Q3 2023 Itron Inc Earnings Call

November 2, 2023

Okay.

Good day, ladies and gentlemen, welcome to <unk> third quarter 2023 earnings release Conference call.

At this time all participants are in a listen only mode.

After the Speakers' presentation there'll be a question and answer session to ask a question. During the session you will need to press star one wanting a telephone you will done in automatic message by C. O N suite.

Please note that today's conference is being recorded I will now.

And the conference over to your Speaker House.

Vincent Vice President of Investor Relations. Please go ahead.

Yeah.

Good morning, and welcome to <unk> third quarter 2023 earnings Conference call.

Tom Dietrich <unk>, President and Chief Executive Officer, Joan Hooper, Senior Vice President and Chief Financial Officer will review <unk> third quarter results and provide a general business update and outlook.

Earlier today, the company issued a press release announcing its results.

This release also includes details related to the conference call and webcast replay information.

Accompanying today's call is a presentation that is available through the webcast and on our corporate website under the Investor Relations tab.

Following prepared remarks, the call will be opened for questions using the process. The operator described before Tom begins a reminder, that our earnings release and financial presentation include non-GAAP financial information that we believe enhances the overall understanding of our current and future performance.

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

We will be making statements. During this call that are forward. Looking these statements are based on current expectations and assumptions that are subject to risks and uncertainties.

Actual results could differ materially from these expectations because of factors that were presented in today's earnings release and comments made during this conference call as well as those presented in the risk factors section of our Form 10-K and.

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.

Cereals discussed today November <unk> 2023 may materially change and we do not undertake any duty to update any of our forward looking statements now.

Now please turn to page four of our presentation as our CEO, Tom Dietrich begins his remarks.

Thank you Paul Good morning, everyone. Thank you for joining.

Operational activity continued to accelerate during the third quarter supported by an improving supply environment and impressive execution from our global operations team and broader organization.

The performance highlights include Q3 revenue increased by 33% year over year, and 4% sequentially to $561 million the highest level since Q1 of 2020.

Adjusted EBITDA was $68 million, an increase of 181% year over year to 12% of revenue.

non-GAAP earnings per share was <unk>, 98% to 75% improvement compared to the third quarter of 2022.

Free cash flow was $28 million, an increase of $18 million year over year.

<unk> strategic positioning and improved asset utilization, coupled with the accelerating trends in electrification energy transition grid edge digitalization gas safety water efficiency and consumer demand for improved services give us confidence that our investments are closely aligned with the.

Critical customer needs for many years to come.

Team's execution has allowed us to pull activity into 2023 that was previously anticipated to occur in 2024.

<unk> of the supply chain have improved more quickly than we had expected coming into the year, which has enabled the fulfillment of some supply constrained revenue.

Turning to slide five bookings were $413 million as we continued to experience a steady turns rate.

2023 bookings to date and awards activity have been in line with expectations and we continue to progress towards at least $2 billion in annual bookings.

It is worth noting that our relationships projects and deployments are long term in nature with most of the backlog consisting of our networked solutions and outcomes segments.

The total backlog ending the third quarter of $4 $3 billion represents several years of visibility and is comprised of projects with signed contracts are short funding and regulatory approval.

Projects within our backlog are related to critical infrastructure grid resiliency service modernization and revenue assurance for our customers, we're deploying capital to improve visibility agility and return on their assets. These.

These projects tend to be non discretionary in nature and are durable during periods of economic volatility and uncertainty our funnel of future bookings is continuing to grow due to clear macro trends supported by constructive regulatory policies that accelerate the modernization of distribution granted globally and incentives increasing.

<unk> available to our customers to support energy transition de carbonization and sustainability targets.

The recently announced grant awards under the infrastructure investment and jobs Act or <unk> include grid, resiliency smart grid and innovation topic areas that further underscores the growing focus on utility infrastructure, resulting in opportunity expansion for Ireland.

There are a few commercial highlights during the quarter of note.

In September we signed an agreement with Exelon to extend the utilization of iphones operations Optimizer solution, which enables excellence operating companies to utilize valuable distribution grid data for analytics that unlock operational efficiencies and increased business intelligence.

This agreement supports <unk> focus on outcomes with Exelon.

The ongoing effort to expand the value and return on Exelon is investment in grid edge infrastructure across its operating companies.

Singapore power has awarded <unk> with the expansion of their field area network throughout the Asia Pacific regions more utilities are confronting challenges related to grid stability and reliability and this award is an excellent opportunity for <unk> to continue to expand the reach of this technology into new areas and.

<unk>.

Additionally, we recently began a sizeable project to provide our Intel a peak load control switches, which enabled demand response and more effectively manage load during critical periods. This project will benefit our customers and users and support more efficient grid operations.

Now turning to slide six I will cover some operational insights from around the business.

Q3, 2023 is the fourth consecutive quarter of revenue growth and margin expansion, we have taken very deliberate measures across our manufacturing and supply chain organizations to maximize operating leverage as demand and activity accelerates.

At the segment level portfolio optimization, new product introductions improved manufacturing asset utilization and talent expansion have contributed to the improving performance trend. These initiatives resulted in a record quarterly revenue for network solutions and a new gross margin record for device solutions.

Supply chain conditions have improved and although we do not expect a return to pre pandemic component lead times in the near term our production output levels have meaningfully accelerated.

We will continue to be proactive in managing our supply chain and adjusting our inventory management strategies as needed to address the increased global supply chain volatility.

Our backlog increasingly consist of projects related to grid edge digitalization as aging infrastructure continues to be upgraded or replaced.

Customer awareness is growing that the solutions of the past no longer meet future needs as the leading provider of grid edge solutions and intelligence at scale, we see a very long runway of opportunity ahead.

Lastly, when we consider our impact on people and planet, we continue to thoughtfully reduce our emissions during 2022 alone <unk> offerings helped our customers avoid 180 times more carbon than <unk> own operations generated this up from 100 times in 2021.

This ratio will continue to grow as the breath and adoption rates of our solutions expand.

Now I will ask Joe to provide a financial update for the third quarter and our outlook for the remainder of the year.

Thank you Tom I'll cover the third quarter results first and then provide our latest outlook for the fourth quarter. Please.

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

Third quarter revenue of $561 million increased 33% year over year ahead of our expectations due to better supply chain conditions and strong operational execution, resulting in increased shipments to our customers.

Gross margin for the quarter was 33, 4% 490 basis points higher than last year and the highest level since Q3 of 2017.

The better than expected margin expansion was due to very favorable product mix and operational efficiencies realized as volumes ramped.

GAAP net income of $40 million or <unk> 87 per diluted share compares to $4 million or <unk> <unk> per diluted share in the prior year and was driven by higher operating income partially offset by higher taxes.

Regarding non-GAAP metrics on slide eight non-GAAP operating income was $59 million up $44 million from the prior year adjusted.

Adjusted EBITDA of $68 million was also up $44 million and the highest quarterly EBITDA since Q3 of 2019.

non-GAAP net income for the quarter was $45 million or <unk> 98 per diluted share versus 23, a year ago.

Year over year revenue comparisons by business segment on slide nine.

Device solutions revenue was $111 million 12 million or 13% year over year increase on a constant currency basis, primarily due to growth in water meter sales.

Network solutions revenue was a record $385 million, increasing 43% or $115 million over last year.

The year over year growth was due to continued improvement of supply chain conditions, which enabled higher shipments.

Outcomes revenue was 65 million increased $7 million or 13% in constant currency, primarily due to an increase in recurring services.

Moving to the non-GAAP year over year EPS bridge on slide 10.

Our Q3, non-GAAP EPS was <unk> 98 per diluted share up 75 from the prior year.

Pre tax operating performance had a positive $1 seven per share impact due to the fall through of higher gross profit, partially offset by higher operating expenses.

Higher tax expense had a negative impact of 29 per share and FX and share count had a negative year over year impact of <unk> <unk> per share.

Turning to slides 11 through 13, I will review Q3 segment results compared with the prior year.

Device solutions revenue was $111 million with gross margin of 24, 3% and operating margin of 16%.

Gross margin was up 860 basis points and operating margin was up 850 basis points year over year, reflecting a higher value product mix and operational efficiencies. We are very pleased with the improvement in devices profitability throughout 2023, as they execute on their product portfolio roadmap.

Network solutions revenue was $385 million in gross margin was 35, 1%.

Gross margin increased 480 basis points year over year due to very favorable product mix and improved operational efficiencies.

Operating margin of 26, 6% increased 640 basis points due to higher gross profit and operating leverage.

Outcomes revenue was 65 million with gross margin of 38, 6%.

Gross margin decreased 240 basis points as lower software license activity was partially offset by increased recurring services.

One time software license revenue is typically high margin and generally lumpier, which can impact comparisons between periods.

Operating margin of 15, 8% decreased 410 basis points due to a fall through of lower gross margin and higher expenses.

Turning to slide 14, I'll cover liquidity and debt at the end of the third quarter.

Total debt remained flat at $416 million and net debt was $205 million.

Net leverage was one one times at the end of Q3.

Cash and equivalents at the end of the third quarter were $255 million.

Free cash flow was $28 million in Q3 up $18 million year over year, driven by higher profitability, partially offset by an increase in working capital to support business growth.

Recently, we amended the credit agreement related to our $500 million revolver to extended through 2026.

This credit facility is currently Undrawn and provides flexibility to execute on opportunities that further our strategic growth objectives.

Now please turn to slide 15 for our updated fourth quarter outlook.

We anticipate fourth quarter revenue to be between $565 to $575 million. The midpoint of this range represents 22% year over year growth.

Q4, non-GAAP EPS, we expect to be in a range of 70 to 80 per diluted share.

At the midpoint this is up 6% versus Q4 of last year.

Year over year growth rate of 6% is muted due to a negative effective tax rate of minus 30% in Q4 of last year.

Now please turn to slide 16 for an update to our annual 2023 outlook in.

Incorporating this updated Q4 guidance the full year expectations are now a revenue range of $2, one six to $1 7 billion, which at the midpoint represents a $265 million increase versus our initial guidance provided in February.

This 14% improvement in annual revenue guidance was driven by a faster than expected recovery of component availability, which enabled us to ship more out of the backlog.

Initially we expected most of this higher revenue to be realized in 2024.

Obviously, we and our customers are very pleased that we were able to deliver shipments ahead of earlier expectations.

The higher revenue and strong gross margins have had a very positive impact on earnings and our full year non-GAAP EPS range is now between $2 83 to $2 93 per diluted share.

At the midpoint. This represents an increase of $1 98 per share from our initial 2023 guidance issued in February.

In summary, we are pleased with the operational execution in 2023, we took advantage of a faster than expected component supply recovery and delivered more shipments to customers, resulting in significantly higher revenue than expected.

In addition, we remain focused on initiatives to improve profitability, which is evident in our expanding margins and increased cash flow.

We are well positioned with a flexible balance sheet to support our strategic objectives.

Now I'll turn the call back to Tom.

Thank you Joan.

Our third quarter results reflect the convergence of preparation and execution that magnitude of change related to how energy is being produced distributed and consumed is accelerating and our strategy aligns with the evolving needs of our customers.

Customer success is a critical metric for <unk> and we are deeply invested in coordinating our efforts with our customers' business objectives.

Our annual <unk> inspire event held recently in San Antonio showcases our commitment to bring together the best minds in the industry to share insights and plan. The future together. This unique event attended by industry experts, including customer executives technology developers and channel partners from the diverse <unk>.

System of energy and water industries.

During this event, we are continually reminded of the wide range of challenges utilities cities and municipalities confront and providing reliable secure and affordable energy and water to the communities. They serve we are also reminded of our obligation to continue to innovate collectively learn and be prepared to solve problems as.

They arise to help our customers fulfill their missions in a future that is increasingly complex and dynamic.

A tremendous amount of work goes into creating an environment like iPhone inspire and I'm grateful for all who have participated your work is important and this even truly helps us all focus on actions, we can take in pursuit of a more sustainable future.

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

Thank you.

Ladies and gentlemen to ask a question you want me to Westar one one on your telephone.

<unk> name to be announced to withdraw your question you May Press Star one again, please standby, while we compile the Q&A roster.

Okay.

And our first question coming from the line of Jeff Osborne with TD Colin Your line is open.

Yeah. Thank you good morning.

Tom just a question on the <unk>.

Backlog I was curious if you could just walk through since you're pulling forward a lot of 24 and the 23 is the components have become more available how do we think about 2024 and some of the backlog that wasn't inflation protected for some of the higher cost semiconductors, how do we think about that lapsing itself in essence I would imagine there.

As a point in time.

Some of the inflation protected backlog will start flowing through the P&L.

We'll have a more meaningful margin expansion.

Sure. Thanks, Jeff.

The total backlog right now is call it right around 70%, maybe a touch above.

Of that $4 3 billion has been repriced or priced indexed.

The majority of the pre inflation run up meaning the re priced portion of the backlog should roll through in the next call. It 12 months.

<unk> range. So that gives you a sense of the split of where we stand the things that we're rolling into backlog now, meaning new bookings they are indeed repriced and.

It is.

Something that will improve margins as we roll through some of that pre pandemic backlog.

And maybe just one follow up on that topic are you starting to see.

Some industries in auto and industrial it rolled over a bit are you seeing lower cost semiconductors that maybe in the past for more challenging to get either on the analog side or other areas that you need.

Sure I would say that in general supply has been much better so let's start with the basics of putting your hands on the components supply improving lead times are still pretty long.

So we haven't seen a meaningful retraction in the lead times themselves relative to costs I would say.

Our cost profile, you get pretty flat overall, we aren't seeing increases any longer.

But we haven't seen any meaningful retraction, just yet on on the cost level of components, whether that is mechanical or semiconductor related.

Got it and then just very quickly if you could touch on the quoting activity and the goal of $2 billion of bookings I think you said for the year.

How would you categorize the quoting activity and is there maybe projects that you've won that are awaiting regulatory approval that that would then flip into backlog and it's not necessarily a new RFP youre chasing you could you just walk through the mechanics on how you would achieve.

The goal of 2 billion it would be helpful.

Sure. So the amount of bookings we've had year to date is in line with expectations since the very beginning of the year, we thought that bookings would be back half weighted and that's indeed, what is playing out.

In terms of making the the $2 billion.

Or more for the year, we have very good line of sight to that.

You have correctly diagnosed we have awards that are in our <unk>.

We're going through the final steps made in getting contracts signed and working through regulatory approval, which gives us a good view as to where the year should land.

Or perhaps more so feeling very good relative to quoting levels I would characterize them as very robust we have.

Awful lot of activities going on with customers as they are focused on improving resiliency and reliability. So things like outage management and vegetation management are strong the ability to handle distributed energy resources.

And deal with.

Increasing rates of whether they would be evs or batteries or <unk>.

Rooftop solar all of these distributed energy resources need to be managed to ensure resilient reliable stable grid.

Those things continue to work to grow in volume our customers are reacting to that.

Continuing to make good investments.

The scenario that I have laid out there is primarily a north America and Asia Pacific area within in water in.

In Europe, specifically, we've seen very strong turns rates and ongoing business as water infrastructure investment continues in Europe.

That gives you a little bit of a regional flavor overall, but very pleased with the positioning the visibility relative to bookings and quoting activity is strong.

As we head through the back of the year into 2024.

That's great to hear that's all I have thank you.

Thanks, Jeff.

Thank you.

And our next question coming from the line of Martin Malloy with Johnson Rice <unk> Company. Your line is open.

Good morning, Congratulations on the strong quarter. My question is about the outcome segment revenues there year to date.

Network solutions shipments have picked up quite a bit can you maybe talk us through the timing of when we should look for an increase in the outcomes segment revenue related to this pick up in the endpoints in the network solutions shipments that occurred this year.

Been occurring.

Yes, I'll take that in general we think about it in a kind of a 12 to 18 month timeframe. So it's great news that indicated that networks is really starting to ramp and we would expect to follow on outcomes sort of in the 12 to 18 month lag period and the other thing I would just caution again, we've talked about it in the past is given the fact that there are some time.

Onetime license revenue you can get some lumpiness from quarter to quarter in the outcomes topline, but we continue to be very optimistic about our ability to grow that business and have it be more SaaS based.

Okay.

My follow up questions also on the outcomes segment, if we look on.

Over an annual basis.

Could you maybe.

Remind us what the.

The percentage of the revenue and outcomes and it would be considered reoccurring.

Non licensing.

Sure the amount of recurring revenue in the outcomes business is about 75% of the total outcomes piece. Okay. It can move up and down by a few percentage points on a quarterly basis as Joe pointed out sometimes you get some lumpy one time.

Things in there, which generally are margin accretive, but they would take that recurring percentage down, but if you average it over the last let's say three four quarters Youre writer at 75%. We think that number continues to creep upward it probably gets closer to 80 is that business will scale.

And you'll have more recurring revenue in the form of SaaS based activities as well as services, where we would run the network for somewhat provide ongoing.

Maintenance services things of that nature. So 75 today, probably on its way to 80 over the next year or so.

Great. Thank you I appreciate the responses.

Thanks Marty.

Thank you and our next question coming from the line of Pavel <unk> with Raymond James Your line is open.

Hi, Good morning. This is the grant price.

Thanks for taking the questions.

I guess first one for me you called out strength in longer for that.

Devices segment, and I think you touched on it a little bit in a previous question.

But was just wondering if you could talk a little bit.

Further on that strength and how that rolls into 2024.

Sure.

Strength that we've seen.

Most of this year and certainly a continued on into the third quarter results that we just printed.

Water in Europe, specifically has been.

Stronger than we expected.

As we came into the year.

It really is investment in.

Automating metering automating water services, improving the efficiency reducing leaks.

Is what's driving that strength.

Just given our footprint we've seen it primarily in Europe.

In the Americas, the water communications portfolio, we have continues to move along more or less at the pace, we expected which is.

As part of the networks solution, but in Europe. It really was stronger than we had anticipated.

Certainly, we'll continue to watch and monitor that as we go through the fourth quarter and into next year I think it's a little premature to to forecast exactly what 'twenty forward would look like but very much pleased with.

The performance of the.

Water segment in devices through this year that has really contributed to some of the.

Dramatically improving gross margin levels that is present in the devices business year over year.

Got it okay. Thank you for the color on that.

For my follow up.

You've mentioned.

Longer lead times, but.

Is the concept.

Kind of the Golden screws, the Goldman through bottlenecks that you've dealt with in the past.

Is that Arab pretty much over at this point.

Certainly there are some mismatched sets of components that are still in our inventory level today, but I would say about 80% plus of those those goldman's Curtis if you will.

Have been recovered and we continue to see things moving in the right direction. So I think supply chain certainly it has normalized and that has helped the revenue. So some of the pull forward of things that we thought coming into the year, we would only be able to deliver in 'twenty four we're taking advantage of.

The supply chain team has done a really nice job of being able to turn dose Goldman screws those components into finished goods and delivery teams getting them installed and in operation with our customers. So rolling all the way through it has been.

A very successful effort on the part of the team.

Understood great great to hear I'll I'll pass it along thanks.

Yeah.

Thank you Graham.

Thank you and our next question coming from the line of Ben <unk> with Baird. Your line is open.

Hey, guys.

Good morning, congrats on the quarter.

Bob.

Tom maybe just could you talk to us just about resolved.

The environment for.

For new deals.

Bulk network's insiders.

Talking North America, as well as outcomes.

We did lower waters.

Talk about utility rates going up and just wondering about how you balance.

Infrastructure work.

Pushed out maturity.

Utility rates to customers.

You ought to PUC level.

Helpful.

Very good so.

There are a couple of layers to your question, so first and foremost.

Quoting activity remains strong and robust for some of the underlying.

Causes that I outlined earlier resiliency reliability distributed energy resource management.

PNC in the overall operation, whether youre talking about reducing leaks improving safety or just.

Doing a better job of managing the assets all of those types of needs are very acute with our customers today and that fuels a lot of the quoting activity.

<unk>.

Expectations, we have for bookings into Q4, there are awards as I hinted at earlier that havent rolled into backlog yet as we finish out some of the process, which again gives us good visibility.

We do see utilities continuing to.

Replace.

And improve the assets that they have in the field today.

Absolutely is going into rate cases, and rate case approvals are moving along at the pace we would expect.

We also start to see some of the money.

Money starting to.

To be awarded.

There was about $8 billion of North American projects that were just approved.

Or at least $3 billion in government funding towards those $8 billion that those award fees were just announced in the last.

Let's say two weeks approximately.

The electricity and energy space that probably shows up in terms of revenue for us in maybe the 2025 range and beyond that we're still a bit away from that rolling through the P&L, but still see good policies good regulatory pace overall.

And I don't necessarily look at this is only a.

Our balance of near term rate cases, but.

It is a need to provide resilient and reliable service and upgrade the investment.

Are the decisions that our customers are making.

Often times the non wires approach.

In terms of making investments in the distribution grid is less expensive and faster to implement than doing some of the big generation or transmission projects, which means that it's a little bit.

Less expensive and perhaps easier to upgrade things in our portion of the brands that in some of the big Iron which is this kind of environment is helpful and gives us a good tailwind for our business in the years ahead.

Thank you for that.

Follow up just on backlog.

Could you just help us think about.

The mix.

Mix.

For outcomes and then also just the tail of some of that.

As we move forward.

<unk>.

Mix changes in your <unk> backlog.

Yes.

Devices.

Two to outcomes.

Networking.

Just give us a sense of that.

This forward balls.

Going forward.

Sure happy to so the total backlog to $4 3 billion Thats there thats about.

Three to four years.

Is where the majority of that backlog will roll through the <unk>.

That will roll through the P&L.

That is 90% approximately outcomes and networks based today.

In terms of the business mix going forward I would expect that devices stays at about that $100 million plus or minus.

U S dollars per quarter, but I do think that the.

Networks and outcomes businesses will continue to grow so that'll give you some sense of what you should expect over the next couple of years.

In terms of the mix of our business.

Thank you congrats again guys.

Thank you.

As a reminder, if you'd like to ask a question. Please press star one one on you touched on the telephone.

Our next question.

And our next question coming from the line of Scott Graham with Seaport Research Partners. Your line is open.

Yes, hi, good morning, Thanks for taking my question and congratulations on a nice print.

I was wondering about.

The backlog and Youre commenting about.

70% of it has been repriced and is in there and 30% of it is.

Not re priced and will roll out over the next 12 months and look I know that this is real fuzzy math.

Kind of gets you to a little more than half flows last 12 months sales.

Does this suggest that the second half gross margins could be pretty meaningfully higher than the first half gross margins and 24.

Yes, I don't know that I would read that much into it.

Scott, we want to be thoughtful and we'll set 2020 for guidance.

When we get into early next year. So in our February call approximately is what we would really set 2024 number.

I do think that the next 12 months.

Is where we will roll through the majority of that pre pandemic backlog.

But you've got other factors in there beyond price Theyre, certainly mix that can move things up and down as well as what could happen with with inflation and utilization overall, so I don't want to get too far ahead of ourselves on 2024, just yet.

It's probably the best way to think about it but we.

We are pleased with the pace of rolling through the backlog some of that pull forward, we have allowed us to chew up some of that.

Pretty inflation priced backlog and what we think we'll be able to move through the majority of the remaining amount over the next 12 months.

Okay. Thank you for that.

The question is.

A little bit maybe more or maybe equally speculative but.

I certainly understand the decline in the bookings with the compression in supply chain days and all of that.

But youre also saying that you're quoting activity is robust. So I'm. Just wondering is this decline in bookings essentially up a four quarter event to adjust to the lower days in the chain.

Is that kind of what's your thinking on this.

Well I think theres two components and they are a bit convolved with each other certainly our backlog was elevated because of the deferred revenue that we had so some of the stuff that was held back on component supply was still in backlog as we commented a number of times, we didn't lose it it just took a little.

To fulfill and at this point, we've burned through maybe a little more than half of that deferred revenue. So some of it is still in the backlog.

And we'll move through as we.

We get the components and fulfill that backlog the second piece of it.

Is the actual bookings piece.

In terms of new bookings that is always a little bit lumpy as projects.

Tend to come in big heaps, when it comes to large network deployments.

And that can ebb and flow I think it's easier to think about it is maybe of a four quarter rolling average of those new bookings and.

If you start thinking about the amount that we're talking about for Q4 that that number bounces up to be just a touch above one to one from a.

A four quarter rolling kind of level. So I think theres two constituent components. There that are important to keep separate we are very pleased with.

The quoting activity and the discussions we have with our customers and that will show up in backlog in the.

Months ahead.

Much appreciate it thank you.

Thanks Scott.

Thank you.

Our next question coming from the line of Carl Carlson with Stephens, Inc. Your line is open.

Hey, guys. Thanks for taking my questions.

Just one quick.

Just a quick question on supply chains.

How much improvement are you all baking into <unk> expectations, and maybe can you guys talk through some of the assumptions by segment to help situate us.

For revenue and margins.

Yeah, I'll, let me, let me give a little bit of color. So from a revenue perspective, we would expect year over year growth in Q4 in all three segments. So we're comfortable with that in terms of specific supply chain assumptions I would say similar to what we've seen in Q3.

So no great big improvement from that but certainly leaf where out of the trouble area. So we're not expecting any any significant issues in Q4 in terms of margins.

For Q4 currently I would expect them to be a little bit lower than Q3. In Q3, we had again record device margins and very strong network margins all of kind of a function of mix. So our expectations for Q4 as those have come down a little bit sequentially, but still be up year over year.

Super helpful.

And then as we approach 24, I know you are not.

Not trying to guide to 'twenty, four im not trying to do that either but.

It seems like we're kind of approaching double digit EBITDA margins can you guys refresh us on what youre thinking in terms of margins longer term and maybe highlight some of the initiatives you've exited executed on.

Since COVID-19 to kind of improve productivity.

Thanks, Yes, I can start again.

Too premature to be talking about 'twenty four but if you look back at our last Investor day back about two years ago, we talked about kind of mid term margins getting to the 2014% to 16% EBIT margin, which I think is still the right.

Near term goal so.

Don't know exactly the year, we will get there. We are currently planning on an updated investor day.

Probably at the end of Q1, where we'll be in a position to update those but I would say the overall percentage targets. We talked about two years ago are still the right targets.

The only thing Thats, probably materially changed from 'twenty. One is the size of the device business is much smaller so we sold a piece of that business. We've continued to prune the portfolio and you've seen that in terms of the gross margin like I said, we had record gross margin for devices. This quarter, so, but overall that kind of 14%.

16% EBITDA target is still the target that we're shooting for awesome. Thanks, I'll turn it back.

Yes.

Just a couple more comments to what Joe said is what happens from here forward.

In the devices business, we do have a factory consolidation underway, which.

Probably it takes until the end of 2024, but that is also an important part of where devices goes for networks, we have some of that.

Pre pandemic pricing to roll through in the next 12 months as well as the factory consolidation there and in outcomes. It really is a game of scale, we have the infrastructure in place we've just got to.

<unk> improved the topline there and margins will ride up but those are the key actions and things that.

We have on our minds as we move towards the longer term target that John outlined.

Okay.

Yes.

Thank you.

And I see no further questions in the queue. At this time I will now turn the call back over to Mr. Tom Deitrich for any closing remarks.

Thank you.

<unk>.

Yeah.

Okay would you like me to take him.

I'm sorry, yes, if you've got any questions sure.

Just one just queued up coming from the lineup.

One moment please.

We thought we would raise their hand earlier, but here we are I appreciate you fitting us in.

I just wanted to ask about underlying demand.

In EMEA I think you did a good job of talking about.

Networks, but just wanted to get a better sense of devices it sounds like supply chain.

Q3 2023 Itron Inc Earnings Call

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