Good day, everyone, and welcome to the Itron, Inc., Q2 2021 Earnings Conference Call. Today's conference is being recorded. For opening remarks, I'd like to turn the call over to Mr. Ken Gianella. Please go ahead, sir.

Thank you, operator. Good morning, and welcome to Itron's Second Quarter 2021 Earnings Conference Call. We issued a press release earlier today announcing our results. The press release includes replay information about today's call. A presentation to accompany our remarks on this call is also available through the webcast and on our corporate website under the Investor Relations tab. On the call today, we have Tom Deitrich, Itron's President and Chief Executive Officer; and Joan Hooper, Senior Vice President and Chief Financial Officer. Following our prepared remarks, we will open the call to take questions using the process the operator described. Before I turn the call over to Tom, let me remind you of our non-GAAP financial presentation and our safe harbor statement. 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 our 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 the comments made during this conference call and in the Risk Factors section of our Form 10-K and other reports and filings with the Securities and Exchange Commission. In addition, due to the fluid nature of COVID-19 pandemic, company estimates regarding the impact of COVID-19 on current or forward-looking statements are made in a good faith attempt to provide appropriate insight to our current and future operating and financial environment. Materials discussed today, August 5, 2021, may materially change, and we do not undertake any duty to update any of our forward-looking statements. Now please turn to Page 4 in the presentation, and I'll turn the call over to our CEO, Tom Deitrich.

Thank you, Ken. Good morning, and thank you for joining us. You will hear details from Joan shortly, but to summarize our second quarter performance, revenue was $489 million, adjusted EBITDA was $36 million, non-GAAP earnings per share was $0.28, and free cash flow was $64 million. Our operational results were below our expectations primarily due to component shortages that increased through the quarter. These constraints reduced revenue within the quarter by approximately $40 million to $50 million. While our second quarter revenue level was disappointing, the demand outlook started to recover during the quarter, as anticipated, with numerous customer projects beginning to move forward again. Barring any negative impacts from COVID-19 resurgence, we expect the demand to continue to recover into the second half of the year and into 2022. This increased confidence is reflected in our latest bookings and backlog numbers. Turning to Slide 5. For the third consecutive quarter, we saw very strong customer activity for our Networked Solutions and Outcomes segments. We achieved a book-to-bill ratio of over 1.2:1 driven by bookings of approximately $596 million, allowing a new record total backlog of approximately $3.5 billion and a 12-month backlog of approximately $1.4 billion. We are pleased with the continued increase in the 12-month backlog but note it remains approximately $100 million below the view we had pre-pandemic. This quarter's bookings performance is highlighted by an agreement with National Grid to upgrade their gas communication solutions in New York and New England; an expansion of our AMI footprint in Asia Pacific with Singapore Power; a complete solution for AMI, great operations, data management with Gainesville, Florida; and importantly, the continued expansion of our standing partnerships with Xcel in Colorado and an extension of our SaaS agreement with Con Ed in New York. We are encouraged by the bookings achieved over the past few quarters and see our demand rebounding across the customer base and the globe. However, we do anticipate component constraints to persist through the second half of the year and likely into 2022. Turning to Slide 6. I would like to have a brief discussion on the component constraints that impacted the quarter and the temporal effect that it's having on our operations and near-term outlook. For the past few quarters, we have been navigating through macroeconomic-driven supply challenges from supplier factory disruptions, logistics constraints, raw material and component shortages stemming from the pandemic. Up until the second quarter, we saw minimal impact from the component supply constraints as our mitigation efforts served us well. This includes the consumption of buffer inventory on key components, partnering with our customers to increase the visibility of their needs beyond our normal lead times, increasing our order coverage for key components, driving alternative sources and targeting low-value, low-margin products for discontinuation. Entering the quarter, we saw elevated supply and cost pressures on steel, resins, logistics and, in particular, semiconductors. During the quarter, the revenue-related hot spots largely fell away on all except for semiconductors. In the semiconductor space specifically for microcontrollers and matching analog components, we had significant and unexpected delays in delivery coupled with limited delivery commitments. The components in focus here are, in general, commonly used industrial and automotive applications that are experiencing industry-wide allocations. These heavily constrained semiconductors were the primary driver for the unfulfilled demand within the quarter and predominantly impacted our Networked Solutions segment performance. Our team is continuing to aggressively mitigate constraints by working with the executive leadership teams at the handful of semiconductor suppliers associated with these bottlenecks to maximize our allocation and alternatives. We are also working with customers to align project schedules as the delayed demand is not lost but shifted into future periods. This situation remains fluid and is expected to continue to be volatile for Itron and across multiple industries in the near term. With that, let me hand off to Joan to discuss our second quarter results.

Thank you, Tom. I will cover the second quarter results and then provide an update on our outlook for the full year. As Tom mentioned, our Q2 results were lower than expected primarily due to component constraints. As anticipated, we saw customer demand begin to recover in the second quarter, but due to the part shortages and delayed deliveries, we were unable to fulfill a portion of that demand. Turning to Slide 7, which is a summary of the Q2 consolidated GAAP results. Second quarter revenue of $489 million decreased 4% versus last year or 7% in constant currency. The year-over-year decline was primarily due to component constraints limiting our ability to meet customer demand. We estimate that the component shortage negatively impacted Q2 revenue by approximately $40 million to $50 million, with the largest impact being felt in the Networked Solutions segment. Gross margin for the quarter was 30.6%, 340 basis points higher than last year due to favorable product mix and lower manufacturing inefficiencies related to COVID-19. This was partially offset by higher supply chain costs. The GAAP net loss of $33 million or negative $0.73 per diluted share compares with a net loss of $63 million or negative $1.56 per diluted share in the prior year. The net loss in Q2 2021 was primarily due to changes concerning the 2020 divestiture in Latin America. Regarding non-GAAP metrics on Slide 8. Non-GAAP operating income was $27 million. Adjusted EBITDA was $36 million or 7.4% of revenue. Non-GAAP net income for the quarter was $13 million or $0.28 per diluted share. Looking at the revenue by business segment on Slide 9. Device Solutions revenue was $163 million, a $24 million or 19% year-over-year increase on a constant currency basis. The increase was due to a favorable year-over-year comparison with COVID-related factory closures impacting the prior year, partially offset by the impact of component constraints this year. Networked Solutions revenue was $265 million, a $63 million or 19% decline year-over-year in constant currency. The decrease was due to the impact of component constraints limiting our ability to meet customer demand as well as the delayed timing of customer projects. Revenue in the Outcomes segment was $61 million, a $4 million or 6% increase in constant currency from 2020. The increase was driven by higher managed and professional services. And lastly, foreign currency changes resulted in $16 million higher revenue versus the prior year. Moving to the non-GAAP year-over-year EPS bridge on Slide 10. Our Q2 non-GAAP EPS was $0.28 per diluted share, up $0.25 from the prior year. The drivers of the year-over-year improvement were net operating performance, which had a positive $0.03 per share impact versus Q2 of 2020. Improved operating performance was driven by better product mix and improved manufacturing efficiencies. This was partially offset by the negative impact related to component shortages. Lower interest expense resulted in a $0.04 increase in EPS year-over-year. A lower non-GAAP tax rate increased EPS by $0.22 versus Q2 of 2020. And finally, changes in foreign currency and a higher share count resulted in a $0.04 per share decrease year-over-year. Turning to Slides 11 through 13, I'll discuss the Q2 results by business segment compared with the prior year. Device Solutions revenue was $163 million with gross margin of 19% and operating margin of 12%. Gross margin increased 940 basis points year-over-year primarily due to reduced manufacturing inefficiencies related to COVID-19. Operating margin increased 13 points due to the higher gross margin and lower operating expenses. Networked Solutions revenue was $265 million with gross margin of 36% and operating margin of 24%. Gross margin increased 280 basis points year-over-year due to favorable product mix and reduced manufacturing inefficiencies related to COVID-19. Operating margin increased 60 basis points year-over-year due to higher gross margin, partially offset by higher operating expenses. Outcomes revenue was $61 million with gross margin of 38%. Gross margin increased 560 basis points year-over-year due to favorable solution mix as well as cost efficiencies. Operating margin was 20%, 390 basis points higher than last year, with the gross profit improvement partially offset by higher investments. Turning to Slide 14. I'll cover liquidity and debt. As discussed on our last call, we completed a convertible bond offering and an equity raise in the first quarter, which enabled us to accelerate our paydown of debt and, in turn, strengthen our balance sheet. While the transaction was completed in the first quarter, some of the deleveraging didn't occur until Q2, including the repayment of the 5% senior notes, which, with the call premium, totaled $410 million. Free cash flow was $64 million in the second quarter versus a negative $10 million a year ago. The strong cash flow improvement was primarily driven by lower interest and CapEx and better working capital, some of which is timing. Cash and equivalents at the end of the second quarter were $207 million. Total gross debt was $491 million and net debt was $284 million at the end of the second quarter. Net leverage was 1.6x at the end of Q2 2021, down from 3.8x at the end of Q2 2020. Now turning to our full year 2021 outlook on Slide 15. Our full year outlook for customer demand continues to show recovery from COVID-19 and is in line with our original guidance expectations, albeit at the low end of the range. However, as you just heard from Tom, we expect the component constraints that we experienced in Q2 will continue through the second half of the year. We estimate the component shortages will result in a lower revenue of approximately $150 million to $200 million for the full year, including the $40 million to $50 million we experienced in Q2. Factoring in these component constraints results in a revised full year 2021 revenue range of $2.05 billion to $2.15 billion versus the $2.23 billion to $2.33 billion we provided in February. We expect to recover most of this delayed revenue beyond 2021 when the component supply chain recovers and allows us to fulfill this demand. The earnings will be negatively impacted by these component shortages given the fall-through of lower revenue as well as higher supply chain-related costs. Our estimate of this impact is a reduction of pretax income of approximately $65 million to $95 million. This results in a non-GAAP EPS outlook of $1 to $1.50 per share versus previous guidance of $2.30 to $2.70 per share. This updated outlook assumes approximately 44.7 million average shares outstanding for the full year 2021. We are assuming a euro to U.S. dollar foreign exchange rate of $1.2 in the second half of the year, a full year non-GAAP effective tax rate between 32% and 34%, and full year interest expense of approximately $11 million. In summary, we were pleased to see customer demand begin to recover in Q2, and our second half demand outlook continues to reflect that recovery. Q2 was another strong quarter for new bookings, which signals future demand growth. However, due to the component constraints and the resulting negative impact it will have on our 2021 performance, our full year outlook for revenue and earnings is now lower than the original guidance. The operational projects we have underway to reduce our fixed cost will continue as we navigate these near-term headwinds, and we remain confident in our long-term financial model targets. Now I'll turn the call back to Tom.

Thank you, Joan. We remain positive on the overall outlook for the company as we work through the near-term component constraints. With our strong balance sheet, record backlog and increased strategic flexibility, we are in a great position to drive our business forward. We have grown our distributed intelligence-capable endpoints to over 3 million cumulatively, delivering on our strategy to expand the footprint of our advanced, multipurpose, multi-application network. During the second quarter, we saw continued year-over-year growth in our Outcomes segment, demonstrating that once we install a network, we can then expand our value to our customers with our Outcomes solutions. We continue to execute on our asset-light strategy, reducing our fixed costs and becoming nimbler in this dynamic environment. While these are just a few examples of the progress we have made so far in 2021, it is also why we remain positive on the efforts that will continue to create value as we execute our long-term strategy. Thank you for joining today. Operator, please open the line for some questions.

And our first question today comes from Tommy Moll with Stephens.

Can you hear me?

We can now, Tom.

Yes, we can.

Yes, Tom, I wanted to start by asking about the disruptions. Have there been any major contract cancellations, or is everything just being pushed back? Additionally, last year there were delays related to the pandemic, and now we're seeing significant component delays. It seems like once we get through this, the spring will be quite compressed and ready to burst. How impatient are your customers feeling at this point?

Very good. Tommy, Tom here. I would start by saying there have been no contract cancellations at all. We have been pleased with our customers' responses in working with us to make sure that project schedules are aligned properly. The demand that was unfulfilled in the second quarter and the planned projects for the second half of the year are moving into future periods, so it’s not lost but rather delayed due to the nature of the contracts and our customer relationships. Clearly, customers are focused on enhancing the reliability and resiliency of their networks, which is the purpose of the investment, and our technology is assisting them in strengthening their business in that area or in undertaking various automation projects. This indicates a desire from our customers to implement these technologies as swiftly as possible. We recognize and share that sense of urgency. We are very much committed to fulfilling those agreements as quickly as possible, depending on the availability of the components. In summary, we maintain strong customer relationships, and the demand has indeed been pushed into future periods.

And Tom, as a follow-up, any impact from these component delays to your M&A appetite? And could you characterize the pipeline there and refresh us on what the priorities might be?

Sure. The current environment doesn't change our strategy nor our long-term financial model that we've talked about. Clearly, the pandemic has pushed it out a little bit, first demand and now supply but all sort of related to the nature of the pandemic itself, no change in our financial model, no change in our desire to continue to grow our business organically and inorganically. On the organic front, our interest remains high in solutions that really will target where the market is going, so more resiliency, reliability, automation, cybersecurity, better ability to incorporate renewables and safety applications into the energy and water space that's out there. We certainly continue to look at that space actively. I would say most likely in the Outcomes space is where you would see us make an inorganic move.

And our next question will come from Jeff Osborne with Cowen and Company.

I had a couple on my end. I was wondering on the component side if using contract manufacturing would have mitigated some of these issues. I know you've got both your own facilities like in South Carolina but also third parties. Are you finding that relative to auto, maybe you're having a tougher time procuring direct but maybe your contract manufacturing is having less of an issue? I'm just curious if this changes your manufacturing footprint longer term.

There has been no change in our manufacturing strategy. The electronic components that are currently constrained in the semiconductor sector, particularly microcontrollers and related analog components on the board, are largely managed in collaboration with our contract manufacturers. We are effectively utilizing their purchasing power along with our direct supplier relationships to enhance supply. The components involved are widely used and are constrained throughout the supply chain. I believe our partnerships with contract manufacturing are beneficial in this context, although they do not completely shield us from the macroeconomic conditions causing the shortages. However, the unmet demand from this quarter will carry over, so it is not lost — it's simply a matter of timing for us.

Got it. Just a couple of other quick ones. Is COVID coming back in Southeast Asia, in particular in Malaysia, making the situation worse in the second half? Or are you not as exposed to that region?

From a demand perspective or thinking about it from a revenue side.

Or supply.

Yes. It's not an issue. That's where I was going, so not an issue on revenue. Certainly, it is something to consider on the supply side of things. We are not directly exposed in terms of where the hot spots are today from a manufacturing environment. But I do look through the chain. There are a lot of raw materials and raw components that come out of that part of the world that feed the broader ecosystem. So they are suppliers to semiconductor suppliers, as an example, that are often in that part of the world, and that is something that will need to be watched closely. All of that is absolutely considered in the guidance that we have provided.

Got it. Two other quick ones. You had some nice wins in the quarter. Can you just articulate what the RFP pipeline and quoting activity looks like for the second half? And then just another quick one is, does the Board have any outstanding capability on a buyback plan in place?

I will address the first question, and Joan will take the second. We continue to see significant interest from our customers in the technology we offer. Issues like grid resiliency and reliability are top priorities. Safety in the gas sector is crucial, and security and automation are key concerns in the water sector. In every vertical we serve, the demand remains strong, and we are optimistic about our position. In the second quarter, our bookings were very strong, and we have achieved another record in total backlog, indicating a promising future for our customers. The successes we mentioned are centered around our core functions and technologies, and we are eager to deliver these solutions.

There is no current Board authorization for any stock buyback.

And we'll hear next from Paul Coster with JPMorgan.

This is Mark Strouse. Following up on Jeff's question, I'm curious if your direct competitors are using the same semiconductor components or possibly different suppliers. Your booking activity appears to be strong, but do you see any risk of near-term market share shifts?

In terms of the supplier base, I don't know that I've got any insight that is significant in terms of supply base. I would say that in general, the kind of components that are really constrained today are very commonly used across the industry in industrial and automotive applications. So I would suspect, given the consolidation in the semiconductor industry, we are all in discussions with the same sets of suppliers across the board. I don't see any particular share move. The long-term agreements that we have are certainly important to us in terms of the engagements we have. And when we contract with a customer for a long-term agreement, it usually takes a couple of years to implement the project and then a long-term SaaS and service agreement follows after. I don't detect any particular movement in terms of share across the board. We remain very strong in a number of the verticals that we play in, and we're pleased to work with the customers on that front.

Okay, Tom. Can you provide more details on the mitigation efforts within the semiconductors? Are you looking to add more suppliers or securing longer-term supply agreements? What actions can be taken in the near term?

I can say that the standard approaches you mentioned are active and we engage with suppliers on these regularly, so we are certainly considering alternatives. This includes looking at different suppliers or making specification changes to standard components, which is something we've been actively pursuing and will continue to do. We have implemented several multi-sourcing initiatives over the past couple of years, and these have proven beneficial. However, considering the current macroeconomic situation, the shortages are more widespread than just one supplier. Establishing long-term agreements with suppliers to secure firm forecasts and purchase orders is part of our strategy. Collaborating closely with customers to understand their long-term demand projections allows us to provide better information to suppliers over a longer period, and these are efforts we plan to maintain. In the short term, the priority is to ensure continuity of supply and manage allocations as component availability remains very limited.

And our next question today comes from Ben Kallo with R.W. Baird.

Could we discuss the timing of the shortage in relation to the auto industry? Last year, there seemed to be less of a shortage when autos were mentioned. Was there a delay, or am I misremembering? That's my first question. My second question is for Tom: Could you elaborate on the differences in your business? You've mentioned the competitive environment, which I appreciate, but what are some of the specific areas where you're facing more challenges? Is it due to exposure to Europe, the factory footprint there, or both? Lastly, regarding costs, what options do you have? You mentioned that visibility extends into 2022, so what measures are you implementing on the cost side?

Very good. There are several points to discuss, so let me try to cover everything. Regarding the shortages, we began noticing lead times extending in late 2020. We responded by placing orders and started the year with a solid buffer of inventory. During the first quarter and most of the second, we used that buffer. Unfortunately, we began facing shortages in the second half of Q2, which is the current situation we find ourselves in. The shortages have been widely reported and are impacting various industries, with the automotive sector being particularly affected due to its manufacturing setup. In terms of regional differences, the European market is slightly lagging behind North America in post-pandemic demand recovery, but it has seen a nice year-over-year increase. For example, the devices business experienced over a 25 percent growth from Q2 last year to this year, indicating a positive recovery in Europe compared to 2020, albeit at a slower pace than North America. The revenue shortfall and unfulfilled demand primarily took place in Q2, particularly in the electronics sector, which includes the networking business. This segment has a very strong backlog, accounting for over three-quarters of our total backlog, which gives us confidence in its future growth. We need to fulfill the demand and collaborate with our customers to implement their projects. On the cost side, we will continue to actively mitigate component supply issues, as recovering revenue is crucial for us. We will also manage our operating expenses carefully and ensure our factories are running as efficiently as possible given the current revenue constraints. Our ongoing asset-light initiatives and restructuring plans from 2020 are continuing as planned. Additionally, we are using this opportunity to adjust our portfolio by phasing out certain lower-margin products. That summarizes our overall plan and our direction moving forward. I hope I've addressed all your points, Ben.

No, you addressed all of them. Thank you, Tom.

Very good. Thank you.

And we'll hear next from Pearce Hammond with Piper Sandler.

Just to clarify, in the prepared remarks, were you saying that like the specialty steel and the resins and the shipping, those are getting better but really from here, it's more on the semiconductors? I just want to clarify that.

Correct. The exact context, just to repeat it again, on the revenue side, meaning where it is gating our shipments, it is down to semiconductors as the only material delay. On the other areas that we've seen hot spots earlier in the year, they are no longer gating us on the revenue side. We continue to work to monitor that, make sure that nothing pops up again, but that's not a high concern for us today. That said, we do see cost pressures across the board. So the environment is definitely remaining under pressure from an overall cost across the board, meaning steel and resin and logistics as well as semiconductors, and that's something we work hard to mitigate through productivity means to make sure that it doesn't impact our bottom line.

And then in the press release, you had said it would impact the second half of the year and then also impact into '22. So I'm just curious. How far do you expect this to kind of bleed into '22? Is it more first quarter or first half or longer than that?

Yes, it's challenging to provide a precise assessment. Based on my experience in both the semiconductor and equipment sectors, fluctuations typically extend over a couple of quarters before things stabilize. We currently lack clear visibility on what this situation will entail. We want to be transparent about the possibility that it may not be resolved by the end of the year, but we haven't provided specific guidance for 2022 at this moment.

And then last one from me. The Biden infrastructure bill, I'm just curious how do you see Itron being a beneficiary if that bill gets passed.

As you know, the process continues in D.C. The bipartisan package that is currently being discussed seems to be progressing through a lengthy series of amendments. Within that approximately 1.1 trillion dollar package, there are included provisions for energy, water, and electric vehicle-related preparedness. There's about a couple of hundred billion dollars allocated across these various provisions. Specifically in the electricity sector, there is funding for smart grid matching grants, which is quite similar to the programs that were in place around 2008 and 2009, closely aligning with the types of products and services we offer.

And our next question comes from Noah Kaye with Oppenheimer.

In the past, I think when we've seen some guidance revisions, sometimes we've gotten a bridge from the prior to the current. You do have a couple of assumptions you've given us on the guidance slide, but I wonder if it would be possible to ask for something like a bridge just to help us understand the moving parts here. Clearly, lower networks in a relatively high-margin business, so I understand, will be margin-dilutive. You have some other levers to potentially offset or mitigate. So just help us maybe understand how you think of some of the moving parts here within the revised guidance.

Sure, I'll address that. If we compare the previous guidance to the new guidance, focusing on the midpoint for simplicity, the midpoint revenue guidance reflects a reduction of approximately $180 million. As we mentioned earlier, this decrease is entirely due to constraints related to supply chain components, falling within a range of $150 million to $200 million, with roughly $180 million as the midpoint. Additionally, I noted that pretax income is projected to decline in a range of $65 million to $95 million, which averages around $80 million. The impact on income is significantly higher than our typical gross margin, and there are three main reasons for this. First, the impact from components primarily affects our Networked Solutions segment, which naturally has higher gross margins than our overall company average. This segment includes some high-margin business that is currently being delayed. Second, as Tom pointed out, we are experiencing cost pressures related to components, freight, and other factors, which we have incorporated into our revised guidance. Lastly, there are issues surrounding factory overhead absorption. All these factors result in a considerable flow-through to earnings from the revenue shortfall. We anticipate recovering from this shortfall in the future, but currently, the flow-through is substantial. Most of the decline in EPS is related to margin concerns. At the beginning of the year, we aimed to return to gross margins around the pre-COVID-19 level of about 30%, but the current situation probably costs us about a point in that regard. We are also making efforts to manage operating expenses as effectively as possible, and we have not yet resumed travel or similar activities across the company. Therefore, controls on operating expenses remain in effect, but the reduction in EPS is largely tied to the component shortage affecting margins.

Joan, that's very helpful. I guess a question really around product design and ability to mitigate this in the future. It's not a fair comparison maybe, but in industries like auto, we've seen trucks and cars shipped with maybe reduced functionalities but just using older chipsets to be able to still meet customer demand. I guess can you help us understand why exactly there's not as much flexibility in this business in terms of specific components constraining the ability to make products? And is there a possibility to design for greater flexibility in the future? Because it just feels like what you're using is typically kind of off-the-shelf components, and I think the ability to design in greater flexibility in the future would certainly help the company and reduce this kind of volatility.

I agree with your overall point regarding our current generation of products and their platform perspective, which allows us to mix, match, and modify components from the beginning. This approach provides us with greater agility and the capacity to handle various events. However, we face challenges due to multiple generations of products; earlier models were not developed with this methodology in mind. We are currently transitioning to a different research and development model, but we are still in the early stages of this journey. Many of our products and a significant portion of our revenue stem from these older generations, resulting in some volatility due to a lack of flexibility. We have been actively addressing this issue for several years and will continue to pursue improvements that will yield benefits in the future. On the positive side, our long-term customer contracts, which involve multi-year deployments and agreements, ensure that demand continues rather than being canceled, allowing us to recover in the future. Therefore, we have a beneficial position looking ahead, which is why we have focused on this for the past couple of years.

Well, I appreciate that. And it does seem like you're bearing a disproportionate level of the risk around supply chain and your customers aren't. And so hopefully, we can see that will continue to evolve.

And our next question will come from Graham Price with Raymond James.

Just quickly on timing. I was wondering, do you expect the component shortage impact to be spread pretty evenly across the second half? Or is that something where we should expect it to be weighted more towards 1 quarter or the other?

Yes. I don't know that we've got specific timing. As Tom mentioned, it's really hard to predict. The situation is pretty fluid. I mean hopefully, we'll be talking in a quarter on the Q3 call to say we think the worst is behind us. But at this point, I don't really have any color for Q3 versus Q4.

Okay. Got it. And then secondly, you've touched on it a bit already, but I was wondering if you could talk a little bit about how you see the revenue impact kind of broken down by segment, maybe between devices, Networked Solutions and Outcomes. As you said, it looks like it's primarily Networked Solutions, but I just want a little color there.

The majority of our revenue comes from Networked Solutions, which is expected due to the advanced technology and increased usage of electronics. Most of the revenue is networked, with a smaller portion from devices and very little from Outcomes. The growth in Outcomes typically aligns with networked revenue. If there are delays in our deployments, the expected growth in Outcomes may not materialize as anticipated, but it will eventually recover as demand shifts. Overall, there will be no significant impact on Outcomes.

And we'll go next to Thomas Johnson with Morgan Stanley.

Just kind of wanted to start off on the order front. Clearly, another strong quarter for orders. I know kind of with some of your competitors, they've seen customers start to pull orders forward in hopes of kind of offsetting some of the longer lead times for components. So I was just wondering what are you guys seeing on the customer side. There's some deceleration on a year-over-year basis here. So just any outlook for the second half of the year and order trends.

The backlog itself remains very, very strong. We see a strong pipeline of customer activities, and that's what is reflected in that 3.5 approximate billion dollars of total backlog. On the order front, call it, basic demand, as Joan commented in our prepared remarks, we see demand definitely continuing to improve as customers have a desire to put the new technology in practice to solve the problems that are really putting pressure on their business. So I continue to expect that demand will continue to increase, and the pipeline of opportunities beyond that remains very, very strong.

Great. And then just one question related to the backlog. So obviously, the bulk of the revenue that's being pushed out is in the electronic component side of things, so Networked Solutions. It's clearly margin-accretive. So I guess it's worth thinking about some of these projects getting pushed further to the right due to that kind of component headwind issue. Can you just maybe talk to us about your ability to pass through any price on that front and possibly how you see the margin profile of the backlog evolving into 2022?

The best way to understand our business is that it has two types: the book-and-ship business and the turns-based business. We have more control over pricing in the turns-based area, allowing us to adjust costs more strategically. While we recognize the competitive landscape requires us to remain aggressive in pricing, the turns-based business provides us the flexibility to manage prices continually. On the other hand, for longer-term contracts primarily found in our backlog, pricing has already been established with customers to ensure they can coordinate with their regulatory commissions for the appropriate return on investment. Thus, our pricing flexibility is quite restricted in that segment. However, most of our backlog comprises networked and outcomes-based business, which is the direction we are focusing on for growth and is beneficial to our overall corporate gross margin.

And this concludes our question-and-answer session. I'd like to turn the conference back to Mr. Tom Deitrich for any additional or closing remarks.

Thank you, operator. We appreciate everyone joining today. As a reminder, in conjunction with Itron Inspire, which is our large industry event that is held in October, we'll also be holding our 2021 Investor Day. That will be hosted both virtually and, hopefully if conditions permit, live. So please mark your calendars, and we look forward to seeing everyone there. Thank you for joining.

There will be an audio replay of today's conference available this afternoon. You can access the audio replay by dialing 1-888-203-1112 or 1-719-457-0820 with a passcode of 3115180, or go to the company's website, www.itron.com. And this concludes today's conference. You may now disconnect.