Itron at Oppenheimer Conference: Strategic Adjustments and Growth Plans

Published 11/08/2025, 19:06
Itron at Oppenheimer Conference: Strategic Adjustments and Growth Plans

On Monday, 11 August 2025, Itron Inc (NASDAQ:ITRI) presented at the Oppenheimer 28th Annual Technology, Internet & Communications Conference. The company outlined a mixed strategic outlook, with a slight reduction in revenue projections but an optimistic increase in profitability expectations. The discussion also highlighted Itron’s strategic focus on long-term growth and operational resilience.

Key Takeaways

  • Revenue outlook for 2025 reduced by 3% due to project timing and labor constraints.
  • Profitability projections increased by 13% at the midpoint year-over-year.
  • Strong backlog of $4.5 billion, ensuring visibility for the next three to four years.
  • Double-digit growth in the outcomes business, driven by data and AI applications.
  • Active pursuit of M&A opportunities to enhance growth in the outcomes sector.

Financial Results

  • Revenue Outlook: Reduced by approximately 3%, equating to a $75 million decline, primarily due to customer project timing and labor constraints.
  • Profitability Outlook: Revised upwards by 13% at the midpoint year-over-year, indicating stronger financial health.
  • Backlog: Maintained at a robust $4.5 billion, providing visibility for the next three to four years.
  • Distribution CapEx: Currently at 42% of total utility CapEx, projected to rise to 43-44%.
  • Gross Margin: Devices business is tracking at 28-30%.
  • Free Cash Flow Conversion: Surpassing 2027 targets, with the last quarter showing 14-15% of revenue, compared to the original target of 10-12%.

Operational Updates

  • Utility Challenges: Utilities are facing increased demand (2-7% annual growth) and complex regulations.
  • Regulatory Environment: Rate cases are becoming more complex and approvals are taking longer, with an average return on approved cases at about 9.8%.
  • IIJA Funding: Federal funding is progressing slowly, with limited impact on the company’s outlook.
  • Outcomes Business: Growing at a double-digit rate, with application licenses up 140% year-over-year.
  • Installed Base: Opportunities exist to maximize value from the 15 million DI-enabled endpoints.

Future Outlook

  • 2027 Targets: Confidence in achieving targets, with margins and free cash flow ahead of schedule.
  • Outcomes Growth: Anticipated to continue double-digit growth well beyond 2027.
  • M&A Strategy: Focused on acquiring scalable, data-rich assets to accelerate outcomes growth.
  • Margin Expansion: Ongoing in networks and outcomes businesses, aligning with 2027 targets.

Q&A Highlights

  • Project Delays: Attributed to capital and labor constraints, IT project delays, and increased regulatory scrutiny.
  • Booking Recognition: Bookings are not recognized until regulatory approval is secured.
  • AI Integration: Exploring AI for anomaly detection and data analysis both in the cloud and at the network’s edge.
  • Water Market Demand: Strong demand in Europe due to government-led digitalization initiatives for water assets.

For more detailed insights, please refer to the full transcript below.

Full transcript - Oppenheimer 28th Annual Technology, Internet & Communications Conference:

Noah, Analyst, Oppenheimer: Alright. Well, good afternoon, everyone. Thanks for joining us on the first day of Oppenheimer’s twenty fifth annual technology, Internet and communications conference. We’re really happy to have, back to the conference, the management team of Itron welcoming in, president, CEO, Tom Dietrich, and CFO, Joan Hooper. Thanks so much for being here.

It’s, it’s great to see you both.

Tom Dietrich, President, CEO, Itron: Absolutely. Thank you, Noah.

Noah, Analyst, Oppenheimer: So I think we we’ve got a bunch of questions to get to, but, what I’d like to do, is turn it over to Tom for some opening remarks, and then we’re gonna get into a a pretty great discussion. So, Tom, please take it away.

Tom Dietrich, President, CEO, Itron: Sure. I’ll be super brief and try to make this as interactive as we can. But, for those who may not be familiar, a a quick overview of of Itron as a company. We are a, roughly 5 and a half, $6,000,000,000 market cap company, revenue about 2 and a half billion dollars annually. And what we do is technology and solutions services for utilities and cities all around the globe.

So, electricity utilities, gas utilities, water utilities, that that is what we do. We are fortunate enough to call about 8,000 customers around the globe. Our, our friends as we deploy new technology to them. Our latest generation of technology is is kind of the equivalent of a smartphone where you can download applications into that endpoint that’s out in the field and be able to use that application to look for different signals to take actions in the field to really help the utilities solve the real world problems. The next slide then, David, is a little bit about the type of problems that utilities face and that we endeavor to solve.

So infrastructure is getting older. It’s changing in terms of the need to integrate more, wind and solar into the generation side of of things, and that’s great, except it creates some, instability in terms of what the the, the generation capacity looks like when the sun isn’t shining, for example. So you’ve gotta have a lot more complexity to how you manage the system in that kind of an environment. There’s more floods and fires and storms all around the globe, so environmental pressures are increasing and be able to provide resilient and reliable services is is an important part of the mandate of the utility. And then finally, the things that we as consumers find interesting when we interact with other services.

How do we get that same level of service interaction with with what what customers are doing as they interact with with their utilities? These are things that that utilities are up against, and and we can help them, solve overall. How do we do that? Which is indeed the next picture. It is the notion of a grid edge intelligence platform.

So, it is a highly robust and secure Internet of Things network that goes out into a particular territory, whatever the the territory of the utility would be. You you connect up all those endpoints. You have sensors and actuators out at the edge of the grid, and you can be able to solve those problems earlier on. So whether we’re looking for a simple use case of reading the meter, under understand how many kilowatt hours you use this month, all the way to understanding, where you have vegetation rubbing up against the wires so you can proactively, roll a truck to, to fix it before those wind blows and and, wires are are are damaged overall. Those are some of the types of use cases, but think of this as a as a multipurpose network that you build once, and you’d be able to use it to to solve a lot of problems that are out in the field with the customers.

Next slide then gets to, the results that, what we announced recently and and more of the outlook for for where we stand today. And I know we’ll talk about this a little bit more, but, we revised up the profitability about 13% at the midpoint, a year over year kind of number. At the same time, revenue rate, we brought it down a couple of percent to to be cautious around what the outlook looks like for us overall. But really strong and growing profitability story for us. We know there’s going to be a a tremendous amount of investment in in the grid and utility systems at large, and that creates a a long term growth vector for our customers and clearly us as a main player in the industry to to grow with or above the market rate in the in the years ahead.

So I think the last slide is just the annual outlook that we had, which, again, I won’t go through all the numbers and mention some of the the key, statistics, and would rather save the time that we’re together to, to get into a a dialogue. So I’ll I’ll pause there and pass over Noah if you wanna take us through.

Noah, Analyst, Oppenheimer: Thanks, Tom. I mean, I think, you know, it’s great place to pick it up. It’s always interesting times, whenever we meet, at our conference with you, but, you know, the re the reaction we saw in the stock last week was really largely around that reduced revenue outlook and and some of the commentary on bookings timings. So there’s there’s a lot of positives to talk about here, but I wanna address those points first. You know, maybe starting with 2025 revenue, you talked about customer project timing and labor constraints, pushing that roughly 75,000,000 of backlog revenue conversion out of the year.

Just give us some more context on what’s causing those dynamics. And I think what investors would like to understand is, does the trend of extending backlog conversion seem likely to continue looking into 2026? Or perhaps we could see a revenue catch up next year. How should we think about that?

Tom Dietrich, President, CEO, Itron: Sure. Sure. So the way we work with with customers maybe I I start at that level, and then we can zoom into to the numbers overall. But we we work with customers to basically solve a particular problem. So we’re doing a a project where the customer is spending a $100,000,000 with us, and then we go and put that $100,000,000 project into backlog, and then that that backlog throws flows through the p and l.

So the 4 and a half billion of backlog we have today, that is generally about a three to four year kind of visibility as that backlog would flow through the the p and l. Three to four years is is great visibility of of what we have, but it’s three to four for a very specific reason there is is sometimes projects ebb and flow while you’re in the midst of of a project. Typically, what we see with projects is, once you get going, you get some some normal start up pains and everybody’s finding their sea legs with the project. Once you you get it up and running, generally, schedules tend to accelerate overall. This year, we have not really seen that that typical acceleration on projects.

If if if not, there there’s there’s constraints here and there that are in in the system. And the the the constraints tend to come in a in a lot of different reasons, but they’re all point reasons within a particular customer. A capital constraint here, a labor constraint there, just finishing an IT project before they start the next phase of of of something that would be unrelated overall. But what that that all put together is the utilities are really struggling to keep up with the the pace at which they are trying to move. The the utility industry has been kind of flat, if you will, for for a long period of time.

If you look at it through the lens of electricity grid, load to bulk load has been flat for for twenty years. It’s now a case where it’s gotta grow two or three or four or five or six or 7% depending where in the country you are per year every year for the next twenty or thirty years. That’s a very different environment. And utilities are accelerating. They’re trying to meet that need, but they’re they’re struggling to be able to to keep up.

And that’s kind of what you’re seeing in terms of of what is happening now. None of nothing was lost at backlog here at all. There’s no projects that are getting canceled or or anything of the sort. It’s coming. It’s just a matter of picking which quarter it it’s flowing through is is more that that that range of motion that you saw as as we were were outlooking overall.

So, yes, we did bring down the midpoint about 3% or 75,000,000. That certainly is is coming into to future periods. How much growth will we see from ’24 to ’25 is maybe the second half of your question, and that has to do with when that revenue flows through, but it also have to do with with new bookings coming in in the back half of this year. And as we we exit the year, we’ll set guidance for for 2026 based on on the bookings we see for the back half of this year, and that’ll inform the growth rate into to ’26. It’s clearly gonna grow.

It’s just a question of how much, and and we’ll, we’ll we’ll let time run here and and watch what the bookings trajectory looks like before we set the, the 2026, numbers overall.

Noah, Analyst, Oppenheimer: Well, I I guess the you you talked about these utility challenges. You know, just to think about bookings and pipeline, I mean, have customer demand signals changed? Like, how how are customers prioritizing, you know, smart distribution and nonwires alternatives that you sell versus, you know, other CapEx buckets like transmission and generation projects?

Tom Dietrich, President, CEO, Itron: Right. Right. The pipeline of opportunities for us has has never been bigger in in my time with the with the company, and I think I’m coming up on a decade now. So the the total pipeline of the the the things that customers are looking at has never been been bigger. CapEx budgets overall are getting larger.

If you look at utility CapEx as as a as a total number, it’s larger this year than it was last year, and it’ll be larger again in 2026. If you look at the portion of that that goes to distribution, which is the part of the the bucket that that we operate in compared to generation or transmission, all three are increasing, but the percentage inside of that that total number for distribution is increasing at a at a faster rate. So distribution CapEx has typically been around 40%. If you look in the in past years, it’s probably somewhere 42 ish percent today. It probably goes towards 43, 44% of the total budget in the years ahead if I just use EEI data as as the example there.

So customers are absolutely increasing spend everywhere and increasing faster, as a percentage on the on the distribution side of things. So it’s really a question of how much can you do at once before you bump into, an order of operations. You you don’t put new wiper blades on a broken windshield. You break you you fix the windshield before you you replace the wiper blades, and that that’s the the type of prioritization that happens inside of of individual projects overall. So I feel very good about the trajectory of the the market over a longer period of time.

It’s just a question of quarter to quarter variation, which is not meaningful in a utility scale. It is meaningful when you look at it from an investor point of view. The difference between June 30 and July 1 for a booking matters a lot to to to us as one second quarter and one third in the utility scale of over a ten year period. Okay. What’s what does a day change mean for for when a particular meeting would happen to approve a project?

It is that type of jitter that you see playing through the, the the picture overall.

Noah, Analyst, Oppenheimer: Right. And so it just ties back into the previous question that that the customer the none of the backlog is getting canceled. The customers all wanna move forward with these projects. I’m paraphrasing here. But you’re you’re seeing those utilities with these challenges run into these labor constraints or have to do an IT project or or something like that.

I mean, you know, you you you’re somebody who’s followed and been in the industry for a long time. You see these these these shifts and these challenges. Do you think this is sort of a new normal and we’re just gonna see, you know, more, I don’t know, shift, in and around, project timelines versus the past? You can say yes or no, but, you just how is that something that the company thinks about, you know, dealing with from a planning perspective?

Tom Dietrich, President, CEO, Itron: Yeah. I I would say that it this dynamic has always been present in the industry. It’s a little bit higher variation today than than it than it was in in years gone by, but there’s just a lot more going on at any one moment in time. So there’s there’s more pressure on utility commissions not to allow rates to to increase. So they’re asking some more questions.

They’re approving projects, but they’re asking some more questions, which sometimes translates into delay. There’s a lot more IT spending as more and more of the utility infrastructure is being digitized, and and sometimes those projects run on a on a different time scale. So I think if the the the project timing has always volatility has always been there, which leads to some of the historical lumpiness in our bookings for for example Right. Probably continues on. So, again, I don’t think that this is, going away, but I also don’t think it is, you know, somehow so much different than than the past.

It’s just kinda normal utility world stuff.

Noah, Analyst, Oppenheimer: Well, yeah, I think this was a a topic addressed last week, but I I just, would love to wrap my head around it a little bit, at least the way you see it. You know, the regulatory environment in response to these rising utility costs and infrastructure investments, you know, are rate cases taking materially longer to approve? And can you, maybe just for Itron specifically, quantify whether they’re greater than normal backlog dollars that are pending approval right now?

Tom Dietrich, President, CEO, Itron: Sure. Sure. So understand that that utility commissions are state by state. So so there’s 50 of these guys that that that are out there for for the 50 states just within The US, and then we could talk globally, which is a a different scenario in in many cases. So it it varies a lot location to location.

That said, rate cases are clearly becoming more complex. It’s it’s no longer a world where, hey. Let me buy a fixed capability and put it in the ground and amortize it over ten years and just do the straight path as to what goes into into everybody’s utility bill at the end of the month. Today, as technology has increased to solve a different set of problems, the the number of options and the number of of of flexible approaches that are are employed are are definitely more complicated. At the same time, inflation has run up and utility commissions are primarily charged with being economic regulators that they want to make sure that all of us as ratepayers are getting a fair deal in our territory.

So it’s their job to scrutinize and ask questions. And you get a combination of the two. It does take a little bit longer to to get rate cases through in some cases, and you have some more, okay. Something has started and maybe it gets punted to the next month, because of questions that are answered. So the next time the commission meets, you you would approve it.

Rate cases are being approved. The average return on approved cases, I think, this year is about 9.8%. So higher interest rates and happer higher CapEx budget hasn’t stopped it from happening. It just means you wanna do the the proper diligence, and everybody is is doing their their job overall. So I still see the regulatory environment as as very constructive, Just but everybody has a has a job to do and and that they’re they’re doing their jobs well.

Coming to your question on on the bookings front, important clarification for us as a company is we don’t put something into bookings until it has been selected, and we’ve signed the contract with the customer, of course, but until a regulatory commission has approved the deal to the extent that it’s applicable on on a lot of the deals that we do. So when that rate case is approved is is important in terms of the timing of when we would recognize bookings. At any moment in time, there’s typically a couple $100,000,000 of things that have been awarded that are in that approval cycle, if you will. That number does vary up and down. We’re a little bit above normal just now, but, not if you compare and contrast as as we were approaching end of third quarter last year, we were well over a billion dollars that was in that pending approval bucket.

We’re we’re nowhere close to to that at this point. So maybe slightly above trend line, but not not outside the the the wild variations that you see in in a in a normal year.

Noah, Analyst, Oppenheimer: Very helpful, Tom. You know, I think another factor investors are curious about is, you know, some of these federal policy shifts, with the change administration. Maybe just how material are are any of those impact, any of the impacts of those shifts, whether it’s IIJA funding, big beautiful bill, tariffs, how they impacted the business outlook? Maybe you can sort of force rank them if that’s the easiest way to do.

Tom Dietrich, President, CEO, Itron: Yeah. I I would say that all all of them tend to be more or less second order effects for for us. Utilities still have to do what they need to do. So our our market kind of powers on, and these things tend to to come, and you take advantage of them when they’re there. But if you take, for example, where we have maybe the the largest amount of interaction is IIJA, that bipartisan infrastructure law, where there’s a fair amount of grid resiliency, reliability, project money that’s inside of that.

That money is is still flowing. It it moves slowly, so it’s gotta go from award allocated to awarded through the state commission, through, a rate case if relevant because it’s not a 100% paid by by the federal government, and then it tends to flow to the customer and then eventually flows back to us. So there’s a long train there of other events that need to happen. That money is making its way through. We we’ve had one off discussions with customers.

If that money were to go away, what would you do? By and large, they would say, we’re still gonna do the project. Maybe we need to spread it over a longer period of time. So, again, I don’t and not even that that money has gone away. That’s a purely hypothetical statement.

Noah, Analyst, Oppenheimer: So,

Tom Dietrich, President, CEO, Itron: again, I don’t think that it you know, should be something strange happen, we don’t lose the backlog. Maybe the timing is adjusted a bit. That said, in the projects we work in and those programs, we have not even seen money being pulled back. If not, it’s it’s still flowing. It’s tending to be, you know, a little bit more towards different types of projects, so maybe less renewables and more legacy types of projects, but the money is still flowing.

Noah, Analyst, Oppenheimer: Yeah. I mean, to be clear, I I just wanna make sure everyone understands that it has no bearing on, you know, the change in the revenue outlook that you have for

Tom Dietrich, President, CEO, Itron: the year. Yeah. In immaterial. Immaterial. Okay.

Noah, Analyst, Oppenheimer: Okay. So I I guess if we tie this all together, you know, you obviously have, 2027, you know, growth targets out there. Maybe talk to us a little bit about, confidence level in achieving, you know, some of the long term top line growth targets in these current market conditions.

Tom Dietrich, President, CEO, Itron: Sure. So we we feel really good about the those those targets for 2027. And and if you look at where where we are now is we’re probably a bit ahead of in some of the areas that are are in those individual areas. But getting towards that top line number for for 2027 still looks very reasonable based on the the backlog profile we have and even with some pushes and pulls and timing of individual projects. Margin trajectory on track with the devices business is even a bit ahead of those targets already today.

And based on what is in backlog today for for networks and outcomes, you can see it flowing through to to hitting those those targets. That that nice three, four year backlog, you get to see what kind of pricing and structure you would have. So on track to be able to do that. A lot of the self help work that we have done to change the portfolio, exit markets where we were not getting the right returns, closing down factories, changing pricing structures to be more adaptive to a market where inflation can come and go. A lot of that is is now playing through, and and you can see it in the financial results, and we know it’s in the backlog for the years ahead.

Free cash flow, again, the the generation is is ahead of the target already today, and we’ll we’ll look to be able to to maintain that. So those those targets by segment will look to be very achievable in the years ahead.

Noah, Analyst, Oppenheimer: Yeah. Margins and free cash flow, definitely tracking ahead of, I think, where, you know, we in the street had expected. So we’ll we’ll get to that and wanna make sure you get credit for that. I think if we drill down a bit more into the segments, you know, the 27 targets do imply considerable growth in outcomes off the current run rate. You’ve talked with us in the past about outcomes organically being able to grow sustainably at double digits.

Maybe just take us inside, you know, what’s driving the growth in the segment and and how big a portion outcomes could be as a as a total portion of revenue for the for the company over the coming decade.

Tom Dietrich, President, CEO, Itron: Sure. Sure. So, yeah, the outcomes business over the last two plus years has been right around double digit growth year over year, quarter to quarter kind of numbers. I think if you look out over there, there’s a couple of quarters where it was only nine, but other quarters that it was, you know, thirteen, fourteen, 15% year over year growth, and that looks to continue. What’s inside of that, it is the customers taking advantage of that latest generation of of product where you get a lot more data coming through the network, and then you wanna put that data to work to be able to solve those problems we we had talked about earlier.

So, for example, the number of downloadable licenses that we have that we have applications that we’ve licensed. That’s up a 140% year over year if I compare q two of this year to q two of last year. That that number is growing. The the backlog that we see for outcomes is at a record level right now. We don’t break it out, but it is at the highest level that’s ever been.

So you can see the table is set for these things tend tending to flow. What are customers really trying to do? It comes down to getting visibility out at the edge of of their network. Utility networks were generally designed to be a one way push, just sort of a fire and forget. I have unlimited generation, and I just push enough out there to make sure when everybody flips the light switch, the lights come on.

That’s a really expensive way to to solve the problem, especially as there’s a lot more variability and complexity out there. So step one of being able to deal with that is get some visibility out there and be able to use all of the endpoints we have to create that visibility. When you got the visibility, begin to control it. Turn this on when that is when the sun is shining on this roof, for example, or roll a truck when you see this vegetation signal, and you can start to solve different problems and improve resiliency and reliability and cost efficiency of the overall system. That’s what customers are doing, and that’s what fuels that use of data and what is the the the fundamental premise of of our outcome strategy overall.

Size of the the the the puzzle here, I certainly want to continue to grow outcomes at that double digit year over year rate, well past 2027. And so you can start to see what the the accruing would would be in terms of what it means from a margin standpoint. But as a as a portion of the company, I don’t see a limit, you know, on that at least in inside of the next decade. There there’s just a lot more we can do and make use of all of the data that we have on our hands. We haven’t set targets longer than 2027, but I would say what’s out there now, don’t think of that as a as a terminal value.

It’s more of a waste station along the way, and and we’ll update those those targets with with some new ones here in the the next year or so.

Noah, Analyst, Oppenheimer: In the next year. Alright. I was gonna ask. We’re looking forward to that. Yeah.

I mean I mean, to to unpack this a little bit further, I think services revenue per endpoint has been increasing pretty steadily, over the past six quarters. And, I guess, you know, how you think about, how much of the target and outcomes is kind of driven by increasing revenue per endpoint versus just having more of the DI enabled endpoints in the field. You know, do do you need do you need both, to get to the double digits? You know, is it is this are we still really sort of in the the stage where just merely getting more of those endpoints out into the field will will help drive it?

Tom Dietrich, President, CEO, Itron: Yeah. I I mean, ultimately, we wanna have both, of course. So in the in the shorter run, you can do it with the existing base. We’re very underpenetrated. So if we have 15,000,000 DI capable endpoints that are out there, honestly, quite a a large number of those are not yet running downloadable applications.

They’re just doing the very basic, you know, types of of things. So we we have we have plenty of of harvesting we can still do on the existing stuff. Meanwhile, it we’re continuing to deploy more every every quarter. So I would say that you gotta we it’s important for us to continue to increase the portion of the installed base and grow that installed base that is over the long term trajectory. But for for now, again, we’re we’re not limited.

So if hardware would slow down for a quarter, for example, I wouldn’t read that into as somehow a something catastrophic from from a an an outcomes point of view. We we’ve got the the table set where, both will happen, but, there’s more we can do with the existing fielded hardware.

Noah, Analyst, Oppenheimer: You know, we’re kinda going from this era of big data to the era of of AI, and just curious how you think about the role of AI in creating use cases for outcomes.

Tom Dietrich, President, CEO, Itron: Yeah. I I I think that we very much see it as as something that needs to happen in the cloud side of what we do, but also out at the edge of the network of of and and have the ability to understand anomalies out at the edge of of the grid and be able to, in real time, separate the wheat from the chaff as what was something that really is an event that the the back office needs to know about. That’s a safety issue. That that’s a reliability issue versus that’s just something that that that happened. But being able to separate that so you can prioritize your resources is something that real time data access and anomaly detection out of the edge of the grid is an important future use case.

It’s something that we’re piloting and testing with with a couple of customers today, but I I I see that as a new revenue stream in the in the years ahead. Meanwhile, cloud side of things, just being able to put the the the AI capabilities to work on all of the data, that’s inside of the utility network is also something that’s very underexplored. Utilities tend to not use most of the data they have their hands on, and to the extent that you can open up and make it easier to do that where you don’t have to have a an army of IT people or engineers to be able to write custom reports. You can now speak to the computer in natural language to be able to pull out different types of data and understand what you you can do with it. So both sides of that equation are areas we’re actively developing in partnership sometimes with Microsoft or in collaboration with NVIDIA, and and sometimes it’s just using the, the the machine learning and AI capability within inside of our our operation to be able to advance the science.

Noah, Analyst, Oppenheimer: Very interesting. I think just last question on outcomes, on the growth side. I mean, obviously, M and A for outcomes remains your top priority. I think you commented in May on a pretty strong funnel. We’re constantly asked what the company might buy.

Just talk a little bit more about your process for identifying m and a targets, and how, if at all, your view on the m and a opportunities evolved over the past few years.

Tom Dietrich, President, CEO, Itron: Yeah. Certainly, we wanna be able to accelerate that outcomes growth. We think there’s so much untapped potential in the marketplace there that that that’s really as you you pointed out, that that’s where we are are shopping, if you will. The pipeline is active. There are companies that that are out there.

I we’re we’re looking to to really make sure we have something that’s outcomes forward, something that’s scalable, and we can take it across a large swath of customers. We we really want something which allows us to put our hands on different types of data to be able to combine what we do today with something that is coming from from an acquisition. So one plus one is more than than two, if you will, in terms of how you can put that data to work to solve problems for customers. So higher conviction on being able to to to find something that really can advance the the the the portfolio and solve a greater set of problems for for our our customers. The the valuations for software oriented assets are are are are are high.

Clearly, that that that’s those are in demand assets overall. So we wanna make sure that we we do have something that makes sense from a financial point of view. And sometimes maybe that’s where the pressure is in the system where some of those multiples have have contracted in recent years, and and folks still wanna hang on to to what the memory was from a couple of years ago. So count on us to be disciplined and not overpay, but those are the types of things we’re looking for. And I’m I’m sure it’s out there.

We’re blessed with a balance sheet that’s that’s well prepared for to allow us to move quickly when when the right asset is identified.

Noah, Analyst, Oppenheimer: Sure. And part of that is because of the, you know, growth in margins and the the growth in earnings. Maybe just walk through, you know, raising the profitability outlook for 2025 despite the lower revenue range. And just how much of the uplift, has really come from, you know, better mix versus, you know, better productivity from some of the self help initiatives?

Tom Dietrich, President, CEO, Itron: Yeah. I I mean, it’s obviously some of both. So, if you look in the rearview mirror, we we closed down a bunch of factories and consolidated. That’s behind us now. We had about a $10,000,000 year over year, meaning from last year to this year.

So it’s a you know, $10,000,000 of the margin improvement this year is is shedding those factories and getting better utilization out of our existing assets. We’ve worked hard on pricing to index pricing and and really collect the value from from the portfolio itself. We worked hard on portfolio pruning, which shows up as better mix today. The the devices business is is getting a a higher mix of of water oriented content today, which tends to carry a slightly higher margin associated with it. Networks and outcomes are more tilted towards the latest generation, this downloadable application generation, which carries a little bit better margin, which shows up at the mix itself.

That that’s what has contributed, and we’ve seen customers transition to those new generations of products faster than we had anticipated. So maybe they were, you know, slower in in project completion than we originally anticipated. What they’re deploying tends to be towards the the better end of the portfolio from a margin standpoint. So feeling very good about the the the margin trajectory of the company and the and the guidance that we we just updated a few weeks ago.

Noah, Analyst, Oppenheimer: Yeah. I I I think that you you talked about some of the different drivers by segment. Right? So so how much additional margin headroom to each of those factors sort of provide if you if you think about, you know, water mix, in devices, the roll off of legacy pricing in networks, and then maybe sort of the software led growth and outcomes?

Tom Dietrich, President, CEO, Itron: Yeah. So I I think that the the water side for for devices, clearly, we we will continue to prioritize that the water market has been above our expectations several quarters in a row, if not the the last eighteen months overall, specifically in Europe, and I certainly think that that is likely to continue through the back half of this year. There are some some government programs that are pushing digitalization of of water assets, which is is benefiting overall. So I think that continues. A lot of the pre pandemic pricing where where the back where the margin was compressed because of inflation and fixed pricing, that has rolled through, and it’s no longer in backlog today.

We’re we’re 90% through through all of that that stuff. So that’s no longer a headwind. Factories and closures are are done. So it’s it’s more just continuing to to gain value out of utilizing the data and continuing to ramp and expand that grid edge intelligence platform on the hardware side of things. That’s where the juice is left to be squeezed out of the lemon, and there’s plenty of it there.

Noah, Analyst, Oppenheimer: And so, you know, I mean, 2025, I by at least by our estimates, already tracking to achieve mid teens EBITDA margins, you know, and the guide over $6 in EPS. And so you you’d have already met the low end of your 2027 targets two years early. So, you know, you said you’ll update them, you know, sometime in the next year, but just how investors should think about, you know, bias on, specifically margins and cash generation versus those targets.

Tom Dietrich, President, CEO, Itron: Yeah. Well, I I would say that, you gotta look at it segment by segment, which which is probably the the right, way to break it apart. The the fact that the devices business is is above the margin target, I wouldn’t look forward to ease back. You’d probably stay in in that, let’s call it, 28 to 30% gross margin level depending on the individual mix. We do have some some room to to continue to grow on the margins gross margins that is for the the networks and the outcomes business, and that that we can see the table is set for us to be able to continue to to to move towards those 27 targets.

So that’s where where there’s still growth yet to come. I I would say that cash flow generation being above the target probably stays that that way as well based on on what we see ahead. What we’re where we want to to make sure we’ve got good visibility as to and and provide the right outlook is exactly what the shape of the revenue profile looks like quarter to quarter based on our very early discussion on project ebb and flow. So the destination isn’t a question. It’s just that what does it look like quarter to quarter is is the part that’s a little harder to call.

Noah, Analyst, Oppenheimer: And can you, and and I’ll possibly, Joan, as well, of comment on what’s driving the stronger free cash flow conversion? I mean, I I know that, you know, the business has become more capital light. You know, and that they’re not perhaps now some some tailwinds, around, depreciation. Maybe just help us unpack kind of how to think about the free cash flow conversion profile.

Joan Hooper, CFO, Itron: Yeah. Again, the the targets we originally established for ’27 were somewhere around 10 to 12% of revenue. I think last quarter was closer to 14 to 15. So as Tom said, we’re ahead on that. I think part of it is is, frankly, sitting on a billion 2 of cash and earning 4% interest income, which which is a problem to have if you can’t utilize the cash.

I think, some of the benefits from the tax legislation will continue to accrue to us. So we expect to pay less cash taxes than than we would have otherwise in terms of the new legislation that was signed. So, you know, at this point, there are very little capital expenditures. So we only we’re down to three big factories, and and, you know, we don’t typically spend that much. So we used to say, you know, 2% of revenue or two two and a half was CapEx.

It’s now probably more like one to one and a half. So I I we feel really good about our ability to flow through the the growth in earnings straight to cash flow.

Noah, Analyst, Oppenheimer: Very helpful. You know, I think that’s a good place to leave it. I do wanna, of course, point out that, you know, the company remains very, open and accessible, through the IR, Paul and David. And of course, you can come to us as well if you have any questions on the company. But Tom and Joan, I really wanna thank you for the time and the thoughtful discussion today.

There’s a lot of momentum here. You’re positioned in, you know, a market going through a period of unprecedented load growth and challenges, and, we look forward to, seeing the company benefit from that.

Tom Dietrich, President, CEO, Itron: Right. Thanks for the effort. Thanks for having us.

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