Q1 2022 Itron Inc Earnings Call

May 2, 2022

Good day, everyone and welcome to the I tried Inc. First quarter 2022 earnings Conference call. Today's call is being recorded for opening remarks, I'd like to turn the call over to Mr. Ken GNL. Please go ahead Sir.

Okay.

Thank you operator, good morning, and welcome to <unk> first quarter 2022 earnings Conference call.

We issued a press release earlier today announcing our results. The press release includes replay information about today's call a presentation to accompany our remarks on this call is also available through the webcast and on our corporate website under the Investor Relations tab.

On the call today, we have Tom Dietrich, <unk>, President and Chief Executive Officer, and Joan Hooper, 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 reconciliation of differences between GAAP and non-GAAP financial measures are available in our earnings release and on our Investor Relations website will.

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

Statements are based on current expectations and assumptions that are subject to risks and uncertainties actual results could differ materially from these expectations because of factors that were presented in today's earnings release and the comments made during this conference call and in the risk factors section of our Form 10-K, and other reports and filings with.

The Securities and Exchange Commission.

All company comments estimates or forward looking statements are made in a good faith attempt to provide appropriate insight to our current and future operating and financial environment.

Materials discussed today May <unk> 2022 may materially change and we do not undertake any duty to update any of our forward looking statements.

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

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

You will hear first quarter details from Joan coming up shortly but I would like to provide a brief overview of the quarter revenue was $475 million. Adjusted EBITDA was $19 million non-GAAP earnings per share was <unk> 11 cents and free cash flow was $2 million.

Turning to slide five our first quarter bookings were $417 million with an approximate book to bill ratio of 0.9.

While some quarter to quarter Lumpiness in bookings as expected we are still targeting at least a one to one book to bill ratio for the year.

Total backlog remains near record levels at approximately $3 9 billion, excluding approximately $60 million of backlog associated with the sale of our non communicating mechanical C&I gas business that we completed in the first quarter.

Our 12 month backlog continues to grow steadily and is now up to a new record of approximately $1 6 billion.

Primarily driven by our networked solutions and outcomes segments.

Turning to slide six I will now provide some operational insights on the first quarter.

As I mentioned previously we close the sale of our non communicating mechanical C&I business on February 28. This is another proof point of the execution of our strategy as we steadily progress our business up the pyramid towards higher valued networked and outcome centric solutions and optimize our manufacturing.

Sprint to an asset light model.

Market demand for <unk> solutions continues to be very healthy as utilities look to address ageing infrastructure and future proof themselves by preparing for the proliferation of electric vehicles, increasing visibility and control of the grid for distributed generation and renewables and enhancing grid security resiliency and reliability.

<unk> <unk>.

<unk> continues to be a leader in helping our customers through this dynamic environment as is evident with our distributed intelligence enabled end points, which have grown cumulatively to over $4 2 million units running millions of applications in the field.

The distributed intelligence endpoints combined with our suite of grid Optimizer solutions provide advanced grid management capabilities that will address significant customer needs, but also are important growth vectors for outcomes business.

We're extremely pleased with the current market demand for our solutions and we remain steadfast in our strategy.

However, as we stated in our last earnings call, we anticipate that semiconductor supply constraints and inflationary pressures will continue to impact our operations well into 2022 in the first quarter, we estimate the supply constraints limited our revenue by over $100 million with.

With the vast majority of that impacting our network solutions segment as discussed in prior quarters, we have experienced no cancellations or loss of customers.

We are actively addressing the temporal challenges of a supply limited inflationary environment. We continue to drive efforts to overcome supply chain shortages and improved factory utilization. We are also working multiple initiatives to mitigate inflationary pressures with ongoing price cost actions combined with a disciplined approach to this.

Question are you spending.

I am proud of our team's efforts to overcome these operational headwinds that have had significant impact on our current period financials I will now hand off to Joan to cover our first quarter results in more detail.

Thank you Tom as discussed on our last earnings call. Our first quarter results continued to be significantly impacted by supply chain shortages and cost pressures. Please turn to slide seven for a summary of consolidated GAAP results.

First quarter revenue of $475 million declined 9% versus last year or 6% in constant currency.

The year over year decrease was due to supply shortages, which limited our ability to meet customer demand.

Gross margin for the quarter was 28, 4% 380 basis points lower than last year due to higher component costs and manufacturing inefficiencies driven by the supply constraints.

GAAP net income of approximately $1 million or <unk> <unk> per diluted share compared with $13 million or <unk> 30 per diluted share in the prior year.

Regarding non-GAAP metrics on slide eight non-GAAP operating income was $9 million.

Adjusted EBITDA was $19 million non-GAAP net income for the quarter was $5 million or <unk> 11 per diluted share.

Looking at revenue by business segment on slide nine device solutions revenue was $140 million or $24 million or 14% year over year decline on a constant currency basis.

The decrease was due to component shortages impacting our ability to meet customer demand as well as exiting certain product lines, including the recently completed sale of our non communicating mechanical C&I gas business.

Networked solutions revenue was $279 million and $8 million, a 3% decrease year over year in constant currency.

Decline is attributable to component shortages, partially offset by a ramp in new deployments.

Revenue in the outcomes segment was $57 million, a $1 million a 1% decrease in constant currency versus last year. The decline was due to lower product and software license sales, particularly prepay services in EMEA.

While the decrease was disappointing our core U S market continues to be strong driven by growth in networks as a service.

Lastly, foreign currency changes resulted in $12 million lower revenue versus the prior year.

Moving to the non-GAAP year over year EPS Bridge on Slide 10, our Q1 non-GAAP EPS was <unk> 11 per diluted share down <unk> 41 says from the prior year net.

Net operating performance had a negative <unk> 51 per share impact due to lower gross profit driven by the component shortages and higher input costs.

Lower interest expense resulted in a 13% increase year over year.

A higher tax rate had a negative <unk> <unk> impact and lastly 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 discuss the Q1 results by business segment compared with the prior year.

Device solutions revenue was $140 million with gross margin of 16% and operating margin of 8%.

Gross margin declined 310 basis points due to manufacturing inefficiencies related to component shortages and inflationary cost pressures.

Operating margin decreased 430 basis points due to the fall through of the lower gross profit.

Network solutions revenue was $279 million with gross margin of 33%.

Gross margin declined 630 basis points from the prior year, primarily due to inflationary cost pressures and manufacturing inefficiencies related to component constraints.

Operating margin of 22% decreased 560 basis points due to the fall through of lower gross profit. This was partially offset by lower operating expenses.

Outcomes revenue was $57 million with gross margin of 39% an increase of 120 basis points year over year. The increase was due to improved operational efficiencies within the segment.

Outcomes operating margin was 15% 310 basis points lower than last year due to higher R&D investment.

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

Free cash flow was $2 million in the first quarter compared with $39 million in the same period last year.

The decrease was primarily due to higher variable compensation payments made this year.

Cash and equivalents at the end of the first quarter were $204 million up over $40 million sequentially driven by proceeds from the sale of our mechanical C&I gas business.

Total debt remained flat at $460 million and net debt was $256 million.

Net leverage was three one times at the end of Q1.

In summary, while demand for our solutions remains high the supply challenges and inflationary cost pressures are continuing to affect our financial results.

We remain optimistic about our strategy and longer term financial model, we will continue to monitor the macro environment and manage the areas that are within our control, including disciplined discretionary spending and pricing actions to help mitigate the impact of the headwinds now I will turn the call back to Tom.

Thank you Joan.

As Joan mentioned, while we continue to anticipate these conditions persisting at least in the near term we are constructive on the future due to the collaborative relationships, we enjoy with our customers as providers of essential energy water and city services <unk> customers form the foundation of modern Society.

With our customers around the globe. The work, we do with iPhone shapes, the worlds by helping our customers gain insights and control over the use of our central resources, we take pride in serving utilities in cities around the globe and look forward to advancing our vision of creating a more resourceful world.

And in that spirit I'm excited to announce that we will be publishing our 2021 ESG report in a few weeks. We are proud of the ESG progress. We made in 2021 and look forward to sharing the details of those efforts along with the release of our new greenhouse gas reduction targets.

This combined with insights on how <unk> solutions help our customers reduce their carbon footprint is another positive step in our ESG journey.

We are committed to helping make the most of energy and water resources that we have today and creating a better tomorrow for our customers partners employees and the communities we serve.

Creating a more resourceful world is more than a purpose statement. It is embedded in <unk> DNA.

Thank you for joining today operator, please open the line for some questions.

Okay.

Thank you.

If you would like to ask a question. Please signal by pressing star one on your telephone keypad, if youre using a speakerphone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.

Again press Star one to ask a question.

And our first question comes from Tommy Moll with Stephens.

Good morning, and thanks for taking my questions.

Good morning, Tony.

Kevin.

I wanted to start on the full year outlook.

I think I missed it in the slides a release.

For comments regarding an update to your 2022 guidance. So I figure, we just address it head on here.

Can you give us any insight there on on the full year or.

Just provide any context.

Around why we don't have an update to that here in the slides today.

Yeah, Tammi I can take that historically, we only give guidance in February for the full year and then we updated in the midyear in August so we've historically never given interim guidance.

Okay.

I guess then.

Just in terms of the operating environment.

Compared to when we talked a quarter ago.

Some of these topics with inflationary cost pressures and supply chain constraints.

Can you just speak qualitatively.

Two what you see today versus maybe what you saw.

Quarter ago.

I can jump in on that one Tommy.

When we did our.

Guidance in February as Joe referenced at the time, we anticipated that supply constraints.

We'd certainly be with us.

First half of the year and indeed, that's exactly what we are seeing.

The revenue.

As referenced in the prepared remarks is gated currently by by semiconductor availability.

During the quarter, we saw lead times on semis incur.

Increased by just a couple of days, but certainly not a rapid increase.

Like we saw.

Prior quarters. So it's it's.

A few days.

Here in the last quarter, but not significantly but nor has it started to reduce just yet there is still a fair amount of instability working its way through the supply chain.

With things like China Lockdowns.

The ability to.

Great some of instability and indeed, that's kind of what's going on.

As we look forward, if we look deeper into our <unk>.

Supply chain, what we see is it.

If I go all the way to the CMS we.

We see more days of inventory on hand at the component level.

We've had historically and certainly more than we had during the past year.

That those days of inventory are definitely creeping up which is which is good.

But we're also heavily constrained on just a few parts so.

More inventory, but it's not a full square set to be able to build something and we've got a free up those so those last golden screw is if you will for lack of a better term to really release, it and Thats, what we really worked through and I agree with monitor that will keep that.

Pace of recovery on the inflation side, the second part of your question.

What I would say is certainly inflation is up and our pricing actions, while gaining speed and velocity.

Havent fully caught up just yet it takes a little bit of time.

For those things to roll fully through the backlog in and work through the pricing actions that we have underway, but we're encouraged by the yes.

The outlook in terms of where that can go in terms of offsetting inflationary pressures in the quarters ahead.

Thank you I appreciate it and I'll turn it back.

And our next question comes from Noah Kaye with Oppenheimer <unk> co.

Good morning, Thanks for taking the questions.

Maybe to start curious about how to think about the net impacts of.

Ukraine, Russia on your operations, particularly in EMEA.

To imagine maybe some some inflationary cost pressures just because energy prices are going up right, but at the same time that maybe create some opportunities given the dependence of some of those European countries and Russian gas to continue to get smarter in terms of how they consume energy. So can you talk a little bit about what you.

Seen so far.

And how the operations and the opportunities are cutting.

Again, good morning, Noah Tom here I can take that one start from the perspective of direct revenue in Russia, Ukraine, Belarus, its really quite small so the top line impact from a revenue perspective in those countries is de minimis and not particularly important to <unk>.

Talk about in terms of supply impact we also had.

Very low direct supply from anywhere in that area.

It certainly theres a lot of raw materials metals gases that are produced in those countries that are third and fourth tier into our supply chain and that's something to watch, but it certainly has it created any challenges in terms of supply.

To this point, but it is an item to monitor for us and the rest of the industry when it comes to.

What would be the macro trends in the broader impacts for it it certainly.

As the opportunity to.

Create some pressure macroeconomically in Europe .

Which could.

Could potentially slow down Europe , but again, that's something to watch in the quarters ahead from a.

More positive perspective, though it clearly will accelerate.

Energy transition for a lot of the western European countries.

Need to work through exactly how they secure energy independence.

That kind of situation.

The more renewables.

Sources of energy that need to be put onto to the grid.

<unk>.

Totally accrues very nicely to our technologies customers will look for ways to get visibility into.

The performance of their operations through that.

Understand exactly how to balance supply and demand and that's where we can play in those customer conversations are active now.

Yes.

Functionally right.

Whether or not we increase renewables in the share mix or how are we how your transition.

The first order of priority is supposed to be smarter about everything and that's.

Where your solutions come in so I was a bit curious to hear about the outcome is a little bit lower product sales.

Year over year in EMEA do you think that starts to turn around a little bit in the quarters ahead do you see more of an outcomes benefit coming.

From the European market.

Sort of finds its footing.

I do very optimistic about what outcomes can do globally, but certainly within Europe that the ability to truly analyze it and understand get visibility into the operations.

It is an important part of what utilities need to do and Thats exactly where we can play.

The work during this past quarter was really much more about some some legacy solutions, specifically prepay operations, which were lower based on some of the energy costs and other macroeconomic things you're doing but thats a legacy solution that grew.

Both areas for us the types of visibility and monitoring that youre talking about that continues to.

To grow nicely for us and we are.

Eagerly anticipating the ability to continue to scale that in quarters head.

Yes.

Just to add one more in and then I'll hop back.

You've mentioned a couple of times in our prepared remarks and Q&A.

Some pricing actions and would just love a little bit more detail. There are you getting incremental pricing on whats in the backlog at this point.

Or is it more that you're starting to take more aggressive pricing on some some business that got booked in <unk> and that starts to benefit later on or is this all sort of in the open market.

Book and ship business, if you want to call it that.

Okay.

I think there is three different components to air in.

The answer to your question is all of the above certainly in terms of new turns based business those are being priced in.

Level, that's more reflective of current cost structure in the marketplace for materials future.

Future contracts are being written in such a way that there is a bit more.

Pricing flexibility or shorter term pricing horizons, and their indexing and things of that sort in terms of the backlog itself that is obviously, a very active discussion and one that.

It's an area we continue to push on we've made some progress and we're continuing to work on that.

Don't want to lead you to believe that we've repriced all of the backlog will continue to work on it and some we have worked very hard to increase the percentage that we have.

Okay, Great I'll leave it there thank you.

Thank you.

And our next question will come from Pavel <unk> with Raymond James.

Thanks for taking the question.

Also.

<unk> about Europe , although not specifically about the war there are more and more countries in Europe like Italy with that we are in the initial wave.

Smart meter rollout going back before 2010 in many cases and they are now looking at essentially a replacement cycle. What are you seeing along those lines and how is <unk> positioned to get these replacement opportunities in.

In places where.

<unk> penetration is already very high.

Okay.

In terms of I'll call. It Gen. Two type types of work those discussions are really just beginning in some countries and not really on the horizon and others. So it tends to be a little bit of a mixed bag in terms of looking across the major western European economies. Some are still in that first gen.

Rollout type of things, but in all cases, there isn't more active discussion even on a first gen kind of solution about how to get better value out of it whether it's the data itself.

To increase the visibility on the distribution side and really control the grid, a little bit better with finer grade controls.

We've seen in the past so I would say, we're not wholly dependent on waiting for those gen. Two waves to come along.

We will continue to play pretty selectively if it's a component based business for us. It was more of a network solutions kind of deal it would be a bit more holistically.

But we'll continue to work with the customers on the distribution side on the smart city activities.

To be able to automate some of the street light kinds of things across major European cities is another area. That's been really active in the in.

The last couple of quarters, and we would anticipate that's likely to continue to be in the quarters ahead.

Okay.

I'll talk about M&A.

We've talked about this last year shortly after your analyst meeting.

What is the current kind of latest on the pipeline of acquisition opportunities and you're thinking about.

Moving forward with any of those.

We continue to monitor the landscape pretty nicely our interest areas are.

Our completely similar and unchanged to what I, probably have commented on that.

In the past scalable technology is really on the outcome side of things is the area that we would we would look for.

We'll balance of course, where the real scalable technology is in the.

The areas that we would want <unk> to grow in based on where valuations in the marketplace for software based assets look to be.

Obviously, we'll be thoughtful about it.

To do those things based on what the macroeconomic environment will look like and where the market is likely to go. So it opened an ongoing discussion that we will continue to monitor the areas of focus are unchanged from from comments in the past.

Okay.

I appreciate it.

Thank you.

And as a reminder, if you'd like to ask a question you may signal by pressing star one at this time.

And we will hear next from Ben <unk> with Baird.

Hey, good morning, everyone. Thanks for taking my question.

Tom I think in your prepared remarks, you talked about the backlog and customers, there's no cancellations, but could you talk about.

Ongoing discussions with customers when they see your backlog and the constraints.

All of that comes up in those discussions.

It becomes a.

For your competitors.

It may not face some of the same things that they do.

But having a competitive advantage and then I'll have a follow up on.

Sure so customer discussions relative to <unk>.

The backlog in place today and the supply constraints.

I would characterize them as.

Appropriate in terms of tone and tenor or people are frustrated because they want to carry on with their projects and we're frustrated too. So we're aligned on what the problem is.

No one is throwing up their hands and walking away.

We continue to work with that and work with customers on scheduling and how that rollout would really work and making sure that as hardware it becomes available.

The ability to install it quickly and ramp it into a commercial environment is there so I.

I'd say that there is clearly pressure in that area that we're placing but also customers are eager to get projects going but no change in their commitment to do projects or material changes in the.

How they are planning to spend their capital or things like that from a longer term perspective, I have not seen anyone use any customer conversation really using near term supply constraints as some kind of reason.

Reason to hold back on discussions for the future.

Other activities in fact, it's almost the opposite kind of goes back all of the.

Trends that were in place pre pandemic have kind of accelerated where customers are looking to automate business processes.

Improved resiliency and reliability.

Recent war.

Ukraine, and Russia has tightened.

Cyber security considerations, where customers are eager to do a better job with protecting.

Their assets and their data, which plays nicely into the portfolio of products that we have so I don't think it has changed.

I haven't seen any.

And hits or ideas about moving to our two competitors.

Where some of the supply constraints that we're grappling with are quite common in the marketplace.

Great and then just.

On the cadence.

Of sales.

With outcomes as the focus.

Maybe if you could.

So the outcomes business backlog.

But I think you would have networks out there before you have outcomes sales and so could you talk to us about.

How we should think about that cadence moving forward and just the timing of it as well. Thank you.

Sure so the.

Ability for customers to put a new network, if you will and use case.

Into.

Their territory.

Those projects tend to run.

Two to five years, depending on the size of the territory.

Net network is built adding incremental applications to with being able to monetize the data.

I'm, an outcome perspective looking at it from a nitrogen leads tends to happen, but it will lag the network deployment by.

Let's say 12 to 18 months, so as new networks go in there is one time services that go along with that to get it set up and installed and implemented and then recurring revenue starts to come on the back of that and then new use cases.

It would be 12 to 18 months after that so.

What the general flow and cadence would look like.

As were constrained a bit in terms of network deployments at the moment. It definitely has a knock on effect in terms of the timing that said.

Sales activity to be able to.

To sell in those those incremental opportunities is something that customers arent shying away from in the current environment and really like the pace of those kind of discussions.

The speed at which customers have deployed applications two endpoints I referenced that in some of the prepared remarks, but we've got 4 million plus.

Gi capable endpoints in the field and they're running millions of applications commercially.

That number continues to go up.

It said, it's exciting to see scaling with the new visibility for the customers and the speed at which they have ideas on new applications and do things. They want to do is is really a different way for the utilities to think and its really exciting to be part of.

Thank you very much.

And our next question comes from Connor Lynagh with Morgan Stanley .

Yes. Thanks.

I wanted to start on device solutions obviously.

At least sequentially speaking and a nice improvement in margins there.

Just wondering your thoughts around the sustainability of that how we should think about the profitability of that business as you move towards your longer term operating model goals there.

Yes, yes.

Yes go ahead, Joe you start maybe I'll tag on.

Yes, so from a standpoint of longer term margin targets. They remain unchanged from what we discussed back in October .

October I guess, it was kind of 23% to 24, 7% gross margin. So one of the one of the key levers to do that is to really make sure. We're optimizing the portfolio that we have and shedding some product lines that we just don't think makes sense. So and that includes for us the sale of the business to Russia that was <unk>.

<unk> at the end of February so yes. They did have a good improvement from Q4 Q4 was a little bit abnormally low this quarter.

15, 6%, we would expect that to continue to grow certainly the constraints have an impact so to the extent, we have supply constraints and we can't meet demand. There are some inefficiencies in the factories and things of that sort.

As well as Tom mentioned.

Our pricing actions haven't quite caught up to some of the inflation. So I would expect the device margins to continue to improve over time and again long term targets have not changed.

Okay got it and then on outcomes.

Certainly I think you alluded in response to another question that R&D being higher.

Or maybe that's my prepared remarks, but anyway.

I guess the question is if I look back at 2020 in 2021, there was a pretty consistent escalating cadence and margins through the year is that something systemic to the business is that how we should think about this year.

Or was that just sort of two data points in an otherwise volatile trend.

Yes, I would say outcomes margins are going to be lumpier than the other segments.

Two reasons one is you've got.

<unk> got one time software sales that given the small scale of the business can really create some lumpiness from quarter to quarter and then the overall scale of the business. So it is still kind of sub scale and so all you need is one or two software sales in one quarter and not in the other quarter and youre going to get some lumpiness. So I don't think there is a natural rhythm I could point you to that says it all we start.

Slow in Q1 and grows every quarter, it's just going to be a little bit lumpy until it's a bigger business.

Alright fair enough. Thank you.

And as a reminder, if you'd like to ask a question you may signal by pressing star one at this time.

And our next question will come from Chip Moore with Es Hutton.

Hello, Good morning, Thanks for taking the question.

You gave us a nice update on EMEA, maybe you could dive a bit deeper on what you're seeing in the domestic market.

Distribution capex projections at least.

To meet your values.

Very healthy over the next couple of years, so whether its RFP activity or.

Or other things you are tracking.

Sure.

U S market, which is our largest market is.

It is extremely healthy from a pipeline point of view.

As well as backlog as we commented earlier, but looking at it from a pipeline point of view a lot of interest in.

Second generation or two and a half generation.

Hi kinds of deals are active.

A lot of interest in.

Distribution automation, a lot of interest in analytics things like detecting rooftop solar or evs or or batteries behind the meter to try to understand it became visibility into a much more distributed into few scripted those.

Those are areas that are very active in the in the U S market network as a service where you have utilities that are teaming up to use a common asset to be able to further their activities between electricity and water or.

Gas and water or vice versa, any combination depending on how people are really thinking about it those are the areas that we've seen a lot of activity add on capability towards street lights. Once the network is deployed to do streetlight automation and be able to use that same canopy network is another.

Area that we've seen a lot of traction over the last couple of quarters in terms of customer dialogue.

Or really what we're thinking about as we talk about what a book to Bill ratio would look like we have not seen any.

I'll say real impact or contemplation of infrastructure spending.

In the current activities, everyone knows thats out there and as those rules are written there is opportunities that help to see how that flows through but no. One is slowing down and waiting while the rules are being drafted for that activity. So I think there is more.

Opportunities for our technologies as that money starts to flow into practice.

Okay. That's very helpful. Thanks, and then maybe one just less longer term, but.

A ton of investment in hydrogen just curious your thoughts sort of long term evolution of gas markets and any opportunity that could present.

Sure.

The idea around introduction of small amounts of hydrogen into gas systems.

That's an area that I.

I think it's more.

Opportunistic in the in the European market.

The U S. Although if theres plenty of discussion on it.

Our customers are really starting to think about it and I think as in Europe .

The next generation of products that we have in.

In the market today and the ones after that come equipped to be able to lead to handle.

Certain amount of hydrogen mixed in there that's what customers would choose to do so we try to get the product line ready to be able to operate it.

That those trends are indeed, counterbalanced in some ways, where some jurisdictions that are thinking about.

Restrictions on gas.

New buildings in new construction and Thats why we obviously make sure we're ready from the electricity side as more and more things become electrified as well. So we'll play both sides of that whether it be prepare depending on what.

A customer wants to do within their territory.

Got it okay. Thanks.

And our next question comes from Michael Mcginn with Wells Fargo.

Hey, good morning, everybody.

Yeah.

A lot's been.

Talked about on the pricing front I just wanted to get.

Our sense of the cost front in terms of accounting is this.

LIFO, where you're realizing the higher cost immediately or is there some sort of FIFO delay can you just walk us through the cost equation in terms on price cost.

Yes, I don't know I don't know that there is any big big.

FIFO delay and basically our inventory is kind of flattish for the last few quarters. So to the extent that there is input cost inflation, which which there is it's really reflected in the margins youre seeing.

Okay.

Okay, Great and then in terms of capital allocation, just going back to that.

The quarterly share repurchase was maybe the largest since 2014 and just any sense of.

How thats reflective of your confidence in the business building sequentially into the back half of this year and then maybe.

Is that the playbook kind of in today's environment, where private market software deals haven't been.

Necessarily reflective of what's happening in the public market valuations.

Well from a stock buyback perspective, as you know our board authorized $100 million over the next 18 months effective in November of 'twenty. One. So we did complete to date $25 million of that and we will continue to look for the right opportunities from a capital allocation standpoint to deploy capital whether it's through stock buybacks or as you mentioned.

Things of that nature. We obviously are also are planning.

Building and some of the working capital as we as we hopefully get on the other side of the supply constraints you would expect inventory to increase so that we can really fulfill the customer demand. So I would say all things are kind of on the table and we currently have authorized an incremental $75 million of stock buybacks.

That concludes today's question and answers.

I'm sorry.

Mr. <unk>. Your line is open thank you.

Yes, I'm all set thank you very much.

Thank you and we did have one additional question from Martin Malloy with Johnson Rice.

Good morning.

I was intrigued by your press release during the quarter about the project with Emerson.

And I was wondering if you could just maybe talk more about that.

The use of <unk>.

Youre meters in conjunction with the.

The thermostats et cetera.

The houses.

If that if you see a widespread use.

Your equipment in conjunction with with.

Other like Emerson.

Mr <unk>.

Sure happy to do so we have a demand response.

Program and capability that we deploy with.

Our.

Electricity utility partners and have for quite some time.

We continue to increase the number of different.

Types of devices that we can work.

Our work with and controls so different types of smart thermostats. For example, so that there is that there is a host of them out there during this past quarter.

We work to make sure that the Emerson thermostat.

This is enabled and pre integrated to make it kind of a seamless experience experience from a customer standpoint.

We definitely see interest in demand response programs from a lot of different customers.

And the consumer.

Consumer on the other side really often times has.

Particular service that they want to work with and we will enable as many as we can to cast the net wider what we're really after is being able to control larger and larger amounts of upload shedding a load control for the utility to help them do supply and demand. So we were pleased to.

Have that agreement in place with Emerson and look forward to scaling it.

In the marketplace.

Great. Thank you Mike.

My only question.

And that concludes today's question and answer session I would like to turn the conference back to Tom Deitrich for closing remarks.

Thank you operator, and thanks, everyone for joining we truly appreciate your time, we look forward to updating you again in the quarters ahead, thanks for joining everyone.

There will be an audio replay of today's conference available. This afternoon, you can access the audio replay by dialing 18882031112 or 1719457080 with the past.

Code of 3063181.

Go to the company's website www dot <unk> dot com.

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Good day, everyone and welcome to the <unk>, Inc. First quarter 2022 earnings Conference call today's call is being recorded.

For opening remarks, I would like to turn the call over to Mr. Ken GNL. Please go ahead Sir.

Thank you operator, good morning, and welcome to <unk> first quarter 2022 earnings Conference call. We issued a press release earlier today announcing our results. The press release includes replay information about today's call.

<unk> 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 Joan Hooper, Senior Vice President and Chief Financial Officer.

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

The Securities and Exchange Commission.

All company comments estimates or forward looking statements are made in a good faith attempt to provide appropriate insight to our current and future operating and financial environment.

Materials discussed today May <unk> 2022 may materially change and we do not undertake any duty to update any of our forward looking statements.

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

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

We'll hear first quarter details from Joan coming up shortly but I would like to provide a brief overview of the quarter revenue was $475 million. Adjusted EBITDA was $19 million non-GAAP earnings per share was <unk> 11, and free cash flow was $2 million.

Turning to slide five our first quarter bookings were $417 million with an approximate book to bill ratio of 0.9.

While some quarter to quarter Lumpiness in bookings as expected we are still targeting at least a one to one book to bill ratio for the year.

Our 12 month backlog continues to grow steadily and is now up to a new record of approximately $1 6 billion, primarily driven by our networked solutions and outcomes segments.

Turning to slide six I will now provide some operational insights on the first quarter.

As I mentioned previously we close the sale of our non communicating mechanical C&I business on February 28. This is another proof point of the execution of our strategy as we steadily progress our business up the pyramid towards higher valued networks and outcomes centric solutions and optimize our manufacturing footprint.

Print to an asset light model.

<unk>.

We are extremely pleased with the current market demand for our solutions and we remain steadfast in our strategy.

With the vast majority of that impacting our network solutions segment as discussed in prior quarters, we have experienced no cancellations or loss of customers.

Aggression or are you spending.

Thank you Tom has discussed on our last earnings call. Our first quarter results continued to be significantly impacted by supply chain shortages and cost pressures. Please.

Please turn to slide seven for a summary of consolidated GAAP results.

First quarter revenue of $475 million declined 9% versus last year or 6% in constant currency.

The year over year decrease was due to supply shortages, which limited our ability to meet customer demand.

Gross margin for the quarter was 28, 4% 380 basis points lower than last year due to higher component costs and manufacturing inefficiencies driven by the supply constraints.

GAAP net income of approximately $1 million or <unk> <unk> per diluted share compared with $13 million or <unk> 30 per diluted share in the prior year.

Regarding non-GAAP metrics on slide eight non-GAAP operating income was $9 million.

Adjusted EBITDA was $19 million non-GAAP net income for the quarter was $5 million or <unk> 11 per diluted share.

Looking at revenue by business segment on slide nine device solutions revenue was $140 million or $24 million or 14% year over year decline on a constant currency basis the.

Network solutions revenue was $279 million and $8 million or 3% decrease year over year in constant currency.

Decline is attributable to component shortages, partially offset by a ramp in new deployments.

Revenue in the outcomes segment was 57 million a $1 million a 1% decrease in constant currency versus last year. The decline was due to lower product and software license sales, particularly prepay services in EMEA well.

The decrease was disappointing our core U S market continues to be strong driven by growth in networks as a service.

Lastly, foreign currency changes resulted in $12 million lower revenue versus the prior year.

Moving to the non-GAAP year over year EPS Bridge on Slide 10, our Q1 non-GAAP EPS was <unk> 11 per diluted share down <unk> 41 from the prior year.