility scale, particularly in.

In California.

I want to bring it back to that 5% growth number.

It seems like.

And last there is.

I guess I am sort of scratching my head in terms of the setup or whether or not this.

Just isn't baked into that expectation and.

And I have one more.

I think there is a time component to it that probably needs to play through it will take a little bit of while to really sort through and learn from and develop proper.

Policy solutions to address some of the issues that were clearly demonstrated in the last day.

A week, if you use Texas as the example, but policy moves at a certain pace and that's.

And that's really what's understand behind.

The growth expectations, we have for this year.

And I'll remind we think it's absolutely a long term growth vector for our industry and certainly an area that we're super excited about doing our part to help the grid on a global level.

If you look at it through a short term lens, we still have some deployment challenges and access due to COVID-19 to balance out and both of those things and the blenders is really how to think through.

And whats going on if you do look longer term, though.

The growth trend is increasingly behind networks and outcomes and that's absolutely where we intend to grow where we have invested to grow and prepare solutions to get to.

And benefit from those <unk> and I think some of the pressures that are in the news today are only accelerants to.

And that type of trend and should benefit us given the strategy and the work that we've done to this point.

That's helpful. One last one for you. So if I look at the how the structure is in terms of.

From a utility and a power provider of pulling your solutions into the market.

And thats going to be.

Price and elastic or not price and elastic but.

That's going to be interest.

Right or.

And elastic to potential inflation or rising interest because it's using the constituents money to actually pay for your projects could you just either.

Firm or correct me, if I'm wrong and that that assumption.

Well certainly most of the revenue that we generate today does flow through regulated business and that is things that tend to be capex oriented and therefore, you do get the correlation with the interest rates overall.

Certainly we think the interest rate today is pretty favorable and the macro signals would suggest that.

And at least in the short run and that's going to continue to be the case. So that there is a correlation there we do see growth in the ability to include things like software as a service into a rate base.

And so.

There is other avenues to grow there that are perhaps a little bit less interest rate correlated and we'll continue to work on that but there is a major portion of our business, which is well correlated as you've correctly pointed out.

Got it thank you.

And next we'll hear from Tom Moore Stephens.

Good morning, and thanks for taking my questions.

Yeah.

Good morning, Tony.

I wanted to start by continuing on the renewable theme so at.

At the macro level.

Both in the U S and elsewhere.

Trend is clearly.

Higher where the contribution from our renewables.

Going higher over time, one of the things I think investors are trying to wrap their minds around as well.

What is the inflection point look like maybe at a customer level. So if you. If you then.

Go from 30000 feet down to a single customer.

There is a spectrum there where they may have.

So renewables capacity at one point and time, and then and there.

And as time goes on that debt contribution growth.

And so at some point.

Maybe there is a tipping point or there is an inflection point where.

It starts to become a meaningful enough piece of their.

Footprint that debt.

They are calling anymore that they're having to invest and some of these capabilities that you outlined earlier, Tom So I know theres not a specific number you can give us but can you give us any anecdotes or rough timeframes are rough contributions.

And those those conversations with with your team really start to accelerate at the customer level.

Who I would say that we're well into it already today.

Making and plan around how you handle generation.

And part of our customers tends to be a multi year kind of thought process, if theyre going to build a big win.

Wind farm or a solar farm or take a coal plant down and those types of things are things that you plan out well in advance so making sure that you're handling your transmission and distribution assets in parallel with your generation assets is important and they've gotta go hand in glove to provide reliable <unk>.

So I would say that.

And those those conversations are alive, and well and have been for some time certainly the push towards more carbon reduction.

Social sense has been an accelerant during the last year there are practical realities.

You can't get there overnight.

And there is.

A fair amount of carbon based economy, that's still out there from our standpoint, we want to be able to to make that carbon based solution more efficient and and have less waste should should.

That'd be something Thats part of the customer solution, but also seamlessly integrate renewables into the.

And to the grid, we've got some some nice cases, where we've seen customers.

Happens to be a U K example, that I'm talking about here, where one of our U K customers said, they integrated and some renewable capability into their network about 12 to 18 months faster than they thought they could because of better insight into the distribution side afforded by by some of the capabilities that.

But we can provide so having better analytics to truly understand what's happening and their network is a real benefit to them as they continue to work on the generation side.

Thank you Thomas that's all very helpful context, and if I can move more to a model question here.

On the full year guidance and the first half second half.

Insight you've given thank you it's all very helpful.

I, just I can't resist asking on the first quarter.

Given it's right in front of us.

Just wanted to make sure everyone calibrate expectations.

And a reasonable fashion here can you give us any directional insight on revenue or margin trends or maybe on the bottom line.

What kind of contribution from EPS in Q1 versus your full year, even just some rough numbers would be helpful.

And.

Yeah, I apologize, but we don't even really give first half second half guidance. So I did give you some color to try to shape. The model. The thing I would point out for Q1 that you should keep.

Keep in mind is the comment I made earlier about variable compensation. So as I mentioned not only did we not have any variable compensation and all of 2020, we actually reversed some accruals and Q4, so I would definitely expect for.

From an opex perspective that to go up from Q4 to Q1.

So that would be the color I would give you on.

And Q1 is that we're going to revert back to kind of the normal percentage of opex and other than that it's.

And I'm not really prepared to give Q1 guidance.

Fair enough and and on the full year one item.

And I mentioned, a second ago, just in terms of free cash flow.

Anything you could do to frame the full year outlook there maybe in terms of conversion of adjusted net income or.

And just the building blocks on capital expenditures or working cap.

Yeah, I would say overall free cash flow I would expect to be approximately $100 million, maybe a little bit higher than that but that's about the forecast for the year.

Great. Thank you that's all helpful and now I'll turn it back.

Joseph Osha of JMP Securities.

Hi, good morning.

Congratulations on getting through tough year or.

Two questions for you first we've talked a little bit about <unk>.

Distributed energy and how you would benefit from the deployments there Im wondering how you think about.

How you square off against some of the investments being made.

By companies like <unk>, which bought and Bolivar.

Or what we see as debt.

And we're gonna add backs from it.

Sounds like you're beginning to touch on this.

Actual management of distributed energy resources or are those companies running these.

And you intend to compete directly with them, where do you regard yourself and sort of is adjacent to the actual management and of distributed energy resources and then I have one other question.

Sure Joe Good morning, I definitely see cases, where we cooperate to the benefit of the customer and sometimes we do compete so it varies a little bit a case to case and and depending on the various.

Various competitive dynamics that are in place or incumbency that thats in place.

I definitely see it as a net positive no matter, which way that the model actually goes for for us.

We definitely.

And I might have talked about this and some of our prior discussions.

See a real benefit in having a combination of and.

And point compute capability as well as well as analytics capability that the combination of being able to take measurements on the ground and use that data computing locally and in the cloud really gives you a.

A competitive advantage or a service capability advantage. So the way we go to market and the solution that we bring definitely has edge compute as well as analytics capability to get the best data.

And the best outs insight.

As in case that is needed to serve the customer.

Yes.

Look at your business and I Wonder why I try and doesn't just buy a company like auto grid could we see you look to further build out your skill set and the space.

Okay.

It is an area that we continue to invest in and work on the outcomes side, we definitely see good opportunities for Microgrid analysis for.

For <unk> distributed energy resource management.

Dr demand response types.

Types of solutions, So I think theres a lot of activity in that space and.

We've got some nice capabilities, there and continue to look for ways to expand and serve our customers better.

Okay. Thanks, and then one other one and I know, we're running up on time here.

Didn't hear that much today about non meter endpoints I am sure that business has been very good.

Disrupted this year, but I'm wondering if you could give us some comments on some of the initiatives we've heard about in the past like quite street lights, and so forth.

Sure Our street light business.

While a smaller portion of our total portfolio continues to grow very nicely.

And I don't know that I have the number off the top of my head, but well over 3 million Streetlights and points managed we've seen good growth in methane detection sensing we've seen.

Good growth in.

Other types of sensing applications with things like gunshot detection or air quality monitoring.

Parking applications.

Are things that.

We were we continue to be.

Very excited about and the smart city space that we have certainly the city.

<unk> is a strained entity at the moment and a generic sense and it's one that we definitely see opportunities to grow but we'll also be thoughtful about how to make sure that the business model is good for the city and accrues benefits to that that community, but also to our business.

As well.

Alright, Thank you very much.

Thanks, Joe for the peers are no further questions at this time I will turn the call back over to Tom Deitrich for any additional or closing comments.

Thank you operator before we leave you I want to mention one final point previously we communicated that we plan to do our annual industry event I try and inspire in October of 2021, and I'm pleased to relate to you today that coincident with that industry event.

Plan to have our 2021 Investor day, It will commence on October 5th there'll be hosted both virtually and hopefully if.

Conditions permit we will do it live so please mark your calendars and we would love to have everyone participate will provide more details as the event gets closer.

Thank you all for joining everyone be well.

That does conclude today's conference. Thank you all for your participation you may now disconnect.

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Good day, everyone and welcome to the time, Inc.

<unk> kiln for 2020 earnings Conference today's call is being recorded and now for opening remarks, and then <unk>.

And so I'd like to turn the call over to Kim Jin. Please go ahead.

Thank you operator, good morning, and welcome to icons for 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 of.

A presentation to accompany our remarks on this call is also available through the webcast and on our corporate website under the Investor Relations tab.

On the call today, we have Tom Dietrich, <unk>, President and Chief Executive Officer, and Joseph <unk>, Senior Vice President and Chief Financial Officer.

Following our prepared remarks, we will open the call to take questions using the process. The operator described.

Before I turn the call over to Tom. Please let me remind you of our non-GAAP financial presentation, and our Safe Harbor statement.

Our earnings release and financial presentation include non-GAAP financial information that we believe enhances the overall understanding of our current and future performance.

Conciliations and differences between GAAP and non-GAAP financial measures are available in our earnings release and on our Investor Relations website.

<unk> of our form 10-K, and other reports and filings with the Securities and Exchange Commission.

In addition, due to the fluid nature of the COVID-19 pandemic company estimates regarding the impact of COVID-19 on current and forward looking statements are made and a good faith attempt to provide appropriate insight to our current and future operating and financial environment.

Materials discussed today February 2000, and for 2021 may materially change and we do not undertake any duty to update any of our forward looking statements.

Now please turn to page four and the presentation and I will turn the call over to our CEO Tom Dietrich.

<unk> bookings and the fourth quarter, we are entering 2021 with total backlog at record levels. We are pleased with our industry position and direction.

You will hear details from Joan shortly but to summarize our fourth quarter performance revenue was $525 million adjusted EBITDA was $56 million non-GAAP earnings per share was <unk> 65.

And free cash flow was $29 million.

Sure.

While these results still reflect the ongoing effects of the pandemic, we see and operating outlook that is weighted towards the second half and should improve in 2021 and beyond.

Just and our Riva distributed intelligence platform automation solutions grid, resiliency and data analytics, we continue to see robust activity from our customers looking to deploy higher value solutions and applications debt increase efficiency and insight into their operations.

Turning to slide five for the year, we achieved a book to bill ratio of over one to one driven by bookings in the fourth quarter of approximately $973 million.

And keeping us a record total backlog of approximately $3 3 billion and a 12 month backlog at approximately $1 2 billion.

And.

This day to aligns with our prior commentary the desire for our solutions is increasing and our customers intend to deploy at rate is improving but it is also clear some of the pandemic constraints are still present, we continue to see only a modest recovery and deployment pace in 2021 with more.

For projects poised to ramp in the years ahead.

Strategically despite these near term cross wins, we have made solid progress on our company priorities that we laid out a year ago.

During Q for the cumulative number of distributed intelligence capable endpoints exceeded $2 7 million as we expanded our footprint with over 20 for customers actively deploying our flexible and agile platform with dozens more and the pipeline.

By deploying our advanced network it enhances our ability to expand our value with our outcomes segment in 2020, we increased our endpoints under management to over 74 million, which is an increase of 15% from 2019. This metric is the foundation of our strategy to grow our revenue base beyond <unk>.

One time sale of a solution and into recurring revenue from data analytics, and water and grid management and consumer engagement smart cities and other applications that increase service resiliency and operational leverage of our utility and municipal customers.

To highlight two examples of our partners progress in 2020.

<unk> was awarded the Iot evolution product of the year for their wastewater detection and management solution seamlessly, adding capability to our water endpoints.

As the leader and distributed intelligence for critical infrastructure, our platform, including edge computing downloadable applications and application orchestration and management provides both our customers and partners flexibility that can be deployed today with a path for tomorrow as their needs and wants change over time.

Many of our partners see distributed intelligence as a means of augmenting existing solutions like bolt bar optimization increased flexibility and thin client prepaid offerings and rapid integration of renewables and distributed energy resources into the grid, others see it as an opportunity to replace their existing.

Hardware based solutions or improved capabilities, such as low disaggregation and consumer engagement that can be used to detect anomalies and behavior for seniors living on their own.

<unk>, who is the first to write their own DIY application, our Gi platform brings new levels of innovation and agility to the industry.

With that let me hand off to Joan to discuss our fourth quarter earnings results.

First let me cover Q4 results.

To begin please turn to slide seven for a summary of consolidated GAAP results.

Fourth quarter revenue of 525 million decreased 16% from last year or 18% and constant currency.

The year over year decline was primarily due to the timing of customer projects and continued operating constraints, resulting from COVID-19.

The GAAP net income of $22 million or <unk> 53 per diluted share compares with net income of $15 million or <unk> 36 per diluted share in the prior year.

Looking at revenue by business segment on slide nine device solutions revenue was $186 million or $27 million and 13% year over year decline on a constant currency basis.

The decrease was due to lower customer demand in EMEA and COVID-19 related delays as well as the impact of the Latin America transaction completed in Q2 of 2020.

Network solutions revenue was 277 million and $93 million or 25% decrease year over year due to the delay of large customer projects caused in part by COVID-19.

Revenue and the outcome segment was $61 million, a $7 million or 13% increase and constant currency for 2019, the increase was driven by higher software license sales.

Lastly, foreign currency changes resulted in $10 million higher revenue versus the prior year.

Moving to the non-GAAP year over year EPS Bridge on Slide 10, our Q4 non-GAAP EPS was <unk> 65 per diluted share down <unk> <unk> from the prior year.

On a year over year basis, there were some puts and takes net.

Net operating performance had a negative <unk> <unk> per share impact versus Q4 2019.

The reduction in gross profit was partially offset by lower discretionary spending including variable compensation.

Our interest expense resulted in increased net benefit year over year.

Higher non-GAAP tax rate decreased EPS by <unk> <unk> versus Q4 2019.

Year over year tax rate was primarily due to a more favorable jurisdictional mix and higher discrete benefits in 2019.

And finally changes in foreign currency and share count resulted in a <unk> 10 per share decrease year over year.

Turning to slides 11 through 13, I'll now discuss for Q4 results by business segment compared with the prior year debt.

<unk> solutions revenue was $186 million with gross margin of 12% and operating margin of 7%.

Margin decreased 280 basis points due to COVID-19 related inefficiencies and increased inventory and special warranty reserves.

Operating margin decreased 100 basis points due to the fall through and lower gross margin, partially offset by lower operating expenses.

Network solutions revenue was $277 million with gross margin of 36%.

Gross margin was up 90 basis points from the prior year due to improved efficiencies and implementation and maintenance services.

Operating margin of 25% was below last year due to reduced operating leverage.

We anticipate Q4 revenue to be the low point for network solutions.

Operating margin was 30% 14, three points higher than last year due to the fall through of higher gross profit and reduced discretionary spending.

Turning to slide 14, and I'll cover liquidity and debt.

Free cash flow was $29 million and the fourth quarter up 2% from the prior year due to lower capital expenditures, we have tightened the spending for capital projects given the current environment.

Cash and equivalents at the end of the fourth quarter were $207 million.

Total debt decreased to $936 million and net debt decreased to $729 million.

This was due to the 400 million repayment on the revolving credit facility in the fourth quarter. In addition, we prepaid $14 million on the term loan, which fulfill any required debt payments until the second half of 2021.

Net leverage was four one times at the end of Q4 down from four three times at the end of Q3 now.

And now to briefly recap full year 2020 results on slide 15 full.

<unk> full year results were significantly impacted by the COVID-19, pandemic with lower revenue profitability and free cash flow.

Revenue of $2 2 billion was down 13% from 2019 due to lower customer demand and operating constraints, resulting from COVID-19.

Gross margin was 27, 7% 240 basis points lower than 2019 adjusted.

Adjusted EBITDA was $178 million eight percentage of revenue compared with $270 million or 11% of revenue and the prior year.

Non-GAAP earnings per share was $1 85, compared to $3 32 and 2019.

Free cash flow was $63 million down from $112 million and 2019.

Our team did a good job managing cash and 2020, and we delivered very strong collections performance.

During 2020, we continued to execute and ongoing cost reduction initiatives and also introduced our 2020 project to further reduce our fixed costs and improve operational efficiencies.

In addition, we took actions to reduce all discretionary spending including eliminating variable compensation for 2020.

These actions helped mitigate the impact of dependent Mccann and our profitability and cash flow.

We anticipate that these temporal reductions taken in 2020 will revert in 2021, but still expect to be at our target operating expense level of 22% to 23% of revenue.

Syed.

The revenue level for the first half of 'twenty, one should be similar to the first half of 2020.

At the midpoint for 2021 annual revenue guidance is approximately 5% year over year growth.

This is driven by high single digit growth and outcomes low to mid single digit growth and network solutions and with devices essentially flat year on year.

We anticipate full year non-GAAP EPS to be within a range of $2 15 to $2 55 per diluted share.

And at the midpoint this represents 27% increase over our 2020 performance.

We expect the EPS to be even more backend loaded and revenue due to COVID-19 related inefficiencies continuing in the first half of the year.

Other guidance assumptions are and euro to U S dollar foreign currency exchange rate of one two.

And average non-GAAP effective tax rate of approximately 30%.

We expect interest expense of approximately $36 million and average shares outstanding for the full year of approximately $41 million.

In summary, we successfully managed through a very challenging 2020 and are cautiously optimistic and the outlook for 2021 and beyond.

We will continue to focus on operating initiatives to make us stronger and more agile now I will turn the call back to Tom.

Thank you Joan on.

And our final note prior to turning to Q&A. While we are excited about the opportunity ahead of us I would like to take a moment to thank all those who brought us to this point.

Over the last year, <unk> global workforce partners and customers have put forth a tremendous effort to keep our energy water and cities critical infrastructure intact and operational as.

As a community we were forced to adapt and overcome.

Thank you for joining us today, operator, let's open the line for some questions.

Thank you if you'd like to ask a question simply press the star key followed by the digit.

And one on your telephone keypad also if youre using a speakerphone. Please make sure. Your mute function is turned off to a later signal to reach our equipment. Once again press star one at this time, we will pause for a brief moment.

And well first hear from Jeff Osborne of Cowen and company.

Hey, good morning, guys and great to see the progress there with with bookings had a couple of questions on my end.

Bookings for and certainly Theres been a lot of activity and the northeast and the mid Atlantic.

You know that we've been tracking over the past couple of quarters and years.

And some notice had regulatory delays and some that haven't but I was just wondering is there a way you can give us more detail as to the nature of the bookings.

And that's domestic.

But as a gas and electric.

It looks like oven grid national grid, Dominion et cetera, all have been pursuing opportunities over the past couple of quarters. It would be great to get from <unk>.

Incremental color if you can as to.

Where it's coming from.

Good morning, Jeff and Tom Deitrich here I can jump in and take that one.

Indeed, we were very pleased with our fourth quarter bookings, we had talked about it during a couple of our earnings calls during.

2020 that we expected to have a number of those day.

Delayed bookings come in during the fourth quarter and they did the bookings as you correctly pointed out our prey predominantly North America. They are scattered around different regions from the northeast to the Midwest.

The deal does include our distributed intelligence platform to give a little bit more flexibility and enhance the performance.

And the value of the network over time, so that is a meaningful portion of the of the bookings that you saw during the fourth quarter again, there are others, but that's one that I think is particularly worthy of calling out and.

And networks.

Excellent and just.

John one clarification on the <unk> and grid, great to hear and the types of my personal utility here in New York is it for New York or their Connecticut properties or both.

It is.

Both the New York State.

And why Etsy and G as well as the Rochester, our gas and electric those are the ones that are in the bookings for <unk>.

For Q4.

Got it obviously will continue to work closely and and.

And then expand from there.

Yes.

Makes sense and then my last question is on the semiconductor issues.

Our plaguing auto and some other consumer electronics, you folks had some challenges and late 2018.

Sure.

We did see the supply chain and in semiconductors tighten up and the second half of last year and indeed, you tend to read a lot about it in the press today.

To this point, we have stayed ahead of it some of the lessons learned and in 2018 in terms of anticipating orders and.

Building up a little bit of buffer inventory and critical components served us well and the back half of <unk>.

Last year it.

It is an ongoing situation. So it's one that we'll continue to monitor during 2021, depending on how long that will last but.

Sudden change and orders in a number of industries certainly.

Consumer electronics, Pcs and phones were pretty hot during the pandemic and automotive turned up quite unexpectedly.

The latter months of 2020, that's one that has put a strain on the supply chain across the globe and one to monitor we're not immune to it but we've been pleased with our performance to this point.

Great to hear and Thats all I had thank you.

Thanks, Jeff and <unk> mouse.

And also novel Raymond James has our next question.

Okay.

Thanks for taking the question, we all saw what happened in Texas last week.

And I thought it would app and a more broadly what are the demand response.

Capabilities of <unk> and.

And what slice of the outcome segment.

Does the Dr business represent.

Very good good morning Pablo.

And most everyone watched some of US were really live and in the middle of it.

And gloves during meetings, because it was pretty chilly for Texas, but.

My jokes aside it certainly was a pretty severe storm and.

And as part of some of the Megatrends that we've spoken about in the past where our customers are under pressure for environmental as well as infrastructure and social kind of considerations.

Overall as you correctly pointed out one of the tools that is indeed possible.

To combat some of those those trends that are out there is a Dr. A demand response program. In this particular case, we saw several of our customers triggering Dr events to shed load during this period to enhance grid stability, there and <unk>.

Obviously, a tradeoff and doing so but it is something that our customers did use and it is part of our outcomes offering.

Today that capability is is about 15% or thereabouts of our total outcomes segment and in terms of the size plus or minus.

It will vary a little bit quarter to quarter, depending on how the events trigger all the way through so it is.

A meaningful part of our portfolio and one that we look to continue to enhance as we think these types of events. Unfortunately will continue to plague the globe all around the world and it's a good part of what our offering would be and how to help our customers cope with the situation.

Got it let me follow up on.

Covid situation and in Europe.

Of course, a year ago, a lot of manufacturing capacity will shut down.

We are seeing some.

And concerning signs in Germany, Italy.

And Central Europe, Slovakia.

Talk about your physical presence.

In Europe, specifically and the level of production at your sites there.

Sure. So we do have.

And meaningful presence in France, and Germany, specifically those are our biggest countries of employment for our European operations.

And we do have plenty of essential workers that are go into the planned every day to day to carry on production throughout the pandemic, we have put in place.

Maintaining a good balance between supply continuity to our customers as well as safety.

For our employees, we havent seen spread inside of our facilities that said.

Your question goes goes beyond our internal operations and starts to think about the environment that we operate in and we've definitely seen I'll say slowdowns in and deployments themselves as access to markets and into homes and things of that sort has been pretty limited.

Given that the ongoing situation things did slow down a little bit and Q4, and I think we referenced that and some of our prepared remarks that it was part of.

The revenue story for US and Q4 will continue to watch it we do anticipate.

That will have a path back to more normalized deployment operations as we go through 2021, but its certainly something thats still with us.

During this quarter and probably the first half of the year, which is giving you a little bit of insight into the shape of what our revenue profile would look like for the year.

Thank you very much.

Okay.

Noah Kaye with Oppenheimer.

Thank you good morning.

And the question look I think you've given us all the pieces to do that.

But just so that everybody has are math straight as we think about bridging about 50.

EPS growth year over year at the midpoint can you kind of give us the pieces of that.

Interest rate.

Interest expense tax rate and then kind of core operating performance.

Yes.

Yeah, well I think I gave you the interest dollars and the tax rates I think you should be able to get that I have not tried to calculate net in terms of actual EPS and preventive, but it is driven by roughly at the midpoint, 5% revenue growth and.

The 27% EPS growth is even with the tax rate being higher in 2021 versus 2020. So there is obviously gross margin improvement and there as well and as that rich and we would expect our opex for 'twenty one to be in that range of 22% to 23%. So.

Again, I haven't done the specific bridge to that math, but I think you've got all.

And the numbers you need to be able to do that.

Right and at the point here is that the biggest drivers for the core operating performance and the margin uplift, particularly on correct Mark correct. So so the follow up question here is really how much of that improved.

Margin is.

Just $100 million of revenue coming back here for a year versus COVID-19.

And inefficiencies being ironed out versus something that you mentioned in your prepared remarks, which is what I really want to pick up on around structural cost improvements and the business.

Well we.

And in 2021, and if you recall most of the improvements from the 2020 plan are in the margin line.

That certainly will help so we are expecting gross margin to improve in 2021 over 2020.

And as I mentioned the earnings.

Linearity and is even more back and loaded and the revenue and that is because some of the COVID-19 stuff. Tom just mentioned, we are still seeing the inefficiencies of Covid and our operations and the first half and net debt primarily affects gross margin. So if I think about the full year I think for the full year and we'll be back to pre COVID-19 kind of like for 2019.

Level of gross margin, which would be an improvement for over 2020.

And just so unclear.

Sort of like a throughput utilization issue for the business or is there.

Some kind of COVID-19 costs.

Within your own operations, and you're still having to deal with.

Yes. It is primarily due to I'll say generally that the revenue level deployments are slower and which means we're putting less product and there. So we're producing less product and the factory and therefore your utilization is a little bit lower there are some other costs and in terms of inefficiencies for safety protocols and such but those.

Or a much smaller piece. The primary driver is just think of it as gross revenue level and utilization.

Okay great.

Last question.

<unk>.

Creating exceptional and hopefully never to be repeated year.

But.

Sitting here a year later and you just compare your.

And of new opportunities for what it was a year ago.

And given everything that's happened in the past year, both in terms of grid resiliency and being tested more renewables Moore <unk>, how does the pipeline compare.

Are you thinking about bookings levels for 2021.

And what should investors be expecting.

Okay.

The record backlog level is I think is a pretty good.

Q to take in terms of the level of activity and the size of the pipeline of what's still ahead of us.

And at record levels in terms of the total backlog, we saw sequential improvement and the 12 month backlog. So we've turned the corner I will say within the next year.

In the backlog so that's the way to think about it and that is a decent way to think about the overall pipeline of opportunity customers have a lot of interest in automating.

Procedures.

Getting better insight into the grid, adding resiliency into.

And their operations to deal with Crazy things like the storm itself better forecasting tools and better understanding of how to operate in.

In the new World all of those are good things for our business.

And the last Mega trend that I would mention that I think is very relevant has to do with.

A much deeper focus in terms of how to handle renewables and distributed energy resources. So a lot of the push for and the commitments that our customers are making around cash.

Alright, thanks, so much for taking the questions.

Yes.

Next we'll hear from Ben <unk> of Baird.

Thank you.

Nice backlog.

Nice numbers on the outcomes.

And can we talk a little blue belt.

Opex.

It seemed like a big step down.

Thank you said that reverses next year, but.

And <unk> controller.

For both.

SG&A.

As far as far as our as.

And as well.

Yeah, I'll take a stab at debt. So obviously very early on and the pandemic.

Put brakes on all discretionary spending and some was was obvious right. So if you have travel and things of that nature. So.

And all of our conferences et cetera, where virtual like everybody else and so there was a significant amount as normal travel that people would have done.

Other big item was the variable compensation, So we mentioned and a couple of times and the script.

We did not earn any variable compensation. So it is performance based and given where we started the year with our budget and our commitment to our board.

We werent able to hit those numbers and so throughout the year and we were accruing some variable compensation by the time, we got to the end of the year. We made the decision that we were not going to ask for any kind of exception and therefore all of the variable compensation was was reversed and so that's that's why we mentioned it a couple of times.

And now starting a new year, we have a new budgets that our board has approved and if we hit that budget, we would expect to to accrue and earn variable compensation. So those are the two biggest levers kind of discretionary T&D type things.

Obviously, and investor marketing events, sorry, marketing events as well as variable compensation and the biggest.

Got it.

Outcomes I think Tom I heard you say that this is a low points.

And so that could you just talked about.

So I think thats something that we all watch.

And we.

Going forward as your growth there.

Margin expansion there.

It's been a while.

From our standpoint.

Take hold.

And I think you said was the low point.

So could you talk about how we should expect debt to go forward.

And for this year and then.

Also moving the margin trajectory and the help that lines up with.

You said EPS was backend loaded and I.

The final point on guidance and the <unk>.

Backlog, how much visibility outcomes.

All right. Thank you guys.

Very good and a number of things to unpack there. So first and I hope, we didn't confuse things, but that the low point was more on the networks side in Q4, rather than outcomes. So networks revenue in Q4 was kind of a low point and and we would expect it would sequentially grow.

From there so that was networks not outcomes with respect to outcomes. We were pleased with the with.

With the performance in Q4, you sell debt the revenue held up pretty nicely. If you think about it and a year over year since our hardware oriented businesses and networks and in.

Devices was down double digit percentages. Meanwhile, our outcomes business was what was up a couple of points. So that recurring revenue and that long term visibility you get with and outcomes business model served us well.

Using the pandemic as a quick example, overall the margin for outcomes in Q4 was benefited with some one time licensing revenue, which was particularly good margin. So I think the margin was a little higher even in Q4, which again was great to see but we would still want to make sure that.

It is clear and People's minds, the size of the business isn't quite at scale, just yet so the margin profile might be a little lumpy on an ongoing basis, so relative to what you should expect going forward.

Revenue wise, we expect.

Let's call it high single digit growth for outcomes. This year it'll continue to perform nicely for us.

What we saw in Q4 that $970 million of bookings thats very tilted towards.

And $2 7 million cumulative di distributed intelligence enabled end points are now and the market. So that gives us opportunity with our installed hardware base to add new capability into the marketplace and add applications into their which is outcomes revenue and also we are now over 74 million man.

<unk> and points in the marketplace and again thats good indication of where the outcomes business is growing outcomes will grow based on expanding those two numbers, meaning more new endpoints under management more new endpoints that are highly capable and the field.

And so volume expansion, but then and application expansion on each one of those.

Types of endpoints, we can add new capability, which is good for the outcomes growth and that's really the thesis for why we think we will continue to expand that portion of our portfolio.

That's great maybe I'll slip one more and the <unk>.

And with toward clock.

A big topic for 2028.

Any changes there as far as.

Willingness to approve projects and the U S or.

Just being able to meet.

Doug.

And the big bookings number that we had I would say that certainly it continues to move at pace that the new information or the new things to think about in terms of the regulatory environment at least for the U S. Certainly would be that the new administration and some of their push and or consideration around potential infrastructure spending.

<unk>.

Are things and then any lessons learned out of some other things that happened in Texas over the last couple of weeks I do think those would be regulatory considerations going forward, but for now I think it's really started to normalize quite a bit more than what we saw where things really paused and the first half of last year, we're back to a more.

Normal cadence as it.

As of today with those two caveats that I mentioned.

Perfect. Thank you Toms zone.

Yeah.

And it's been debt Dorsch fire Canaccord genuity.

Hi, Thanks for taking my question.

To kind of.

Separate but I guess related topics I guess first just tap into.

The issue of curtailment.

She is becoming a more topical, particularly with the advent of renewables and California seems to be a poster child for this so I was wondering if you could maybe just unpack the value proposition across.

Outcome and network solutions.

And in particular.

In terms of how <unk> captures that.

Value and and improve that for the isos and the.

And the utilities, if you would.

Sure. So I think that there is there's a couple of trends there that are really interesting to us. So I'll start at that the last mile and work my way back up the chain. So the Moore.

And what's happening at the last mile.

Volatile where you are.

And you're wanting to bring capability up and down the ability to react quickly on the demand side too to balance supply and demand is an area that we also can help our customers deal with the third is really around distribution automation. It is giving the utility much better insight into what's happening inside of their grid. So much more cost effective way to put.

Monitoring points in the network and again truly understand what's going on with outage or loading levels.

Whether a transformer is nearing its breaking point.

Really help when you have a bit more variability or volatility in both the demand side as well as the generation side overall.

Utilities are definitely up against it and have pressure in terms of being cost effective so wanting to balance that supply and demand, but also having to cope with the natural disasters and and things of that sort as.

Pressure and it comes to their grid and a number of different ways, so helping to monitor that understand it and respond to those those quick changes.

Really what we are in a very good position to help with and it is a growth area for our business.

So.

Thank you by the way for for kind of going through then taking the time it kind of sets up for the next question I mean, when we look at the forensic analysis, that's coming out of Texas and it really.

Objectively.

Is and abject failure of policy and and.

And resiliency.

For the cost trade off so as you start to think through the appetite of.

Other utilities around the country.

As well as far and to power providers that arent going to want to be in that.

To have a system failure that could have been avoided and.

And looking at what Youre demonstrating in terms of that value in the last mile as well as utility scale, particularly in.

In California.

I want to bring it back to that 5% growth number.

It seems like.

And last there is.

And I guess I am sort of scratching my head in terms of the setup or whether or not this.

Just isn't baked into that expectation and.

And I have one more.

I think there is a time component to it that probably needs to play through it will take a little bit of while to really sort through and learn from and develop proper.

Policy solutions to address some of the issues that were clearly demonstrated in the last day.

A week, if you use Texas as the example, but policy moves at a certain pace and that's.

And that's really what's understand behind.

The growth expectations, we have for this year.

And I'll remind we think it's absolutely a long term growth vector for our industry and certainly an area that we're super excited about doing our part to help the grid on a global level.

And whats going on if you do look longer term, though.

The growth trend is increasingly behind networks and outcomes and that's absolutely where we intend to grow where we have invested to grow and prepare solutions to get to.

And benefit from those <unk> and I think some of the pressures that are in the news today are only accelerants to.

And that type of trend and should benefit us given the strategy and the work that we've done to this point.

That's helpful. One last one for you. So if I look at the how the structure is in terms of.

From a utility and a power provider of pulling your solutions into the market.

And thats going to be.

Price and Alaska, or not price and elastic but.

That's going to be interest.

Right or wrong.

And elastic to potential inflation or rising interest because it's using the constituents money to actually pay for your projects could you just either.

Firm or correct me, if I'm wrong and that that assumption.

Certainly we think the interest rate today is pretty favorable and the macro signals would suggest that.

So.

There's other avenues to grow there that are perhaps a little bit less interest rate correlated and well.

Continue to work on that but there is a major portion of our business, which is well correlated.

And as you've correctly pointed out.

Got it thank you.

And next we'll hear from Tom Moore Stephens.

Good morning, and thanks for taking my questions.

Yeah.

Good morning, Tony.

I wanted to start by continuing on the renewable theme so at the macro level.

Both in the U S and elsewhere.

Trend is clearly.

Higher where the contribution from our renewables.

Going higher over time.

One other things I think investors are trying to wrap their minds around us.

What is the inflection point look like maybe at a customer level. So if you then.

Go from 30000 feet down to a single customer.

There is a spectrum, there and where they may have.

So renewables capacity at one point and time and then and then.

As time goes on that debt contribution growth and.

So at some point.

Maybe there is a tipping point or there is an inflection point where.

It starts to become a meaningful enough piece of their.

Footprint that debt.

And those those conversations with with your team really start to accelerate at the customer level.

Who I would say that we're well into it already today.

Making and plan around how you handle generation.

And part of our customers tends to be a multi year kind of thought process, if theyre going to build a big win.

And so I would say that.

And those those conversations are alive, and well and have been for some time certainly the push towards more carbon reduction.

Social sense has been an accelerant during the last year there are practical realities.

And that you can't get there overnight.

And there is.

A fair amount of carbon based economy, that's still out there from our standpoint, we want to be able to to make that carbon based solution more efficient and and have less waste should should.

That'd be something Thats part of the customer solution, but also seamlessly integrate renewables into the.

And to the grid, we've got some some nice cases, where we've seen customers.

It happens to be a U. K example, that I'm talking about here, where one of our U K customers said they integrated in some renewable capability into their network about 12 to 18 months faster than they thought they could because of better insight into the distribution side afforded by by some of the capabilities that.

We can provide so having better analytics to truly understand what's happening and their network is a real benefit to them as they continue to work on the generation side.

Thank you tell them that that's all very helpful context, and if I can move more to a model question here.

On the full year guidance and the first half second half.

Insight you've you've given thank you that's all very helpful.

I, just I can't resist asking on the first quarter.

Given it's right in front of us.

Just wanted to make sure everyone calibrate expectations.

And a reasonable fashion here can you give us any directional insight on revenue or margin trends or maybe on the bottom line.

What kind of contribution from EPS in Q1 versus your full year, even just some rough numbers would be helpful.

Yeah, I apologize, but we don't even really give first half second half guidance. So I did give you some color to try to shape. The model. The thing I would point out for Q1 that you should keep.

From an opex perspective that to go up from Q4 to Q1.

So that would be the color I would give you on.

And Q1 is that we're going to revert back to kind of the normal percentage of opex and other than that it's.

And I'm not really prepared to give Q1 guidance.

Fair enough and and on the full year one item.

Should I mentioned and a second ago, just in terms of free cash flow.

Anything you could do to frame the full year outlook there.

And maybe in terms of conversion of adjusted net income or <unk>.

And just the building blocks on capital expenditures or working cap.

Yeah, I would say overall free cash flow I would expect to be approximately $100 million, maybe a little bit higher than that but that's about the forecast for the year.

Great. Thank you that's all helpful and now I'll turn it back.

Joseph Osha of JMP Securities.

Hi, good morning.

Congratulations on getting to recap here.

Two questions for you first we've talked a little bit of growth.

Maybe you could energy and how you would benefit from the deployments there I'm wondering how you think about.

How you square off against them and the investments being made.

By companies like <unk>, which bought and Bolivar.

Or what we see as debt.

And that's it.

Sounds like you're beginning to touch on this.

Actual management of distributed energy resources or are those companies <unk> or do you intend to compete directly with them or do you regard yourself sort of is adjacent to the actual management of distributed energy resources and then I have one other question.

Sure Joe Good morning, I definitely see cases, where we cooperate to the benefit of the customer and sometimes we do compete so it varies a little bit a case to case and and depending on the.

Various competitive dynamics that are in place or incumbency that thats in place.

I definitely see it as a net positive no matter, which way that the model actually goes for for us.

And we definitely and I might have talked about this and some of our prior discussions.

See a real benefit in having a combination of endpoint compute capability as well as well as analytics capability that the combination of being able to take measurements on the ground and use that data computing locally and in the cloud really gives you a.

Our competitive advantage or a service capability advantage so that the way we go to market and the solution that we bring definitely has edge compute as well as analytics capability to get the best data.

And the best insight as in case that is needed to serve the customer.

Yes.

And your business and I Wonder why I try and doesn't just buy a company like auto grid.

Could we see you look to further build out your skill set and this space.

Yes.

Okay.

It is an area that we continue to invest in and work on the outcome side, we definitely see good opportunities for Microgrid analysis for <unk> distributed energy resource management.

Our demand response.

<unk> of solution, So I think theres a lot of activity in that space and.

We've got some nice capabilities, there and continue to look for ways to expand and serve our customers better.

Okay. Thanks, and then one other one and I know, we're running up on time here.

You heard that much today about non meter endpoints I am sure that business has been very disruptive this year, but I'm wondering if you could give us some comments on some of the initiatives and we've heard about and the pathway quite street lights and and so forth.

Sure Our street light business.

And while a smaller portion of our total portfolio continues to grow very nicely.

I don't know that I have the number off the top of my head, but well over 3 million Streetlights and points managed we've seen good growth in methane detection sensing we've seen.

Good growth in.

Other types of sensing applications with things like a gunshot detection or air quality monitoring.

Parking applications.

Are things that.

We were we continue to be very excited about and the smart city space that we have certainly the city budget is a strained entity at the moment and a generic sense and it's.

And one that we definitely see opportunities to grow but we'll also be thoughtful about how to make sure that the business model is good for the city and accrues benefits to that community, but also to our business as well.

And.

Thank you very much.

Thanks, John for the peers are no further questions at this time I will turn the call back over to Tom Deitrich for any additional or closing comments.

Thank you operator before we leave you I want to mention one final point previously we communicated that we plan to do our annual industry event I try and inspire in October of 2021.

I'm pleased to relate to you today that coincident with that industry event, we plan to have our 2021 Investor day. It will commence on October 5th there'll be hosted both virtually and hopefully if commodity.

Conditions permit we will do it live so please mark your calendars and we would love to have everyone participate will provide more details as the event gets closer so with that thank you all for joining everyone be well.

That does conclude today's conference. Thank you all for your participation you may now disconnect.

Q4 2020 Itron Inc Earnings Call

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