Itron, Inc. Aktie

Good day, and thank you for standing by. Welcome to Itron's First Quarter 2026 Earnings Conference Call. [Operator Instructions] Today's call 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 morning, and welcome to Itron's First Quarter 2026 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 first 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. 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 to our current and future operating and financial environment.

The materials discussed today, April 28, 2026, may materially 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 Deitrich, begins his remarks.

Thank you, Paul. Good morning, everyone, and thank you for joining our call today. Itron had a solid start to the year. Our first quarter results were ahead of expectations due to strong execution from our teams and some first half projects progressing ahead of schedule.

Turning to Slide 4 for the highlights. Revenue of $587 million, adjusted EBITDA of $92 million, non-GAAP earnings per share of $1.49 and free cash flow of $79 million.

Turning to Slide 5. While project timing provided a modest tailwind in Q1 revenue, we anticipate the first half to be consistent with our initial guidance. Overall, the pace of ongoing field deployment of Grid Edge technology is well aligned to our expectations with no material constraints for labor or materials.

The adoption of flexible and intelligent solutions is accelerating, and that is translating into durable compounding growth over time. Our Outcomes segment grew 22% year-over-year. Total company annual recurring revenue at quarter end was $414 million, up 28% due to strong organic growth plus our recently acquired Resiliency Solutions segment. More broadly, the size and scope of the opportunity funnel remains outsized from historical levels, driven by the age out of existing infrastructure and new requirements. Grid modernization is inevitable, and we are confident in the multiyear structural investment to add intelligence to the grid, but also understand the market we serve.

Our customers continue to work in a complex environment, balancing global uncertainty, affordability concerns, resiliency imperatives and growing demand variability. We are confident our product portfolio addresses these disparate needs across electricity, gas and water systems with flexible implementation models that are well aligned to the specific needs of our utility customers.

Turning to Slide 6. Our first quarter bookings were $476 million, bringing the total backlog to $4.4 billion at quarter end, in line with our expectations. The quarter included several notable wins. We advanced a strategic grid visibility program with Duquesne Light Company. This engagement reflects the growing demand for distributed intelligence and Grid Edge Computing as utilities modernize their networks to improve reliability, resilience and operational efficiency. Importantly, this program highlights Itron's abilities to deliver an integrated first-of-its-kind solution that brings together smart devices, software and communication to support next-generation grid operations.

Additionally, an existing customer that is deploying a safety-enhanced meter program has expanded their development of Intelis static gas endpoints. Intelis technology offers numerous safety enhancements, which include automatic and remote shut-off capabilities as well as reliability and efficiency features that benefit the utility and the consumers they serve. More broadly, this activity is a perfect example of the unique value that Itron's multi-commodity platform creates for customers and benefits our shareholders through diversification across electricity, gas and water verticals.

The integration of Resiliency Solutions segment is on track, and the team is already contributing meaningfully. In worker safety, we established a new contract with a major U.S. electricity utility. The customer required a best-in-class system to protect thousands of field workers at the job site, leveraging intelligent workflows and real-time hazard recognition. The digital construction management team extended a contract with a large natural gas pipeline customer, a strong signal of the customer value of deploying our platform. These are only a few examples of the kind of mission-critical problems that Itron is uniquely positioned to solve.

As a result, our backlog profile continues to evolve in quantity and quality. Outcomes and Resiliency Solutions combined now represent 25% of total backlog and that share is growing. The reason we are winning is straightforward. We help customers make one investment dollar do more. Our solutions are designed to create multiple opportunities for value across the useful life, deepening relationships, expanding our installed base and generating durable recurring revenue streams.

With that, I'll turn it over to Joan to walk through the first quarter financials in detail.

Thank you, Tom. Please turn to Slide 7 for a summary of consolidated GAAP results. First quarter revenue of $587 million was above our outlook range due to an acceleration of certain first half project deployments. As expected, revenue was down versus last year, primarily due to the timing of large networks projects. Gross margin was 450 basis points higher than last year due to favorable mix and operational efficiencies. GAAP net income of $53 million or $1.18 per diluted share compares to $65 million or $1.42 in the prior year. The decrease was due to higher GAAP operating expenses related to the two recently completed acquisitions as well as lower interest income.

Regarding non-GAAP metrics on Slide 8, adjusted gross margin of 40.7% increased 490 basis points versus Q1 of 2025. Non-GAAP operating income of $84 million and adjusted EBITDA of $92 million, both increased 5% year-over-year. Non-GAAP net income for the quarter was $68 million or $1.49 per diluted share versus $1.52 a year ago. The year-over-year decline was due to lower interest income, partially offset by higher operating income. Free cash flow was $79 million in Q1 versus $67 million a year ago. The increase was primarily due to lower tax payments.

Year-over-year revenue growth by business segment is on Slide 9. Device Solutions revenue decreased 9% on a constant currency basis due to the expected decline in legacy electricity products in EMEA and the timing of projects in North America. Network Solutions revenue decreased 14% on a constant currency basis due to the timing of large deployments. Outcomes revenue increased 20% on a constant currency basis, driven by higher recurring and services revenue. Our new segment, Resiliency Solutions, which includes the Urbint and Locusview acquisitions contributed $16 million of revenue in Q1.

Moving to the non-GAAP year-over-year EPS bridge on Slide 10. Our Q1 non-GAAP EPS of $1.49 per diluted share decreased $0.03 year-over-year. Operating income contributed an increase of $0.05 per share, but this was more than offset by the negative impact of lower interest income at $0.13 per share. Lower tax expense had a positive year-over-year impact of $0.01 per share, and FX, share count and other items had a positive impact of $0.04 per share.

Turning to Slides 11 through 14, I'll review Q1 segment results compared with the prior year. Device Solutions revenue was $124 million with adjusted gross margin of 35.4% and operating margin of 29.7%. Both margin results are segment-level quarterly records. Adjusted gross margin increased 540 basis points year-over-year, and operating margin was up 550 basis points due to favorable mix and operational efficiencies. Network Solutions revenue was $351 million with adjusted gross margin of 40.8% and operating margin of 31.4%. Adjusted gross margin increased 390 basis points year-over-year due to favorable mix and operational efficiencies and operating margin was up 260 basis points. Outcomes revenue was $96 million with adjusted gross margin of 41.7% and operating margin of 23.3%. Adjusted gross margin increased 250 basis points year-over-year due to a higher margin revenue mix and operating margin increased 510 basis points due to higher operating leverage. Resiliency Solutions had revenue of $16 million, adjusted gross margin of 73% and operating margin of 27%.

Turning to Slide 15, and I'll review liquidity and debt at the end of Q1. Total debt was $1.61 billion, and cash and equivalents were $713 million. Our cash balance declined approximately $300 million versus year-end 2025 due to the net impact of the January acquisition of Locusview, the February issuance of $805 million of 0 interest convertible senior notes, the March $460 million repayment of the company's 2021 convertible senior notes, the February share repurchase of $100 million and free cash flow generation of $79 million during the first quarter. As of March 31, net leverage was 2.4x.

Now please turn to Slide 16 for our second quarter outlook. We anticipate Q2 revenue to be within a range of $560 million to $570 million, which at the midpoint is down 7% versus last year. As previously mentioned, Q1 benefited from an acceleration of first half projects. Our current view of the first half of 2026 is consistent with our thinking when we set the annual outlook back in February. We anticipate second quarter non-GAAP EPS to be within the range of $1.25 to $1.35 per diluted share, which at the midpoint is down approximately 8% year-over-year after normalizing for the tax rate and the level of interest income.

Now I'll turn the call back to Tom.

Thank you, Joan. Utilities today are managing energy and water systems under increasing strain. Those systems were not designed for the complexity created by distributed energy resources, increasing industrial and AI-driven demand, resource scarcity and escalating weather volatility. At the local level, electricity distribution networks are often significantly underutilized and our customers draw an important conclusion while investment in new generation and transmission is essential, the fastest electron available to them is the one they already have.

Itron solutions unlock time to power using the existing capacity by working with the right data and the ability to act on it. Itron serves as the intelligence layer for our customers, delivering multipurpose networks, analytics and applications that give grid operators the visibility to optimize their distribution infrastructure. Industry data suggests utility distribution spending will continue to grow at least through the end of the decade. We believe this represents a durable structural trend and that modernization will benefit consumers while reducing waste across the system.

I am encouraged by our team's strong execution this quarter. The operating environment remains volatile domestically and globally, and that volatility creates risks. We have built a more resilient business and are delivering consistent results through these cross wins. Our focus is unchanged, backlog quality, recurring revenue growth, margin discipline, cash generation and above all, ensuring our customers are successful with every engagement. Itron is well positioned for a multiyear grid build-out that has already begun and is expected to continue for years to come.

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

[Operator Instructions] The first question coming from the line of Noah Kaye with Oppenheimer.

First, just hoping to get a little bit more color on what kind of drove the acceleration of project timing in 1Q? And then you were very helpful in noting the first half as a whole is kind of consistent with what you'd assumed in February. What -- the guidance had implied in February was a pickup in the back half. So can you just sort of help us kind of think through what might be impacting the step-down in run rate in 2Q? And then what might account for a pickup in the back half of the year?

Yes. Let me start, and then Tom if you want to comment. So yes, we did mention in our prepared remarks that Q1 was better than we had guided to because of an acceleration of projects from the first half of the year. It was primarily in the network business, but also a little bit in devices. And so if you take the combination of our Q1 actuals with the, call it, the midpoint of our Q2 guidance, it's actually slightly higher than what we would have expected back in February, slightly higher on revenue and actually higher on gross margin, EBITDA and EPS. So the first half is shaping up as expected.

So obviously, the question in terms of -- it's more back-end loaded, yes, we knew that when we entered the year, we talked about it on last quarter's call, what would drive an uptick in the second half of the year is project deployments primarily in networks. Certainly, outcomes continues to grow. We would expect that same thing for Resiliency Solutions. Devices is roughly flat. So that growth is going to have to happen from networks deployments.

Tom, I don't know if you want to add anything.

I would add just a bit on the operational side of things. What we saw in Q1 was no constraints when it comes to supply chain. So material was fine, labor was fine, customer deployments were ticking along quite nicely, and that led to some of the overage that you saw in the network space primarily. Turns were at the level that we expected we pointed in. And I think I even commented on this in our previous call that turns what we're expected to be a little bit higher and indeed, they were. So all in all, the market was well aligned to our expectations within the normal push and pull, where some of the network deployments were moving a little bit faster.

Very helpful. And then Tom, you mentioned the outsized funnel. I wondered if you could give us a little bit more commentary on the behavior patterns you're seeing now among customers. And I think in particular one question, no -- DOE recently provided a list of Congress of grid projects that seem to be reinstated under the SPARK program. Maybe just talk a little bit about the potential impact from that as you look at the bookings trajectory over the course of the year.

Sure. So maybe a broad brush view on the market specifically and then jump into the specifics on the SPARK program. I would say that if I look at it on a vertical basis, water in Europe continues to be strong, above the historical levels. I think it's fairly well documented. Water in the U.S. is a little bit slower. That's the smaller segment for us overall. So where our strength is in water continues to perform well. And you see that primarily in the Devices segment, which is, I would say, punching a little bit above its weight, more pushing 120s rather than the 100 to the 110 level where we had sort of anchored expectations.

On the gas side of things, gas in North America is particularly strong. There's more than buybacks the number of endpoints that are in flight at the moment on the gas side. That is much, much higher than what historical levels are. So that absolutely is a very bright spot overall. Electricity strong in Asia Pacific, in line with expectations in North America, a lot of activities that you can see in the press with some of the early movers in the electricity space really coming back out into the marketplace for the activities in, let's call it, back half of '26 to '27, '28 kind of time frame.

Across the board, though, strength in outcomes and resiliency solutions. So Outcomes up 22% year-over-year. ARR up 28% year-over-year. Felt really good about that part of the strategy playing through and working out nicely for us.

Our portfolio really sings to the way the market is operating these days. We have the ability to work with our customers depending on what sort of pressures they may have in the marketplace, whether it's regulatory oriented or whether it is particular resiliency needs. We've got the tools in the toolbox to be able to help them.

On the government funding side of things, you are correct, some time ago, some of those grip, G-R-I-P projects where were put on hold or "canceled". There are still some state attorney channels that are suing over that -- those "cancellations". But by and large, most of the activities are kind of being replaced now with this new DOE program called SPARK which clearly is part of that electricity market view that I talked about just a second ago.

In general, we have not seen any cancellations even because of some of the things or projects that were put on hold. Customers need to do these things. They weren't discretionary. It was only a question of how they would work through all of the things that were going on in the marketplace. So I feel very good about the inevitability of intelligence in the grid, and we're very, very well positioned to benefit over the years to come.

Our next question coming from the line of Ben Kallo with Baird.

Just adding on to Noah's question there. Just as you think about the activity, Tom, I know it's hard to predict, but just -- can you kind of give us like your thoughts about next year and just the original targets that you had laid out at the Analyst Day and just anything that's changed plus or minus since the last time you updated us? And then I have a follow-up.

Absolutely, yes. I would say that no change from how we commented on things at the -- in our prior earnings call. Still, we are very much ahead of those '27 targets when it comes to things like gross margin, EBITDA, cash flow, EPS revenue probably towards the low end of that range is what we commented before. Nothing has changed in the market that would pull us away from that view. The large opportunities that were part of my color commentary to Noah's question really gives us the view as to what the market looks like. This -- the build-out of the grid itself and infrastructure in general is absolutely structural. It's inevitable. It really will happen over the years ahead, and we're in a position to benefit from it.

And following -- zeroing on that 25% of backlog for Outcomes and Resiliency, could you talk maybe how much of that is recurring revenue? Because if I add that up with your current recurring revenue, you got to a big number depending on what you assume, but just what percentage of that 25% is actually recurring revenue versus some of the services part of it?

Yes. So our Outcomes segment generally runs somewhere between 2/3 to 3.75 recurring revenue that percentage probably drips northward over the years ahead, Resiliency solutions. The vast majority of it is recurring revenue overall. So that gives you a sense of what it looks like. The only caution I would give you is that backlog number that we quote is a multiyear backlog. So it usually plays out over, call it, a 3- to 4-year kind of time frame depending on the mix of projects that are inside of there. But all in all, again, our portion of business, which is recurring revenue continues to grow $414 million at the end of the quarter, up 28% year-over-year, still very much on track for that growth to continue in the quarters ahead.

And just one comment, Ben, you may just to clarify, recurring revenue can include services revenue as well. It's not just software.

Right. Okay. Got it. And last thing, just on the acquisition front, just because of multiple -- especially software-type companies changing, going down. How do you guys think about your capital allocation and then just being acquisitive here?

Yes. I would say our first priority in '26 is the successful integration of Urbint and Locusview. Things are on track, but we certainly have some additional to integrate systems and things of that nature. That would be our first priority. We will opportunistically look at other things that come our way. But we're not actively going to seek something to buy in '26. We do feel good about our balance sheet and our ability to act on something if it comes along.

Next question coming from the line of Martin Malloy with Johnson Rice & Company.

First question was on the recent acquisitions, Urbint and Locusview. And if you could maybe give us some perspective on progress in terms of revenue synergies with your wide customer platform being able to sell through some of those services, any anecdotal evidence about how that's going would be helpful.

Yes. I would say that the results to date have not really been any synergies per se. So what you're seeing in our resiliency solutions is the businesses we bought from Urbint and Locusview. Certainly, over time, we would expect the ability to do that. But we're really trying to ensure in these early days that we're not getting in the way of them running their business. And so we haven't spent a lot of time trying to build synergies. We want to get all the integration and the plumbing in place before we start doing that. So everything you saw in Resiliency solutions is kind of the businesses we bought with no contribution from Itron.

Okay. And then just with your commentary about pipeline and confidence in the customer need for your solutions. Could you talk about book-to-bill and when that might trend back over one?

Yes. The pipeline is at or very near all-time records. That buildup of pipeline we saw over let's say, the last year, 18 months and no signs that anything is coming off the boil there. I feel very good about the pipeline, the opportunities in the portfolio in terms of where we are well positioned. Bookings in the networking space are inherently a bit lumpy. They do move around quarter-to-quarter depending on size of individual projects. Remember that when you do a large project, it's generally a 3- to 4-year kind of thing. So it does yield a certain lumpiness to it. The Outcomes resiliency solution, that's a bit more normalized, the same with devices itself. So still feel great about where we are portfolio-wise, and we'll look to capitalize on the inevitable growth in the marketplace in the quarters ahead.

Our next question coming from the line of Scott Graham with Seaport Research Partners.

I wanted to talk about -- I know you don't update your full year guide until the second quarter. But I guess, obviously, we have the timing issue with respect to how things just work in your business. T&D spending is expected to be up double digit this year and your organic guidance is sort of like minus 4% to flat, which implies an increase and uptick in the second half of the year. How are you feeling about that uptick right now, Tom? I know your pipeline of opportunities is increasing, but that doesn't necessarily translate to the second half of this year. I'm just wondering how you feel about the second half? Is it possible that, that could -- second half sales could be down given the book -- the TTM book-to-bill being below 0.9. Maybe any color on that would be helpful.

Yes. I would say that we expected the year to be back half loaded. That was part of the initial guidance. First half, as Joan commented earlier, in line, I guess, slightly better than where we set the view as to what we had. So nothing has changed in the marketplace at all. Second half guidance definitely implies an uptick in the rate of network deployments. You saw even in the first quarter how that can happen pretty quickly, and we're well positioned to be able to continue to do that. We think we've got supply chain flexibility and labor flexibility to be able to go make that happen. So we will support our customers overall. But I think first half ahead of expectations is already a pretty good place for us to anchor our view for the year.

Okay. That makes sense. The second -- staying on the second half, I just want to make sure I understand what is going on with sort of the backlog and how purchase orders being written against that backlog are sort of shaping the second half? In other words, last couple of quarters, you talked about how you would have a booking in the backlog and you would only be writing a smaller purchase order because the utility was focused on high bang for the buck. I don't need to focus on something 5 years from now, this sort of thing. What type of risk is inherent in that in your thinking that the second half sales will be up? What is the risk to that relative to that chopping up of the purchase orders?

Sure. If I'm understanding and following your question, I would say that there's multiple things to think about there. We commented earlier that we expect the turns business to be higher, and that's what we we'll continue to expect. But really, the needle number is network deployment for the second half of the year. In general, there's backlog there. It just needs to be converted, and that is based on the timing of deployments and that very much is something that we work with our customers on an ongoing basis.

So same answer as sort of what I commented on earlier. You can see how these things tend to move through the pipe quicker. You saw that already in our first quarter results when projects start to go well that everyone gains confidence and you can accelerate the deployments overall. So the table is set for it to happen. We'll work with our customers to make sure we continue to support our portion of the program.

Our next question coming from the line of, Bobby Zolper with Raymond James.

I was wondering if you talk about the definitional differences between RPO and backlog?

Sure. So RPO is a portion of our revenue footnotes in our 10-Qs and 10-Ks. It starts with the total backlog that we report, and it backs off contracts that have termination for convenience clause. So often, the termination for convenience is governed by regulatory bodies, meaning the contract has to be structured that way. So it's a function of the structure of the contract and therefore, at any given quarter, the mix of the contracts in backlog will dictate how much is backed out to get what we call a net 606 backlog, which I think you referred to as the remaining performance obligations. Importantly, we do not use that to forecast revenue. We do use our full backlog because those contracts while technically, some may be cancelable, nobody ever canceled. So if you looked at our historical backlog, you haven't seen big adjustments to the backlog for cancellation. So it really is a function of the 606 literature on revenue, and it affects our 606 revenue models, et cetera, but does not impact how we look at revenue flowing into the P&L. So we use the gross backlog, which is also in that footnote.

Okay. Understood. I appreciate it. And then on the gross margin front, is there a good way to handicap? What I think you've been calling out customer mix benefits for a couple of quarters, like what the customer mix benefit is in gross margins versus what the, I guess, ongoing recurring gross margin of the business would be?

Sure. So what you saw was the last of some of that pre-inflation run-up backlog rolling out of our total backlog. Recall a couple of years ago, inflation spiked and we had some contracts that were priced pre-inflation with limited flexibility on pricing. That stuff has now fully played through, and that certainly has helped that the margin profile as we knew it would. All of the self-help that we've done over the years with factory consolidation and portfolio pruning, obviously, showing through and really proud of how the team has handled the demand levels that we've seen in terms of managing cost structure and making sure that we had material in place to fulfill things. So really good operational efficiencies there.

So what you saw in gross margin in Q1 was obviously a bit ahead of expectations based on some really good execution. I think that where we anchored our gross margin targets from our '27 targets, the devices business will be materially have, the networks business maybe towards the upper end of that range and outcomes. It will depend on the mix as we scale up that business. Resiliency Solutions. Clearly, it's a strong gross margin. And as that business scales, it will pull the entire company average upward.

I appreciate it. If I could just ask a clarifying question on one of the comments you just made on the devices' gross margin. When you say it's ahead, does that just mean it's better than your original expectations? Or should the assumption be that goes back to what the previous kind of long-term target was?

Good clarification. I'd make sure I'm clear. It is ahead of those '27 targets, and we believe it stays at roughly the level that it is at now. So I think that number that you saw the last couple of quarters is more the level that, that business can operate. There can be quarter-to-quarter variation, but I think you're in the right ZIP code.

A question just came in coming from the line of Joseph Osha with Guggenheim Partners.

Just to follow up a bit on the previous question as you just pointed out, Tom, Resiliency is gross margin accretive. It's a high-growth business, it's kind of growing into that operating cost footprint. I assume there's a lot of R&D there. Can you give us maybe some sense as to when resiliency might be getting closer to the corporate average at the operating margin level?

Yes, I can try to answer that, not specific on numbers, but if you go back and look at what I commented on the February call, we indicated that Resiliency Solutions was immediately accretive to Itron's revenue growth, gross margins and EBITDA dilutive to 2026 EPS due to less interest income. But on an operational basis, accretive in '26. And by the time we're into '27 completely accretive on an EPS level. So don't have a specific answer on operating income, but they're progressing nicely. What drags them down operationally today is just a higher OpEx structure, which they'll grow into. So we're really looking to encourage them to continue spending R&D and building out their platforms.

But would it be fair to say stipulating that obviously, everything you're saying is reasonable that simply at the percentage level, it's going to take them a while to kind of grow into that high R&D budget, even though it is accretive as you point out?

Yes. Again, I think over time, we'll look for synergies in R&D across all the segments. And so it's hard to give us precise answer in terms of when does our R&D budget go down, and therefore, their operating income percent go up. But certainly, we expect them to scale, and we believe it was two attractive acquisitions that we'll execute on according.

And I'm showing no further questions. I will now turn the call back over to Mr. Tom Deitrich for any closing remarks.

Thank you, Olivia. Thank you, everyone, for joining our call today. We look forward to updating you again next quarter.

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

Good day, and thank you for standing by. Welcome to Itron's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that today's conference is being recorded.

I will now hand the conference over to your speaker host for today, Paul Vincent, Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to Itron's Fourth 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 fourth 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. 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 to our current and future operating and financial environment. Materials discussed today, February 17, 2026, may materially 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 Deitrich, begins his remarks.

Thank you, Paul. Good morning, and thank you for joining our call. Itron delivered another quarter of record earnings and profitability, underscoring the durability of our model and accelerating demand for Grid Edge Intelligence. Highlights on Slide 4 include revenue of $572 million, adjusted EBITDA of $99 million, non-GAAP earnings per share of $2.46 and free cash flow of $112 million. These financial results reflect strong execution as our customers modernize the grid and relying more heavily on Itron solutions.

Modern civilization depends on energy and water systems that cannot fail and, increasingly, those systems depend on intelligence. Itron is the provider of intelligent infrastructure that underpins reliability, resilience and safety. Our value has grown significantly as demonstrated by increased adoption of Grid Edge Intelligence, Outcomes growth, record financial results, surging annual recurring revenue and the expansion of our offerings through strategic acquisitions.

Turning to Slide 6. Our fourth quarter bookings were $737 million, with a total backlog at quarter end of $4.5 billion. Continued momentum in Grid Edge Intelligence demand resulted in a record backlog for our Outcomes segment. Our fourth quarter bookings were driven by numerous Grid Edge solutions supporting grid modernization and reliability of infrastructure. These include the expansion of a long-standing relationship with Exelon through a new multiyear, multi-application agreement. This extension underscores the business benefits, technical flexibility and proven value of our solutions, including security, consumer privacy and operations optimization.

Another meaningful fourth quarter win involves collaboration with a large early adopter AMI customer to responsibly address operational continuity, business risk and affordability. Aging legacy systems and readiness for next-generation technologies are often misaligned, and our customers turn to us to help them bridge this gap. Itron's Utility IQ solution reinforces our commitment to open ecosystems and customer flexibility is designed around interoperability across technologies. Our product and service offerings provide a clear path forward to simultaneously maintain an aging system while smoothly transitioning to more capable and consumer-oriented services.

Additionally, we are expanding our partnership with a large Canadian utility by providing additional Grid Edge capabilities focused on distributed intelligence, enabling real-time grid visibility, analytics and control. As an expansion to our commitment to utility resiliency, we announced during the quarter the acquisition of Urbint, a provider of AI-enhanced solutions for emergency preparedness and response damage prevention and worker safety. We also announced the acquisition of Locusview, a provider of solutions for digital construction management, which automates the process from planning to close out deploying field-based capture of as-built infrastructure to enhance the speed and integrity of grid build-out.

With both acquisitions now closed, we are introducing a new reporting segment named Resiliency Solutions. We are thrilled to welcome these teams to Itron. Resiliency Solutions expands our reach, allowing Itron to support our customers through every step of the asset life cycle, from planning to build-out, to operations, to maintenance and protection. Itron is a long-standing industry anchor in the operation space, providing Grid Edge technology. Additionally, our leading energy forecasting products are used by 90% of the independent system operators and over 70% of the electricity operators in North America. Over the past years, we have added power flow analysis and planning software solutions to support detailed grid planning and interconnect analysis.

The addition of Urbint's emergency preparedness and response, worker safety and damage prevention solution augments our planning, maintenance and protection offerings. Most recently, Locusview provides leading digital construction management solutions. In total, Itron supports our customers through the asset life cycle.

Proactive resiliency is a top priority for our customers, which aligns well with our strategic investments and drives higher margins and recurring revenue growth in 2026 and beyond.

I will now pass over to Joan to cover the financial results for the company.

Thank you, Tom. I'll review Itron's fourth quarter and full year 2025 results, before discussing our financial outlook for 2026. Financial performance was strong in the fourth quarter and set company records for gross margin, non-GAAP earnings per share, EBITDA and free cash flow as a percentage of revenue. Please turn to Slide 8 for a summary of consolidated GAAP results.

Fourth quarter revenue of $572 million was higher than the range we expected and lower than the prior year due to planned portfolio changes and the timing of large project deployments. Gross margin was 560 basis points higher than last year due to favorable customer and product mix. GAAP net income of $102 million or $2.21 per diluted share compared to $58 million or $1.26 in the prior year. The improvement was driven by higher operating income and lower tax expense.

Regarding non-GAAP metrics on Slide 9, adjusted gross margin of 40.7% was a record and increased 580 basis points versus Q4 2024. Non-GAAP operating income of $91 million increased 28% year-over-year. Adjusted EBITDA of $99 million increased 21% and both the dollar amount and the percentage of revenue at 17% were new records.

Non-GAAP net income for the quarter was $113 million or $2.46 per diluted share versus $1.35 a year ago. This is a new quarterly record for the company.

Free cash flow was $112 million in Q4 versus $70 million a year ago. The increase reflects year-over-year earnings growth and improved working capital.

Year-over-year revenue growth by business segment is on Slide 10. Device Solutions revenue decreased 7% on a constant currency basis due to the expected decline in legacy electricity products in EMEA and the timing of project deployments in North America. Network Solutions revenue decreased 15% year-over-year, primarily due to the timing of project deployments. Outcomes revenue increased 22% on a constant currency basis due to an increase in delivery services and the continued growth of recurring revenue. Our new segment, Resiliency Solutions, which includes revenue from November 3 when our acquisition of Urbint closed, contributed $3 million of revenue. Beginning with the Q1 reporting, the combined Locusview and Urbint results will be reported in this segment.

Moving to the non-GAAP year-over-year EPS bridge on Slide 11, our Q4 non-GAAP EPS of $2.46 per diluted share increased $1.11 year-over-year. Pretax operating performance contributed a $0.45 per share increase driven by the fall-through of higher gross profit. Lower tax expense had a positive year-over-year impact of $0.69 per share.

Turning to Slides 12 through 15, I'll review Q4 segment results compared with the prior year. Device Solutions revenue was $105 million, adjusted gross margin was 34.4% and operating margin was 26.6%. Both margin results are segment quarterly records. Adjusted gross margin increased 780 basis points year-over-year due to favorable customer and product mix, and operating margin was up 670 basis points.

Network Solutions revenue was $352 million, with adjusted gross margin of 42% and operating margin of 32.2%. Adjusted gross margin increased 690 basis points year-over-year due to favorable customer and product mix, and operating margin was up 620 basis points.

Outcomes revenue was a record $112 million, with adjusted gross margin of 41.7% and operating margin of 27%. Adjusted gross margin decreased 230 basis points year-over-year due to lower software license mix, but operating margin increased 420 basis points due to higher operating leverage.

Resiliency Solutions with revenue of $3 million and adjusted gross margin of 76% and a negative operating margin of 3.6%.

For a recap of full year 2025 results, please turn to Slide 16. Revenue of $2.37 billion was down 3% year-over-year. Recall 2024 results included a catch-up of previously constrained revenue that did not occur in 2025.

As our business continues to evolve, we are introducing a new metric of annual recurring revenue, or ARR. For 2025, we ended the year with approximately $368 million of ARR.

Profitability and cash generation performance were very strong in 2025, and we set several new annual records. They were gross margin of 37.7%, adjusted EBITDA of $374 million or 15.8% of revenue, non-GAAP earnings per share of $7.13 per share and free cash flow of $383 million or 16.2% of revenue.

Turning to Slide 17, I'll review liquidity and debt at the end of the fourth quarter. Total debt was $1.265 billion and cash and equivalents were $1.02 billion. Our cash balance was down $312 million versus last quarter due to the acquisition of Urbint for $325 million and $100 million of stock buyback, partially offset by Q4 free cash flow of $112 million. The previously announced $525 million acquisition of Locusview closed during the first quarter of 2026 and, therefore, is not reflected in this balance. As of December 31, net leverage was 0.7x.

Please turn to Slide 18 for our full year 2026 financial outlook. We anticipate 2026 revenue to be within a range of $2.35 billion to $2.45 billion. The midpoint of this range represents 1% growth versus 2025. We currently anticipate 2026 non-GAAP earnings per share to fall within a range of $5.75 to $6.25 per diluted share. The EPS outlook assumes an effective tax rate of 22% for the full year. Quarterly rates could fluctuate based on jurisdictional mix and the timing of tax settlements. At the midpoint of this EPS range, and after normalizing the tax rate to 22% for both years, we expect 2026 year-over-year earnings to be down by approximately $0.32, which is driven by our 2 recent acquisitions.

Although we do not issue forward outlook by segment, we are providing some information on the size of our 2 recent acquisitions which will make up our new Resiliency Solutions segment. In the full year 2026 range I just provided, we included a revenue contribution of approximately $65 million to $70 million, with gross margins of approximately 70% for this new segment. Resiliency Solutions is expected to be immediately accretive to Itron's revenue growth, gross margins and EBITDA, but will be dilutive to 2026 earnings per share due to less interest income given the $850 million we spent for the 2 companies. In the full year outlook I just provided, the dilutive impact to earnings per share from the 2 acquisitions is approximately $0.38 per share. We expect the 2 acquisitions will be earnings per share accretive by the end of 2027.

Now please turn to Slide 19 for our first quarter outlook. We anticipate Q1 revenue to be within a range of $565 million to $575 million, down 6% versus Q1 of last year. We anticipate first quarter non-GAAP earnings per share to be within a range of $1.20 to $1.30 per diluted share, which at the midpoint is down approximately $0.27 versus last year. Lower interest income driven by the 2 acquisitions is reducing Q1 2026 earnings per share by approximately $0.13 per share.

As Tom noted, the environment our customers operate in is evolving rapidly, which creates new opportunities, but also new challenges and complexity. Our teams are working collaboratively with our customers to keep up with the pace of change, and we are executing our strategy. Although our business will never move in a straight line in the short term, the future looks very bright and we are confident in the course we are on.

Now I'll turn the call back to Tom.

Thank you, Joan. Utilities today are no longer simply asset operators. They are real-time system managers balancing electrification, decentralization, affordability and resilience. Great transformation is structural, not cyclical, and it requires trusted data secure networks and operational intelligence embedded directly into the grid. This is where Itron competes and Itron wins.

Our heritage is rooted in hardware and networks, and our future combines high-growth, durable annual recurring revenue driven by data, AI, software and services. Intelligence only matters when it is built on trusted data that is tightly integrated into operations. Itron provides that foundation, helping customers move from reaction to visibility, automation and prediction.

We remain focused on backlog quality, revenue growth, margin expansion and cash generation. Our strategy delivers durable earnings growth and compound shareholder value through customer trust and solution relevance.

Grid scaling and transformation is structurally unavoidable and cannot happen without greater intelligence. Itron is the intelligent infrastructure provider of modern energy and water systems. We provide real-time intelligence our customers require to operate efficiently.

With more than $1 billion of durable Outcomes backlog, rapidly growing annual recurring revenue and expanding solutions for critical customer problems, Itron is well positioned for the multiyear grid build-out in the years ahead.

Thank you for joining our call today. Operator, please open the line for some questions.

[Operator Instructions] First question is coming from the line of Noah Kaye with Oppenheimer.

Thanks for taking the questions. I have a lot to get to, but I'll keep it to 2 in consideration of others. I think the key question here in terms of the market environment and the behavior you're seeing, Tom, is maybe to get an update on how utility demand and behavior are kind of trending now. You talked in past quarters about some shifting dynamics in terms of how utilities go to market. I guess, to what extent are you seeing some of that stabilize or inflect here? Can you kind of give us an update on the pipeline, and what KPIs you're really paying attention to, to understand the shape of the demand environment from here?

Thanks, Noah. The fourth quarter bookings were strong as we had expected, $737 million. And that's composed of several hundred unique wins. So the market is very constructive and moving forward.

Second point, I guess, I would make is around some of the slips or the delays that we saw back in the middle of last year. We have not seen any further movement. Those things did move out of the year as we expected. But the externalities that really caused that, some of the froth around data center siting and government programs slipping out or funding being uncertain, that stuff has not continued on. It's still there on those individual projects, but it hasn't caused additional slips. So what we see today is bookings moving at a much more normalized pace. It's lumpy, but it's always bumpy, so call it normal. There's always some customer-specific phasing types of things inside of there.

Relative to the metrics or the KPIs that you asked about there, I would say pipeline growth is certainly a key metric. That was up 27% from the end of '24 to the end of '25. We continued to see that pace thus far into 2026. We looked at Outcomes backlog growth, which was up 58% year-over-year and now over $1 billion. And certainly, we're really focused in on the stability of revenue and revenue growth for the future with ARR as the metric and the way to think about that. So $368 million of ARR at the end of Q4, that's up 20% year-over-year from the end of 2024.

So there's a lot of really good stuff happening underneath all of that. And I would say the environment continues to be really constructive for us through fourth quarter and into 2026 and beyond.

That is a segue into the second question, just on this ARR metric. So just so we all understood, this is an ARR run rate that you were at, at the end of 4Q, the $368 million?

Yes. So $368 million at the end of the quarter.

Right. And as we think about what the 2026 guide implies, where do you think that could kind of be at the midpoint as we get into kind of the end of this year?

You mean specifically, what does it mean for ARR?

Yes.

Yes. I would expect we would still see kind of mid-teens to maybe up to 20% growth. And again, that would be calculated from year-end '25 to year-end '26. So that was a fourth quarter annualized number. Yes.

And that's organic, not including the acquisitions, right?

Well, now it does include -- for '24, it did have a little bit of Locus -- sorry, of Urbint. But the '26 expectations have both acquisitions in there.

Our next question coming from Mark Strouse with JPMorgan.

Sorry. Can you hear me now?

Yes, we can hear.

Yes. Okay. I'm sorry about that. I wanted to ask, we've seen some investor concerns lately about AI disrupting kind of traditional software companies. I'm just curious, when you look at your resiliency solutions business and your outcomes business, can you just talk about kind of the barriers to entry, and kind of at a high level, what you see as your right to win within those markets? Then I have a quick follow-up.

Both of the components inside of Resiliency Solutions, digital construction management as well as the protection solutions that we have, both of those components really rely on field service tools and the usage of those tools. So when you have thousands and thousands of workers in the field using the tool to capture data, you've got a really, really sticky solution overall.

So I'll give you an example. The big winter storm that went across the United States, Winter Storm Fern, what was this, 2 weeks or so ago, really put ice and snow from Texas to Maine, all the way across the U.S. What we saw was 3.5 million hours of restoration usage of the solution that we have for emergency preparedness and response. That data capture, that field service use, those tools are incredibly, incredibly sticky.

And when you look at it from the value that the customer gets, there's a really interesting clip of the CEO of Southern Company talking about the use of AI models to predict where to position crews and understand what weather patterns mean for their business. A really good example of how that tool, because of field use and the stickiness associated with it in terms of data capture, generates real value in terms of reduced restoration times and improved performance for communities and for our customers. So there's a perfect example as to why the tools that we have and why, when we apply AI, it really comes down to how the data is captured, how it's processed and making sure that the results are trusted, which our customers clearly do.

Great. And then a quick follow-up, Joan. I appreciate the color with the Resiliency Solutions' contribution in 2026 guide. Just given it's a new segment, can you talk about kind of seasonality that we should expect in revenue and margins, if you don't mind?

Yes, I don't see it as a seasonal business. I think it will be pretty steady. And obviously, as they sign new contracts that have subscription-based revenue, you'll see it grow over time. But I don't see a big swing in 1 quarter versus another.

Our next question coming from the line of Davis Sunderland with Baird.

Lots of questions recently from investors just about utility ordering patterns. And if it's a structural disruption versus just, I guess, lots of wood to chop in the near term. And wondering specifically if you could talk about what you're seeing in the book and ship business trends, maybe how much is assumed for this year or how we think about the bookings needed throughout this year to set up and underpin your 2027 targets? And then I have one brief follow-up.

Yes. I would say that the trends in terms of ordering patterns have really started to normalize. Some of the delays that we saw in the middle of last year, which were exogenous events, those have [indiscernible] through. We haven't seen any cancellations because of those types of things, maybe some project time lines stretching out, but I would consider it much more normalized today.

On the book and ship business, we definitely continue to see good book and ship business as customers are coping with some of the environment that they operate in. Book and ship oftentimes tends to be a go-to tool that customers have to cope with uncertainty in their business model if they don't have the right things in place from a regulatory standpoint, for example. The ability that we have to bridge our customers through a transition in terms of technology is as really important. I referenced that in some of the prepared remarks of working with customers to smooth transitions of technology, so they don't have to do a rip-and-replace, but more find ways to grow the capability over time. So certainly, in the electricity space, I would say, book and ship alive and well.

Water in the U.S. probably has slowed down a little bit. You've seen that in probably some of the competitive landscape that's out there, but that's probably a less important trend for us. Book and ship in Europe continues to operate on a normalized level. So again, overall market, very constructive in terms of what to expect in the year ahead.

That's super helpful. Maybe just a follow-up. I appreciate the commentary you gave qualitatively just about do you distribute intelligence, some of the new offerings, the commentary from Southern, kind of what you're seeing there from customers out there in the market. But wondering if you could give any more color just on penetration of these and maybe attach rates, which I know isn't a formal metric. But just thinking about core customers and adopting some of these new things, maybe the endpoints that you could see converted over -- I guess, I don't know the time frame. But just thinking about how this may trend in the near to longer term and the rate of adoption specifically.

Yes. The trend for DI adoption continues to be very good and very strong. So endpoints up 25% year-over-year. The number of apps up 70% year-over-year. So it continues absolutely at the pace we would have expected. We still have $10 million in backlog ready to move out the door approximately. So things are continuing to be normalized in that area. And if you happened to be at DISTRIBUTECH, a large show, you certainly would have seen the notion of Grid Edge Intelligence everywhere as the industry. So this isn't an if. It's inevitable, it's absolutely happening. It's the way our customers need to cope with the world around them and the complexity of the environment that they operate in.

We've seen particular growth in things like distributed energy resource management. So we're over 3 million devices, things like thermostats and load control switches and that sort of thing that are connected up. We're dispatching about 70 gigawatt hours a year, and in terms of activity, things like VPPs and other programs to manage it. We've seen tremendous growth in analytics as to how to make sense of all of the data. Those are the things that really do underpin the growth. And I think the right way to think about it from a financial perspective is ARR. There's lots of different models that our customers use to procure these types of solutions, and that's why we think ARR is a meaningful metric for the business and something to watch.

Our next question coming from the line of Jeff Osborne with TD Cowen.

Just a couple of quick ones on my side, Tom. Can you share what -- when you typically start the year, what level of the forward guidance is usually in backlog? And then maybe how that changed this year as you approach giving guidance?

It will always be a bit varied. So it depends on the time line that you're looking at. We would go into the quarter with probably something on the order of 80% in backlog. And I would say that we're not so far off of that in terms of what's happening.

It clearly has a tail to it. So it's lower the further you go out in time, but that's sort of the normal flow. So as I mentioned in one of the questions earlier, certainly, the environment is leading to customers to have probably a slightly higher percentage of book and ship, and that is really what we're thinking about as we set guidance for the year.

Got it. And my last question is just I think you mentioned the pipeline that you're pursuing is up 27%. I was wondering a metric that you don't give, but just to give us a sense of are you gaining share or not, is can you articulate the -- relative to the backlog, which has regulatory approval, the sort of awarded technically contracts to Itron, but not through the regulatory process, is that funnel or pool of awards, so to speak, larger-than-anticipated or past trends? Or like what's the general trend on sort of share gains and then you being technically awarded something and then still working its way through that sort of regulatory process?

I think it's hard to judge that in any one moment of time. If you look at the trend over the last several years, yes, I definitely think you see our share trending up in the core markets that we are driving to participate in and the level of content that we have. If you focus in on the U.S. specifically and in the electricity space, I think that it's very fair to say the big are getting bigger and the smaller are definitely getting squeezed, and we being the largest are clearly a beneficiary there.

Our next question coming from the line of Chip Moore with ROTH Capital Partners.

Wanted to ask another on sort of the normalization you're seeing on project activity. Just maybe understanding it's inherently lumpy, but is there a way to help us think about, if you didn't see those slips last year, how we might be thinking about organic growth here in 2026, if sort of mid to high single digits still the right way to think about that?

Yes, I would take a step back and focus on the bigger picture. The business structure is fundamentally different now than what it used to be. We clearly still have a significant portion of our business which is large project deployments and networking overall. And that absolutely has some level of lumpiness to it in terms of the bookings. How that flows through is generally over the next 3 to 4 years in terms of how it expresses itself for the revenue itself.

But the piece of the business which clearly is growing nicely for us, we continue to see good pace of growth, 20% year-over-year in Outcomes, for example, in Q4, and the notion of annual recurring revenue that is most of Resiliency Solutions, a good portion of Outcomes and a sliver of the Networks business falls into that category. That really is a significant structural difference in our business overall. So that's how I would focus on it and think about the business itself.

We will continue to be beneficiaries of a market that is structurally inevitably going to grow when it comes to grid deployment. There's just no way modern society will fulfill anything close to where the money is going in terms of data centers and reshoring and manufacturing and electrification of everything unless distribution spend continues at pace.

Very helpful, Tom. And I think you called out certainly ARR, right, in the prepared remarks. Just help us think about where that could be going as we've had -- as we get more normalization, and perhaps changes in rate-making dynamics, just where could Outcomes, how much of that been held back and where could that go?

Well, yes, we certainly -- what we saw some of the network slowdown, I'm going back a couple of years now when we had component constraints, Network -- the Outcomes business will still grow in, call it, 10% year-over-year. As those components became available and we did fulfill, that networking revenue, you saw Outcomes growth rates pick up. And certainly the 20% plus year-over-year in Q4 is good evidence of that. We're confident Outcomes can continue to grow. And now we have a new leg in the stool with Resiliency Solutions adding another tool in the toolbox to help our customers cope with some of the real challenges that are out there. If we are going to see grid deployment, you're going to have to figure out how to build this stuff faster. And that's where digital construction management helps. If you are going to have more floods and fires and storms, you're going to have to respond to disasters. And again, that's where Resiliency Solution really helps. We can move it to a much more proactive environment and that is absolutely going to benefit what our business can and will be in the future.

Maybe just one last follow-up to that, Tom, just on those new capabilities. Is there a way to help us think competitively that's helping you to land new proposals? Obviously, there's more TAM there. And then competitively, right, some of your competitors, I think, are backing back on -- backing down on some of the more complex deployments. Just a broader update.

Sure. Maybe take a perspective on the customer concentration specifically. Itron has 8,000 customers worldwide. Urbint and Locusview, think of it as tens of customers each. So we clearly have the ability with the sales reach that we have to move those solutions into a broader landscape and really help our customers solve a different set of problems globally. The notion of how we're better together, one of the slides in the investor deck, showed that circle diagram. But think about the ability to help your customer all the way through the asset life cycle, from when you're doing the planning to -- through the build process and into the operational piece. Itron has traditionally known for a long period of time what's "inside of pipes and wires." Now we know where pipes and wires are, so we can help with solutions for restoration and improve the overall offering.

So those are the types of things that I think will continue to drive growth for our business and how we benefit compared to perhaps some of the other offerings that are out there. I feel really good about our competitive position and expect to be able to support our customers using it.

Our next question in queue coming from the line Scott Graham with Seaport Research Partners.

Tom, I was wondering where you now believe the -- where you land in the next couple of years in terms of revenues. And I think last time I asked you if maybe the $2.6 million to $2.8 million in 2027 as a revenue goal, that maybe the lower half of that made more sense. Your response, if I recall, was kind of maybe. Are you thinking more maybe? That maybe the lower end of that range because of some of these scope reductions, the complexity -- deployment complexity reductions and what happened in 2025? Is maybe as the lower end of the '27 goal more appropriate?

Thanks, Scott. I would say that it's really important to point out that gross margin, EBITDA, free cash flow for the '27 targets, we already achieved them in 2025. So we feel really good about that, and we're sure we can continue forward on those types of metrics.

On the revenue side of things, the 2027 revenue number, we still see that target as standing. Yes, perhaps, to your point, it will depend on the pace of network deployments as to where we land in the range, probably towards the lower end. But it's just because we have achieved most of that '27 model by the time we got to the end of 2025, we think it's appropriate to reset long-term targets with an Investor Day. We haven't really picked a date yet, but I would suspect sometime in the next year or so, we will set up that and set out some new longer-term targets.

That's fair. I appreciate that. My follow-up question is really kind of around the bookings. I know you said that bookings were strong. They were down on a year-over-year basis. Obviously, you had the crazy fourth quarter a year ago comp. But on a full year basis, they were still down versus the 2024 level, by about 4%. So I was just sort of wondering when we can start to see bookings really inflect upward? And is it that it's another quarter or 2 away? Are you seeing things move through a pipeline like you did a year ago? If you could help us on that, that would be great.

Sure. I think I covered a lot of the points that are really important on this topic earlier on. So forgive me if I get a little bit repetitive. But pipeline growth being up dramatically, we think is a good signal of where things are really trending. The business is absolutely structurally changing with Outcomes backlog now being above $1 billion and continuing to outpace the growth on some of the other businesses exactly as we had planned.

Bookings will always be a little bit lumpy on the networking side of things just because of the nature of the business itself. But the environment we find ourselves in now is, I will say, normal lumpy, rather than some of the exogenous things really starting to delay the overall profile. So we still feel really good about the trajectory of the business and how we will continue to support our customers. We have the solutions they need and we are a trusted partner. So future continues to be bright.

Our next question coming from the line of Joseph Osha with Guggenheim Partners.

I only have one. Tom, you've talked about lead times for the business kind of marching out a bit. Historically, when you did disclose it more precisely, your 12-month backlog has been around kind of 35% or so of the total backlog. I'm wondering if you can give us some color on that currently.

The 12-month backlog is right around $1.6 billion right now. That will be in the K when it is published. That's up meaningfully over where it was at the end of Q3. So I think it's roughly $150 million or so higher from the prior quarter. As I commented earlier, the business is structurally different now. We do expect book and ship is a bit higher during the interim period overall. So what I would say is it's very difficult to try to come up with a historical compare that's meaningful just because there's been so much noise in how things have flowed through from the COVID days to the post-COVID supply constraints to where we are today. Our guidance absolutely reflects the best view that we have for the year and we feel really good about the trajectory of the business.

Thank you. And I'm showing up for the questions in queue at this time. I will now turn the call back over to Mr. Tom Deitrich for any closing remarks.

Thank you, Olivia. Thank you, everyone, for joining, and we look forward to updating you on the next call.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

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" Oppenheimer & Co.

" TD Cowen

" ROTH Capital Partners

" Seaport Research Partners

Good day, and thank you for standing by. Welcome to Itron's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] 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 morning, and welcome to Itron's Third 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 third quarter results and provide a general business update and outlook.

Earlier today, the company issued a press release announcing its results. This release also includes details related to the conference call and webcast replay information. Accompanying today's call is a presentation that is available through the webcast and on our corporate website under the Investor Relations tab. Following prepared remarks, the call will 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. 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 to our current and future operating and financial environment. Materials discussed today, October 30, 2025, may materially 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 Deitrich, begins his remarks.

Thank you, Paul. Good morning, and thank you for joining our call. During the third quarter, Itron set new records for margins, profit and free cash flow on revenue in line with expectations. Financial highlights on Slide 4 include revenue of $582 million, adjusted EBITDA of $97 million, non-GAAP earnings per share of $1.54 and free cash flow of $113 million. On Slide 5, our third quarter bookings were $380 million with a total backlog at the end of the quarter of $4.3 billion.

Turning to Slide 6. Utilities are operating in an increasingly complex environment marked by accelerating load growth, rising costs, heightened regulatory scrutiny and greater technical demands. Customers are adapting to this landscape by sequencing initiatives and in some cases, extending project deployment schedules. While regulators generally share utility strategic objectives, growing sensitivity to consumer costs is leading to more rigorous evaluation of project investments. Despite a slower pace on some projects, our customers remain focused on enhancing grid performance and reliability through the adoption of grid edge technology that delivers greater visibility and control at the edge. This is reflected in the ongoing expansion of distributed intelligence-enabled endpoints, which topped 16 million deployed by the end of the third quarter with more than 10 million additional units in backlog.

Licensed DI applications grew 119% year-over-year to $20 million at quarter end. Grid Edge Intelligence defines the future of agile, data-driven distribution infrastructure and continues to expand opportunities for our Outcomes segment, which grew 11% year-over-year, led by higher recurring revenue.

With respect to recent federal funding actions, Itron has seen no project cancellations, stoppages or decline in customer interest. However, these deployments introduce greater near-term market uncertainty and add to the complex challenges our customers face. Lower-than-expected Q3 bookings and heightened uncertainty have tempered our year-end booking expectations. While achieving a 1:1 book-to-bill ratio for 2025 remains possible, we anticipate current dynamics to persist this quarter, resulting in bookings below that target. Although project conversion to backlog is taking longer, lumpy bookings are a familiar pattern and do not alter our long-term business trajectory. Importantly, these changes are not due to competitive dynamics nor fundamental changes in the market. Our opportunity pipeline has expanded by over 25% since the start of the year. Moreover, outcomes-related bookings continue to lead relative backlog growth across our 3 segments.

Lastly, we recently announced the acquisition of Urbint with the transaction expected to close during the fourth quarter of 2025. The Urbint business aligns well with our M&A priorities. Its software-oriented scalable platform complements our current portfolio and addresses the needs of critical infrastructure providers. Urbint's SaaS business model delivers solutions for emergency preparedness and response, damage prevention and worker safety. We are excited to welcome the Urbint team on board soon. We will share more details about Urbint and the expanded Itron portfolio on our next quarterly call.

Now Joan will provide details about our third quarter and our outlook for the fourth quarter.

Thank you, Tom. Please turn to Slide 7 for a summary of consolidated GAAP results. Third quarter revenue of $582 million was near the top end of the range we provided and lower than the prior year due to planned portfolio changes and the timing of large project deployments. Gross margin of 37.7% set a company record for the second consecutive quarter and was 360 basis points higher than last year due to favorable customer and product mix. GAAP net income of $66 million or $1.41 per diluted share compared to $78 million or $1.70 per diluted share in the prior year. The decrease was due to higher tax expense with the prior year benefiting from favorable resolution of a foreign tax audit. This was partially offset by higher GAAP operating income.

Regarding non-GAAP metrics on Slide 8, non-GAAP operating income of $89 million or 15.3% of revenue was an all-time quarterly record and increased 13% year-over-year. Adjusted EBITDA of $97 million or 16.7% of revenue were both all-time records and EBITDA dollars increased 10% year-over-year. Non-GAAP net income for the quarter was $72 million or $1.54 per diluted share versus $1.84 a year ago. Higher income tax expense more than offset higher non-GAAP operating income. Q3 free cash flow of $113 million or 19.5% of revenue is a new company record and compares to $59 million a year ago. This increase reflects improved working capital, lower tax payments and higher operational earnings growth.

Year-over-year revenue growth by business segment is on Slide 9. Device solutions revenue decreased 19% on a constant currency basis due to the expected decline in legacy electricity products in EMEA and lower water volumes in North America. Network solutions revenue decreased 6% year-over-year, primarily due to the timing of project deployments. Outcomes revenue increased 10% on a constant currency basis due to the continued growth of recurring revenue.

Moving to the non-GAAP year-over-year EPS bridge on Slide 10. Our Q3 non-GAAP earnings per share decreased $0.30 year-over-year to $1.54 per diluted share. Higher tax is the driver of the year-over-year EPS decline, contributing negative $0.51 per share. Prior year tax expense was unusually low due to a favorable resolution of a foreign tax audit. Pretax operating performance contributed a positive $0.22 per share improvement, driven by the fall-through of higher gross profit.

Turning to Slides 11 through 13, I'll review Q3 segment results compared with the prior year. Device solutions revenue was $104 million with a record gross margin of 30.9% and operating margin of 24%. This segment continues to deliver strong profitability improvement. Gross margin increased 370 basis points year-over-year and operating margin was up 240 basis points due to the favorable change in customer and product mix. Network solutions revenue was $394 million with gross margin of 39.3% and operating margin of 31%. Gross margin increased 340 basis points year-on-year and operating margin was up 330 basis points due to improved customer and product mix. Outcomes revenue was $84 million with gross margin of 38.9% and operating margin of 19.9%. Gross margin increased 390 basis points year-over-year, and operating margin was up 520 basis points due to a higher margin revenue mix and operating leverage.

Turning to Slide 14, I'll review liquidity and debt at the end of the third quarter. Total debt was $1.265 billion, and cash and equivalents were $1.332 billion. Please note that our recently announced $325 million all-cash acquisition of Urbint is expected to close during the fourth quarter. During the third quarter, we amended and increased our revolving line of credit to $750 million, which now matures in 2030.

Now please turn to Slide 15 for our fourth quarter outlook. We anticipate fourth quarter revenue to be between $555 million to $565 million. The midpoint of this range represents a decline of 9% year-over-year. For non-GAAP earnings per share, we expect a range of $2.15 to $2.25 per diluted share, which assumes a negative effective tax rate of approximately 19%. This negative tax rate is driven by the favorable conclusion of an uncertain tax position, which will be recorded in Q4. At the midpoint, this EPS implies an increase of $0.85 versus Q4 of last year. Normalized for the tax rate, the midpoint EPS estimate is up approximately 7% versus last year. Please note, our fourth quarter outlook does not include any impact from the Urbint acquisition.

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 $2.36 billion. At the midpoint, this is down 3% versus 2024, which had approximately $125 million of catch-up revenue. Normalizing for the 2024 catch-up revenue, the midpoint of the updated guidance is approximately 2% year-over-year growth. Our non-GAAP earnings per share full year outlook range is increasing versus prior estimates due to the favorable tax item I just mentioned. Our current expectation for full year 2025 non-GAAP earnings per share is a range of $6.84 to $6.94 per diluted share with an expected annual effective tax rate of approximately 12%. At the midpoint, the updated non-GAAP EPS estimate is up 23% versus 2024 or 16% when normalized for the tax rate.

While our revenue growth has been challenged with lower-than-expected bookings and the pushout of ongoing project deployments, we are proud of our progress to improve the margin profile of the business, which has allowed us to drive higher profitability on lower revenue.

And now I'll turn the call back to Tom.

Thank you, Joan. The market we serve is unique. And although recent volatility has increased, the industry's long-term growth trajectory remains unchanged. Our record financial results despite industry headwinds, reflect our multiyear strategic efforts to optimize the product portfolio and global supply chain. The team is performing well, and our grid edge intelligence solution leadership is undeniable. The opportunity pipeline continues to grow and is at record levels. Together, these factors reinforce our confidence that we remain on track to achieve our 2027 targets.

Finally, Urbint adds a new dimension centered on operational resilience solutions with strong growth potential. As we build out this solution set, including cross-pollination of data streams to create new offerings, significant opportunity lies ahead. Leveraging the strength of our balance sheet, we remain actively engaged in pursuing inorganic growth opportunities. We are in the early stages of the digital transformation in energy and water systems. Itron is well-positioned to expand its business alongside these global infrastructure shifts and ongoing growth in the years ahead.

Thank you for joining our call today. Operator, please open the line for some questions.

[Operator Instructions] Our first question coming from the line of Noah Kaye with Oppenheimer.

First, I just want to get the modeling right. Joan, thanks for giving us the color on the tax rate for 4Q. Can you just give us an understanding on the delta for revenues versus the prior implied guide? Is lower rev primarily in networks? Or is it elsewhere? And then how to think about kind of gross margins. If we back out the tax impact, it would seem like gross margins might go down sequentially, but just want to make sure we're thinking about it directionally right.

Yes. I would say the biggest weakness is in networks, and it's the commentary we made about deployments they're just pushing to the right. They're going a little slower than we would have expected. From a standpoint of gross margin, I would expect Q4 to look pretty close to what Q3 is. The impact of the taxes, it's a $39 million discrete benefit. So, it had a statute limitations that expired on October 15. That is worth about $0.84 a share.

And then just to dovetail off of that, Tom, I want to segregate a little bit between the impact of project delays on revenues and the overall demand environment and bookings. So, to take the second part of that first, I mean, the metric you provided on the 25% pipeline growth from the start of the year is helpful. Can you give us some color on what's impacting some of the conversion delays from pipeline into bookings? And how you see this trending over the next couple of quarters?

Sure. So, I think it's undeniable the demand is coming. That record pipeline and being up 25% since the start of the year is pretty clearly a strong signal of where the market is going. If I look at it through the lens of win rates, our win rates are at or above historical rates. So, the competitiveness of the portfolio remains very strong and good. If you dig one level deeper, the rate at which recurring revenue bookings are happening, meaning software and service types of things. We passed our goal for the year in Q3. That's very strong. So, outcomes backlog is up 36% year-over-year. It's well over 20% of the total backlog. We're very pleased with our progress there.

Where we have seen some delays in decisions, so they're just sort of getting pushed out is on the more hardware-oriented projects. So that's really due to some of the complex operating environment that I talked about earlier. I definitely see increased interest in the part of the customers on trying to find good ways to move forward and live within the regulatory constraints or perhaps some of the operational constraints that they have. So, I would think about it as moving much more towards buying a Jeep a piece at a time rather than buying the whole Jeep. And that really plays to the platform that we have with forward-backward compatibility and really is good for the customer as they get to manage that cost, but it also is good for the incumbent as the way that business tends to roll through. So again, I still see the environment as very robust. Our '27 targets are clearly on track. A couple of places we're already achieving it or ahead. Lumpiness in the bookings, okay? We've seen this before, and it doesn't really give us pause on the strength and the outlook of the business.

I appreciate you reiterating the '27 targets, components.

Our next question coming from the line of Ben Kallo with Baird. I'll go to the next person in queue. Coming from the line of Jeff Osborne with TD Cowen.

Just a couple of quick ones on my side. Tom, on the 6% decline in networks and the rationale you gave, could you just be more descriptive? Is that new customers that were commencing new rollouts for DI? Or are these people that were underway maybe on a 3- or 4-year cadence and have just elongated that to sort of look more disciplined in front of the regulator on their existing CapEx budgets that might be a bit overextended because of tariffs or whatever reasons?

Right. On the revenue side for booked projects specifically is what I think you're asking about. Again, I think it's software and services growing nicely, double-digit growth year-over-year. What we saw from, let's say, first half, second half is the catch-up of the constrained revenue from prior years when you lap it year-over-year. We also had an end of -- a completion of a major deployment in the networks business that rolled off. And we have seen customers in some occasions spreading projects what used to be a 3-year project over 4 years or something like that. So, I don't think it causes any loss of backlog or loss of revenue. It certainly does spread things out on some of those projects. And that's what you see rolling through the P&L.

Are they giving you more clarity as to when they -- if you thought things were going to be at run rate when things will resume? Or like what visibility are they giving you as it relates to their plans as we head into the spring of next year?

I guess I'm trying to read through the lines of what you're asking. I mean we know what their deployment rates are and those get reprofiled on a regular basis. So, it's not every project. It's a few that tend to spread over a longer period of time, and we know what that looks like. No projects have stopped. So, it's not like there's a complete stop on anything that was intended to be ongoing on the revenue side at all. I do think that higher costs and capital budgets within the year clearly have something to do with it in cases where some of the government funding may have disappeared. The customers have to make decisions on how they handle that, whether they go back and make appeals to the government. I would suggest even the projects that are listed as canceled may or may not be canceled. But in all cases, customers absolutely intend and are continuing to work through that process. It just creates a little bit of churn in the near term. I suspect that this levels out in the quarters ahead. So again, it's not something that gives us any pause on what '27 targets will really look like and remain tremendous confidence in where the business is going.

And just 2 rapid fire ones. I know you're not giving guidance for '26, but could just Joan comment on what tax rate we should be assuming given all the moving parts you've had this year? And then I also just wanted to confirm, if I heard you right, I think you said that outcomes is 20% of the $4.3 billion backlog and up 36% year-on-year, that would be a number greater than $800 million. Is that over 7 to 10 years? Or what's the duration of that $800 million, if I heard you right?

Yes. So again, it's well over 20%, and it is up 36% year-over-year. So, you're kind of in the right ZIP code there. The backlog is generally 3, 4 years in length overall. So even though we might have longer-term deals, we generally stick to our traditional way of thinking about what is counted in backlog as those outcomes, long-term recurring revenue contracts tend to be, in many cases, nearly evergreen as there are provisions to allow extensions in the contracts themselves. So, think of it as a 3-, 4-year visibility.

Yes. And on '26, as you say, it's really too early to tell. I mean we end up building up the tax rate based on jurisdictional mix of revenue, everything we know at the time. I think the top end would be like the 25%, which we typically use as a placeholder.

[Operator Instructions] And our next question coming from the line of Chip Moore with ROTH Capital Partners.

Tom, I want to follow up on your commentary on bookings. It sounds like it's possible, right, you could put up $1 billion, but less likely you get to 1:1 for the year. Just with your comments on '27 being intact, any -- it's too early for guidance, obviously, but any way to help us think about growth trajectory next year just with some of these moving pieces? Would we expect growth? Or how should we think about that?

Yes. Again, I think it's way too early to think about where we will land on 2026. We'll get to that when we officially set guidance early next year. I think there will be growth. It's just a question of what level it would be, and that's what we're working through with our customers and the team right now.

And if I could ask one more, just on Urbint. I know it hasn't closed, so you're limited on what you can say. But just maybe speak to how the deal came about and any customer overlap and potential synergies there and anything else you can provide?

Sure. So Urbint, just a quick background on what it is. It's a SaaS-based business. Their customers are essentially utilities, tremendous overlap between the customers that they have and that we have. What do they do? They really help the customer with things like emergency preparedness and response. So, if a storm is going to roll through a particular territory, how can you use the power of AI to predict the storm path so you can preposition crews. How you recruit those crews, how do you make sure that you manage workflows and right down to things like making sure you're getting the crew paid and they've got a place to sleep to make sure that you've got a closed-loop process there. When you're in the heat of battle, how do you keep good records as to what you're actually doing, how do you keep the workers safe is another module, whether it's in a normal field deployment kind of activity or whether it's in the heat of battle in a restoration kind of environment. And there's a damage prevention module as part of it as well.

So tremendous potential there as we combine operational data that generally comes out of our systems to make those algorithms and services much more robust. And you can think about the cross-pollination the other direction, which is our restoration services and vegetation management services. You can apply some of the same analytics and thought process around how that works. So, we're excited about where this business will go and be able to expand share of wallet with existing customers and certainly be able to take those capabilities from Urbint to our 8,000 customers around the globe as well. So again, I think there's great potential here. We'll talk about more as to what it means and how it looks after we get through the close during this quarter.

Our next question coming from the line of Scott Graham with Seaport Research Partners.

A question about -- your backlog was up year-over-year, and I think that the hope here was that a strong third quarter bookings number would mean that you have a better organic in '26. And then if you didn't get that, the organic could be fairly muted once again in 2026. I'm going to assume that, that still holds unless, of course, you have some extraordinary fourth quarter of bookings. But even then, I think that that's more of a '27 event. So, my question is, is it possible, Tom, in 6 months' time that we could be revisiting the '27 targets and perhaps leaning more into margin than sales?

No, I don't anticipate that we're going to be revisiting the 2027 targets. Okay. What you potentially could see is maybe you're on the lower end of those '27 numbers on the revenue line, maybe on the high end on some of the other numbers that were in that overall model, whether you're talking about free cash flow or gross margin kinds of numbers, but well within the range is really what we are thinking and seeing overall.

Recall, we had this conversation probably 2 years ago where there was a fair amount of skepticism whether the gross margin numbers were realistic or not. I think we've probably more than erased those doubts given where we're operating today and what the future looks like. I would say that lumpy bookings are kind of normal in our business. It's just the way things work. We're obviously doing a much better job of growing that nice stable recurring revenue on the software side. So, some of that lumpiness does even out in the years ahead. But again, I wouldn't get too worried about lumpiness in the bookings in the short run.

I appreciate that. If I could just maybe, follow up sort of a corollary question to that. And as you look at your backlog and the delivery times that are in those orders, let's call it, in the first half of the year, are you now seeing those delivery times changed by, let's say, pushed out by 2 quarters, 4 quarters? How much of the backlog has had delivery times pushed out? Just give us a little bit of a better feel for that.

Yes. I would say that think about it in a more holistic sense than that. If you had a project that you were planning on doing the deployment over 3 years, maybe you're now profiling it over 4 years in some particular cases. That's kind of what it would look like. So, you're really kind of taking the same area under the curve and perhaps spreading it a little bit for some of those projects. So, it's less discrete than perhaps the way I'm interpreting your question. And again, this is not every project. This is a few larger projects, which slowed down the revenue on the hardware side of things. Meanwhile, the software portion and services portion of the business continues to grow nicely and continue to do exactly what we wanted to do inside of the business. So, I think you got to look at it through both lenses and think about how that expresses itself through the P&L as well as how we can help our customers with the types of things they need to get done.

I'm showing there are no further questions in the queue at this time. I will now turn the call back over to Mr. Tom Deitrich for any closing remarks.

Very good. Thank you all for joining the call today. We look forward to updating you again at the end of the year. Thanks.

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

Good day, and thank you for standing by. Welcome to Itron's Second Quarter 2025 Earnings Conference Call. [Operator Instructions] 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 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.

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 to our current and future operating and financial environment. Materials discussed today, July 31, 2025, may materially 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 Deitrich, begins his remarks.

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 4 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 5. 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 Outcomes segment continued to drive growth, reinforcing our market leadership in agile distribution infrastructure. During 2Q, 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 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%.

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 Networked 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 1:1 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. 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.

Thank you, Tom. Please turn to Slide 7 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 8, 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.

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 9. 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.

Networked Solutions revenue decreased 1% year-over-year, primarily due to the nonrecurrence 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.

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 pretax 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 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.

Networked Solutions revenue was $409 million with gross margin of 38.5% and 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.

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 30, net leverage was 0.1x and cash and 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. 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 million 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. We now anticipate 2025 full year revenue to be within a range of $2.35 billion to $2.4 billion versus the $2.4 billion 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 is 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. 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.

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.

[Operator Instructions] Our first question coming from the line of Noah Kaye with Oppenheimer.

I do want to get to the revenue outlook, but I have to start with margins. I think the -- I know you don't guide to EBITDA margins, but backing into something like 15% for the year. So you'd be seeing almost a couple of hundred bps expansion on lower revs. And you commented some on it, Tom and Joan, in the prepared remarks. But I just want to understand, is there anything atypically beneficial to kind of the mix this year? Or do you think these are kind of the right margins as a jumping off point as we look at next year?

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 devices 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.

Networks margins will tend to go vary quarter-to-quarter depending on the specific deployment and the phase of the deployment. 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 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.

Yes. Yes. 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 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?

Yes. It's more the backlog portion rather than the book and ship portion of the business. Book and ship is at least through 2Q 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 time lines 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. 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. They're -- 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.

Right. And I guess just the final observation to make sure I got it right is that if this is just sort of a pushout 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?

Yes. I think as you -- it's a little too early to get ahead of where we will land next year. It will 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.

Our next question coming from the line of Jeff Osborne with TD Cowen.

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?

Yes. 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 of 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. 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-bill for the full year of 1:1 or greater, as I mentioned in the prepared remarks.

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 big 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 2, like big picture macro things versus micro things at the utility level as to what the delays are?

Yes. So take it one step at a time, it's -- 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 multiyear types of things. Hey, we used to have X, now we have X plus Y over the next 3 years. What causes slowdowns or constraints relative to budgets 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.

So they tend to live within that annualized bucket. So I think that there's a difference there in terms of the dividing line of folks having to live within their means for this year, even though that the total bucket is going up over a multiyear period. 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.

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 time line? Just as people work with consultants and handle what data will be done at the enterprise level versus the cloud, et cetera?

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.

Our next question coming from the line of Ben Kallo with Baird.

Maybe just following along the previous questions. On the M&A front, has any of this -- the regulatory stuff changed your view on M&A? And as you build up more cash, maybe you could just remind us the priorities of capital deployment right now.

Sure. So the regulatory environment hasn't changed our view on M&A at all. We remain very active in the 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.

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 -- 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?

Yes. 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 is 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, 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. If Q3 is a really strong bookings quarter, that tends to make it more -- 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 1:1 bookings that Tom mentioned.

Our next question coming from the line of Joseph Osha with Guggenheim Partners.

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.

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 are 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.

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 the environment. It has less to do with Itron's specific portfolio.

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 ratepayer and political unhappiness with retail rates. Is that part of it? It's just this intersection of the need to spend money with, I think what we all know are very, very high retail rates at the moment?

Yes.

And our next question coming from the line of Chip Moore with ROTH Capital Partners.

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, 4 to 5 years?

You're correct. We have seen a reemergence of interest on the European side of things where they had gotten through their original, 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. 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 -- yes, 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.

Our next question coming from the line of Scott Graham with Seaport Research Partners.

I want to see if you're able to answer this question. Your '27 aspirational goal of $2.6 billion to $2.8 billion in sales. Does this sort of near-term couple, 3 quarters of uncertainty change that?

No. There's no change to the targets we have for '27. We never expected when we set these in early '24 that it would be a straight line, but we still feel very confident in the '27 targets.

Got it. And then while I have you, Joan, the mix factors, obviously, mix played a big role. Could you maybe isolate the 1, 2, 3 mix factors across the businesses, which drove the gross margin, largest ones?

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 closed 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 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 they're on their pace to hit the margin targets for '27 as well.

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

So, 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.

Right. 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 license that -- 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 1 point below the 10% threshold as anything other than just normal ebb and flow on a quarterly basis.

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

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