Q4 2023 Itron Inc Earnings Call

February 26, 2024

Operator: www.thevenusproject.com Good day, and thank you for standing by. Welcome to ITRON's fourth quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode.

Okay.

Speaker Change: Good day, and thank you for standing by welcome to I try and spot quarter 2023 earnings conference call.

Speaker Change: At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.

Operator: After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star-one-one on your telephone. You will then hear an automatic message on your handy screen. Please note. The Bulletproof Executive 2013, I will now hand the conference over to your speaker host, Paul Vincent, Vice President for Investor Relations. Please go ahead.

Ask a question during the session you will need to press star one on your telephone you will then hear an automatic message bites and you'll hear in this race.

Speaker Change: Please note that today's conference is being recorded.

Speaker Change: I'll now hand, the conference over just speak a host Paul Vincent Vice President of Investor Relations. Please go ahead.

Paul Vincent: Good morning, and welcome to ITRON's fourth quarter of 2023 earnings conference call. Tom Dietrich, ITRON's President and Chief Executive Officer, and Joan Hooper, Senior Vice President and Chief Financial Officer. We'll review Itron's fourth-quarter results and provide a general business update. Earlier today, the company issued a press release announcing its results. This release also includes details related to the conference call and webcast replay information. Accompanying today's call is a presentation that is available through the webcast and on our corporate website under the Investor Relations tab. Following prepared remarks, the call will open for questions using the process the operator described.

Paul Vincent: Good morning.

Welcome to Eyedrops fourth quarter of 2023 earnings conference call.

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

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

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

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

Speaker Change: Following prepared remarks, the call will open for questions using the process. The operator described.

Operator: 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 uncertainty. 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 other reports and filings with the securities and exchange. All company comments, estimates, or forward-looking statements are made in good faith to provide appropriate insight to our current and future operating and financial environment. Materials discussed today, February 26, 2024, may materially change, and Now, please turn to page 4 of our presentation as our CEO, Tom Dietrich, begins his remarks. Thank you, Paul.

Speaker Change: Before Tom begins a reminder, that our earnings release and financial presentation include non-GAAP financial information.

Speaker Change: We believe enhances the overall understanding of our current and future performance.

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

Speaker Change: 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.

<unk> 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 other reports and filings with the Securities and Exchange Commission.

Speaker Change: 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.

Speaker Change: Materials discussed today February 26, 2024 may materially change and we do not undertake any duty to update any of our forward looking statements.

Speaker Change: Now please turn to page four of our presentation.

Speaker Change: Tom Dietrich begins his remarks.

Thomas L. Deitrich: Thank you Paul good morning to everyone and thank you for joining our call.

Thomas L. Deitrich: Good morning to everyone, and thank you for joining us on our call. During the fourth quarter, strong operational execution, improved supply chain balance, and robust customer demand supported financial results ahead of our expectations, including single-quarter record revenue for our network solutions and outcomes segments. The performance highlights for the fourth quarter were year-over-year revenue growth of 23% to $577 million, adjusted EBITDA of $68 million, an increase of 99% year-over-year, non-GAAP earnings per share of $1.23, an increase of 73%, and free cash flow of $39 million, which increased $57 million year over year. Turning to slide five, bookings for the fourth quarter of $839 million equated to a book to bill ratio of 1.45.

Thomas L. Deitrich: During the fourth quarter strong operational execution improved supply chain balance and robust customer demand supported financial results ahead of our expectations, including single quarter record revenue for our networked solutions and outcomes segments.

Thomas L. Deitrich: The performance highlights for the fourth quarter, where year over year revenue growth of 23% to $577 million adjusted.

Thomas L. Deitrich: EBITDA of $68 million, an increase of 99% year over year.

Thomas L. Deitrich: non-GAAP earnings per share of $1 23.

Thomas L. Deitrich: An increase of 73% and.

Thomas L. Deitrich: And free cash flow of $39 million, which increased $57 million year over year.

Thomas L. Deitrich: Turning to slide five bookings for the fourth quarter of $839 million equated to a book to Bill ratio of 145. This brought cumulative 2023 bookings two to $1 6 billion and our total backlog at year end was $4 5 billion.

Thomas L. Deitrich: This brought cumulative 2023 bookings to $2.16 billion, and our total backlog at year end was $4.5 billion. Our customers face pressure due to increased resource demand, climate and sustainability-related challenges, and the need to improve the consumer experience. Itron's platform approach to provide green edge intelligence has a proven track record of addressing these customer concerns. The magnitude and diversity of bookings during the fourth quarter also reflect the breadth of unmet needs of utilities around the world.

Thomas L. Deitrich: Our customers faced pressure due to increased resource demand climate and sustainability related challenges and the need to improve consumer experience.

Thomas L. Deitrich: <unk> platform approach to provide grid edge intelligence has a proven track record in addressing these customer concerns.

Thomas L. Deitrich: The magnitude and diversity of bookings during the fourth quarter also reflects the breadth of unmet needs of utilities around the world.

Thomas L. Deitrich: Our largest booking was an award from Eversource Energy, who contracted for an advanced endpoint and network rollout in their Massachusetts territory, covering 1.3 million consumers. The program includes deployment services, 10 years of software and associated managed services, and great edge technology with Itron's distributed intelligence. This is another large multi-application award for Itron, and we look forward to supporting Eversource to add value across their territory. Moving to the southeastern U.S., Tampa Electric and Itron have agreed to work together to migrate TECO's existing DI-capable endpoint and network lighting controllers from a prior generation of Itron networks to our latest, a multi-service canopy network platform, which will simplify and future-proof the solution for new grid TECO continues to adopt grid edge intelligence and is increasing the use and scale of distributed intelligence applications, most recently through the deployment of location awareness at scale. By leveraging the consolidated ITRON network and embracing distributed intelligence, TECO will be able to introduce more value and service resilience to its customers. In addition, Itron will be working with Tulsa, Oklahoma-based OneGas, a provider of natural gas services to more than 2.3 million consumers.

Our largest booking was an award from every source energy, who contracted for an advanced endpoint and network rollout in their Massachusetts territory, covering one 3 million consumers.

Thomas L. Deitrich: The program includes deployment services 10 years of software and associated managed services and grid edge technology with Eyedrops distributed intelligence. This is another large multi application award for <unk>, and we look forward to supporting ever source to add value across their territory.

Thomas L. Deitrich: Moving to the southeastern U S Tampa electric our Tico and Nitro and have agreed to work together to migrate <unk> existing DIY capable endpoint and network lighting controllers from a prior generation of <unk> networks to our latest in multi service canopy network platform, which will simplify and future proof.

Thomas L. Deitrich: Solution for new grid edge intelligence use cases.

Thomas L. Deitrich: <unk> continues to adopt grid edge intelligence. It is increasing the use in scale of distributed intelligence applications. Most recently through the deployment of location awareness at scale by leveraging the consolidated <unk> network and embracing distributed intelligence Pico will be able to introduce more value and service resilience to their consumers.

Thomas L. Deitrich: <unk>.

Thomas L. Deitrich: Further <unk> will be working with Tulsa, Oklahoma based one guests a provider of natural gas services to more than $2 3 million consumers.

Thomas L. Deitrich: OneGAS will enhance the intelligence of their network through the deployment of the next generation of communication modules. This project will help One Gas increase reliability, accuracy, and safety for its consumers. Our Market Demand Outlook for 2020-21 remains constructive, and customer interest in new technology continues to accelerate. We anticipate 2024 bookings will result in a book-to-bill ratio of at least one-to-one. We are observing customers actively exploring projects that could benefit from IIJA funding programs, and although too early to accurately quantify, we do anticipate 2024 bookings will include some contributions from various government infrastructure investment programs, including IIJA, with the benefits of these programs flowing through in subsequent years. Slide six provides insights on the operational environment. We continue to see a strong and stable pipeline of customer opportunities with accelerating interest in new technology. As our customers are facing growing pressure to adapt to a rapidly changing world and digitize critical infrastructure, requirements to become more efficient and more agile through visibility gathered by Itron's grid edge intelligence solutions will improve asset management, enhance consumer experience, and reduce inefficiencies.

Thomas L. Deitrich: Gas will enhance the intelligence of their network through the deployment of the next generation of communication modules. This project will help one gas increased reliability accuracy and safety for their consumers.

Thomas L. Deitrich: Our market demand outlook for 2020 remains constructive and customer interest in new technology continues to accelerate.

Thomas L. Deitrich: So too early to accurately quantify we do anticipate 2024 bookings will include some contributions from various government infrastructure investment programs, including <unk> with the benefits of these programs flowing through in subsequent years.

Thomas L. Deitrich: Slide six provides insights or the operational environment.

Thomas L. Deitrich: We continue to see a strong and stable pipeline of customer opportunities with accelerating interest in new technologies, our customers are facing growing pressure to adapt to a rapidly changing world and digitize critical infrastructure requirements to become more efficient and more agile through visibility gathered by iphones grid.

Thomas L. Deitrich: Edge intelligence solutions will improve asset management enhanced consumer experience and reduce inefficiencies.

Thomas L. Deitrich: Component supply has improved and has become more predictable. This has allowed Itron to fulfill a meaningful portion of previously constrained revenue and build inventory of certain critical components in light of a more uncertain and potentially volatile global landscape. During 2023, efforts to improve our price-cost ratio gained traction, and we were pleased with the results. Moving forward, we will continue to align our business needs for increased pricing flexibility with the predictability needs of our regulated customers.

Thomas L. Deitrich: Component supply is has improved and has become more predictable. This has allowed <unk> to fulfill a meaningful portion of previously constrained revenue and build inventory of certain critical components in light of a more uncertain and potentially volatile global landscape.

Thomas L. Deitrich: During 2023 efforts to improve our price cost ratio gain traction and we were pleased with the results.

Thomas L. Deitrich: Moving forward, we will continue to align our business needs for increased pricing flexibility with the predictability and needs of our regulated customers.

Joan Schweikart Hooper: Exiting 2023, approximately 70% of our $4.5 billion backlog has been repriced or indexed to help address margin compression in the event of continued inflationary cost volatility. Much of the remaining 30% of backlog is expected to be fulfilled during 2024, which will gate margins primarily in the network solution segment. I will now ask Joan to provide details about our fourth quarter and four-year results, as well as our outlook for 2024. Thank you, Tom.

Thomas L. Deitrich: Sitting 2023, approximately 70% of our $4 $5 billion backlog has been repriced or indexed to help address margin compression in the event of continued inflationary cost volatility.

Thomas L. Deitrich: Each of the remaining 30% of backlog is expected to be fulfilled during 2024, which does gate margins primarily in the network solutions segment.

Thomas L. Deitrich: I will now ask Joe to provide details about our fourth quarter and full year results as well as our outlook for 2024.

Joe: Thank you Tom I'll review, our transport quarter and full year 2023 results before discussing our financial guidance for the full year 2024, and our outlook for the first quarter.

Joan Schweikart Hooper: I'll review our TRUNS fourth quarter and full year 2023 results before discussing our financial guidance for the full year 2024 and our outlook for the first quarter. Please turn to slide 7 for a summary of consolidated GAP results. Fourth quarter revenue of $577 million increased 23% versus last year. Revenue growth was supported by strong operational execution and increased component availability, which allowed us to continue to catch up on previously supply-constrained revenue. Gross margin of 34% was 390 basis points higher than last year, primarily due to favorable product mix and operational efficiencies related to increased volume. This was ITRON's highest gross margin since 2017. Gap net income of $44 million, or $0.96 per diluted share, compares to $22 million, or $0.49 per diluted share, in the prior year.

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

Joe: Fourth quarter revenue of $577 million increased 23% versus last year.

Joe: Revenue growth was supported by strong operational execution and increased component availability, which allowed us to continue to catch up on previously supply constrained revenue.

Joe: Gross margin of 34% was 390 basis points higher than last year, primarily due to favorable product mix and operational efficiencies related to increased volumes.

Joe: This was <unk> highest gross margin since 2017.

Joe: GAAP net income of $44 million or <unk> 96 per diluted share compares to 22 million or <unk> 49 per diluted share in the prior year.

Joan Schweikart Hooper: The improvement was driven by higher operating income partially offset by higher tax. Regarding non-gap metrics on slide eight, non-gap operating income of 61 million increased 36 million year over year, and adjusted EBITDA of $68 million nearly doubled from the prior year. Non-GAAP net income for the quarter was $57 million, or $1.23 per diluted share, versus $0.71 a year ago. This quarter was an all-time high for non-GAAP EPS. Free cash flow was $39 million in Q4 versus negative $18 million a year ago.

Joe: The improvement was driven by higher operating income, partially offset by higher tax expense.

Joe: Regarding non-GAAP metrics on slide eight non-GAAP operating income of $61 million increased $36 million year over year.

Joe: Adjusted EBITDA of 68 million nearly doubled from the prior year.

Joe: non-GAAP net income for the quarter was $57 million or $1 23 per diluted share versus <unk> 71, a year ago. This quarter was an all time high for non-GAAP EPS.

Joe: Free cash flow was $39 million in Q4 versus negative $18 million a year ago.

Joan Schweikart Hooper: The improvement reflects significant year-over-year earnings growth. Year-over-year revenue comparisons by business segment are on slide nine. Device Solutions revenue of $114 million increased $9 million, or 9% on a constant currency basis, driven by growth in water, meter, and communication module sales in our EMEA region. Network Solutions revenue of $391 million increased 30% year over year. Growth was enabled by improved supply chain conditions, which allowed us to continue to catch up on previously constrained revenue.

Joe: Improvement reflect significant year over year earnings growth.

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

Device solutions revenue was $114 million increased $9 million or 9% on a constant currency basis, driven by growth in water meter and communication module sales in our EMEA region.

Joe: Network solutions revenue of $391 million increased 30% year over year.

Joe: Growth was enabled by improved supply chain conditions, which allowed us to continue to catch up on previously constrained revenue.

Joan Schweikart Hooper: Outcomes revenue of $73 million increased $6 million, or 9% in constant currency, primarily due to an increase in recurring and one-time services. Moving to the non-GAAP year-over-year EPS bridge on slide 10, our Q4 non-GAAP EPS increased 52 cents year-over-year to $1.23 per diluted share. Pre-tax operating performance contributed a $0.78 per share increase driven by the fall-through of higher gross profit, partially offset by higher operating expenses and higher tax expense, which had a negative year-over-year impact of $0.27 per share.

Joe: How it comes to revenue of $73 million increased $6 million or 9% in constant currency, primarily due to an increase in recurring and one time services.

Joe: Moving to the non-GAAP year over year EPS Bridge on Slide 10, our Q4, non-GAAP EPS increased 52 cents year over year to $1 23 per diluted share pre.

Joe: Pre tax operating performance contributed <unk> 78 per share increase driven by the fall through of higher gross profit, partially offset by higher operating expenses.

Joe: Higher tax expense and a negative year over year impact of 27 per share.

Joan Schweikart Hooper: Turning to slides 11 through 13, I'll review Q4 segment results compared with the prior year. Device Solutions revenue was 114 million, gross margin was 26.9%, and operating margin was 17.5%. Gross margin was up over 15 points year over year, and operating margin was up nearly 15 points, reflecting a higher value product mix and operational efficiency. This was the device segment's highest quarterly gross margin since Q3 of 2016. Network Solutions revenue of $391 million established a new quarterly record, and gross margin was 35%. Growth margin increased 220 basis points year over year, and operating margin was up 290 basis points due to favorable product mix and improved operational efficiency. Results revenue of $73 million was also a quarterly record, and gross margin was 39.8%. Gross margin decreased 670 basis points year over year, and operating margin was down 650 basis points due to a lower mix of software licensing activity. As we have previously discussed, the relative size of software licensing activity in a quarter can create variability from period to period. For a recap of full year 2023 results, please turn to slide 14. Revenue.

Speaker Change: Turning to slides 11 through 13, I'll review Q4 segment results compared with the prior year.

Speaker Change: Device solutions revenue was 114 billion gross margin was 26, 9% and operating margin was 17, 5%.

Speaker Change: Gross margin was up over 15 points year over year and operating margin was up nearly 15 points, reflecting a higher value product mix and operational efficiencies.

Speaker Change: Once the device segments highest quarterly gross margin since Q3 of 2016.

Speaker Change: Networked solutions revenue of $391 million of established a new quarterly record in gross margin was 35%.

Speaker Change: Gross margin increased 220 basis points year over year, and operating margin was up 290 basis points due to favorable product mix and improved operational efficiencies.

Speaker Change: Outcomes revenue of $73 million was also a quarterly record in gross margin was 39, 8%.

Speaker Change: Gross margin decreased 670 basis points year over year, and operating margin was down 650 basis points due to a lower mix of software licensing activity as.

Speaker Change: As we have previously discussed the relative size of software licensing activity in a quarter can create variability from period to period.

Speaker Change: For a recap of full year 2023 results. Please turn to slide 14.

Speaker Change: Revenue of $2 $1 7 billion grew 21% versus 2022 supported by a substantial conversion of previously constrained revenue.

Speaker Change: Supply availability improved faster than expected.

Speaker Change: We estimate approximately $275 million of revenue that had been constrained by supply limitations at the end of 2022 was converted to revenue during 2023.

Speaker Change: In addition, we were pleased with increased customer adoption of our grid edge intelligence technology.

Speaker Change: Our networks and outcomes segments, both delivered record revenue in 2023.

Speaker Change: Gross margin of 32, 8% increased by 370 basis points year over year due to favorable product mix and operational efficiencies adjusted.

Speaker Change: Adjusted EBITDA was $226 million or 10, 4% of revenue compared with $95 million or five 3% in 2022.

Speaker Change: non-GAAP earnings per diluted share was $3 36 versus $1 13 in 2022 free cash flow of $98 million compares to $5 million in the prior year the year over year increase was due to higher earnings partially offset by growth in working capital and increased cash taxes paid.

Speaker Change: Turning to slide 15, I'll review liquidity and debt at the end of the fourth quarter.

Speaker Change: Total debt was $460 million and net debt was $158 million net leverage was 0.7 times at the end of Q4 in cash and equivalents were $302 million.

Speaker Change: Please turn to slide 16 for our full year 2024 financial guidance.

We anticipate 2020 for revenue to fall within a range of $2 $2 75 to $2 $3 $75 billion.

Speaker Change: At the midpoint this represents approximately 7% year over year growth.

Speaker Change: An important factor to consider when looking at the projected revenue growth rate is the timing and impact of the catch up of previously supply constrained revenue.

Speaker Change: You may recall that we entered 2023 with approximately $400 million of revenue, we were unable to deliver due to component supply constraints.

Speaker Change: We knew the revenue was not lost and we would be able to convert it at supply availability improved.

Speaker Change: As I just mentioned, we estimate approximately $275 million of that catch up occurred in 2023, and we anticipate the remaining $125 million will occur primarily in the first half of 2024.

Speaker Change: If you normalize for the impact of 2023 and expected 2020 for catch up of constrained revenue the 7% year over year growth rate would be approximately 16%.

Speaker Change: We anticipate full year 2024, non-GAAP earnings per share to fall within a range of $3 40 to $3.80 per diluted share.

Speaker Change: The EPS guidance assumes an effective tax rate of 25% for the full year quarterly.

Speaker Change: Quarterly rates could fluctuate based on the jurisdictional mix and the timing and amount of tax settlements.

Speaker Change: At the midpoint of this EPS range and normalizing the tax rate to 25% for both years, we expect 2024 year over year earnings growth of approximately 14%.

Speaker Change: Now please turn to slide 17 for our first quarter outlook.

Speaker Change: We anticipate Q1 revenue to be within a range of 575 to 585, million% to 17% year over year increase at the midpoint.

Speaker Change: We anticipate first quarter non-GAAP earnings per share to be within a range of 80 to 90 per diluted share, which at the midpoint is approximately 68% year over year growth after normalizing for the tax rate.

Speaker Change: Our 2023 financial results reflected strong operational execution.

Speaker Change: We reacted quickly to better than expected component supply ramped manufacturing output in shipments to customers, enabling us to convert a greater than expected amount of supply constrained demand.

Speaker Change: Our team has pivoted to growth and improved profitability. We're very pleased with our 2023 performance and we begin 2024 with considerable momentum and strategic flexibility now I'll turn the call back to Tom. Thank.

Thomas L. Deitrich: Thank you Joan.

Thomas L. Deitrich: But modern grid is undoubtedly the largest machine on the planet and possibly the most complex with the least readily available visibility into its operational conditions.

Thomas L. Deitrich: Not only does it need to be modernized, but this needs to happen in years not decades as demand and complexity continues to rapidly increase <unk> robust connectivity and grid edge intelligence at scale is providing critical solutions to our customers in timeframes that match these needs.

Thomas L. Deitrich: To accelerate and broaden the adoption of new technology, We recently announced co innovation work with three industry, leading partners that have cutting edge technology.

Thomas L. Deitrich: <unk> will integrate our grid edge intelligence solutions with Schneider Electric's eco structure platform. The combined solution will give utilities greater visibility and control over energy distribution and resource management, which in turn enables an increase in grid capacity, while optimizing capital investments in physical equipment the collaborations.

Designed to simplify management against an increasingly challenging landscape. This initial step with digitized both the supply and demand sides of the energy value chain for distributed energy resource management.

Thomas L. Deitrich: With the support of Microsoft <unk> is integrating Microsoft Azure open AI into our portfolio of outcome solutions. This enables secure natural language processing of utility data to speed access to business intelligence needed in a rapidly changing world.

Thomas L. Deitrich: No longer is data science or automation of business intelligence limited to IP and engineering specialists with this collaboration actionable information will be more quickly available to all business managers for critical decisions.

Thomas L. Deitrich: Additionally, we recently announced plans to integrate our grid edge intelligence solutions with GE renewables grid OLS orchestration software to collaborate and build a unified data model to ease the integration and utilization of data from the grid edge to the utility control room by connecting the two for real time.

Thomas L. Deitrich: Data insights for grid operators.

Thomas L. Deitrich: Combining grid edge data with operations data will close visibility gaps that previously prevented utilities from identifying and resolving grid issues quickly and efficiently.

Thomas L. Deitrich: Grid edge intelligence, <unk> visibility as well as the ability to control and operationalize distributed energy resources inside and outside the home fully optimizing the distribution grid requires cooperation from the Atms system to the edge and the ability to securely access cloud based.

Thomas L. Deitrich: Data for processing with the latest machine learning and AI capabilities.

Thomas L. Deitrich: <unk> believes collaboration between industry leaders is required to accelerate grid modernization essential to economic and social prosperity.

Thomas L. Deitrich: We will discuss these arrangements.

Thomas L. Deitrich: And more at our upcoming Investor day on the 12 foot March at NASDAQ market site in New York City, We expect our program will be helpful for investors seeking to understand our business and why we believe we are positioned at the intersection of a multi year market trends of wide scale customer demand for technology with an innovative port.

Thomas L. Deitrich: Polio solutions that supports our growth expectations.

Thomas L. Deitrich: We look forward to visiting with everyone attending in person and we'll also be broadcasting the event via webcast through <unk> Dot com for.

Thomas L. Deitrich: For those interested in participating please contact our IR team for registration details.

Thomas L. Deitrich: To recap today's call <unk> had a strong fourth quarter and full year 2023, our teams executed at a high level across the organization and delivered significantly improved results, our networked solutions and outcomes segments set annual revenue records, we drove margin expansion through the year and will continue.

Thomas L. Deitrich: Earn high quality customer awards that maintain our backlog at near record levels.

Thomas L. Deitrich: While there may be continued volatility in the world ahead, we've assembled a strong and capable team that has proven itself is poised to continue to perform in 2024.

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

Speaker Change: Certainly ladies and gentlemen to ask a question you wanted to Westar one one on your telephone and wait for your name to be announced to withdraw your question simply press Star One again, please standby while the compounded Q&A roster.

Speaker Change: And our first question coming from the line of Noah Kaye with Oppenheimer. Your line is open.

Noah Kaye: Good morning, Thanks for taking the questions.

Great quarter.

Noah Kaye: Maybe we can start with the guide actually I think the.

Noah Kaye: First question would be how to think about the growth across the segments. That's embedded in the guide is a sort of a flattish devices and high single digit and outcomes are networks is that kind of the right way to think about it or how would your nuance that.

Noah Kaye: Yeah. Yeah. This is John I would say the devices is relatively flat and.

John: From the standpoint of.

John: Year over year growth you would expect.

John: A little bit again in devices, but it's kind of low double digit growth in networks and outcomes would be more like high single digit.

John: So if you think about networks, and that's where the continuation of the catch up of the constrained revenue primarily affects the network segment.

Speaker Change: Right and I think most of that catch up is happening in the first half that implies that we're kind of back to underlying growth on the back half of the year from a sort of a revenue run rate perspective.

Speaker Change: Correct. So again Youre correct that most of the remaining catch up with the $125 million should be in the first.

Speaker Change: And so that plays into how to unpack margin trends a little bit because.

Speaker Change: You mentioned, there's a couple of things going on you've got.

Speaker Change: Some of the old backlog that.

Speaker Change: Still as maybe mix disadvantaged right rolling through revenue. This year, but then you have kind of the catch up on.

Speaker Change: <unk>.

Speaker Change: Networks backlog and so that should be mix accretive so just kind of help us understand how.

Speaker Change: How to think about the trajectory of margins over the course of the year and what kind of a cleaner margin trajectory might look like once we get past some of these different items.

Speaker Change: So I would say the first comment would be about Q1, I would expect Q1 to be sequentially lower than Q4, Q4 was a very very strong margin quarter, but if I think about the overall guidance for the year.

Speaker Change: It implies.

Speaker Change: The higher than than 'twenty, three in aggregate and to your point I would expect kind of first half margins to be a little bit below second half margins.

Speaker Change: Okay.

Speaker Change: Tom you mentioned in the prepared remarks, but just help us understand where are we in the cycle for fund flow from IHA in IRI.

Speaker Change: Looks like the deal we only just opened applications for the grip program in November. So are you starting to see quoting activity related to specific programs.

Good question.

Speaker Change: You are correct that a lot of the proposals to obtain grants from.

Speaker Change: And the government are going in now that the first round of awards. These happened in <unk>.

Speaker Change: In the fourth quarter, that's an award that doesn't mean, the cash is flowing just yet.

Speaker Change: So I would expect.

Speaker Change: That we will see a lot of activities for proposals and for projects that.

Speaker Change: We are working with our customers on during 2024, what that means in terms of flowing it through to our P&L.

Speaker Change: There will be bookings in 2024, but I don't expect a material amount of revenue in 2024. The revenue probably comes in in 'twenty, five and beyond in terms of the timing itself.

Speaker Change: Terrific I will turn it over.

Speaker Change: Thank you.

Speaker Change: Next question coming from the line of Martin Malloy with Johnson Rice <unk> Company. Your line is open.

Martin Malloy: Good morning, congratulations on the strong quarter.

Martin Malloy: My first question.

Martin Malloy: Revolved around the pickup that you saw beginning last year in terms of network solutions revenues and deploy more endpoints and how should we think about it.

Martin Malloy: That impacting the timing of it.

Martin Malloy: Related.

Martin Malloy: Increase in outcomes revenues in solutions.

Speaker Change: I can start and then Tom feel free to ask.

Thomas L. Deitrich: Catch up so typically you'll see anywhere from a 12 to 18 month lag in terms of outcomes kind of applications. After the endpoints are deployed so you're correct. We started to see a lot of this constrained revenue really was networks and that is starting to come through so think about 12 to 18 months beyond that the other thing I would just caution though is <unk>.

Thomas L. Deitrich: It comes as a mix of different types of businesses. We have managed services and there we have license revenue and then of course, we have the applications on distributed endpoints. So it's really all three of those so I don't think youre going to see a complete correlation in terms of the ability to model it that way, but we would expect that that would pick up anywhere from 12 to 18 months.

Thomas L. Deitrich: After endpoints are deployed.

Speaker Change: Tom if you've got anything else no well stated Jim.

Speaker Change: Okay.

Speaker Change: Good question.

Thomas L. Deitrich: You've announced several.

Speaker Change: Partnerships here they look like they are and collaborations that look like they are important could you maybe give us a little more color in terms of the timing of when we might see these partnerships impact your results.

Speaker Change: Sure happy to do so so let me take a step back and try to put the collaborations in context, and then come to the meat of your question. We think fundamentally it is extremely important to connect up and create full visibility across the distribution grid from the Atms system, meaning things that are happening higher up in.

Speaker Change: The grid from where we normally play all the way down to the last mile to the endpoint itself you can't solve the full grid problem without that notion of connecting those two parts of it so that the work that we announced with both Schneider electric and with GE for Nova is really around that.

Speaker Change: Fundamental collaboration.

Speaker Change: Additionally, the Microsoft collaboration has to do with bringing the power of generative AI to two utility data today only about a third of utilities are really doing something with with AI and theres a substantial productivity gains that can be possible. When you do use that capability at a.

Speaker Change: <unk> way, so how do we enable that in a secure and responsible ways with the collaboration with <unk>.

Speaker Change: Microsoft is really all about those collaborations themselves, we're working with the first customers.

Speaker Change: In each of those right now Youll hear some things and I think we even with the <unk> or Nova mentioned, Florida power and light in the.

In the press release that went out in the past couple of days, but those collaborations.

Speaker Change: Initial customer activities are going on now and I would expect.

Speaker Change: Product releases to be happening during the year and flow through the results in 2025 and beyond.

Speaker Change: Thank you I'll turn it back.

Thank you.

Speaker Change: And our next question coming from the line of Jeff Osborne with Cowen. Your line is now open.

Jeff Osborne: Yes. Thank you. Good morning, just a couple of questions on my side. Tom I was wondering I think Joe mentioned, a 16% normalized growth rate without the catch up on the semiconductor side. I was just wondering is there anything one time as it relates to 2024 and would you have a similar growth rate given the robust backlog as we look out into 2025.

Speaker Change: Okay.

Speaker Change: Excuse me.

Thomas L. Deitrich: Let me, let me just clarify what that 16% represents so what we did to get to 16% as we took the 23.

Thomas L. Deitrich: Book to revenue.

Thomas L. Deitrich: <unk> by the $275 million of catch up and then compared that to the 2024 midpoint guidance I, just provided and reduced debt by $125 million of catch up so there's catch up in both years. So we took we normalized both years and Thats, how we got to 16%.

Speaker Change: Got it I apologize I'm, losing my voice here, but and then on the Teco, how do you think about.

Ratio from two point out a one for one point or two point out solutions hypothetically. If you had spent 100 million bucks on one point of solution, a decade ago or getting 60 cents on the dollar with the upgrades how do.

Speaker Change: Do we think about the legacy customers.

Speaker Change: Centerpoint et cetera, right right.

Speaker Change: I'll give you a moment to clear your throat I think I got the question Jeff.

Jeff Osborne: The teco upgrade just to set the record there is not really a one point out of two point think of it as a one point though.

Jeff Osborne: So think of it as a two point out to a two point, though but there was two different underlying technologies that were part of two point, though.

Jeff Osborne: And really what's going on is migrating everything to the latest and greatest.

Version to allow that capability to scale much more efficiently across different applications. So it's not a one to two weeks.

Jeff Osborne: It's really a two to two in terms of the headline capability, but the underlying protocols are a little bit cleaner in terms of where theyre going that said.

Jeff Osborne: To your question.

Ami: One point, though Ami.

Speaker Change: Just to make it really simple.

Speaker Change: Application.

Speaker Change: Return you were getting on that as an operator was.

Speaker Change: Probably 6%, 4%, 5% somewhere in that range typically mileage varies a bit. So you could have some a little bit higher than that but that was more typical in a two point, though.

Speaker Change: Return that you get is much much bigger the more applications you pile on to a common set of infrastructure the more the benefits accrue.

Speaker Change: So.

Speaker Change: It's far and away a better investment to go to a two point, though generation.

Speaker Change: And the cash register really accrues benefits as you add more applications, we find incremental applications are substantially higher than than the single digit percentages that we saw in an initial just automation of the meter to cash cycle.

Speaker Change: Great. Thank you that's all I have.

Speaker Change: Thank you.

Speaker Change: Next question coming from the line of <unk> Harrison with Piper Sandler Your line is open.

Harrison: Good morning, everyone and thanks for taking.

Harrison: Thanks for taking my question.

Harrison: So my first one just wanted to go back to the backlog I think you flagged, 70% being repriced index.

Harrison: And then obviously, implying that there's 30% on the other side can you give us a sense of what proportion of <unk> results were.

Harrison: We're tied to the lower priced backlog and then maybe just generally how should we think about the margin drag on.

Harrison: The margin drag from the lower priced backlog on 2020 for guidance.

Harrison: Sure.

Speaker Change: Yes, I don't know if I could give a perfect answer for Q4, I would say that.

Speaker Change: Was a mix of pre pandemic pricing as well as the more recent stuff in Q4, certainly it was less than the 70 30 split meaning we had more of the older stuff flowing through.

Speaker Change: In Q4.

Speaker Change: The overall margins that we have in there clearly we've had a substantial run up in costs on the components those.

Speaker Change: <unk> costs.

Speaker Change: Not started to materially ease back too.

Speaker Change: The pre pandemic levels.

Speaker Change: To this point just yet so difficult to give you the on off the cuff answer on the precise numbers, but I do think that margins in the network segment are probably most effective.

Speaker Change: <unk>.

Speaker Change: Other segments are a little bit more free in terms of that margin compression dynamic from pre pandemic backlog.

Speaker Change: Got it Okay fair enough and then my.

Speaker Change: My follow up question.

Speaker Change: You highlighted the integration of generative AI to your portfolio of outcome solutions.

Speaker Change: Clearly the outcomes business will the services will improve due to the use of AI, but can you maybe speak to the financial impacts.

Speaker Change: Specifically are you expecting margin expansion in the outcomes segment are you do you expect to win more business. So higher revenues and then when do you expect.

Speaker Change: Open AI to be fully integrated across the board to all your customers within the outcomes segment right.

Speaker Change: Three different parts of the equation, there certainly I think that the.

Speaker Change: <unk>.

Speaker Change: Inclusion of more and better refined machine learning capabilities as well as AI capabilities into the data suite that we provide will help both revenue as well as margin.

Speaker Change: We definitely believe the collaboration with <unk> with Microsoft where you can do it in a secure way.

Speaker Change: <unk> been thinking about it as a co pilot is the right way to do it in the in the utility space. So I think it is accelerating business, which results in revenue and margin accretion timing wise.

Speaker Change: It's going to depend on customer adoption.

Speaker Change: In terms of how it flows through the P&L, we're going to enable it for anything.

Speaker Change: Anything that is hosted in Azure as a first off example, the faster we migrate customers to a cloud based environment I think the faster they will be able to to consume it theres a lot of power in being able to do this instead of running down the.

Speaker Change: The office hallway to the it or the engineering Department to say write me a report for something why not speak in natural language and have the computer do the work to pull data out. So you can get better insights and make decisions much faster that's really what the power would be but I think it's a it's a 2025 story in terms of revenue.

Speaker Change: Is where you'll start to see the initial results.

Speaker Change: I appreciate the.

Speaker Change: Color there and then maybe my final question.

Speaker Change: Your bookings you saw a nice recovery in Q4, and then Youre highlighting one to one at least one to one bookings guidance for 2024.

Speaker Change: Can you help us think through what that one to one bookings guidance would imply for the year and 12 months.

Speaker Change: Backlog.

Speaker Change: Yes, I think that one is probably going to depend on customer deployment more so than the booking itself recall when we do a booking we require a signed customer contract and award of course, but also regulatory approved.

Speaker Change: Approval.

Speaker Change: We able to put it into backlog once it's there.

Then the deployment schedule gets defined that 12 month backlog number is oftentimes based on deployment schedules more so than bookings schedule. So I expect that.

Speaker Change: Demand is likely to remain stable and strong which is a very good thing throughout 2024, and we would expect that 12 month backlog to reflect that strong and stable demand environment.

Speaker Change: Got it I appreciate the commentary I'll pass it on thanks.

Speaker Change: Yeah.

Speaker Change: Thank you.

Speaker Change: Our next question coming from the line of Chip Moore with <unk>. Your line is open.

Chip Moore: Good morning, Hey, everybody.

Hi.

Chip Moore: I wanted to ask about recurring software and service attach rates, we've heard numbers as high as I think 30% for for some contracts out. There is is there a way to think about how those attach rates have been trending and how those are in backlog.

Chip Moore: I think our software and services revenue was somewhere right around 17% to 20% of our total revenue today.

Tax rates continue to drive that up over time, so the vast majority of new bookings include not only.

Chip Moore: Some hardware, but software and services associated with it the exact portion that is software and services varies a lot deal to deal and probably it's not a good bellwether to think about a single number there it is very dependent on the.

Chip Moore: On the individual deal itself, what we do know is once we have a network deployed the amount of follow on business that we get in the in the software and services area.

Chip Moore: Is substantially higher portion of.

Chip Moore: Detach then is.

Chip Moore: In the initial deal itself and not just as good for the customer as they are exercising the assets as they bought in multiple ways to.

Chip Moore: To help their communities, but it's also good for us.

Chip Moore: It adds to that software and services activity for the company itself.

Speaker Change: Got it that's helpful color Tom appreciate it.

Speaker Change: As a follow up.

Speaker Change: Maybe on the component side I think you mentioned that you've been able to stockpile. Some critical components I guess just your confidence if we do get some volatility have you been able to engineer out some of the more challenging stuff or do you think you have enough on hand that you have good comfort.

Speaker Change: We get some volatility thanks.

Speaker Change: Yeah, I'll start and then Tom Please please chime in so yes, we have made a decision to strategically invest in inventory and if you look over the past year, our inventory has gone up quite a bit and that is to really make sure. We built some supply chain resiliency and so we feel good about the projections, we are providing for 24 obviously.

Thomas L. Deitrich: We continue to work on initiatives to to make the supply chain more robust, including dual sourcing and things like that but at this point not overly concerned with what supply chain shortages on components.

Tom Dietrich: Okay.

Thomas L. Deitrich: Great. Thank you.

Speaker Change: Thank you.

Speaker Change: And our next question coming from the line of Tommy Moll with Stephens, Inc. Your line is now open.

Tommy Moll: Good morning, and thank you for taking my questions.

Tommy Moll: Okay.

Tommy Moll: I wanted to start.

Tommy Moll: With a follow up on the point, you made about having repriced or indexed about 70% of the yearend backlog.

Tommy Moll: And really my question is to try to understand the philosophy that underlies those negotiations with your customers is the idea to hold.

Tommy Moll: The gross margin percentage constant in a changing environment gross profit dollars held those constant or what is the underlying.

Tommy Moll: Mutually beneficial arrangement youre trying to get to there. Thank you.

Speaker Change: Well certainly when we have a discussion with.

Speaker Change: With customers.

Speaker Change: We're trying to make sure we are.

Speaker Change: Selling the value of the solution that we provide.

Speaker Change: That's fundamentally how we have the discussion it's good for the customer and it's good for us good.

Speaker Change: For our shareholders when we do that we've got a better mousetrap than than competition in our minds.

Speaker Change: Our customers are largely regulated utilities theyre looking for price certainty. So they can put it into a rate case.

Speaker Change: And they can go to their commission to develop the right REIT structure for their <unk>.

Speaker Change: Communities.

Speaker Change: World that they live and if we live in a world with a lot of volatility on the cost side, how can we make those two worlds coincide.

Speaker Change: And indexing is largely the way, we we tend to work with customers most often.

Speaker Change: If we do have a certain inflation rate, we can take the benefit of it is largely it tends to go up in cases, where we had done fixed price contracts.

Speaker Change: Where we were not able to renegotiate.

Speaker Change: The remaining 30% ish.

Speaker Change: We referenced in our pre.

Speaker Change: Prepared remarks.

Speaker Change: When it comes to how do you have that negotiation with customers.

Speaker Change: To rework those existing deals again, we look for ways that we can try to provide incremental value.

We can help the customer solve new and interesting problems.

Speaker Change: Is there a way to do that.

Speaker Change: But still live within the construct that they have for their business. So we try to make it as much as possible a win win for both sides.

Speaker Change: That's helpful. Thank you.

Speaker Change: As a follow up I wanted to.

Speaker Change: Ask a question on the EPS outlook, you've provided if we just take the first quarter midpoint in the full year midpoint for 2024.

Speaker Change: Just shy of 25% earnings contribution from the first quarter and while it's difficult to know what a quote unquote normal.

Speaker Change: Contribution looks like.

Speaker Change: I think if we look historically.

Speaker Change: Skus.

Speaker Change: A little bit rich, which might imply some conservatism embedded in the <unk>.

Speaker Change: Q3 Q4 Q.

Speaker Change: Outlook. So any comments you could provide there would be helpful.

Speaker Change: Yes, the only thing I would comment is what I said earlier, which is a normal progression of what a first half second half would look like is going to be a little bit skewed in 2024 as a result of that catch up to $125 million of revenue recurring primarily in the first half.

Speaker Change: So if you think about that youre going to have kind of more normal normal revenue without the catch up in the second half and as a result, you end up with something that looks more more flattish than it would normally look from first half to second half.

Speaker Change: That makes sense, Thank you Joan and I will turn it back.

Joan Schweikart Hooper: Thank you and our next question coming from the line of Ben.

Joan Schweikart Hooper: Women Keller with Baird. Your line is now open.

Ben Kallo: Hey, good morning, guys Congrats common zone.

Ben Kallo: Bob.

Ben Kallo: Just quickly I guess Tom.

Ben Kallo: On outcomes.

Ben Kallo: The oil and congrats on the partnerships.

Ben Kallo: The partnership's change your.

Ben Kallo: Our strategy to build a home.

Ben Kallo: Acquire or or partner.

Speaker Change: So what I'm asking.

Speaker Change: You talked about acquisitions.

Speaker Change: How do you think about that for outcomes.

Speaker Change: Or are there other parts of the business.

Thanks, Ben No I don't see that these partnerships change our strategy for the technology, we would look to add into our portfolio at all we werent looking to get into the high end Aam's market, that's better served by others and it's appropriate to partner there the same with large language.

Speaker Change: Models, it's better to partner with with a firm there to be able to do that let's make sure that we can.

Speaker Change: Extract value for our customers.

Speaker Change: We do that Thats, how we can think about those.

Speaker Change: Those partnerships overall when it comes to acquisitions.

Speaker Change: We're very focused on edge intelligence.

Speaker Change: Capability, adding technology that we can scale across multiple customers primarily outcomes related.

Speaker Change: Solutions is where you should look for us to continue.

Speaker Change: To scour the market overall.

Speaker Change: And when we think about just the bookings are very good bookings in Q4.

Speaker Change: I assume you've I think you've visited.

Speaker Change: Visibility for what you booked for the year, how does that mix played out between networking and outcomes.

Speaker Change: This quarter past Q4 is looking good.

Speaker Change: Yeah.

Speaker Change: Two two.

Speaker Change: Ways to look at it.

Speaker Change: $839 million of bookings, we had in Q4, the vast majority of that is.

Speaker Change: Networks and outcomes.

Yes.

Speaker Change: That will be true again in 2024.

Speaker Change: The actual split.

Speaker Change: Between networks and outcomes inside of the number varies a bit quarter to quarter Q4 happened to be a little bit heavier on the outcomes side.

Speaker Change: We'll see what 2024 it looks like.

Speaker Change: Zach split comes down to how we work with customers for the contracts themselves.

Speaker Change: And then I know you guys.

On a long journey.

Speaker Change: Sure.

Speaker Change: Right sizing costs.

Speaker Change: Given your manufacturing footprint.

Speaker Change: So is the right size could you just update us where you are there or is there any benefit.

Speaker Change: <unk> 25 from anything.

Speaker Change: Whoa.

Speaker Change: Won't happen until October.

Speaker Change: Like a year over year benefit from 'twenty four from just from cost savings right. So I think manufacturing. Thank you.

Speaker Change: Yes, I was going to say so we have in the plan, we announced about a year ago, we have two factories closing and they won't close till the tail end of 'twenty for early 'twenty five. So the answer is yes, there will be some benefit in 'twenty five versus 24, one since two factories close and it's just as you mentioned a continuation of the strategy we've been on.

Speaker Change: Size the manufacturing footprint, so that is why.

Speaker Change: As we've mentioned a couple of times 24 margins are a little bit muted from a standpoint of the unpriced backlog as well as the fact that the factories are closed yet so we'll be in a position when we do investor day in a couple of weeks to talk about our view of 2027 actually.

Speaker Change: Great. Thank you very much sir.

Speaker Change: Thank you.

Speaker Change: And our next question coming from the line of painful Martinez with Raymond James Your line is open.

Thanks for taking the question can you talk about.

Painful Martinez: Geographic sales mix of.

Painful Martinez: 2023, what you are thinking of this year, and particularly what youre seeing in the European market.

Painful Martinez: Yes, I can start and then Tom if you want to add and I would say.

Painful Martinez: Given that our networks business and.

Speaker Change: <unk> for that matter is heavily North America. The vast majority of our revenue continues to be from North America.

Thomas L. Deitrich: We do have primarily our devices business that has a good amount of revenue in Europe and devices was much stronger than we expected in 'twenty three on the backs of really strength in the water meter and water communication modules modules business. So we're seeing a lot of good water strength in Europe right now.

Thomas L. Deitrich: And if I.

Thomas L. Deitrich: Just fast forward and add one more comment there agree fully with.

Thomas L. Deitrich: Jones commentary.

Thomas L. Deitrich: There is a push on the part of local government specifically in Western Europe.

Thomas L. Deitrich: Around the water market, that's certainly helping the market overall, and we've seen pretty robust signals that business tends to be a little bit shorter cycle.

Thomas L. Deitrich: Almost a good portion of it is turns business, meaning a book and ship within the quarter and that's one that we will continue to watch through throughout the year, but.

Speaker Change: Joan is right.

Speaker Change: Water market in 2023 was.

Speaker Change: Stronger than we had expected coming into the year and we'll continue to watch that through 2024.

Speaker Change: Got it and that since my.

Speaker Change: M&A question was was already answered.

Speaker Change: Got it would kind of frame slightly different around the free cash flow you are building cash.

Speaker Change: And the only debt on the balance sheet is a convert that you have two.

Speaker Change: Two years on so what what's the kind of priority ranking on.

Speaker Change: How youre thinking about that increase in cash balance.

Speaker Change: M&A.

That is the priority and we've been very active we continue to be active and we feel very good about our position now given our cash balance and our ability if need be for the right acquisition to actually take on more debt given where our leverage is so that is by far the number one priority is to find something that enhances our outcomes segment.

Speaker Change: Alright, very clear thanks very much.

Speaker Change: Thank you.

Speaker Change: And our next question coming from the line of Scott Graham with Seaport lease research. Your line is now open.

Scott Graham: Yes, hi, good morning, Thanks for taking my questions and congratulations on your quarter.

Scott Graham: Quarter.

Scott Graham: I Hope you can answer this question.

Scott Graham: And I hope I'm not overly complicating it.

Scott Graham: Probably will be.

Scott Graham: When you reprice.

Scott Graham: Does that get you because I <unk>.

Scott Graham: Throw around the word index.

Speaker Change: <unk> Tom.

Speaker Change: Does that get you to price.

Speaker Change: Cost however, you want to call it price inflation.

Speaker Change: Neutrality.

Speaker Change: Or are you still.

Speaker Change: Price cost negative even after that indexing.

Speaker Change: Okay.

Speaker Change: Well it depends on the timeframe that youre talking about so and index just two two.

Speaker Change: It really put a fine point on it could be something like a PPI or CPI for the specific market that you are dealing with.

Speaker Change: Thats, what you could use to price.

Two index.

Speaker Change: Pricing on a go forward basis.

Speaker Change: And then it will depend very much on your internal productivity compared to two that overall very visible very trackable metric between you and the customer to make it clear so whether you win on price cost depends on your productivity against that particular metric.

Speaker Change: And generally it's in a go forward.

Speaker Change: Is how that indexing tends to to work. So if you started behind or have you started to head. Then you know where you are relative to that index on a on a time evolution basis I hope that helps put put clarity behind it.

Speaker Change: I'll probably have to read the transcript.

Speaker Change: Again on that one.

Speaker Change: For your answer, but it does help a little bit so.

Speaker Change: I guess my follow up question would be kind of the same question you asked a little bit differently just for <unk>.

Speaker Change: Number sake.

Speaker Change: The big jump in gross margin in the fourth quarter.

Speaker Change: Was that.

Speaker Change: Let's assume let's assume that we get to closer to price cost parity so was that.

Speaker Change: Like enriched mix was.

Speaker Change: Was that volume was it productivity.

Speaker Change: And you can say, yes to all three but then maybe rank them.

Speaker Change: I would say, yes I.

Speaker Change: I would say, yes to all three and I would say mix was probably the biggest.

Speaker Change: Right.

Speaker Change: And then how does that look.

Speaker Change: For 24 gross margin.

Well I think I commented earlier and the full year guidance that we provided the assumption is the gross margin is a little bit better than full year 'twenty three so part of that is.

Speaker Change: This headwind of 30% not non indexed backlog coming in and that's primarily FX networks, but in aggregate. We think the overall gross margin will be slightly higher than it was in 'twenty three.

Speaker Change: And Daniel III that Q4, yes, yes, and Jones's that.

Speaker Change: Headwind I assume that headwind.

Speaker Change: Reduces significantly in 'twenty five.

Daniel: Yes, correct plus you have the benefit of the two factories going offline, which will help margins as well, but yes.

Daniel: The the.

Daniel: 30% or so of the backlog that is not price protected we would expect the majority of that to come into 'twenty four.

Speaker Change: Thank you.

Speaker Change: Next question coming from the line of Us.

Us: <unk> <unk> with Canaccord Your line is open.

Us: Hi, good morning nice quarter.

Us: I have a two part question here, where do you view yourselves in the sales cycle with utilities right now and do you expect further demand recovery as interest rates decline just given the sensitivity of utilities to interest rates.

Us: Yeah.

Speaker Change: I can take that one.

Speaker Change: I think that we generally see utilities looking to.

Speaker Change: All of the real problems that are on their hands today, they've got to figure out how to balance supply and demand.

Speaker Change: With more renewables on the generation side and more distributed energy resources.

Speaker Change: At the edge of the network, how do they do that they do it with grid edge intelligence, they've got more environmental.

Speaker Change: Environmental pressures with floods and fires and storms or ice storms droughts, what have you depending on where in the country you may be.

Speaker Change: And they've got to make their infrastructure more resilient and they've got rising consumer demands.

Speaker Change: Consumers want to understand how they are.

Speaker Change: Buying the service in much finer detail than the traditional utility model allowed those are the pressures that drive our customers' towards new technology, we see customers actively looking at new technology to address those those questions we haven't seen shift.

Speaker Change: In buying behavior from our customers with interest rates.

Speaker Change: Rising over the last.

Speaker Change: <unk> of years, Indeed, the demand picture has been.

Speaker Change: Has it been pretty steady and strong looking at these new technologies rate cases are being approved they are working through the regulatory process and the return that theyre getting on those.

Speaker Change: Our rate cases is also pretty steady.

Speaker Change: As interest rates come down perhaps rate cases change a little bit or maybe demand goes up the time will tell as to how that plays out but independent of interest rates, we do expect.

Speaker Change: The demand environment to continue to be stable and strong.

Speaker Change: Excellent thanks for all that.

Speaker Change: Thank you and I will now turn the call back over to Mr. Tom Deitrich for any closing remarks.

Thomas L. Deitrich: I, thank everyone for joining today, we look forward to updating everyone at our March <unk>.

Speaker Change: Bester event.

Thomas L. Deitrich: Until next time, thank you for joining.

Speaker Change: Ladies and gentlemen that does conclude our conference for today. Thank you for your participation you may now disconnect.

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Speaker Change: Good day, and thank you for standing by welcome to Eikon spot quarter 2023 earnings Conference call.

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

Speaker Change: The speaker's presentation, there will be a question and answer session.

Ask a question during this session you will need to press star one on your telephone you will then have an automatic message biting Yohan <unk> Suisse.

Speaker Change: Please note that today's conference is being recorded.

Speaker Change: I'll now hand, the conference over to Jessica host, Paul Vincent Vice President of Investor Relations. Please go ahead.

Paul Vincent: Good morning.

Welcome to <unk> fourth quarter of 2023 earnings conference call.

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

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

Speaker Change: The release also includes details related to the conference call and webcast replay information.

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

Speaker Change: Following prepared remarks, the call will open for questions using the process. The operator described.

Speaker Change: 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.

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

Speaker Change: 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 other reports and filings with the Securities and Exchange Commission.

Speaker Change: Materials discussed today February 26, 2024 may materially change and we do not undertake any duty to update any of our forward looking statements.

Speaker Change: Now please turn to page four of our presentation.

Speaker Change: Oh, Tom Dietrich begins his remarks.

Thomas L. Deitrich: Thank you Paul good morning to everyone and thank you for joining our call.

Thomas L. Deitrich: During the fourth quarter strong operational execution improved supply chain balanced and robust customer demand supported financial results ahead of our expectations, including single quarter record revenue for our networked solutions and outcomes segments.

Thomas L. Deitrich: The performance highlights for the fourth quarter were year over year revenue growth of 23% to $577 million adjusted EBITDA of $68 million, an increase of 99% year over year.

Thomas L. Deitrich: non-GAAP earnings per share of $1 23, an.

Thomas L. Deitrich: An increase of 73%.

Thomas L. Deitrich: And free cash flow of $39 million, which increased $57 million year over year.

Thomas L. Deitrich: Our customers face pressure due to increased resource demand climate and sustainability related challenges and the need to improve consumer experience iphones platform approach to provide grid edge intelligence has a proven track record in addressing these customer concerns.

Thomas L. Deitrich: The magnitude and diversity of bookings during the fourth quarter also reflects the breadth of unmet needs of utilities around the world.

Thomas L. Deitrich: Our largest booking was an award from every source energy, who contracted for an advanced endpoint and network rollout in their Massachusetts territory, covering one 3 million consumers.

Thomas L. Deitrich: Moving to the southeastern U S Tampa electric our Tico and Nitro and have agreed to work together to migrate <unk> existing <unk> capable endpoint and network lighting controllers from a prior generation of <unk> networks.

Thomas L. Deitrich: Our latest in multi service canopy network platform, which will simplify and future proof the solution for new grid edge intelligence use cases.

Thomas L. Deitrich: CECO continues to adopt grid edge intelligence and is increasing the use in scale of distributed intelligence applications. Most recently through the deployment of location awareness at scale by leveraging the consolidated <unk> network and embracing distributed intelligence Pico will be able to introduce more value and service resilience to their consumers.

Thomas L. Deitrich: <unk>.

Thomas L. Deitrich: Further <unk> will be working with Tulsa, Oklahoma based one gas a provider of natural gas services to more than $2 3 million consumers.

Thomas L. Deitrich: Guests will enhance the intelligence of their network through the deployment of the next generation of communication modules. This project will help one gas increase reliability accuracy and safety for their consumers.

Thomas L. Deitrich: Our market demand outlook for 2020 remains constructive and customer interest in new technology continues to accelerate.

Thomas L. Deitrich: We anticipate 2024 bookings will result in a book to Bill ratio of at least one to one we are observing customers actively exploring projects that could benefit from Iga, a funding programs and although too early to accurately quantify we do anticipate 2024 bookings will include some contributions from <unk>.

Thomas L. Deitrich: <unk> government infrastructure investment programs, including <unk> with the benefits of these programs flowing through in subsequent years.

Thomas L. Deitrich: Slide six provides insights on the operational environment.

Thomas L. Deitrich: Requirements to become more efficient and more agile through visibility gathered by iphones grid edge intelligence solutions will improve asset management enhanced consumer experience and reduce inefficiencies.

Thomas L. Deitrich: During 2023 efforts to improve our price cost ratio gained traction and we were pleased with the results.

Thomas L. Deitrich: Moving forward, we will continue to align our business needs for increased pricing flexibility with the predictability needs of our regulated customers.

Thomas L. Deitrich: <unk> 2023, approximately 70% of our $4 $5 billion backlog has been repriced or indexed to help address margin compression in the event of continued inflationary cost volatility.

Thomas L. Deitrich: Much of the remaining 30% of backlog is expected to be fulfilled during 2024, which does gate margins primarily in the network solutions segment.

Thomas L. Deitrich: I will now ask Joe to provide details about our fourth quarter and full year results as well as our outlook for 2024.

Joe: Thank you Tom I'll review I'll transfer fourth quarter and full year 2023 results before discussing our financial guidance for the full year 2024, and our outlook for the first quarter.

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

Joe: First quarter revenue of $577 million increased 23% versus last year.

Joe: Revenue growth was supported by strong operational execution and increased component availability, which allowed us to continue to catch up on previously supply constrained revenue.

Joe: Gross margin of 34% was 390 basis points higher than last year, primarily due to favorable product mix and operational efficiencies related to increased volumes.

Joe: This was the <unk> highest gross margin since 2017.