Q2 2024 Itron Inc Earnings Call
Paul Vincent: 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 forward-looking statements during this call. These statements are based on current expectations and assumptions that are subject to risks and uncertainty.
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 Rec.
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.
Paul Vincent: 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 regulatory authorities. All company comments, estimates, or forward-looking statements are made in a good faith attempt to provide appropriate insight to our current and future operating and financial environment. Materials discussed today, August 1st, 2024, may materially change, and we do not undertake any duty to update any of our forward-looking statements. Now, please turn to page four of our presentation as our CEO, Tom Dietrich, begins his remarks. Thank you, Paul. Good morning to everyone.
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.
All company comments estimates or forward looking statements are made in a good faith attempt to provide appropriate insight to our current and future operating and financial environment.
Materials discussed today August one 2024 may materially change and we do not undertake any duty to update any of our forward looking statements now please turn to page four of our presentation.
Tom Dietrich begins his remarks.
Tom Dietrich: Thank you Paul good morning to everyone and thank you for joining our call.
Tom Dietrich: And thank you for joining our call. Itron's second quarter results reflect strong execution and operational discipline by the team. Revenue growth of 13% over the second quarter of last year marks the seventh consecutive quarter of growth with record quarterly revenue in our network solutions and outcomes segment. Operating leverage is supported by continued improvements in profitability and free cash flow against a backdrop of stable market demand. Financial highlights for the second quarter are shown on slide five and include revenue of $609 million, adjusted EBITDA of $77 million, non-GAAP earnings per share of $1.21, and free cash flow of $45 million. Turning to slide six, our backlog at the end of the second quarter was $4.1 billion. Bookings for the second quarter were $447 million.
Tom Dietrich: <unk> second quarter results reflect strong execution and operational discipline by the team revenue growth of 13% over the second quarter of last year marks the seventh consecutive quarter of growth with record quarterly revenue in our networked solutions and outcomes segments operating leverage supported by continued improvements in <unk>.
<unk> ability and free cash flow against a backdrop of stable market demand.
Financial highlights for the second quarter are shown on slide five and include revenue of $609 million.
Adjusted EBITDA of $77 million non.
non-GAAP earnings per share of $1 21.
Tom Dietrich: Free cash flow of $45 million.
Turning to slide six our backlog at the end of the second quarter was $4 1 billion bookings for the second quarter were $447 million.
Tom Dietrich: Although the second quarter book-to-bill is below our four-year target of one-to-one, we currently have more than $1 billion of customer awards that are working through the appropriate processes to support our bookings discipline. These processes are progressing at a measured pace, resulting in larger pending bookings than usual. The timing of these bookings will likely be skewed to later in the second half of the year, with our expectation for an annual book-to-bill ratio of one-to-one or better, assuming progress on the regulatory and governmental funding processes.
Tom Dietrich: Although the second quarter book to Bill was below our full year target of one to one we currently have more than $1 billion of customer awards that are working through the appropriate processes to support our bookings discipline. These processes are progressing at a measured pace, resulting in larger pending bookings than typical the timing of these.
This will likely be skewed to later in the second half of the year with our expectation for an annual book to Bill ratio of one to one or better assuming progress on the regulatory and governmental funding processes.
Tom Dietrich: The pipeline of new opportunities continues to be strong, driven by our infrastructure, environmental, and consumer megatrends. Our global customers face challenges and increasing complexity in power generation and distribution, which is driving an all of the above approach when it comes to technology deployment use cases.
Tom Dietrich: The pipeline of new opportunities continues to be strong driven by our infrastructure environmental and consumer Megatrends, our global customers face challenges and increasing complexity in power generation and distribution, which is driving an all of the above approach when it comes to technology deployment use cases.
Tom Dietrich: Itron's great edge intelligence platform provides a forward thinking agile solution that addresses these critical needs. Examples of customer adoption of high value technology are highlighted by notable additions to our backlog during the second quarter. Rochester Public Utilities in Minnesota committed to upgrade from an existing drive-by system to our latest grid edge intelligence solution that will address numerous key challenges in their territory, including grid management for the increased adoption of renewable energy resources and electric vehicles. Enhanced consumer service through real time data access and personalized energy management tools. Optimize grid operations and grid planning through edge compute for decision making and asset management. Enhanced Safety with Automated Remote Disconnection Anomaly Alert.
<unk> grid edge intelligence platform provides a forward thinking agile solution that addresses these critical needs.
Tom Dietrich: Examples of customer adoption of high value technology are highlighted by notable additions to our backlog during the second quarter.
Rochester public utilities in Minnesota committed to upgrading from an existing drive by system to our latest grid edge intelligence solution that will address numerous key challenges in their territory, including grid management for the increased adoption of renewable energy resources in electric vehicles.
Tom Dietrich: <unk> consumer service through real time data access and personalized energy management tools optimize.
Tom Dietrich: Optimize a great operations and grid planning through edge compute for decision, making and asset management.
Tom Dietrich: <unk> safety with automated remote disconnect an anomaly alerts.
Tom Dietrich: Deployment of a scalable communication network to support future needs. In Ohio, we will be working with FirstEnergy to support their expansion of advanced metering infrastructure and continued moves towards FirstEnergy's grid edge strategy for the deployment of more advanced use cases. Also, during the quarter, Spire Energy committed to adding 100,000 IntelliGas endpoints to their active deployment of Itron ultrasonic technology. This adds to the more than 700,000 installed endpoints and continues the ongoing conversion to ITRON technology. Now Joan will provide details of our second quarter and an update on our full year guidance. Thank you, Tom.
Deployment of a scalable communication network to support future needs.
Speaker Change: In Ohio, we will be working with Firstenergy to support their expansion of advanced metering infrastructure and continued moves towards first energy's grid edge strategy for the deployment of more advanced use cases.
Speaker Change: Also during the quarter aspire energy committed to adding 100000 guests.
Gas endpoints to their active deployment of icon ultrasonic technology.
Speaker Change: <unk> adds to the more than 700000 installed endpoints and continues the ongoing conversion to <unk> technology.
Speaker Change: Now John will provide details of our second quarter and an update on our full year guidance.
Joan Hooper: Please turn to slide seven for a summary of consolidated gap results. Second quarter revenue of $609 million increased 13% year-over-year and reflects solid operational execution and the conversion of the remaining $40 million of previously supply-constrained revenue. Gross margin of 34.6%, 250 basis points higher than last year, due to favorable product mix and operational efficiency. Gap net income of 51 million, or $1.10 per diluted share, compares to 24 million, or 53 cents per diluted share, in the prior year. The improvement was driven by higher levels of operating and interest income, which were partially offset by higher taxes. Regarding the non-GAP metrics on slide eight.
John: Thank you Tom Please turn to slide seven for a summary of consolidated GAAP results.
John: Second quarter revenue of $609 million increased 13% year over year and reflects solid operational execution and the conversion of the remaining $40 million of previously supply constrained revenue.
John: Gross margin of 34, 6% was 250 basis points higher than last year due to favorable product mix and operational efficiencies.
John: GAAP net income of $51 million or $1 10 per diluted share compares to $24 million or <unk> 53 per diluted share in the prior year.
Speaker Change: The improvement was driven by higher levels of operating and interest income, which were partially offset by higher tax expense.
Speaker Change: Regarding non-GAAP metrics on slide eight.
Joan Hooper: Non-GAAP operating income of 69 million increased 67% year over year. Adjusted EBITDA of $77 million increased 56% Non-GAAP net income for the quarter was $56 million or $1.21 per diluted share versus $0.65 a year. Pre-cash flow was $45 million in Q2 versus $36 million a year.
Speaker Change: non-GAAP operating income of $69 million increased 67% year over year.
Speaker Change: Adjusted EBITDA of $77 million increased 56%.
Speaker Change: non-GAAP net income for the quarter was $56 million or $1 21 per diluted share versus <unk> 65, a year ago.
Speaker Change: Free cash flow was $45 million in Q2 versus $36 million a year ago.
Joan Hooper: The improvement reflects year-over-year earnings. Year-over-year revenue growth by business segment is on slide nine. Device Solutions revenue increased 6% on a constant currency basis, driven primarily by growth in EMEA smart water sales.
Speaker Change: The improvement reflects year over year earnings growth.
Speaker Change: Year over year revenue growth by business segment is on slide nine.
Speaker Change: Device solutions revenue increased 6% on a constant currency basis, driven primarily by growth in EMEA Smartwater sales.
Joan Hooper: Network Solutions revenue grew 14% year over year, driven by the catch-up of previously constrained revenue and increased project revenue, and Outcomes revenue increased 16% year over year primarily due to higher recurring and services revenue. Moving to the non-GAAP year-over-year EPS bridge on slide 10, our Q2 non-GAAP EPS increased $0.56 year-over-year to $1.21 per diluted share. Pre-tax operating performance contributed $0.70 per share of year-over-year improvement, driven by the fall-through of higher revenue and gross profit, partially offset by higher operating expenses. Higher tax expense had a negative year-over-year impact of $0.11 per share, and foreign currency and share count had a negative impact of $0.03 per share.
Speaker Change: Network solutions revenue grew 14% year over year, driven by the catch up of previously constrained revenue and increased project deployments.
Speaker Change: Outcomes revenue increased 16% year over year, primarily due to higher recurring and services revenue.
Speaker Change: Moving to the non-GAAP year over year EPS Bridge on Slide 10, our Q2, non-GAAP EPS increased 56 cents year over year to $1 21 per diluted share.
Speaker Change: Pre tax operating performance contributed 70 cents per share year over year improvement driven by the fall through of higher revenue and gross profit, partially offset by higher operating expenses.
Speaker Change: Tax expense had a negative year over year impact of <unk> 11 per share in foreign currency and share count had a negative impact of <unk> <unk> per share.
Joan Hooper: Turning to slides 11 through 13, I will review Q2 segment results compared with the prior year. Device Solutions revenue was $119 million, gross margin was 26.3%, and operating margin was 20%. Gross margin was up 450 basis points year over year, and operating margin was up 760 basis points, reflecting a higher value product mix and operating level. Networked Solutions revenue was $413 million, with a gross margin of 36.9% and an operating margin of 28.5%. This quarter was a record revenue level for the network segment.
Speaker Change: Turning to slides 11 through 13, I will review Q2 segment results compared with the prior year device solutions revenue was 119 million gross margin was 26, 3% and operating margin was 20%.
Speaker Change: Gross margin was up 450 basis points year over year, and operating margin was up 760 basis points, reflecting a higher value product mix and operating leverage.
Speaker Change: Network solutions revenue was $413 million with gross margin of 36, 9% and operating margin of 28, 5%.
Speaker Change: This quarter was a record revenue level for the networks segment.
Joan Hooper: Gross margin increased 310 basis points year over year, and operating margin was up 400 basis points due to favorable product mix and operational efficiency. Results revenue was $78 million, a quarterly record for the segment, with gross margin of 34.8% and operating margin of 13.7%. Gross margin decreased 600 basis points year over year, and operating margin was down 520 basis points due to a lower margin revenue mix and increased services costs. Turning to slide 14, I'll review liquidity and debt at the end of the second quarter. Total debt was $1.265 billion, and net debt was $344 million.
Speaker Change: Gross margin increased 310 basis points year over year, and operating margin was up 400 basis points due to favorable product mix and operational efficiencies.
Speaker Change: Outcomes revenue was $78 million a quarterly record for the segment with gross margin of 34, 8% and operating margin of 13, 7%.
Speaker Change: Gross margin decreased 600 basis points year over year, and operating margin was down 520 basis points due to a lower margin revenue mix and increased services costs.
Speaker Change: Turning to slide 14, I'll review liquidity and debt at the end of the second quarter.
Speaker Change: Total debt was $1 $2 65 billion and net debt was $344 million.
Joan Hooper: This includes our existing $460,000,000 zero coupon convertible notes maturing in 2026 and the recently issued $805,000,000 one and three-eighths coupon convertible notes maturing in 2030. This recent financing was a well executed transaction that significantly improved our liquidity and strategic flexibility, particularly as it relates to M&A. As of June 30, net leverage was 1.2 times, and cash and equivalents were $921 million.
Speaker Change: This includes our existing 460 million zero coupon convertible notes mature in May 2026, and the recently issued $805 million, one and three eights coupon convertible notes maturing in 2030.
Speaker Change: This recent financing was a well executed transactions has significantly improved our liquidity and strategic flexibility, particularly as it relates to M&A.
Speaker Change: As of June 30, net leverage was one two times and cash and equivalents were $921 million.
Joan Hooper: Now, please turn to slide 15 for our third quarter out. We anticipate third quarter revenue to be between $590 million and $600 million. The midpoint of this range represents growth of $34 million or 6% year over year. For non-GAAP EPS, we expect a range of $1.10 to $1.20 per diluted share.
Speaker Change: Now please turn to slide 15 for our third quarter outlook.
Speaker Change: We anticipate third quarter revenue to be between $590 million to $600 million. The midpoint of this range represents growth of $34 million or 6% year over year.
Speaker Change: For non-GAAP EPS, we expect a range of $1 10 to $1 20 per diluted share at the midpoint. This implies an increase of 17 versus Q3 of last year.
Joan Hooper: At the midpoint, this implies an increase of 17 cents versus Q3 of last year. Now, please turn to slide 16 for an update on our annual 2024 conversation. We now anticipate 2024 full-year revenue to be within a range of $2.385 billion to $2.415 billion versus the $2.275 to $2.375 billion range we provided in February. At the midpoint, this represents an increase of 10% versus 2023 and 3% from our prior 2024 annual guidance.
Speaker Change: Now please turn to slide 16 for an update to our annual 2020 for outlook.
Speaker Change: We now anticipate 2020 for full year revenue to be within a range of $2 385 billion to $2 415 billion versus the $2 $2 75 to $2 $3 $75 billion range, we provided in February.
Speaker Change: At the midpoint. This represents an increase of 10% versus 2023 and 3% from our prior 2020 for annual guidance.
Joan Hooper: Contingent customer demand and strong operational execution are driving the higher revenue expectation. Earnings will also be positively impacted by the fall through of higher revenue. Our non-GAAP EPS full-year outlook ranges $4.45 to $4.65 per diluted share versus the February guidance of $3.40 to $3.80 per share. At the midpoint, the updated non-GAAP EPS estimate is up 35% versus 2023 and 26% versus prior guidance. The revised full-year guidance assumes a 23% effective tax rate.
Speaker Change: Continued customer demand and strong operational execution is driving the higher revenue expectations.
Speaker Change: Earnings will also be positively impacted by the fall through of higher revenue, our non-GAAP EPS full year outlook range is $4 45 to $4 65 per diluted share.
Speaker Change: The February guidance of $3 40 to $3 80 per share.
Speaker Change: At the midpoint the updated non-GAAP EPS estimate is up 35% versus 2023 and 26% versus prior guidance.
Speaker Change: The revised full year guidance assumes a 23% effective tax rate the actual tax rate could fluctuate based on jurisdictional mix and the timing of tax settlements.
Joan Hooper: The actual tax rate could fluctuate based on jurisdictional mix and the timing of tax settlement. The recent financing transaction we completed in mid June will be accretive to our 2024 EPS, given both the net interest income and the share buyback. We estimate the Q3 impact is approximately $0.11 per share, and the full year impact is approximately $0.22 per share. This benefit is reflected in the updated guidance. Our financial performance has accelerated meaningfully over the past year, supply availability has recovered, and our operations and utilization levels have improved.
Speaker Change: The recent financing transaction, we completed in mid June will be accretive to our 2024 EPS given both the net interest income and the share buyback.
Speaker Change: We estimate the Q3 impact is approximately <unk> 11 per share in the full year impact is approximately <unk> 22 per share. This benefit is reflected in the updated guidance.
Speaker Change: Our financial performance has accelerated meaningfully over the past year and supply availability recovery in our operations and utilization levels improved.
Joan Hooper: Having realized significant operating leverage over this timeframe, we're now entering a more normal operating environment versus the ketchup environment of the past six quarters. Lastly, as Tom noted, 2024 bookings are expected to skew more to the latter part of this year, which will likely impact 2025 revenue, as the projects will now start later than previously anticipated. Now, I'll turn the call back to Tom. Thank you, Joan.
Speaker Change: Having realized significant operating leverage over this timeframe, where now we're entering a more normal operating environment versus the catch up environment of the past six quarters.
Speaker Change: Lastly, as Tom noted 2020 for bookings are expected to skew more to the latter part of this year, which will likely impact 2025 revenue as the projects will now start later than previously anticipated now I will turn the call back to Tom.
Tom Dietrich: Thank you Joan.
Tom Dietrich: The need for grid hardening and modernization is clear to us, our customers, and increasingly the public. Extreme weather and climate disruptions continue to challenge our customers, most recently in Houston, Texas. Hurricane Beryl left millions without power.
Speaker Change: The need for grid hardening and modernization is clear to us our customers and increasingly the public extreme weather and climate disruptions continue to challenge our customers. Most recently in Houston, Texas Hurricane barrel left millions without power barrel was an uncommonly early a strong start to the hurricane season.
Tom Dietrich: Beryl was an uncommonly early and strong start to the hurricane season. Unfortunately, these types of events are expected to increase in frequency, duration, and intensity. Itron's technology provides our customers with visibility into what is happening across their distribution assets in an accurate and timely fashion, while providing capabilities ranging from support of day-to-day operations to identifying the magnitude and location of customer outages, while also helping to reduce the impacts should these events occur.
Speaker Change: Unfortunately these types of events are expected to increase in frequency duration and intensity <unk> technology provides our customers with visibility into what is happening across their distribution assets in an accurate and timely fashion, while providing capabilities ranging from support of day to day operations to identify.
Speaker Change: Defining the magnitude and the location of customer outages.
Speaker Change: While also helping to reduce the impacts should these events occur.
Tom Dietrich: Digitization of the grid and software-driven approaches to problem solving and asset management, like ITRON's grid edge intelligence platform, can provide critical support for utilities working to maintain access to energy and water during high-impact events.
Speaker Change: Digitization of the grid and software driven approaches to problem solving and asset management like <unk> grid edge intelligence platform can provide critical support for utilities working to maintain access to energy and water during high impact events.
Tom Dietrich: Visibility and control at the edge of the grid continue to be at the forefront of the most effective solutions to cope with the increasing challenges of our customers. At Itron, our commitment to supporting energy and water resource management extends to all stakeholders, and we recently published our 2023 Corporate Sustainability Report, which details our efforts to be responsible stewards. The report covers Itron's commitment to creating a more resourceful world by helping utilities and cities achieve their sustainability goals, improve their environmental footprint, and shares the company's progress on advancing its own sustainability initiatives.
Speaker Change: Visibility and control at the edge of the grid continues to be at the forefront of the most effective solutions to cope with the increasing challenges of our customers.
<unk>: At <unk>, our commitment to supporting energy and water resource management extends to all stakeholders and we recently published our 2023 corporate sustainability report, which details our efforts to be responsible stewards.
Speaker Change: The report covers <unk> commitment to create a more resourceful world by helping utilities and cities achieve their sustainability goals.
Speaker Change: Prove their environmental footprint and shares the Companys progress on advancing its green and sustainability initiatives.
Tom Dietrich: Key areas of progress include our technology enabling Itron's customers to avoid at least 6.8 million metric tons of greenhouse gas emissions, while enhancing consumer engagement through the dynamic energy savings program, such as demand response and time of use rates. In 2023, we achieved our initial greenhouse gas emissions goal of a 50% reduction in owned emissions by 2028, a full five years ahead of our target timeline. We enabled our customers to avoid 400 times more emissions than our own during 2023 alone. And last but certainly not least, our focus on maintaining a safe working environment for our team resulted in the lowest recordable and time lost rates in ITRON's history.
Speaker Change: Key areas of progress include our technology enabled iphones customers toward with at least $6 8 million metric tons of greenhouse gas emissions, while enhancing consumer engagement through the dynamic energy savings programs, such as demand response and time of use rates.
Speaker Change: During 2023, we achieved our initial greenhouse gas emissions goal of a 50% reduction in owned emissions by 2028, a full five years ahead of our target timeline.
Speaker Change: We enabled our customers to avoid 400 times more emissions that our own during 2023 alone.
Speaker Change: Last but certainly not least our focus on maintaining a safe working environment for our team resulted in the lowest recordable in time loss rates in <unk> history.
Tom Dietrich: On behalf of ITRON's management, I am grateful to our team for the demanding work that produced these results. In closing, our second quarter results were encouraging. We have much more to contribute and unfinished work to achieve our goal. We are excited about the future and eager to engage. Thank you again for joining our call today. Operator, please open the line for some questions. Ladies and gentlemen, to ask a question, you will need to press star 1 on your telephone and wait for your name to be announced. To withdraw your question, simply press star 11 again.
Speaker Change: On behalf of <unk> management, I am grateful to our team for the demanding work that produce these results.
Speaker Change: In closing our second quarter results were encouraging we have much more to contribute an unfinished work to achieve our goals.
<unk>: We are excited for the future and eager to engage thank you again for joining our call today.
Speaker Change: Operator, please open the line for some questions.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen to ask a question you will need to press star one on your telephone and wait for your name to be announced so enjoy your question simply press Star one again, please standby while the compile the Q&A roster.
Operator: Please stand by while we compile the canary. And our first question, coming from the lineup, Noah Kaye with Oppenheimer, your line is open. Well, good morning.
Speaker Change: And our first question coming from the lineup Noah Kaye with Oppenheimer. Your line is open.
Noah Kaye: Thanks for taking the question. So we'll start with outcomes, and I believe this is the first time the segment has actually led growth percentage wise amongst all the segments since the first quarter of 2022. So, it's good to see the inflection there.
Speaker Change: Yes.
Noah Kaye: Well good morning, Thanks for taking the questions. So we'll start with outcomes and I believe this is the first time in this segment.
Speaker Change: Actually led.
Speaker Change: Growth percentage wise amongst all of the segments since the first quarter of 2022.
Speaker Change: So good to see the inflection there.
Tom Dietrich: Two parts to this, one, you know, is there, I think, a pathway or set up for outcomes to sustainably lead top line growth over the coming quarters, as was sort of the vision from Investor Day. And then on the margins in the segment, I know we talked about this a bit last quarter on your earnings call, but we are still seeing lower margin impacts on gross margin operating income. When does that inflect more positively? And when will you start to see margins trending back towards the targets that you outlined? Very good Thank you, Noah. Tom here.
Speaker Change: Two parts to this one.
Speaker Change: Is there a pathway are set up for.
Speaker Change: Outcomes to sustainably lead topline growth over the coming quarters.
Speaker Change: Sort of the vision from Investor Day.
Speaker Change: And then on the margins in the segment I know, we've talked about this a bit last quarter on your earnings call but.
Speaker Change: Still seeing a lower margin impacts both on gross margin operating income when does that inflect more positively and when do you start to see margins trending back towards the.
Speaker Change: The targets that you outlined.
Tom Dietrich: I can take that one. So we were very pleased with the revenue growth in outcomes. It's a new record for us on the outcomes revenue line, and really what you're starting to see showing up there is the outcomes portion of various projects accruing to the revenue line. We knew networks were growing for the last couple of quarters given the catch-up on components and the strength of the portfolio there. And now it is starting to roll into the outcome segment.
Tom Dietrich: Very good. Thank you Noah Tom here I can take that one so we were very pleased with the revenue growth in outcomes. It is a new record for us on the outcomes revenue line and really what youre starting to see showing through there is the outcomes are poor.
Speaker Change: <unk> of our various projects.
Tom Dietrich: Crewing too to the revenue line.
Speaker Change: New networks was growing for the last couple of quarters, given the catch up on components and the strength of the portfolio there.
Tom Dietrich: That's what is underlying the growth and what is still ahead of us. What you saw on the margin line, though, was much more tilted towards the services side of things rather than the SaaS or software portion of the outcomes portfolio. And in particular, it was more one-time services, with integration of all of the back office systems really starting to show through. And that's what led to a little bit lower gross margin during the quarter.
Tom Dietrich: Now it starts to.
Tom Dietrich: Roll into the outcomes segment.
Speaker Change: Thats what is underlying the growth and what is still ahead of us what you saw on the margin line, though was.
Tom Dietrich: Much more tilted towards the services side of things rather than the SaaS or software portion of the the.
Tom Dietrich: The outcomes portfolio and in particular, it was more onetime services with integration of all of the back office systems.
Speaker Change: Really starting to show through and Thats, what led to a little bit lower gross margin during the quarter that said theres nothing structural here that leads us to move off of the 2027 targets that we laid out in Investor day, so that.
Tom Dietrich: That said, there's nothing structural here that leads us to move off of the 2027 targets that we laid out on investor day. So that low 40s kind of gross margin is still the right zip code for the outcomes segment overall.
Speaker Change: Low <unk> kind of gross margin is still the right ZIP code for the outcomes segment. Overall. So this isn't structure structural it really is much more about the.
Tom Dietrich: It really is much more about the mix of the types of things that we had. What does it take to sustainably get into that margin and growth pattern? It really is a bit more scale for the business itself. It's what we've been working towards. It's finally starting to happen.
Speaker Change: The mix of the types of things that we had what does it take to sustainably get into that margin and growth pattern. It really is a bit more scale to the business itself. It's what we've been working towards its finally, starting to happen I would expect it to continue to be lumpy a little bit.
Tom Dietrich: I would expect it to continue to be lumpy for several more quarters. That said, the general trajectory is moving in the right direction, and we're pleased with the progress. Okay, thanks for that, Karl or Tom.
Speaker Change: Longer for for several more quarters that said.
Speaker Change: The general trajectory is moving in the right direction and we're pleased with the progress.
Tom Dietrich: And, you know, since during the prepared remarks, there was a discussion of Hurricane Beryl, I want to follow up on that. Yeah, I think for for, and by the way, you know, we're aware that you have some great customers down there. And ERCOT has always had some challenges, but I think it's pretty public that, Uh, the response to, um, you know, the storm was widely criticized. And, you know, I think people were without power for several weeks.
Speaker Change: Okay. Thanks for that color Tom.
Speaker Change: And since.
Speaker Change: Since during the prepared remarks, there was a discussion of hurricane barrel I wanted to follow up on that.
Speaker Change: Okay.
Tom Dietrich: Think for four and by the way we're aware that you have some great customers down there.
Speaker Change: In ERCOT has always had some challenges, but I think it.
Speaker Change: It's pretty public that.
Speaker Change: The response to.
Speaker Change: The storm.
Speaker Change: Was broadly criticized.
Speaker Change: And I think people were without power for several weeks.
Tom Dietrich: So when you look at that event, what does it tell you about Itron's capabilities and its, you know, evolution of those capabilities and its ability to help with improved responses to natural disasters? What, where do you need to grow your capabilities, and where do your customers potentially benefit from using more of the services that you offer? In other words, to what extent is this an opportunity and to what extent is this a challenge?
Speaker Change: So when you look at that event.
Speaker Change: What does it tell you about.
Speaker Change: <unk> capabilities I trends.
Speaker Change: Evolution of those capabilities and ability to help with improved response to natural disasters.
Speaker Change: Where do you need to grow your capabilities and where do your customers potentially benefit from using more of the services that you offer in other words to what extent is this an opportunity and to what extent is this a challenge for the company.
Tom Dietrich: Yeah, I definitely put it in the category of opportunity for us. We continue to invest in the Grid Edge intelligence platform. And you can put that capability to use in grid resiliency, as well as outage management; you can figure out where you have an outage and get to the scene of the crime and be able to correct it faster. When an outage should occur, you can put that capability to use for things like vegetation management, in a proactive sense. Here's where we've got some trees rubbing up against some critical infrastructure, and you could roll the truck to take care of that vegetation more fully.
Speaker Change: Yeah.
Speaker Change: I definitely put it into the category of <unk>.
Speaker Change: The opportunity for US we continue to invest in the grid edge intelligence platform and you can put that capability to use on grid resiliency as well as outage management you can figure out where you have an outage in and get to the senior the crime and be able to correct.
Speaker Change: Correct it faster when an outage should occur you can put that capability to use for things like.
Speaker Change: Vegetation management.
Speaker Change: Proactive sense, here's where we've got some trees revving up against.
Speaker Change: Some critical infrastructure and you could.
Speaker Change: Roll the truck to take care of that vegetation more fully so we definitely like the direction of our portfolio and we think that investment in resilience and reliability of utility infrastructure is absolutely essential in the new world that we're moving into those floods and fires.
Tom Dietrich: So we definitely like the direction of our portfolio, and we think that investment in the resilience and reliability of utility infrastructure is absolutely essential in the new world that we're moving into. Those floods and fires and storms are sadly happening more often than not, but it is definitely in the category of opportunity for us overall and something we're eager to engage with our customers to get deployed.
Speaker Change: Storms or sadly happening more often than not but it is definitely in the category.
Speaker Change: The opportunity for us overall, and something we're eager to engage with our customers to go get deployed that relates back to the question a moment ago.
Speaker Change: That type of revenue accrues in the outcomes segment and part of the things that we're working with our customers to get deployed now.
Tom Dietrich: That relates back to the question a moment ago; that type of revenue accrues in the outcome segment, and part of the things that we're working with our customers to get deployed now. Right, I guess that's what I'm getting at here, you know, that, you know, more customers should be utilizing the outage management services, the distributed intelligence capabilities, you know, that are embedded in the portfolio. Have you seen that kind of uptick in interest broadly across the customer base over the last call and coming quarters and potentially even response to what happened with Beryl?
Speaker Change: Alright, I guess, that's what I'm getting at here that that.
Speaker Change: More customers should be utilizing the outage management services the distributed intelligence capabilities.
Speaker Change: That are that are embedded in there.
Speaker Change: The portfolio have you seen that kind of uptick in interest broadly across the customer base over the last I'll call it coming quarters and the protection even response to what happened with barrel.
Tom Dietrich: Absolutely. So we've seen a much broader interest in things like wildfire management, vegetation management, for sure, in areas where that type of situation is very prevalent, meaning the West Coast of the US is clearly an opportunity there.
Speaker Change: Okay.
Speaker Change: <unk>, so we've seen a much broader interest in things like wildfire management.
Speaker Change: <unk> management for sure.
Speaker Change: In areas where that.
Speaker Change: Type of situations is very prevalent meaning the west coast.
Speaker Change: In the U S. Clearly is an opportunity there. So again the level of conversations with customers clearly has increased their interest is high.
Tom Dietrich: So again, the level of conversations with customers clearly has increased, their interest is high. There's also government funding activities that are in this area as well to invest in resilience and reliability. And that gives us a lot of optimism about that portion of our portfolio for the years ahead. Thank you. And our next question, coming from the lineup, is from Jeff Osborne with TD Colony in Llanosulta.
Speaker Change: Also government funding activities that are in this area as well to invest in resiliency and reliability.
Speaker Change: Again, what gives us.
Speaker Change: A lot of optimism about that portion of our portfolio for the years ahead.
Speaker Change: Okay. Thank you Tom I'll turn it over.
Speaker Change: Thank you.
Speaker Change: Our next question coming from the line of Jeff Osborne with TD Cowen Your line is open.
Jeff Osborne: Yeah, thank you. I just wanted to maybe follow up on the prior question around the Houston utility. Tom, aren't the bulk of those meters that were installed back in like 2007 to 10, not even IP compliant? Would they even work with the existing software set?
Jeff Osborne: Yes. Thank you.
Jeff Osborne: Wanted to maybe follow up on the prior question around the Houston utility Tomo.
Tom Dietrich: Tom Arent the bulk of those.
Speaker Change: <unk> that had been installed back in like 2007 to 10.
Speaker Change: Not even IP compliant with even work with the existing software center with the meters itself need to be upgraded or have some kind of migration path.
Tom Dietrich: Or would the meter itself need to be upgraded, or have some kind of migration path? Yeah, there's a migration path is probably the right terminology to use there. So clearly, if you want to deploy something like distributed intelligence, it would be a new set of hardware. But you could deploy that on a selective basis or an ongoing basis; it wouldn't necessarily need to be a full rip and replace kind of setup with a lot of our customers across the territories. I got it.
Speaker Change: Yes.
Speaker Change: Migration path is probably the right terminology to use there. So clearly if you want to deploy something like distributed intelligence. It would be a new set of hardware that you could deploy that on a selective basis or an ongoing basis, it wouldn't necessarily need to be a full rip and replace kind of.
Speaker Change: Set up.
Speaker Change: With a lot of our customers across.
Speaker Change: The territories.
Jeff Osborne: And then maybe just in conversations with broader customers, I think, prior, a year or two ago, and in the past, the narrative from you folks was much more around EV and renewable integration. But I'm just curious with the utilities reporting so far, the past two earnings call cycles, it's been much more around load growth. And so I'm just curious what, in particular, DI can do to help manage load growth and squeeze sort of efficiencies and non-wires alternatives out of the grid, and not in areas that maybe aren't as impacted by renewables and EVs, which seem to be the prior positioning of ITRON, at least to investors previously.
Speaker Change: Got it and then maybe just.
Speaker Change: In conversations with <unk>.
Speaker Change: Broader customers I think prior a year or two ago.
Speaker Change: The narrative from you folks was much more around EV and renewable integration, but I'm just curious with the utilities reporting so far the past two earnings call cycle, that's been much more around load growth and so I'm just curious what in particular D. I can do to help manage load growth and squeeze sort of efficiencies in non wires alternatives.
Speaker Change: Out of the grid.
Speaker Change: In areas that maybe aren't as impacted by renewables in evs, which seem to be the prior positioning of I try and at least to investors.
Speaker Change: Previously.
Tom Dietrich: Well, yeah, utilities are struggling with a number of different factors. We touched on two of them already, first in your prior question, resilience and reliability with storms, and then changes in overall load growth, more onshore manufacturing of more data centers, but also changing load patterns where you have more EVs or PVs, or leaders that are, sorry, batteries that are behind the meter itself. So all of those types of things are happening.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Certainly the utilities are struggling with a number of different factors, we touched two of them already first in your prior question resiliency and reliability with storms and then changes in overall load growth more onshoring of manufacturing more data centers, but also change.
Speaker Change: The load patterns, where you have more evs or pvs.
Speaker Change: Our leaders that batteries that are behind the meter itself. So all of those types of things are happening, but it all goes to exactly the investments we've made in that grid edge intelligence platform.
Tom Dietrich: But it all goes back to the investments we've made in that great edge intelligence platform. It allows you to use it almost like a Swiss Army knife: what blade do you need to pull out to be able to solve the problem that we have today?
Speaker Change: Allows you to.
Speaker Change: Use it almost like a Swiss army knife blade.
Tom Dietrich: And it comes down to the capabilities of that platform. Number one is connectivity, you can connect to assets that are out at the edge of the grid. Two, you've got visibility into what they are. Three, you can start to develop control of those assets, and four, you start to optimize them to have them work together. So you can apply that in a non-wired alternative. So you can coordinate assets, say, hey, let's use the power from this battery. Let's start to develop the virtual power plant capability using customer-controlled assets.
Speaker Change: <unk> do you need to pull out to be able to to solve the problem that we have today and it comes down to the capabilities of that platform number. One is connectivity. You know you can connect to assets that are out at the edge of the grid to as you've got visibility into what they are three years, you can start to develop control of those assets and <unk> start to optimize them to.
Speaker Change: Have them work together, so you can apply that in a non wires alternatives.
Speaker Change: You can coordinate assets hey, let's use the power from this battery.
Speaker Change: <unk>.
Speaker Change: Start to develop the virtual power plant capability using.
Tom Dietrich: Let's think about ways that we can use it for resiliency and reliability. So all the capabilities that I'm talking about here, you can use in a different way. And it absolutely helps the utilities deal with the range of complex problems that they're up against. That's why we think we absolutely have a better mousetrap than others in the industry. Perfect. If I could squeeze one last one in.
Speaker Change: Customer controlled assets.
Speaker Change: So think about ways that we can use it for resiliency and reliability. So all capabilities that I'm talking about here you can use in a different way and it absolutely helps utilities deal with the range of complex problems that they're up against is why we think we absolutely have a better mousetrap than others in the industry.
Tom Dietrich: Joan mentioned that the bookings would be weighted towards the back end of the year. I just wanted a two-part question on that. What are some of the regulatory hurdles or scrutiny that the awards that you already have technically are going through, and is there any risk to that in your eyes?
Speaker Change: Free.
Speaker Change: Perfect. If I can squeeze one last one Joe had mentioned that the bookings will be weighted towards the backend.
Joe: The year I just wanted a two part question on that what are some of the regulatory hurdles or scrutiny.
Tom Dietrich: And then part two of the question is, if you could just remind us what the typical lag is from regulatory approval to the start of the installation. Is that a six, nine, 12-month process that you seem to, or Joan seemed to be implying that maybe it's a softer first half of the 25, but just follow up on the point that she was trying to make. Right, right.
Joe: The awards that you already have technically are going through and is there any risk to that in your eyes.
Speaker Change: Part two of the question is if you could just remind us on what the typical lag is from regulatory approval to the start of installation.
Speaker Change: Is that a six 912 month process. It seemed it <unk> seem to be implying that maybe it's a softer first half of the 25 to just follow up on the point that she was trying to make.
Tom Dietrich: So our bookings discipline is the award, the signed contract, and regulatory approval. And the reason we do that, although it is probably somewhat conservative, is it makes the bookings really, really sticky. Once it's booked, it really doesn't go away; it perhaps could shift in time. But it's very, very sticky.
Speaker Change: Right right. So our bookings discipline is the award the signed contract and regulatory approval and the reason we do that although it is probably somewhat conservative is it makes the bookings really really sticky once it's booked it really doesn't go away or perhaps could shift in time.
Speaker Change: But it's very very sticky.
Speaker Change: $1 billion of pending bookings that I talked about that number is a lot larger than is normal overall and I think there's two reasons that are underneath that the first one is regulatory approvals tend to be a bit more complex. These days given the challenges that utility space.
Tom Dietrich: The billion of pending bookings that I talked about, that number is a lot larger than is normal, overall, and I think there are two reasons that are underneath that. The first one is regulatory approvals tend to be a bit more complex these days. Given the challenges that utilities face, as well as commissions, generation, transmission, and distribution are all in need of upgrade and expansion. Interest rates are a little higher, inflation is higher, and consumers are struggling to pay bills. So as a regulatory commission, how do you think through all of that as a utility? How do you prioritize all of that?
Speaker Change: As well as commissions generation transmission distribution or all in need of upgrade in.
Speaker Change: Expansion interest rates are a little higher inflation is higher consumers are struggling paying bills. So as the regulatory commission. How do you think through all of that as the utility how do you prioritize all of that so it makes the rate case a bit more.
Speaker Change: Complicated at times.
Tom Dietrich: So it makes the rate case a bit more complicated at times. That's part of the answer. The bigger part, in the case of some of those larger pending bookings for us, has to do with the government funding side of things, an example being IIJA funding. That's an extra step in the process, where a portion of the total cost is covered by the federal government, and then the rest of it goes into the rate case.
Speaker Change: Part of the answer is the bigger part.
Speaker Change: In the case of some of those larger pending bookings support for US has to do with the government funding side of things.
Speaker Change: Example, being.
Speaker Change: A funding that's an extra step in the process, where a portion of the total cost is covered by the federal government and then the rest of it goes into the rate case. So you got to get one before you can do the other so you can do the math across the board and that extra step is taking a bit more time.
Tom Dietrich: So you've got to get one before you can do the other, so you can do the math across the board. And that extra step is taking a bit more time in the rate cases, which means that the pending bookings category is a little bit larger than usual. I do think that given the pace that things are moving just now, we should see those bookings more towards the second half of the year, as Joan mentioned.
Joan: In the rate cases, which means that pending bookings category is a little bit larger than usual I do think that given the pace that things are moving just now we should see those bookings more towards the second half of the year is Joan.
Tom Dietrich: And then the typical lag time from a booking until a project really starts to begin tends to be, I would say, usually in the 6-9, sometimes 12-month kind of range, but 9 being sort of the center portion of that, and then the project ramps up from that point. So it does give you that profile or at least thoughts about what 25 ought to look like. We're not trying to guide 25 today. We just want to be transparent about timing and what that may look like. Perfect. That's all I have. Thank you. And our next question, coming from the lineup, is Ben Kallo with Bear DLMS Open.
Joan: <unk> and then typical lag time from a bookings.
Joan: Bookings until.
Speaker Change: <unk> really starts to begin.
Speaker Change: Tends to be I would say usually in the six nine sometimes 12 months kind of range, but nine being sort of the center portion of that and then the project ramps from that point so.
Speaker Change: It does.
Speaker Change: Give you that profile or at least thoughts about what 25 ought to look like we're not trying to guide 25 today, we just want to be.
Speaker Change: Transparent about timing and what that May look like.
Speaker Change: Perfect. Thank you.
Speaker Change: Thank you.
Ben <unk>: Next question coming from the line of Ben <unk> with Baird. Your line is now open.
Ben Kallo: Hey, thanks for taking my question. Good morning, guys. Maybe just going back to outcomes and, you know, in the record quarter, and Tom, you mentioned that there were some services there. Maybe if you could just help us, you know, talk through what's in your backlog in terms of outcomes, and then how we'll see that kind of margin shift to the higher-margin piece of the outcomes business, whether that takes, you know, we'll see next quarter, if it takes into 25, and then I'll have a follow up.
Ben <unk>: Hi, Thanks for taking my question good morning, guys.
Ben <unk>: Maybe just talk about two outcomes.
Speaker Change: The record quarter.
Speaker Change: Tom You mentioned that there were some services.
Speaker Change: You can just help us talk through.
Speaker Change: What's in your backlog in terms of outcomes and then how you will see that margin shift to the higher margin piece of the outcomes business, so whether that takes.
Speaker Change: We will see next quarter it takes them to 25.
Speaker Change: Hello.
Ben Kallo: Sure. The backlog, we don't break it out by business unit or by segment overall but know that 90% plus is networks and outcomes. The typical profile would be to get the network installed, and then start to exercise it to do your first use case.
Speaker Change: Sure.
Speaker Change: Backlog, we don't break it out by business unit.
Speaker Change: By segment overall, but know that 90% plus is networks and outcomes.
Speaker Change: The typical profile would be get the network installed and then.
Speaker Change: Start to exercise it to do your first use case may be it's just doing.
Tom Dietrich: Maybe it's just doing a simple AMI use case, and then start to layer on additional capabilities on top of that. But when you start to layer on those additional capabilities, what tends to happen is you've got to get all of the back office systems wired together to be able to use the data. And that tends to be more services revenue to make that work. And then you start deploying the actual capability, which is more on the SAS software side of the portfolio. So you get that general profile.
Speaker Change: And a simple am I use case, and then start to layer on additional capabilities on top of that.
Speaker Change: When you start to layer on those additional capabilities what tends to happen is you've got to get all of the back office systems wired together to be able to use the data and that tends to be more services revenue to make that work and then you start deploying the actual capability, which is more on the SaaS software side of the portfolio. So.
Tom Dietrich: Mileage varies a little bit project to project, but that profile is generally what happens. And that is what you saw in the outcomes revenue and margin for the second quarter. I do think, given the size of that business, it's still a little bit under the scale that we're targeting and will bounce around a little bit quarter to quarter, but I feel very good about the margins moving towards that 43-45% over the years ahead, exactly as we laid out in the recent investor data.
Mary: You get that general profile, Mary mileage varies a little bit project to project, but that profile as is.
Speaker Change: Is generally what happens and that is what you saw in the outcomes revenue for margin for them for the second quarter I do think given the size of that business, it's still a little bit under the scale that we're targeting it will bounce around a little bit quarter to quarter, but feel very good about.
Speaker Change: The margins moving towards that.
Speaker Change: 43% to 45% over the years ahead exactly as we laid out in the at the recent Investor day.
Tom Dietrich: And then just talking about the complexity, you know, of the utilities that you serve, load growth, you know, has that changed, you know, your emphasis on M&A? Or has it, you know, kind of reduced the ability for you guys to do M&A because of the valuations out there?
Speaker Change: And then just talking about the complexity.
Speaker Change: Sure.
Speaker Change: The utilities you serve.
Speaker Change: Load growth how has that changed.
Speaker Change: Yes.
Speaker Change: Our emphasis on M&A or is it reduced the ability for you guys to to do M&A because of because of valuations out there could you just maybe give us an update on the environment.
Speaker Change: Thank you.
Tom Dietrich: Could you maybe give us an update on the environment on the M&A front? Thank you. So, there is no change in our aspirations to expand our portfolio organically or inorganically. We wanted to build a flexible platform that allows our customers to put it to use to solve the problems we know they are up against. Clearly, we want to grow that outcomes portion of the portfolio faster than what we can do organically, which leads to inorganic options on the M&A front, which are generally in the outcomes space.
Speaker Change: Okay. So no change in our.
Speaker Change: Aspirations to expand our portfolio organically or Inorganically, we wanted to build a flexible platform that allows our customers to put it to use to solve the problem was we know they are up against.
Speaker Change: So no change there clearly we want to grow that outcomes portion of the portfolio faster.
Speaker Change: Then.
Speaker Change: Then what we can do organically, which leads to two the inorganic options on the M&A front, which are generally in the outcome space.
Tom Dietrich: I tend to think that valuations, if anything, probably have come down a bit from where they were, but valuations in the software area clearly are higher than for hardware, just in a generalized sense, so no change in our aspiration. What we're looking for is something tilted towards outcomes, something that's truly scalable and really allows us to expand the reach and breadth of that portfolio. Thank you. Our next question, coming from the line of Joseph Osha with Guggenheim Partners in Ceylon, is: Thank you, and good morning. I just have one question, folks.
Speaker Change: To think that.
Speaker Change: Valuations, if anything probably have come down a bit from where they were but evaluations in the software area clearly are higher than for hardware just in in a generalized sense.
Speaker Change: So no change in our aspiration, what we're looking for is something tilted towards outcomes something thats truly scalable and really allows us to expand the reach and breadth of that portfolio.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question coming from the line of Joseph Osha with Guggenheim Partners. Your line is open.
Joseph Osha: Looking at the midpoint of where you've ended up this year with your guide, looking at some of the comments that you've made about, you know, these bookings showing up for next year, you know, to the midpoint of your 27 guide at this point, by my math, you're only looking at a 4% tagger, which seems conservative to me. So, I'm wondering, I suspect the answer is no, but I'm wondering if you might be willing to make a comment about the implications that the numbers we're hearing today have for that 2027 range that you put out at the analyst meeting.
Joseph Osha: Thank you and good morning.
Joseph Osha: One question folks looking at the mid point of where you've ended up this year with.
Joseph Osha: With your guide looking at some of the comments that you've made about these bookings showing up for next year.
Joseph Osha: The midpoint of <unk> 27 guide at this point by my math, you're only looking at a 4% CAGR, which which seems conservative to me so I'm.
Speaker Change: I'm wondering I suspect the answer is no, but I'm wondering if you might be willing to make a comment about implications that the numbers. We are hearing today have for that 2027.
Speaker Change: A range that you put out at the analyst meeting thank you.
Joseph Osha: Thank you. Yeah, I would say no change to the 27 numbers in the ranges that we put out there a couple of months ago. We never expected it to be a straight line from 23-24 all the way to 27.
Speaker Change: Yes, I would say no change to the 27 numbers in the ranges that we put out there a couple of months ago.
Speaker Change: Never expected it to be a straight line from.
Speaker Change: From $23 24, all the way to 27, so we stand behind the targets that we provided for 2027 and the commentary that we made as Tom just described and bookings is just to be transparent with if they end up at the end of 'twenty for the rollout of revenue is different than they would have been if they were in the beginning of 'twenty four or so.
Joan Hooper: So we stand behind the targets that we provided for 2027. The commentary that we made, as Tom just described for bookings, is just to be transparent about if they end up at the end of 24, the rollout of revenue is different than it would have been if they were at the beginning of 24. So, you know, if you look at the current 25 consensus numbers out there, you have to really make sure you normalize for the 125 million of catch-up that we had in 24.
Speaker Change: If you look at the current 25 consensus numbers out there you got to really make sure you normalize for the $125 million of catch up that we had in 'twenty four and just doing that the current consensus for 25 is already 9% growth. So youre right that if you kind of take the midpoint of the updated 24 guidance to 27%.
Joan Hooper: And just doing that, the current consensus for 25 is already 9% growth. So you're right that if you kind of take the midpoint of the updated 24 guidance to 27, it's more like 4% CAGR. But you have again got to be careful because of that catch-up effect in 24.
Speaker Change: Like 4% CAGR.
Speaker Change: Again got to be careful because of that catch up effect in 'twenty four.
Joseph Osha: Well, okay, but I'm going to drill down on that a bit. Because, you know, even if you run through that math, looking at 26 and 27, then, you know, the midpoint of your guide implies that you fall off, assuming your comments about 25 are correct about low single-digit growth, which doesn't seem to make sense to me. I mean, doesn't this business organically grow at four or 5%, even off of that 25 comp?
Speaker Change: Okay.
Speaker Change: To drill down on that a bit because even if you run through that math looking at 'twenty six 'twenty seven.
Speaker Change: The midpoint of your guide implies that you fall off assuming your comments about 25 are correct.
Speaker Change: Low single digit growth, which doesn't seem to make sense to me doesn't this business organically grow at four 5% even off of that 25 comp.
Joseph Osha: Well, again, if you look at the market numbers based on kind of 24, I think at the time of investor day, we were looking off 23 at five to 7% kind of growth for the overall company. So again, if you anchor it off 24, it's probably a bit lower than that. But certainly that's organic; that's no M&A. And as we described the 27 targets, we also did not put any stimulus in.
Speaker Change: Well again, if you look at if you look at the market numbers based on kind of 24 I think at the time of Investor Day, We were looking at 'twenty three at 5% to 7% kind of growth for the overall company. So again, if you anchored off 24, it's probably a bit lower than that.
Speaker Change: But certainly that's organic that's no M&A and as we described to 'twenty seven targets. We also did not put any stimulus.
Joan Hooper: So hopefully, it's higher than that, but the numbers that we described back in March still stand. Okay, thank you. And our next question comes from the line of Martin Molloy with Johnson & Smyth & Co., Elana Silver. And our next question comes from the line of Pavel Molchanov with Raymond James. Okay, yeah, that's useful. And then also kind of looking ahead to 25 from a margin perspective, what's the latest on the COVID post COVID, www.youtube.com or the YouTube channel of the U.S. Embassy in the Philippines.
Speaker Change: So hopefully it's higher than that but the numbers that we described back in March still stand.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you and our next question coming from the line of.
Speaker Change: Martin Malloy with Johnson Rice <unk> company. Your line is open.
Speaker Change: Okay.
Joseph Osha: Brian Miller Your line is open please check your mute button.
Brian Miller: Thank you.
Brian Miller: Sorry about that.
Speaker Change: One question for me this morning.
Speaker Change: Was wondering if you could maybe give us an update on the partnerships you have announced with GE for Nova and Schneider and how those are going.
Speaker Change: Happy to so.
Speaker Change: Those partnerships are alive, and well and something that we're excited about.
Speaker Change: The underlying thesis behind it is absolutely playing out as we would hope our customers really struggle with keeping up in many cases with the speed of technology, So new ideas come at them faster than infrastructure changes, how can we help them cope with that by.
Speaker Change: Doing a lot more I'll call it pre integration and making sure that our things work better together out of the box and it saves the customer time later on so a number of very fruitful discussions going on with those partners today.
Speaker Change: <unk>.
Speaker Change: In some cases targeting or in concert with very specific customers.
Speaker Change: Our pilot projects.
Speaker Change: Technology demonstrations, which again, we hope will lead to revenue acceleration in the years ahead, so I would say alive and well and that bench of technology partners that we want to use that playbook with.
Speaker Change: <unk> is growing.
Speaker Change: By the quarter.
Speaker Change: Great. Thank you I'll turn it back.
Speaker Change: Thank you.
David <unk>: And our next question coming from the line of David <unk> with Raymond James Your line is now open.
David: Yes, thanks for taking the question can you drill down on.
David <unk>: Just kind of a sneak preview on of 25 that you gave in the prepared remarks, saying that.
Speaker Change: Revenue.
Speaker Change: Shift kind of beyond 25 based on certain utility.
Speaker Change: Contracting activity can you just explain what you meant by that.
Speaker Change: Sure. So again I'd say first of all it's too early for us to be giving <unk> guidance, but given that the profile of the 24 bookings it's more skewed to the latter part of the year. We thought it was prudent just to remind you that there is a natural timeline between something being booked and when it converts into revenue and Tom just described that kind of six.
Tom Dietrich: The 12 month timeframe the only other comment again that I just made in response to an earlier question is be careful when you look at growth, 24% to 25 don't forget to normalize for $125 million of catch up revenue that existed in 'twenty four.
Speaker Change: And so that's kind of the commentary that we heard on 25.
Speaker Change: Okay.
Speaker Change: Okay, Yes.
Speaker Change: Thats useful.
Speaker Change: And then also kind of looking ahead to <unk> 25 from a margin perspective.
Speaker Change: What's the latest on the <unk>.
Speaker Change: Post COVID-19.
Speaker Change: <unk> seen.
Speaker Change: Kind of flow through.
Speaker Change: Remember you obviously.
Speaker Change: Had some legacy contracts that are rolling off.
Speaker Change: How close are we to that roll off finally.
Speaker Change: Sure.
Speaker Change: I would say that the.
Speaker Change: Start with the pricing side of your question the pricing model moving to much more indexed pricing.
Speaker Change: And being able to cope with changes in the marketplace is working out well and well deployed on the.
Speaker Change: New projects that are going into bookings and roll it out I would say price cost overall, it's Jeff.
Jeff Osborne: Generally on the positive side of the ledger, thus far in 'twenty, four and would certainly expect it to stay there based on what we see today.
Jeff Osborne: On the backlog itself.
Jeff Osborne: We're probably still in the same ZIP code of 70, 30, meaning 30% that's still left to roll through.
Jeff Osborne: In some of that pre priced backlog itself again, you've got a numerator and denominator change in that with new bookings coming in and revenue going out overall, but 70 30 is still not a bad place to be.
Jeff Osborne: When we get to 2025, we will have the benefit of those factories that are closing in the second half of this year. So that's helpful. Overall and pricing is helpful for us so.
Speaker Change: Like the direction the business is moving and the team is executing well.
Speaker Change: Alright, thanks very much.
Speaker Change: Okay.
Speaker Change: Thank you.
Joan Hooper: And our next question, coming from the line of Kasope Harrison with Piper Sendler, UNSW. Good morning and thank you for taking my questions. I think it's a good and accurate summary overall. Chip Moore with Plot PLN Assault.
Speaker Change: And our next question coming from the line of Kashi Harrison with Piper Sandler Your line is open.
Kashi Harrison: Good morning, and thank you for taking my questions.
Kashi Harrison: So I apologize if I if I missed this earlier, but I was wondering if you could just speak to the drivers of the increased revenue expectations. This year.
Speaker Change: How much of that is just a pull forward or faster conversion of backlog versus <unk>.
Speaker Change: Increased demand.
Speaker Change: Yes, I can start and then Tom may want to add in so if I look at the devices segment, which has really outperformed our initial expectations I would say it's.
Speaker Change: Unexpected growth in particularly in Europe in water sales. So there is a lot of.
Speaker Change: Grades to new technology going on in Europe for our water customers and Thats, a pretty big growth for us. This year that we would not have planned on so that's the first one the.
Speaker Change: Second one is just some of the network deployment has gone a little bit faster than we would have expected now that we've caught up outcomes is probably about where we expected.
Speaker Change: Good it accurate summary overall.
Speaker Change: Got it I appreciate the added color and then.
Speaker Change: Just my second one.
Speaker Change: I know this is a little bit fresh given that it just happened a couple of days ago, but.
Speaker Change: PJM recent had recently had a record auction for.
Speaker Change: For power, just given the plant retirements and surging demand.
Speaker Change: I was wondering.
Speaker Change: Events like this factor into your discussions with customers and.
Speaker Change: Theoretically how you think about the implications to demand within that area for your for your products.
Speaker Change: If we continue to see.
Speaker Change: Events like those.
Speaker Change: Yeah, I think it's absolutely on the mind of of all of our customers no matter, which part of the U S.
Speaker Change: And if I isolate my comments to be U S centric for the moment, so not only PGM JM territories, but more broadly load growth is very different over the next I'll call. It 10 or 20 years than it has been on the previous 10 or 20 years, where it was flat and now it is growing.
Speaker Change: Everyone can speculate about that rate of growth, but the fact that it was essentially zero and now it's.
Speaker Change: Growing it changes things.
Speaker Change: You'd see it showing up in terms of.
Speaker Change: Private power purchases, where you've got big Magnetek.
Speaker Change: Mega cap companies, just buying bulk power and taken it off of the grid shall we say and how would that cope with things, but it puts tremendous pressure on.
Speaker Change: The overall system and it really means that you.
Speaker Change: <unk> got to bring out a lot more efficiency out of your existing setup.
Speaker Change: As well as hustle to improved generation and transmission, we clearly play on the distribution side and distribution upgrades to improve efficiency, but also when that bulk generation comes online get it to where it needs to be.
Speaker Change: This is an area we've invested in for a number of years.
Speaker Change: We're excited to have that investment payoff in the years ahead. So I would say that not unique to any portion of the country everybody's got some level of problems associated with it it's a tremendous opportunity for us to help our customers.
Speaker Change: I appreciate it thank you.
Speaker Change: Thank you.
Speaker Change: Question coming from the lineup.
Speaker Change: Chip Moore with <unk>. Your line is now open.
Unknown Attendee: Thanks for taking the question. Hey, everybody. I wanted to go back to the trajectory for 2027. I think you framed out the dynamics for next year very well. And Tom, I think you mentioned government funding starting to play a role here and some of the approvals. Just maybe how should we think about that potential benefit of stimulus if that's not embedded in the longer-term view yet? Perfect. No, that's a couple.
Chip Moore: Thanks for taking my question Hey, everybody.
Chip Moore: I wanted to go back to the trajectory on 2027, I think you framed out dynamics for next year very well.
Chip Moore: And Tom I think you mentioned.
Speaker Change: Government funding starting to play a role here and some of the approvals just made.
Speaker Change: Maybe how should we think about that potential benefit of stimulus that's not embedded in the longer term view yet.
Tom Dietrich: Yes, it's very difficult for me to really try to handicap exactly what that looks like.
Tom Dietrich: We didn't try to put it into those 2027 targets, knowing the uncertainty on timing and what it looks like clearly.
Speaker Change: The awards are starting to happen if I use just a very small segment of <unk> funding with the grip program. The first round of awards.
Speaker Change: It came out.
Speaker Change: I think it was the fourth quarter of last year, the very first agreement between grid deployment office.
Speaker Change: Administers those funds was made with a customer and just.
Speaker Change: It became public just.
Speaker Change: Last month, I will say so from the time, the Bill was announced in 'twenty one until their first round of awards and call. It fourth quarter of 2003, two the first actual agreement getting signed off in the second quarter of 2022, you can see that the time lag that.
Speaker Change: 24, rather.
Speaker Change: Second quarter that you can see the time lag of that money flowing through.
Speaker Change: Hopeful now that maybe it will start to accelerate but.
Speaker Change: Still very difficult to call what it looks like.
Speaker Change: A lot of money is going to get spent and it should flow through to our customers and eventually to us, but timing is difficult to call and Thats why we kept it out of the 2007 numbers when it comes its only upside.
Chip Moore: Appreciate it, Tom. And maybe just one last one, just in terms of your conversations, I guess, with sort of leaders and laggards in this space in terms of edge intelligence adoption, just, Hi, good morning. Nice quarter. This is just my first question here. Are there any specific projects either with [inaudible] Oh, there clearly are a number of them, it wouldn't be appropriate for me to call them out by name, but that billion dollars of pending bookings that I talked about, there's, I don't know, roughly 10 or so that, before I stopped counting, that are in that category.
Speaker Change: Perfect. That's helpful. Appreciate it Tom and maybe just.
Speaker Change: Last one.
Speaker Change: Just in terms of your conversations I guess, what sort of leaders and laggards in this space in terms of edge intelligence adoption.
Speaker Change: And what are you seeing those conversations evolve and how do you think I guess about that tail opportunity developing over time.
Tom Dietrich: The conversations only continues to accelerate I can't think of it.
Speaker Change: Nearly any customer in the electricity space.
Speaker Change: That isn't thinking about how they could.
Speaker Change: Use this capability and why they need it.
Speaker Change: We see the same thing on the competitive side, where competitors are starting to create or at least talk about the.
Speaker Change: The things that they would do in this area. So I think we were absolutely.
Speaker Change: Ed in the market and continue to be there today today there is about.
Speaker Change: 10 customers or thereabouts that are inactive deployment are already booked.
Speaker Change: And we have over 8000 customers on a global scale. So you can see the runway. That's still ahead in terms of being able to deploy this.
Speaker Change: Much beyond the early movers that are in the game today.
Speaker Change: Great I appreciate it thank you.
Speaker Change: Thank you.
Austin <unk>: Next question coming from the line of Austin <unk> with Canaccord. Your line is now open.
Chip Moore: So a pretty broad range; it's not wildly dependent on a single customer. Okay, that's helpful. And just another question: Is that what we're seeing here in the incremental margin rise? 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 Dietrich for any closing remarks.
Austin <unk>: Hi, good morning nice quarter.
Austin <unk>: My first question here are there any specific projects either with a specific utility or in terms of contract size.
Speaker Change: Yes.
Speaker Change: Think about driving more momentum in the backlog over the next year.
Speaker Change: Clearly there are a number of them it wouldn't be appropriate for me to call them out by name but.
Speaker Change: That $1 billion of pending bookings that I talked about.
Speaker Change: There is a I don't know roughly 10 or so that before I stopped counting that are in that category. So.
Speaker Change: Pretty broad range, it's not wildly.
Speaker Change: Wildly dependent on a single customer.
Speaker Change: Okay. That's helpful. And then just another question.
Speaker Change: In terms of the old backlog that was not in place.
Speaker Change: Blowing out pretty evenly.
Speaker Change: Or should we expect it to be more back end loaded.
Speaker Change: Yeah.
Speaker Change: I would say it's flowing out overall, it's some portions of it clearly are pushing ahead based on deployment timeframe. So.
Speaker Change: Still roughly in that 70, 30 kind of range, where we are today.
Speaker Change: The majority of that 30, if you will that's still out there flows through.
Speaker Change: In the 'twenty four 'twenty five range, so not wildly different than what we've spoken about before maybe a few things have slid a quarter or two but overall tracking to our expectations.
Speaker Change: Alright, thanks for all the details.
Speaker Change: Thank you.
Speaker Change: And as a reminder, ladies and gentlemen to ask a question. Please press star one one.
Speaker Change: Next question is coming from the lineup Scott Graham with Seaport Research Partners. Your line is now open.
Scott Graham: Yeah, Hi, good morning.
Scott Graham: Nice quarter I wanted to just maybe.
Joan: Speak Joan just a second on the incremental margin, which.
Speaker Change: It seems to be creeping up each quarter.
Speaker Change: Even as your sales or just a little bit slower obviously because of that.
Speaker Change: The stack comparisons all of that.
Speaker Change: And I'm just wondering is it just the case here, where you have that past due now behind you and it's just sort of.
Scott Graham: People are normalized in their seats or on your production lines.
Speaker Change: Is that what we're seeing here in the incremental margin rise.
Speaker Change: Well again I would look at it by our segments. So if you look at devices. It is a significant improvement in devices going back to the last couple of years, particularly compared to where they were they.
Scott Graham: They were mid teens three years ago and now in the <unk> last year and into 2000 and say sure. That's really it's really primarily driven by pruning. The portfolio. So we were a much bigger company and devices. Several years ago, we've been very active getting out of unprofitable product lines and asking that business to focus not on top line.
Scott Graham: Both but on margin improvement and they've done a fabulous job doing that in the case of networks they've had really strong margin in the last few quarters I think it's a combination of product mix of certain of our products.
Speaker Change: Sure.
Speaker Change: Margin rich than others, and then of course as you mentioned as we've caught up on the previously constrained revenue that gives us more volume in the factories and certainly from an absorption standpoint, you get a margin benefit. So think about that is both product mix and operational efficiencies associated with the volumes coming in.
Speaker Change: And Tom covered outcomes outcomes actually is down a little bit and that's really more of a function of the mix.
Tom Dietrich: The various solutions that are within the outcomes segment.
Speaker Change: Okay. Thank you for that I appreciate it.
Speaker Change: Tom just was hoping that.
Speaker Change: It's a big number in the award pipeline there and.
Speaker Change: Congratulations on that I was hoping you would on bundle it for us a little bit though is it.
Speaker Change: You guys, you're getting into and solving a lot of Morris.
Speaker Change: More solutions oriented today than you've ever been and I'm just.
Speaker Change: Maybe you can just share some of the bigger parts of those of that $1 billion.
Speaker Change: The biggest portion of it is.
Speaker Change: The grid edge intelligence platform.
Speaker Change: This notion of.
Speaker Change: Putting out a networking capability that gives you connectivity to assets at the edge of the network.
Speaker Change: And being able to get visibility.
Speaker Change: Visibility and control of those assets at the edge.
Speaker Change: Being able to grab much more much richer data to be able to make intelligent decisions around outage management, our vegetation management are wildfires or being.
Speaker Change: Being able to.
Speaker Change: Control edge assets to optimize usage out at the edge, so that bar, none the largest portion of that backlog or pending projects is that grid edge intelligence platform that you've heard us speak about quite quite often.
Speaker Change: So the endpoints there are.
Speaker Change: Probably going to jump up in 2025.
Speaker Change: Yes.
Speaker Change: Yes, youll see steady growth overall.
Speaker Change: Every quarter.
Speaker Change: Clearly whats in backlog today, and as we book New projects. It will still be growing that portion of it. So I do think the number of <unk>.
Speaker Change: <unk> enabled end points that we talk about a little over $11 million I think today that will continue to grow quarter after quarter.
Speaker Change: Thanks, a lot.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: 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.
Tom Deitrich: Thank you all for joining the call today, we look forward to updating you again next quarter.
Speaker Change: Ladies and gentlemen that does now conference for today. Thank you for your participation and you may now disconnect.
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