Q2 2025 Itron Inc Earnings Call

Libby: Good day, and thank you for standing by. Welcome to ITRON's second quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. 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 11 on your telephone. You will then hear an automated message advising your hand is raised. Please note that today's conference is being recorded. I will now hand the conference over to your speaker host, Paul Vincent, Vice President of Investor Relations. Please go ahead.

Good day and thank you for spending by.

Welcome to itran's second quarter 2025 earnings conference call. At this time, all participants on a listen, only mode 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 1 on your telephone. You will then hear an automated message advising. Your hand is raised.

Paul Vincent: Good morning, and welcome to ITRON's second quarter 2025 earnings conference call. Tom Deitrich, ITRON's President and Chief Executive Officer, and Joan Hooper, Senior Vice President and Chief Financial Officer, will review ITRON's second quarter results and provide a general business update and outlook. Earlier today, the company issued a press release announcing its results. This release also includes details related to the conference call and webcast replay information. Accompanying today's call is a presentation that is available through the webcast and on our corporate website under the Investor Relations tab. Following prepared remarks, the call will open for questions using the process the operator described. Before Tom begins, a reminder that our earnings release and financial presentation include non-GAAP financial information that we believe enhances the overall understanding of our current and future performance.

Tom Dietrich, I trans president and chief executive officer and Joan, Hooper senior, vice president and Chief Financial Officer. We'll review it Ron's second quarter results and provide, a general business update and Outlook

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

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

Accompanying. Today's call is a presentation that is available through the webcast and on our corporate website under the investor relations tab.

Following prepared remarks, the call will open for questions using the process, the operator described.

Paul Vincent: Reconciliations of differences between GAAP and non-GAAP financial measures are available in our earnings release and on our Investor Relations website. We will be making statements during this call that are forward-looking. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially from these expectations because of factors that were presented in today's earnings release and comments made during this conference call, as well as those presented in the risk factors section of our Form 10-K and 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 into our current and future operating and financial environment. Materials discussed today, July 31st, 2025, may materially change, and we do not undertake any duty to update any of our forward-looking statements.

Before Tom begins a reminder that our earnings release and financial presentation, include non-gaap, financial information. That we believe enhances the overall understanding of our current and future performance.

Reconciliations of differences, between gaap and non-gaap financial measures are available in our earnings release and on our investor relations website.

We will be making statements during this call. That are forward-looking.

These statements are based on current expectations and assumptions that are subject to risks and uncertainties.

Actual results could differ materially from these expectations due to 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 10K.

And other reports and filings with the Securities and Exchange Commission.

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

Paul Vincent: Now, please turn to page four of our presentation as our CEO, Tom Deitrich, begins his remarks.

Materials discussed today. July 31st, 2025 May me change and we do not undertake any duty to update any of our forward-looking statements. Now please turn to page 4 of our presentation, as our CEO. Tom Dietrich begins his remarks

Tom Deitrich: Thank you, Paul. Good morning, and thank you for joining our call. ITRON delivered solid second quarter results despite ongoing macroeconomic and trade policy uncertainties. The team performed well, achieving revenue in line with expectations and earnings above the outlook. Financial highlights for the second quarter are detailed on slide four and include revenue of $607 million, adjusted EBITDA of $90 million, non-GAAP earnings per share of $1.62, and free cash flow of $91 million. Turning to slide five, ITRON set new quarterly records for margins, profitability, and cash flow. This improved financial performance resulted from the continued execution of our strategy and the expansion of our customers' infrastructure. Our differentiated outcome segment continued to drive growth, reinforcing our market leadership in agile distribution infrastructure. During Q2, demand for ITRON's grid edge intelligence platform remained strong.

Thank you, Paul.

Good morning, and thank you for joining our call.

Icon delivered, solid second quarter results, despite ongoing macroeconomic and trade policy on certainties the team performed. Well achieving Revenue in line with expectations and earnings above the Outlook.

Financial highlights for the second quarter are detailed on slide 4 and include revenue of 607 million.

Adjusted ibida of 90 million, non-gaap earnings per share of 1.62 cents and free, cash flow of 91 million.

Turning the slide 5 icon set new quarterly records for margins profitability and cash flow.

Resulted from the continued execution of our strategy and the expansion of our customers infrastructure.

Our differentiated outcome segment. Continued to drive, growth reinforcing. Our Market leadership in agile, distribution infrastructure,

Tom Deitrich: By the end of the second quarter, we had shipped over 15.3 million distributed intelligence endpoints, up from 14.4 million at the end of Q1. The ongoing adoption of DI-capable technology underscores its importance for utilities seeking flexible infrastructure with real-time data capture and analytics. The long-term market outlook remains positive, driven by rising electricity demand, increased resiliency and reliability requirements, and ongoing focus on efficiency and safety. However, in the near term, customers and regulators face a more complex environment, leading to slower project deployments and delayed decisions in certain areas. Consequently, we are lowering our full-year revenue outlook midpoint by approximately 3%. At the same time, growing customer demand for high-value solutions, along with operational efficiencies, has raised our full-year EPS outlook midpoint by 13%.

During Q2, demand for Itron's Grid Edge intelligence platform remains strong.

By the end of the second quarter, we had shipped over 15.3 million distributed intelligence and points up from 14.4 million at the end of q1.

The ongoing adoption of DI capable technology underscores its importance for utilities seeking flexible infrastructure with real-time data capture and analytics.

The long-term Market Outlook remains positive driven by Rising electricity demand, increased resiliency, and reliability, requirements, and ongoing focus on efficiency and safety.

However, in the near term, customers and Regulators face, a more complex environment leading to slower project deployments and delayed decisions in certain areas.

Consequently, we are lowering our full year Revenue Outlook midpoint by approximately 3%.

Tom Deitrich: Despite more deliberate customer and regulatory decision-making in the short term, ITRON continues to secure business from forward-looking customers adopting new solutions to address emerging challenges. Our second quarter bookings of $454 million are shown on slide six, and primarily driven by our network solutions and outcome segment. As in recent years, we expect annual bookings to be weighted towards the second half of the year. We maintain our outlook for the full-year book-to-build ratio of one to one or higher. Some of the key bookings for the quarter include a large European utility, Greece's Hellenic Electricity Distribution Network Operator, or HEDNO, selected ITRON to assist its efforts to enhance consumer experience, improve operational efficiency, and support Greece's goal of net zero emissions by 2050. ITRON's solution will help HEDNO future-proof its infrastructure and enable the adoption of grid edge intelligence platforms while establishing a strong operational foundation.

At the same time growing customer demand for high-value Solutions along with operational. Efficiencies has raised our full year EPS Outlook midpoint by 13%.

Despite more deliberate customer and Regulatory decision-making in the short term, itron continues to secure business from forward-looking customers adopting, new solutions to address emerging challenges.

Our second quarter, bookings of 454 million are shown on slide, 6 and primarily driven by our Network Solutions and outcomes segments.

As in recent years, we expect annual bookings to be weighted towards the second half of the year. We maintain our outlook for the full year, book to Bill ratio of 1 to 1 or higher.

Some of the key bookings, for the quarter include a large European utility greases Hellenic electricity distribution, Network, operator or head. No selected itron to assist its efforts to enhance. Consumer experience, improve operational, efficiency, and support Greece's goal of net, zero emissions by 2050.

Tom Deitrich: Tucson, Arizona, selected ITRON for a large-scale initiative that will support the city's critical water conservation goals. This network-as-a-service deployment will enable the city to efficiently collect and manage water consumption data without the burden of maintaining additional infrastructure. Now, Joan will provide details about our second quarter and our outlook for the third quarter and the full year.

Icon solutions will help head no future-proof its infrastructure and enable the adoption of grid-edge intelligence platforms, while establishing a strong operational foundation.

Tucson Arizona selected icon for a large-scale initiative that will support the city's. Critical water conservation goals.

This network is a service deployment. Will enable the city to efficiently collect and manage water consumption data without the burden of maintaining additional infrastructure.

Joan Hooper: Thank you, Tom. Please turn to slide seven for a summary of consolidated GAAP results. Second quarter revenue of 607 million was within the range we expected and slightly lower than the prior year, which included a significant amount of constrained revenue catch-up. Gross margin of 36.9% is an all-time quarterly record and was 230 basis points higher than last year due to favorable mix. GAAP net income of 68 million, or $1.47 per diluted share, compares to 51 million, or $1.10 per share in the prior year. The improvement was driven by higher levels of operating and interest income. Regarding non-GAAP metrics on slide eight, non-GAAP operating income of 82 million was an all-time record and increased 19% year over year. Adjusted EBITDA of 90 million, or 14.8% of revenue, was also a new record and increased 16% year over year.

now Joan will provide details about our second quarter and our outlook for the third quarter, and the full year

Thank you, Tom. Please turn to slide 7 for a summary of Consolidated Gap results.

Second quarter, revenue of 607 million was within the range. We expected and slightly lower than the prior year. Which included a significant amount of constrained Revenue ketchup.

Gross margin of 36.9% is an all-time quarterly record and was 230 basis points higher than last year due to favorable mix.

Gaap, net income of 68 million or 1.47 per deal with the chair compares to 51 million or a dollar 10 cents per share in the prior year.

The Improvement was driven by higher levels of operating and interest income.

Regarding non get metrics on. Slide 8 non-gaap operating income of 82 million was an all-time record and increased 19% year-over-year.

Joan Hooper: Non-GAAP net income for the quarter was 75 million, or $1.62 per diluted share versus $1.21 a year ago. Q2 free cash flow of 91 million was a new record and compares to 45 million a year ago. This improvement reflects strong year-over-year operational earnings growth, higher interest income, and lower tax payments. Year-over-year revenue growth by business segment is on slide nine. Device solutions revenue decreased 8% on a constant currency basis, primarily due to the expected decline in legacy electric product sales, partially offset by continued growth in water. Network solutions revenue decreased 1% year over year, primarily due to the non-recurrence of revenue catch-up that occurred in Q2 of last year. Outcomes revenue increased 9% year over year due to continued growth of recurring revenue and software licenses.

Adjust DBA of 90 million or 14.8% of Revenue was also a new record and increased 16% year-over-year.

For the quarter was 75 million or 1.62 per diluted share versus a121 a year ago.

Q2 free cash flow of 91 million was a new record and compares to 45 million a year ago.

This Improvement reflects strong year-over-year, operational earnings growth higher interest, income and lower tax payments.

Year-over-year Revenue growth by business. Segment is on slide 9.

To buy Solutions, Revenue decreased 8% on a constant currency basis, primarily due to the expected decline in Legacy, electric product sales, partially offset by continued growth, in water.

Network Solutions Revenue, decreased 1% year-over-year primarily due to the non-recurrence of Revenue. Catch up that occurred in Q2 of last year.

Joan Hooper: Moving to the non-GAAP year-over-year EPS bridge on slide 10, our Q2 non-GAAP EPS increased $0.41 year over year to $1.62 per diluted share. This was primarily driven by strong pre-tax operational performance, which contributed $0.39 year-over-year improvement. Turning to slides 11 through 13, I'll review Q2 segment results compared with the prior year. Device solutions revenue was 113 million, with a gross margin of 29.8% and an operating margin of 22.6%. Gross margin increased 350 basis points year over year, and operating margin was up 260 basis points due to the favorable change in product mix. Network solutions revenue was 409 million, with a gross margin of 38.5% and an operating margin of 29.6%. Gross margin increased 160 basis points year over year, and operating margin was up 110 basis points due to improved products and customer mix.

Revenue increased 9% year-over-year due to continued growth of recurring revenue and software licenses.

Moving to the non-gaap year-over-year Epps Bridge on slide 10.

our Q2 non-gaap EPS increased 41 cents year-over-year to a162 per diluted share,

this was primarily driven by strong pre-tax operational performance which contributed 39 cents year-over-year Improvement.

Training to slide 11 through 13. Our review Q2 segment results compared with the prior year.

Device Solutions Revenue was 113 million with gross margin of 29.8% and operating margin of 22.6%.

Gross margin increased 350, basis points year-over-year and operating margin was up, 260 basis points due to the favorable change in product mix.

Network Solutions Revenue was 409 million with gross margin of 38.5% and operating margin of 29.6%.

Joan Hooper: Outcomes revenue was 85 million, gross margin was 38.5%, and operating margin was 18.4%. Gross margin increased 370 basis points year over year, and operating margin was up 470 basis points due to a higher margin revenue mix. 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 41 million. As of June 30th, net leverage was 0.1 times, and cash in equivalents were $1.2 billion. Now, please turn to slide 15 for our third quarter outlook. As Tom noted, our customers are becoming more deliberate in their decision-making and slowing their activity levels in response to economic uncertainty, driven in part by the evolving trade policies.

Gross margin increased 160, basis points, year-over-year and operating margin was up, 110 basis points, due to improved products and customer mix.

Outcomes Revenue was 85 million, gross margin was 38.5% and operating margin was 18.4%.

Gross margin increased 370 basis points year-over-year and operating margin was up. 470 basis points. Due to a higher margin Revenue mix,

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 41 million.

As of June 30th, net leverage was 0.1 times and cash and equivalents were 1.2 billion dollars. Now, please turn to slide. 15 for our third quarter Outlook.

Joan Hooper: Although our long-term market expectations remain unchanged, we now anticipate a period of slower activity levels in the near term as our customers take time to assess the impact of emerging macroeconomic crosswinds on their business. Given this background, we now anticipate third quarter revenue to be between $570 to $585 million. The midpoint of this range is down 6% versus Q3 of 2024. For non-GAAP earnings per share, we expect a range of $1.45 to $1.55 per diluted share. At the midpoint, this is a decrease of 18% versus Q3 of last year, which had an unusually low effective tax rate of just 4.5%. Normalized for a 25% effective tax rate, the midpoint of this range is up 4% versus Q3 of last year. Now, please turn to slide 16 for an update to our annual 2025 outlook.

As Tom noted, our customers are becoming more deliberate in their decision-making and slowing their activity levels and response to economic uncertainty driven in part by the evolving trade policies.

Although our long-term Market expectations remain unchanged, we now anticipate a period of slower activity levels in the near term as our customers, take time to assess the impact of emerging macroeconomic Crosswinds on their business.

Given this background. We now anticipate third quarter Revenue to be between 570 to 585 million.

The midpoint of this range is down 6% versus Q3 of 2024.

For non-gaap earnings per share. We expect a range of 145 to 1.55 cents per diluted share.

At the midpoint, this is a decrease of 18% versus Q3 of last year which had an unusually low effective tax rate of just 4.5%.

Normalized for a 25% effective tax rate. The midpoint of this range is up 4% versus Q3 of last year.

Joan Hooper: We now anticipate 2025 full-year revenue to be within a range of $2.35 billion to $2.4 billion versus the $2.4 to $2.5 billion range we provided in February. At the midpoint, this represents a 3% decline versus our initial full-year outlook. It also represents a 3% decrease versus 2024, which had approximately $125 million of catch-up revenue. Normalizing for the 2024 catch-up revenue, the midpoint of our updated guidance is approximately 3% year-over-year growth. Our non-GAAP earnings per share full-year outlook range is increasing versus prior estimates. Our current expectations for 2025 non-GAAP earnings per share are a range of $6 to $6.20 per diluted share versus our February outlook of $5.20 to $5.60 per share. At the midpoint, the updated non-GAAP earnings per share estimate is up 9% versus 2024 and 13% versus prior guidance.

Now, please turn to slide 16 for an update to our annual 2025 outlook.

We now anticipate 2025, full year Revenue to be within a range of 2.35 billion to 2.4 billion, versus the 2.4 to 2.5 billion range. We provided in February

At the midpoint, this represents a 3%. Decline versus our initial full year outlook. It also represents a 3%, decrease versus 2024, which had approximately 125 million of ketchup revenue. Normalizing for the 2024 ketchup Revenue. The midpoint of our updated guidance is approximately 3% year-over-year growth

Our non-gaap earnings per share full year outlook ranges increasing versus prior estimates.

Our current expectations for 2025, non-gaap earnings per share is a range of 6 dollars to 620 cents per diluted share.

Versus our February Outlook of 5.20 to 5.60 cents per share.

At the midpoint the updated non-gaap earnings per share estimate is of 9% versus 2024.

Joan Hooper: We are proud of the work we have done to improve the margin profile of the business, which has allowed us to drive higher profitability on lower revenue. The revised full-year guidance assumes a 22% effective tax rate. The actual tax rate could fluctuate based on jurisdictional mix and the timing of tax settlements. Clearly, there has been more uncertainty in the market environment than expected when we started this year. Our teams have and will continue to make the tactical adjustments necessary to support our customers' priorities as we maintain our long-term strategic course. Now, I'll turn the call back to Tom.

And 13% versus prior guidance.

We are proud of the work we have done to improve the margin profile of the business which is allowed us to drive higher profitability on Lower Revenue. The revised full year guidance assumes that 22% effective tax rate, the actual tax rate could fluctuate based on jurisdictional mix and the timing of tax settlements.

Clearly, there has been more uncertainty in the market environment than expected. When we started this year,

Tom Deitrich: Thank you, Joan. Our teams effectively managed macroeconomic and trade policies uncertainty in the second quarter, achieving expansion in both margins and free cash flow. Our intelligent connectivity and grid edge intelligence offerings continue to scale in line with our strategic objectives. Although customers and regulators have recently slowed their activity to address increased decision complexity and policy uncertainty alongside their existing operational priorities, the outlook for market growth remains strong. ITRON remains confident in delivering value for stakeholders through disciplined capital allocation and sustainable returns. Thank you for joining our call today. Operator, please open the line for some Q&A.

Our teams have and will continue to make the Tactical adjustments necessary to support our customers priorities, as we maintain our long-term, strategic course. Now I'll turn the call back to Tom.

Thank you, John.

Is macroeconomic and trade policies uncertainty. In the second quarter, achieving expansion in both margins and free cash flow.

Our intelligent connectivity and grid Edge intelligence offerings continue to scale in line with our strategic objectives.

Although customers and Regulators have recently slowed their activity to address increased decision complexity and policy uncertainty alongside their existing operational priorities.

The outlook for market growth remains strong, ion remains confident in delivering value for stakeholders through disciplined Capital, allocation and sustainable returns.

Libby: Certainly, ladies and gentlemen, to ask a question at this time, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, simply press star 11 again. Please stand by while we compile the Q&A roster. Our first question coming from the line of Noah Kaye with Oppenheimer. Your line is now open.

Thank you for joining our call today. Operator, please open the line for some Q&A.

Certainly pleased and gentlemen, to ask a question at this time, you will need to press star 1, 1 1 on your telephone, and wait for your name to be announced.

So we draw your questions. Simply press star, 1 1 1 again.

Please stand by while we compile the canvas roster.

Our first question coming from the line of Noah, okay? With Oppenheimer, your line is now open.

Noah Kaye: Hi, folks. Thanks for taking the questions. I do want to get to the revenue outlook, but I have to start with margins. You know, I think the, I know you don't guide the EBITDA margins, but I'm backing into something like 15% for the year. So you do seem almost a couple hundred bits expansion on lower revs. And you commented some on it, Tom and Joan, in prepared remarks, but just want to understand, is there anything atypically beneficial to kind of the mix this year? You know, or do you think, you know, these are kind of the right margins and the jumping-off point as we look at next year?

Hi folks, thanks for taking the questions. I do want to get to the revenue outlook, but I have to start with margins. Um,

You know, I think the I know you don't guide the IBA margins but backing into something like 15% uh for for the year. So you you'd be seeing almost a couple hundred bits expansion on on Lower res and you commented some on it. Uh Tom and Joan in prepared remarks but just don't understand. Is there anything atypically beneficial to kind of the mix?

Joan Hooper: I would say the EBITDA margin is a little bit higher than we would have expected when we started the year. We have definitely benefited from the structural changes we made in the device business. So we shut an electric factory in France at the end of last year. Those products and the customers that were supported out of that factory were lower than average margins for the segment. And obviously, we've done some things over the years, whether it was sell the Latin America business or sell the business we did a couple of years ago, the gas business. Structurally, we have been very focused on getting device margins up. So they being close to 30% is certainly ahead of what we would have expected, but at this point, that's probably a good level for them.

this year, um, you know, or do you think, you know, these are kind of the, the right margins of the jumping off point as we look at next year,

uh, I would

say the, the even emerging is a little

Joan Hooper: Networks margins will tend to go vary quarter to quarter depending on the specific deployment and the phase of the deployment. So again, they're on their path to hitting the margins we expect this quarter a little bit higher than we would have expected. And outcomes, as we've talked about, are going to fluctuate quarter to quarter based on the software mix. So we feel really good about the gross margin trajectory that we're on, still stand behind the 27 targets. And obviously, that had an EPS range of 15% to 17%. And as you say, we're already close to 15% now.

little expected. When we started the year, we have definitely benefited from the structural changes. We made to the in the device business. So we shut a, uh, an electric Factory in France at the end of last year, those products in the customers, that that were supported out of, that factory work, lower than average margins for the segment. And obviously we've done some things over the years. Whether it was sell the Latin America business or sell, uh, the business. We did a couple years ago, the gas business. Um, structurally we have been very focused on getting device margins up, so they being close to 30% is um, certainly ahead of what we, what we would have expected. But at this point that's that's probably a good level for them. Network's margins, uh, will tend to go um, very quarter to quarter depending on the specific deployment that and the and the phase of the deployment. Uh, so again we're they're on their path to hitting the margins. We expect

This quarter a little bit higher than we would have expected and outcomes as we've talked about is going to fluctuate quarter to quarter based on the soft form X. So we feel really good

Noah Kaye: Yeah. Yeah. I did want to ask about the near-term outlook. Is the implication here that some of the kind of faster book and ship business is just really what's seeing the slowing? Or is there anything in kind of the backlog and networks where there's some, you know, delay, whether it's sort of funding availability for projects, government funding, or the like? Just give us a little bit of color on kind of whether this is a push-out of backlog or kind of more book and ship.

About the gross margin. Uh, trajectory that we're on, uh, still stand behind the 27 targets and obviously, that had an EPS range of 15 to 17%. And as you say, we're, we're already close to 15% now.

Yeah, yeah. Um, I did want to ask about the the the near-term Outlook of

it is the implications here that um some of the kind of faster book and ship business is just really about seeing this flowing or is there anything in kind of the backlog and networks um where there's some, you know, delay, whether it's sort of funding availability for projects Government funding or the like just just give us a little bit of color on

Tom Deitrich: Yeah, it's more the backlog portion rather than the book and ship portion of the business. Book and ship is, at least through Q2, has been humming along at the level that we would expect, plus or minus. On the project side of things, meaning the things that flow through longer-term backlog, customers are really bumping into some constraints here and there, whether it's labor constraints or project sequencing. They got to finish this before they start that. And they're stretching out timelines on projects a bit to live within a constrained capital budget for the year. So none of the backlog is going away. That's not the point. We're not seeing any project cancellations at all. I would say it's just more of a little bit slower deployment pace than what we saw in the first half of the year.

kind of whether this is uh push out of backlog or kind of more book and ship.

yeah, it it's more the

Backlog portion, rather than the the book and ship portion of the, the business book and ship is at least through 2q has been humming along at the level that, uh, we would expect plus or minus on the project side of things. Meaning the things that flow through longer term backlog, uh, customers are really bumping into some constraints here and there whether it's labor construe.

Tom Deitrich: That said, the things that they are prioritizing, the things that they are buying and driving through are grid efficiency, resiliency, reliability types of solutions, which tends to accrue towards the higher margin portfolio portion of our portfolio. So again, we feel good about what customers are buying. We're working with them as they manage through some of the constraints on their side of the business. Not slowing down the outlook for the market longer term. I think this is a temporal thing that will roll through the business.

Noah Kaye: Right. And I guess just the final observation to make sure I've got it right is that if this is just sort of a push-out of revenues that are kind of in the bag, that sets up an easier comp moving into next year. Is that a fair way to think about it?

Uh, types of of solutions which uh, tends to ACR towards the uh higher margin portfolio portion of our our portfolio. So uh, again, we feel good about what customers are are, are buying. Uh, they're we're working with them as as they managed through, some of the constraints on their side of the business. Not slowing down the uh, the outlook for the market longer term. I think this is a, a temporal thing that'll roll through the business

Tom Deitrich: Yeah, I think it's a little too early to get ahead of where we will land next year. It'll depend a little bit on what the trajectory of bookings are for the back half of the year as to where '26 will ultimately go. But your view of the revenue isn't going away. It's just phased out in time. We do still expect growth over the year ahead.

Right? And and I guess just the final observation to make sure I got it right is that if this is just sort of a push out of Revenue that are kind of in the bag uh that sets up an easier comp moving into next year is that a fair way to think about it?

Yeah, I think if as you it's a little too early to get ahead of of, where we will land next year or it'll depend a little bit on what the trajectory of bookings are for the, the back half of the year as to, where, uh, 26 will will ultimately go. Uh, but your, your view of, uh, the revenue isn't going away. It's it's just phased out in, uh, in in time. Uh, we do still expect to growth over the over the, the year ahead.

Noah Kaye: Okay. Thank you. I'll turn it over.

Okay, thank you. I'll turn it over.

Libby: Thank you. Our next question coming from the line of Jeff Osborne with TD Colony. Your line is now open.

Thank you.

Noah Kaye: Yeah, thank you. Good morning. Maybe just a follow-up to Noah's line of questioning, Tom. I think you count backlog when you get regulatory approval. Can you just talk about the sequencing or the pace of technical approval, which oftentimes has a lag between when you're receiving that notification versus when the regulator approves it?

Our next question, coming from the line of Jeff Osborne with TD, colony is Melvin.

Line of questioning Tom. Um, I think you count backlog when you get regulatory approval. Can you just talk about the

Tom Deitrich: Yeah, I would say that we're in the normal-ish range for things that have been awarded but not yet regulatory approved. So it is not yet in our backlog. Sometimes that number gets to be very, very large. As I had talked about towards the back end of last year, there's usually a couple hundred million dollars, plus or minus, that is in the category of awarded, not yet approved, nor in backlog. And that's kind of the level that we're sitting at now. The opportunities that are planned for the back half of the year to ultimately come into bookings, there are some reasonable-sized projects that are inside of there that will require regulatory approval.

sequencing or the pace of of technical approval which oftentimes has a a lag between when you're receiving that notification versus when the regulator approves it,

Tom Deitrich: So pace of regulatory approvals continuing to move forward is important for the back half of the year, but things look to be lined up to achieve a book-to-build for the full year of one to one or greater, as I mentioned in the prepared remarks.

Yeah, I I would say that we're in the, the normal issue range for things that have been awarded but not yet, uh, regulatory approved. So it is not yet in our backlog. Uh, sometimes that number gets to be, uh, very, very large as as I had talked about towards the the back end of last year. Uh, there's usually a a couple hundred million dollars plus or minus that is in the, the category of warded not yet approved nor in backlog. And that's kind of the level that we're we're sitting at now, uh, the opportunities that are planned for the back half of the year, uh, that to, to ultimately come into to bookings. There are, uh, some reasonable sized projects that are inside of there, that will require regulatory approval, so pace of regulatory approvals, uh, continuing to, uh, to move forward. Uh, is important for the back half of the year, but things look to be lined up uh, to achieve a book to bill for the full year of 1 to 1 or greater.

Noah Kaye: Got it. And then maybe just reconciling your answers to Noah's question relative to the prepared remarks. In the prepared remarks, you seem to blame the delays and the lower revenue guidance on tariffs and trade uncertainty and sort of, you know, think macro political things was the way I interpreted it. I think the majority of your customers are actually increasing their CapEx budgets. And then in response to Noah, you mentioned more reprioritization of projects, things taking a bit longer, and labor availability. Can you just sort of weigh the two, like big picture macro things versus micro things at the utility level as to what the delays are?

later, as I, I mentioned in the prepared remarks,

And maybe just reconciling your answers to those.

Tom Deitrich: Yeah, so take it one step at a time. I agree with you that as a general rule, CapEx budgets for our customer base at large are increasing. Those CapEx budgets, and when you see those announcements, they tend to be multi-year types of things. Hey, we used to have X, now we have X plus Y over the next three years. What causes slowdowns or constraints relative to budgets that I was mentioning when it comes to revenue in the next quarter or two really has more to do with CapEx budget for this year. So they tend to live within that annualized bucket. So I think that there's a difference there in terms of a dividing line of folks having to live within their means for this year, even though the total bucket is going up over a multi-year period.

Guidance on on tariffs and trade uncertainty and sort of, you know, think macro political things was the way I interpreted it. Um I think the majority of your customers are actually increasing their capex budgets. And then uh in response to Noah you mentioned more reapp. Prioritization of projects things taking a bit longer in labor. Availability, can you just sort of weigh the 2 like big picture, macro things versus micro things at the utility level as to what the delays are.

Tom Deitrich: That gives us confidence in the long-term trajectory of the marketplace, for sure. We have confidence in the strength of the portfolio based on the prioritization that we see customers making around the constraints that they are living within. They're buying the margin accretive portion of the portfolio.

Yeah, so what take it, 1 step at a time. It it's, I agree with you that as a general rule capex, budgets for our customer base at large, uh, are increasing. Uh, those capex budgets and we see those announcements. They tend to be multi-year types of things. Hey, we used to have X. Now, we have X Plus y over the next 3 years. Uh, the what causes slowdowns or constraints relative to to budgets. Um, uh, that I was mentioning when it comes to revenue in the next quarter or 2 really has more to do with capex budget for this year. Uh, so, uh, they tend to, to live within that, uh, annualized bucket. So I, I think that there's a, a difference there in terms of the dividing line, of, of folks, having to live within their means for this year, even though that the total bucket is going up over uh, over a multi-year period.

Noah Kaye: My last one is just, I think in the past you gave a rule of thumb of sort of 9 to 12 months lag between regulatory approval and the start of revenue recognition for ITRON. Just given that this is highly complex stuff, requires a lot of IT modernization. Are you seeing any lengthening out of that timeline, just as people work with consultants and handle what data will be done at the enterprise level versus the cloud, etc.?

Gives us confidence in the long term trajectory of the marketplace, uh, for sure. Uh, we we have confidence in the strength of the portfolio based on the prioritization that we see customers making around the, uh, uh, the constraints that they are living within their buying, the, uh, uh, the the margin of creative portion of the portfolio.

my last 1 is just, I think in the past you gave

Tom Deitrich: We've seen that in certainly some isolated cases. And I kind of mentioned that, I think, in response to Noah's question where projects are getting sequenced. If you do have a delay in an IT project, for example, you may not want to start the next one until you finished up the prior. So there is some sequencing that we have seen going on overall. So I think that general rule in the air thumb of 9 to 12 months, we're probably pushing more towards the 12 than the 9 based on the pace of what we see in the marketplace today.

9 to 12 months, lag between regulatory approval and the start of Revenue recognition for itron just given that this is, you know, highly complex stuff. Requires a lot of it modernization. Are are you seeing any lengthening out of that timeline? Just as people work with consultants and handle what data will be done at the Enterprise level versus the cloud Etc.

Noah Kaye: Great. Thanks for the detailed response. That's all I had.

Cases, uh, and I kind of mentioned that I think in response to Noah's question where projects are getting sequenced. If you do have a delay in a IT project, for example, you may not want to start uh, that the next 1 until you finished up the prior. So there is some sequencing that we have seen going on, uh, oh overall. So I I think that general rule in the are some of uh, uh, the 9 to 12 months. We're probably pushing more towards the 12th and the 9th, the pace of of what we see in the marketplace today.

Tom Deitrich: Sure.

Great. Thanks for the detailed response. That's all I have.

Libby: Thank you. Our next question coming from the line of Ben Keller with Baird. Your line is now open.

Sure.

Thank you.

Ben Kallo: Hey, good morning, guys. Thanks for taking my question. Maybe just following along the previous questions. On the M&A front, has any of the regulatory stuff changed your view on M&A? And as you build up more cash, maybe you could just remind us of priorities of capital deployment right now. Thank you.

Our next question, coming from the line of panel with bear. The Line is now open.

Tom Deitrich: Sure. So the regulatory environment hasn't changed our view on M&A at all. We remain very active in this space and are looking for the right asset to add to our portfolio. Consistent with comments that I have made in the past, we're looking for something that is accretive towards our software services portion of the portfolio. I think more outcomes-oriented types of acquisitions is what we are looking for. Count on us to be disciplined with the capital allocation that we would make, but still an area that we're very active in.

Hey, good morning guys. Um, thanks for taking my question. Maybe just following along the the previous questions. Uh, on the m&a front that has a this, you know, the regulatory stuff, uh, changed your view, uh, on m&a and and as you build up more cash and then you can just remind us that priorities uh uh Capital uh deployment right now. Thank you.

Sure. So uh regulatory environment hasn't uh changed our view uh on on m&a at all we we remain very active in the space and are looking for the right asset to add to our portfolio, consistent with comments that have made in the past. We're looking for something that is, uh, a creative towards our software Services portion of the portfolio.

You'll think more outcomes oriented types of of Acquisitions is, is what we are looking for, uh, count on us to be disciplined with the, the capital allocation that we would make, but, uh, still an area that we're very active in.

Ben Kallo: And then maybe a follow-up, just as we look at the backlog and then into next year, how do we think about your ability to grow earnings, I guess, more than and revenue, I guess? We used to have a 12-month backlog, but just how, if you can give us any kind of thoughts on into next year.

Joan Hooper: Yeah, we stopped talking about on the call the 12-month backlog a quarter ago because we thought it was actually getting confusing to investors because it's essentially a snapshot in time of the timing the customer wants in terms of a deployment, and it changes all the time. If I think about the broader question, kind of what's the trajectory going into next year, as Tom said, it's a little too soon to say here's what we expect for '26. We do expect growth year over year from '26 over the 25 numbers we've just provided. A lot is going to depend on how back-end loaded the bookings are this year. So obviously, last year was very back-end loaded with by far the biggest percentage of our bookings in Q4. If that were to repeat itself, that tends to push the revenue out a little bit.

And then maybe, uh, a follow-up just, uh, as we look at the backlog and then, um, you know, into next year. How how do we think about, you know, uh, your ability to grow, uh, earnings, I guess more than and revenue, I guess? Um, at least have a 12-month backlog, which is how if you can give us any kind of thoughts on on, uh, is it next year?

Joan Hooper: If Q3 is a really strong bookings quarter, that tends to make it potentially more growth in '26. But again, a little too soon to talk about that. We're comfortable we've got a good pipeline of opportunities to get to the one-to-one bookings that Tom mentioned.

Yeah, we we stopped um talking about on the call the 12-month backlog, a quarter ago, because we thought it was actually getting confusing, uh, to investors. Because it is a, it's essentially, a snapshot in time of the timing the customer wants in terms of the deployment and it changes all the time. If I think about the broader question, kind of what's the trajectory going into next year is is Tom said, it's a little too soon to say, here's what we expect for 26. We do expect growth year-over-year from 206 over over the 25 years. We've just provided a lot is going to depend on how back and loaded the bookings are this year. So obviously last year was very back and loaded with, by far, the biggest percentage of our bookings in Q4 if that were to repeat itself that tends to push the revenue out a little bit. If q3s are really strong, bookings quarter, that tends to make it more uh potentially more growth in in 26. But again

Ben Kallo: Thanks, Joan. Thanks, Paul.

A little too soon to talk about that. Uh, we're comfortable. We've got a good pipeline of opportunities to get to the 1 to 1, bookings that, that Tom mentioned.

Thanks Joe. Thanks Tom.

Libby: Thank you. Our next question coming from the line of Joseph Osham with Guggenheim Partners. Your line is now open.

Tom Deitrich: Thank you. Good morning. Two questions. First, I'm wondering if some of this greater complexity that regulators are talking about might reflect a change in the nature of the projects themselves, the services and products that you're delivering, becoming more complicated and perhaps a little more difficult for regulators to understand. Is that maybe part of what's going on here? No, I don't think so. I would look at it in a broader context, Joe. It's the regulators are primarily focused on what is the rate that ultimately would be flowing through to the consumers in their territory. They're primarily economic regulators. So they're trying to balance the pressure that consumers are under from a cost perspective with the needs of new technology that utilities are trying to deploy to achieve their mandate of more resilient and reliable service overall.

Thank you. Our next question. Coming from the line of Joseph oshim with Guggenheim partners

Uh, thank you. Good morning. Uh, 2, 2 questions first. I'm wondering if

Some of this greater complexity that Regulators are talking about might reflect that a change in the nature of the projects themselves, um, the the services and and products that you're delivering becoming more complicated. And perhaps, you know, a little more difficult for Regulators to understand is is that maybe part of what's going on here?

Tom Deitrich: So it is that natural push and pull, if you will, that is present on the minds of the regulators. The value that we provide our customers is what we work on to make sure that we help the customer put the right rate case forward to make sure that the regulator can clearly see the return on any investment they would make. And generally, rate cases are being approved when they're put forward. So I haven't seen the process stall. That isn't the point that we wanted to make, but it is a bit more complicated just in a general sense as utilities are trying to juggle some pretty big CapEx deployment to be able to keep up with demand as well as cope with the supply constraints that are out there.

Uh, no, I I don't think so. I I I would look at it in a um in a broader context to Joe. It's The Regulators are are uh, primarily focused on what is the, um, the the rate that ultimately would be flowing through to the consumers in their territory, their primarily, um, economic Regulators, uh, so that they're trying to balance that the pressure that consumers are under, uh, from a cost perspective, with the needs of of new technology that, uh, uh, utilities are are trying to deploy to achieve their mandate of more resilient and reliable service overall. So, it is that, uh, that natural, um,

Tom Deitrich: Regulators are trying to make sure that it is a reasonable deal with the right return on investment, and it isn't going to cause undue consumer spending constraints overall. So that's more of the environment. It has less to do with ITRON's specific portfolio.

Ben Kallo: Okay. Well, that's interesting because I feel like there's another point coming out here. If I go back to, I think it was Jeff's point earlier about utility CapEx generally going up, which it is, it sounds like you're saying, yes, it is, but you're getting some PUC pushback because of rate payer and political unhappiness with retail rates. Is that part of it? It's just the intersection of the need to spend money with, you know, I think what we all know are very, very high retail rates at the moment?

Um, and, uh, generally rate cases are being approved when they're put forward. So I haven't seen the, um, uh, the process stall that isn't, uh, the point that we wanted to make. But, uh, it is a bit more complicated. Uh, just in a general sense, uh, as utilities are trying to juggle, uh, some pretty big capex deployment, uh, to be able to keep up with demand, as well as cope with the supply. Uh, constraints that are out there. Regulators are trying to make sure that, uh, it is a, a reasonable deal with the right return on investment and it isn't going to uh, uh cause uh, undo consumer, uh, spending constraints overall. So that's more the environment. It has less to do with itron specific portfolio,

Tom Deitrich: Yes.

Okay, well, that's interesting because I feel like there's another Point coming out here. If I go back to, I think it was Jeff Point earlier about utility capex, generally going up, which it is, uh, it, it sounds like you're saying, yes, it is. But you know, you're getting some puc push back because of, you know, rate payer and you know, political unhappiness with with retail rates. Um is that part of it it's just this intersection of the need to spend money with, you know, I think what we all know or or very, very high retail rates at the moment.

Ben Kallo: Okay. That's interesting. Thank you very much.

Yes.

Tom Deitrich: Sure.

Okay, that's interesting. Thank you very much.

Sure.

Libby: Thank you. And as for Maya, to ask a question, please press star 11. And our next question coming from the line of Chip Moore with Rock Capital Partners. Your line is now open.

Thank you.

and as a reminder to ask a question, please press star 1 1

And our next question, coming from the line of Chip more with Rod Capital Partners, the Line is now open.

Noah Kaye: Morning. Thanks for taking the question. Maybe just on a little bit more on Europe. It looks like you're starting to see some early traction, at least on edge intelligence over there. Just how to think about that opportunity over the next, call it, four to five years.

Morning, thanks for taking the question. Um,

Maybe just on a little bit more on Europe. It looks. Looks like you're starting to see some early traction at least on on edge intelligence over there. Just how to think about that opportunity over the next called 4 to 5 years.

Tom Deitrich: You're correct. We have seen a re-emergence of interest on the European side of things where they had gotten through their original, I'll call it AMI 1.0 deployment, which was a pretty basic meter-to-cash kind of setup. And they absolutely are understanding the need now to get more value out of the distribution network with things like distributed intelligence and just edge intelligence overall. So we have been mindful of making sure we are getting the right margin profile associated with these things. We're focused on selling complete solutions rather than individual piece parts to make sure that it does generate the right return. And as we work with customers on that, we absolutely have seen more success in this particular area. I would say that it's important for us to keep the right balance here.

You you are, you're correct, we have uh, seen a re-emergence of uh, of interest on the the European side of things where uh uh they had gotten through their original or call it Ami 1.0 deployment, which was a pretty basic, uh, meter to Cache, uh, kind of of setup. Uh, and they absolutely are understanding that the need now to get more value out of the distribution network, uh, with things like distributed intelligence and just Edge intelligence, uh, overall. So we have, uh, uh, been mindful of, uh, making sure we are getting the right margin profile associated with these things, we're, uh, focused on selling complete Solutions rather than, uh, uh, individual piece parts to to make sure that it does generate the right return. Uh, and as we, we work through

Tom Deitrich: We want to make sure that the associated value that we create for our shareholders and our customers is well aligned when we do those arrangements. But I do see the European market, Western Europe specifically, as a more active place for us in the years to come. That's on top of the water business, which, yeah, just I don't want to gloss over it. It is on top of the water business, which continues to hum along at a pretty nice clip for us.

With customers on that. We, we absolutely have seen more success in this particular area. Uh, I would say that it, it's important for us to, to keep the right balance here. We want to make sure that, uh, the, the associated value that we create for our shareholders and our customers, as well aligned, uh, when we, uh, we do those arrangements, but I do see, Mark, the European Market Western Europe specifically, as as a more active Place For Us in the years to come

That's on top of the water business. Which uh, yeah, just, I don't want to gloss over. It it is on top of the, uh, the Water Business which continues to to hum along at a pretty nice clip for us.

Noah Kaye: Thanks, Tom. Appreciate it.

Tom Deitrich: Sure.

Next up, appreciate it.

Sure.

Libby: Thank you. Our next question coming from the line of Scott Graham with Seaport Research Partners. Your line is now open.

Tom Deitrich: Yes. Hi. Good morning. I want to see if you're able to answer this question. You know, your '27 aspirational goal of 2.6 to 2.8 billion in sales, does this sort of near-term couple three-quarters of uncertainty change that?

Thank you. Our next question, coming from the line of Scott, Graham with C for research Partners. The Line is now open.

Yes. Hi. Um, good morning I want to see if you're able to answer this question. You know, you're 27. Aspirational goal of 2.6 to 2.8. Uh, billion in sales. Does this sort of near-term, couple 3/4 of uncertainty

Joan Hooper: No. There's no change to the targets we have for '27. You know, we never expected when we set these in early '24 that it would be a straight line, but we still don't feel very confident in the '27 targets.

Change that.

No, there's no, no change to the targets we have for 27.

Tom Deitrich: Got it. Thank you for that. And then while I have you, Joan, the mixed factors, obviously, mixed played a big role. Could you maybe isolate the one, two, three mixed factors across the businesses which drove the gross margin, largest ones?

You know, we never expected, we set these in early 24, that it would be a straight line, but we still don't feel very confident in the 27 targets.

Joan Hooper: Well, again, one of the earlier comments I kind of made by segment, they're really different in each segment. In the case of devices versus a year ago, we had some low-margin electricity products that we essentially end-of-life when we close that factory. So the device business has done really well with water in general. The water margins are higher than the electric product margins. So structurally, that has taken place as we expected and, in fact, a little faster than we expected. In the case of networks, there's a lot going on under networks. It's different customers with different price points of their deployments, different stages of their deployments. But in general, all of our segments have been focused on pruning their portfolio to accelerate margin growth. And I think they've all done a really nice job of doing that. Outcomes margins have more room to go up.

Got it, thank you for that. And then while I have you, um, Joe, the um, mix factors obviously mix played a big role. Could you maybe isolate the 1, 2 3, mix factors or cross the businesses which drove the gross margin largest ones.

Well, again, in my earlier comments, I kind of made them by segments. They're really different in each segment.

Expected. And in fact, a little faster than we expected in the case of, uh, networks, there's a lot going on under networks. It's different customers with different price points of their deployments different stages of their deployments. But in general, all of our segments have been focused on pruning, their portfolio to accelerate margin growth. And I think they, they've all done a really nice job of doing that.

Joan Hooper: And as we've talked about in the past, if you get a higher software content quarter, you'll end up with higher margins. But I think they're on their pace to hit the margin targets for '27 as well.

Tom Deitrich: Great. Thank you. And if I may just sneak this last one in, the outcomes sales, you know, sub 10% for the first time in a number of quarters. Is there anything we should read into that? Because I, you know, that, as you have talked about, you know, was led by networks on the delay there, and networks was, you know, really strong for, you know, up until the fourth quarter, you know, double-digit. Is the second half outlook for outcomes kind of the same high single, or do we get back to double-digit?

Outcomes. Margins has more room to go up and as we've talked about in the past if you get a higher software content quarter, you'll end up with higher margins. But I think there are on their their Pace to hit the margin targets for 27 as well.

Great. Thank you. And if I may just sneak this last 1 in the out, comes sales, you know sub 10%, for the first time in number of quarters, is there anything we should read into that? Because I, you know, that, as you've talked about, you know, is led by networks on the delay there and networks was, you know, really strong for, you know, up until fourth quarter, you know, double digit.

Joan Hooper: Well, again, we don't guide by segment, but I would say I don't think there's anything structurally different with the outcomes business. And to the extent it's been continuing to grow year over year, we would continue to see that.

Is the second half outlook for um, outcomes kind of the same high single or do we get back to double digit?

Tom Deitrich: Right. And the real drivers inside of that, things like DI-capable endpoints being up 36% year over year. We still have 10-plus million in backlog. We've got 18-plus million applications that have been licensed. That's up about 140% year over year. So the business is still ticking along as we would like. I wouldn't read into one point below the 10% threshold as anything other than just normal ebb and flow on a quarterly basis. Appreciate your responses. Thank you.

So again, we don't drive by, uh, by segment but I would say, I I don't think there's anything structurally different with the outcomes business. And to the extent it's been continuing to grow year-over-year. We would uh, we would continue to see that, right? And the real drivers inside of that thing is like, uh, di capable end points, uh, being up 36% year-over-year. Uh, we we still have 10 plus million in backlog.

Log, uh we've got 18 plus million licensed that has applications that have been licensed, that's up about 140% year-over-year, so the business is still ticking along as we would like, um, I I wouldn't read into, uh, you know, 1 Point, uh, below that the 10% threshold as as anything other than just normal EB and flow in a quarterly basis.

Appreciate your responses. Thank you.

Libby: Thank you. I'm showing no further questions in the Q&A queue at this time. I will now turn the call back over to Mr. Tom Deitrich for any closing remarks.

Thank you.

Tom Deitrich: Thank you, Libby. Thank you all for joining our call, and we look forward to updating you again next quarter.

So much.

Thank you Libby. Uh, thank you all for joining our call and we look forward to updating you again next quarter.

Libby: This concludes today's conference. Thank you for your participation, and you may now disconnect.

Cities conference. Thank you for your participation and you may now disconnect