Good day and thank you for standing by. Welcome to Itron's First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question-and-answer session. Please note that today's conference is being recorded. I will now hand the conference over to your speaker host, Paul Vincent, Vice President, Investor Relations. Please go ahead.

Good morning and welcome to Itron's First 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 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. Materials discussed today 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 performed well during the first quarter, as favorable product mix and continued strong execution supported margin expansion and earnings growth ahead of expectations. The team is focused on the execution of our strategy and the results from the past quarter further demonstrate its effectiveness. Financial highlights for the first quarter are detailed on Slide 4 and include revenue of $607 million, adjusted EBITDA of $88 million, non-GAAP earnings per share of $1.52, free cash flow of $67 million. Turning to Slide 5. The record gross margin and strong earnings growth were driven by our disciplined manufacturing and the ability to meet our customers' core needs for robust solutions for their mission-critical operating challenges. Customer demand for our solutions is driven by the breadth of our offerings, particularly customer adoption of Itron's grid edge intelligence platform. Our customers are benefiting from increased distribution capacity, improved infrastructure agility and enhanced reliability of successful scale deployments. Turning to Slide 6. Bookings in the first quarter of $530 million were in line with our expectations and equate to a book-to-bill of 0.9:1 for the quarter. This is an increase of $169 million when compared to last year. And as a result, our $4.7 billion backlog at quarter end remained near record levels. The Network Solutions and Outcomes segments continue to dominate our bookings, representing over 95% of our total backlog. Deployment of distributed intelligence solutions also continued during the quarter. And by quarter end we have shipped 14.4 million distributed intelligence capable endpoints with another $10-plus million in backlog. Some of the key bookings for the quarter include a major project with long-time customer FirstEnergy, which will expand infrastructure to detect and locate outages more quickly and enhance data management solutions. These improvements will provide consumers with more detailed information enabling them to better understand and control their energy usage. Itron will support a grid modernization project for public service company of New Mexico, the state's largest electricity provider. This project will deliver several benefits including distributed intelligence capabilities to enhance efficiency, reliability, resilience and security of PNM's operation. It will also enable real-time energy usage information for consumers and improve the integration of distributed energy resources. Before I turn the call over to Joan to cover the financials, I want to briefly discuss the tariff landscape from both a demand and bottom-line perspective. For demand, we have not seen a change in customer behavior to this point. While we are mindful that prolonged uncertainty could ultimately impact demand, our customers currently remain focused on addressing the critical needs in the management of energy and water. With respect to the bottom line, our regional supply strategy is serving us well. The great majority of our global manufacturing is done regionally, for instance, in South Carolina for the United States. However, we do import components from global sources with Mexico being the largest country of origin for components used in US products. Our Mexico imports are generally USMCA compliant and currently not subject to tariffs. The EBITDA impact for the year under the current tariff protocol is estimated to be approximately $15 million net of mitigation measures such as alternate sourcing and pricing adjustments. It is important to note that the tariff environment is extremely dynamic and the current estimate may change. Despite this fluid environment, we remain balanced and well positioned to drive our business forward. Now Joan will provide details for our first quarter and our outlook for the second quarter.

Thank you, Tom. Please turn to Slide 7 for a summary of consolidated GAAP results. First quarter revenue of $607 million increased 1% year-over-year. Recall that Q1 of 2024 included a significant amount of previously supply-constrained revenue. Gross margin of 35.8% was a quarterly record and was 180 basis points higher than last year due to a favorable product mix and operational efficiencies. GAAP net income of $65 million or $1.42 per diluted share compared to $52 million or $1.12 per share in the prior year. The improvement was driven by higher levels of operating and interest income, partially offset by higher tax expense. Regarding non-GAAP metrics on Slide 8, non-GAAP operating income of $80 million increased 19% year-over-year. Adjusted EBITDA of $88 million increased 15%, and our EBITDA margin of 14.5% was a company record. Non-GAAP net income for the quarter was $70 million or $1.52 per diluted share versus $1.24 a year ago. Free cash flow was $67 million in Q1 versus $34 million a year ago. This improvement reflects strong year-over-year operational earnings growth, increased interest income and improved working capital. Year-over-year revenue growth by business segment is on Slide 9. Device Solutions revenue was down 1% year-over-year, but up 2% on a constant currency basis. Network Solutions revenue decreased 1% year-over-year, primarily due to a higher-than-normal Q1 2024 level, which included the catch-up of previously constrained revenue. Outcomes revenue grew 14% year-over-year, driven by increased recurring revenue and software licenses. Moving to the non-GAAP year-over-year EPS bridge on Slide 10. Our Q1 non-GAAP EPS of $1.52 per diluted share increased $0.28 year-over-year. Pretax operating performance contributed a $0.40 per share increase, primarily driven by the fall-through of higher gross profit. Higher tax expense had a negative year-over-year impact of $0.11 per share and FX and share count had a negative impact of $0.01 per share. Turning to Slides 11 through 13, I'll review Q1 segment results compared with the prior year. Device Solutions revenue was $126 million. This segment's product portfolio continues to shift away from legacy electric products towards smart water sales, which helped drive gross margin of 30% and operating margin of 24.2%, which are both segment records. Gross margin increased 630 basis points year-over-year and operating margin was up 710 basis points due to favorable product mix and lower operating expenses. Network Solutions revenue was $403 million with gross margin of 36.9% and operating margin of 28.8%. Gross margin decreased 20 basis points year-over-year due to product mix, but operating margin increased 20 basis points due to lower operating expenses. Outcomes revenue was $79 million, gross margin was 39.2% and operating margin was 18.2%. Gross margin increased 410 basis points year-on-year and operating margin was up 510 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 first quarter. Total debt was $1.265 billion and net debt was $142 million. As of March 31, net leverage was 0.4x and cash and equivalents were $1.1 billion. Now please turn to Slide 15 for our second quarter outlook. We anticipate Q2 revenue to be within a range of $605 million to $615 million, which at the midpoint is flat versus last year. We anticipate second quarter non-GAAP earnings per share to be within a range of $1.30 to $1.40 per diluted share, which at the midpoint is approximately 12% year-over-year growth.

Thank you, Joan. Although macroeconomic and trade policy uncertainty has increased over the past quarter, Itron is well positioned to navigate near-term uncertainty. Our results over the past two-plus years clearly demonstrate that our strategic focus and operational execution aligns with the needs of our customers. Our portfolio provides clear value to utilities and cities facing numerous environmental operational and consumer challenges. Periods of uncertainty and disruption favor the well prepared. Our multiyear efforts to optimize our factory footprint and portfolio strengthen our supply chain resilience and grow recurring revenue have positioned us to capitalize on future opportunities. We expect to strengthen our industry leadership through continued deployment of innovative solutions ensuring that Itron remains a partner of choice for utilities and cities well into the future. Thank you for joining our call today. Operator, please open the line for some questions.

Thank you. And our first question is coming from the line of Noah Kaye with Oppenheimer. Your line is now open.

Hi. Good morning. Thanks for taking the questions. It's obviously the topic in focus this earnings season. So we do have to start with tariffs. Tom I appreciate you dimensioning the expected EBITDA impact of the tariffs for this year. If my math is right kind of call that maybe $0.25 impact to the bottom-line. I know you don't typically update full year guidance until 2Q. But just given the strength of 1Q and what you're expecting for 2Q are you messaging here that despite sort of these net impacts of the tariffs you still feel comfortable with the full year guide. You're already going to be over halfway to meeting the midpoint as we get through 2Q.

Thanks, Noah. I would say that it's probably premature to update our full year guidance. Our normal practice is to do it after we announce second quarter earnings. I would put it in context though and say that first quarter ahead of expectations on the bottom line and so is the second. We are cognizant that tariffs are out there and I suppose they could change from what we see today. But it's all in the mix of where we are. So I would say it's a little premature to update the full year at this point.

Yes. The only thing I would add is if you look at where the EPS consensus set prior to us announcing today and then look at our Q2 guidance for the first half of the year the EPS for Q1 plus the midpoint of the guidance we just gave for Q2 is up 10% versus where the consensus had been. So there's puts and takes obviously as we go through the year.

Thanks. Thank you, both. Maybe I could ask about devices. I think you called out Joan that those record margins for the segment and certainly mix shift is a factor. We're now I think meaningfully above kind of the long-term gross margin target for the segment. How should we think about kind of the right level for segment margins going forward?

Yes. I mean again it's a little premature to update the targets we had for 2027, but we are very pleased. They are absolutely ahead of where we expected them to be and have done a great job kind of pruning the portfolio and shifting the mix. So premature to say is it always going to be 30%. You're still going to get variability from quarter-to-quarter. We have a heat and allocation business that tends to have its highest seasonal quarter in Q1 that has better margins than average. So it's going to bump around a little bit. But I would say, yes, we're very pleased with the progress in the devices business.

Good morning guys. My first question was just on the 12-month backlog that you took out of there. Is there anything to read into? Or how should we think about coverage for the next four quarters or the rest of the year, however, you want to frame it?

Yeah. I wouldn't read anything into it at all. We took it out of the investor presentation as we didn't think it was all that much. It was probably confusing people more often than not because it does bounce around quite a bit. More broadly though getting to your real question, the outlook that we have in front of us still looks good. The demand environment has not changed over the last 90 days. Opportunities are still there and we feel good about the track that we're on. Our customers are very much focused on dealing with the urgency of the issues that are in front of them. The only caveat I would put on that is I suppose the macro environment could drag things down later on in the year and that's the uncertainty that we and probably every other company faces. But I like the ZIP code we're in and the trajectory looks good.

My follow-up question, which I receive often, is about the regulatory environment in the United States regarding the capitalization of software or its inclusion in the rate base on a state-by-state basis. Can you discuss this further or mention other ways utilities are proceeding with purchasing software from your company? It seems that historically, software sales were more challenging compared to network sales. Any region-specific insights would be appreciated as well. Thank you.

Sure. So outcomes growth for us was up 14% year-over-year. That's I think our fourth quarter in a row of double-digit year-over-year growth probably seven out of the last eight quarters double digits. So it's absolutely happening and we are obviously anxious to keep that trajectory going if not accelerate it. When it comes to the regulatory environment, we've got to structure the deals in the right way to make sure that it works for our customers' business plan as well as ours. There are ways to have those purchases be included in rate bases most of the time. And indeed that's what you see flowing through our P&L. There's different mechanisms. It depends on the state and that's the plumbing that they've got to work through on their side. Oftentimes it is in the form of term licenses over a certain period of time, a certain capability is available. It could be performance-based rates where I think we're creeping up on 40 states out of the 50 now allow some sort of performance-based rate. So again the mechanism can vary state-to-state or customer-to-customer, but the trajectory that we've seen over the last couple of years has been good. The regulatory environment remains constructive for our customers and we'll look to continue to support them as they advance on their needs.

Thanks guys. Nice quarter.

Thank you.

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

Hey. Thank you. Good morning. Just maybe two quick ones on the tariff environment, again, what you said was very helpful. But just to be clear Tom, the $15 million is that incorporating just the current 10% tariff? Or does that contemplate any potential changes on July nine to the reciprocal environment?

The $15 million, after applying mitigation measures, accounts for our strategies in changing the country of origin for sourcing and adjustments in pricing. The tariff protocol currently in effect is factored into that amount. This includes the USMCA exemption, which means there are no 10% baseline tariffs added, and while our imports from China are not large, the existing high tariffs still contribute to our overall cost. We are currently subject to the Section 301, Section 232, and the IEEPA emergency power tariffs.

Maybe just one follow-up. Years ago, you used to produce your own printed circuit board assemblies in South Carolina and then transfer that to Mexico. I know you're not updating guidance, but with the mitigation measures, is there any increase in CapEx that we should consider?

No. No. I wouldn't expect any difference. Our CapEx load is pretty stable and it will ride along based on new product introductions and things of that sort but I wouldn't look for any material change.

Got it. And then you alluded to price, in terms of one of the mitigation factors. Is that something that you on a state-by-state basis have to appeal to regulators for or utility does on your behalf? Maybe just walk us through the mechanics there and the risk to that.

The pricing that we have in place is really where we have flexibility and some of those tough lessons that we learned back during COVID in terms of how to increase the amount of flexibility we have in terms of the pricing changes we can make along the way. So no change in terms of how we have been operating for the last couple of years. But obviously as the macro environment changes, we'll make some pricing adjustments accordingly. I'm not aware of any time that customers are going back to the regulators based on that in terms of what has happened to date.

Got it. That's all I have. Thank you. Appreciate it.

Thanks Jeff.

Thank you, and our next question coming from the line of Hilary Cauley with Guggenheim. Your line is now open.

Hey. It's actually, Joe. Can you hear me, okay?

We can. Good morning, Joe.

Hi. Good morning. I don't sound like, Hillary. Two questions, first, looking at this revenue push-out that you had last year I'm trying to recall how much of that was in Q2 and whether you might be able to help us understand what an organic year-on-year comp might look like adjusting for that? And then the second question I have, really impressive outcome here in terms of the gross and the operating margin for your Outcomes segment. Obviously some of that's trimming the portfolio and so forth. But how should we think about revenue fall-through in that part of the business going forward? Thank you.

Let me begin by addressing the first question about how the constrained revenue impacted 2024. We recorded approximately $85 million in Q1 and around $40 million in Q2, and we effectively caught up in the first half. Regarding your mention of portfolio trimming, that primarily pertains to devices rather than outcomes, so please clarify which aspect you are focusing on. As for devices, we are performing better than we initially anticipated. While I can't guarantee that we'll maintain 30% gross margins every quarter, we do expect to be in the high 20s. That should work well since they've also been reducing their operating expenses. Concerning outcomes, we aim for that segment to reach gross margins in the mid-40s, although we haven't achieved that yet. As we've discussed, there will be some quarter-to-quarter variability based on the software mix in any given quarter.

If I may and thank you for clarifying on the year-on-year comps. If you look at your whole year numbers, they don't quite imply that you're going to be at that mid-40s gross margins on the Outcomes segment and you've just posted a very impressive result. So I guess my question is can we expect to see this level of improvement in the margins going forward? Or I guess, I should rephrase this level of revenue fall-through going forward and which would imply in fact that you could be at the mid-40s gross margin in outcomes by the end of this year?

Yes. Again, we don't really guide by segment but certainly, the year-over-year improvement this year was heavily driven also by how low last year was. So we were in the 40s or so this quarter but we were like mid-30s last quarter. So you get that software mix that distorts things. So certainly we're looking for the Outcomes segment to continue to grow margins year-on-year and I think they will continue to do that.

Yes. Good morning. Thank you for taking our questions. I wanted to go back to the tariffs. Can you just talk about kind of the timing of some of your mitigation efforts whether that's price increases or kind of moving around component sources. Just trying to get a feel for – I mean obviously tariffs could change this afternoon. But to the extent that the current tariffs remain in place indefinitely just trying to get a sense of how we can think about annualizing that figure going forward? Thank you.

Sure. So the $15 million net number that we talked about if I were building a model for the three quarters ahead of us for this year I would put most of that in the back half of the year from a cost perspective. And that's really based on when various pricing mechanisms kick in, when various country of origin changes are made on the sourcing side and the amount of inventory on hand. Remember, a certain amount of inventory was already in our hands when the protocol started. Your point about – yes it could change immediately but there's usually a little bit of a lag effect before the costs start to come in. So we didn't see much in Q1. There's a bit in Q2 but more of it is in the back half of the year.

Hey, everybody. Thanks for taking the question. Maybe just a high-level one. I was in Europe earlier this week and there was obviously a pretty high-profile blackout and I'm sure there'll be a lot of postmortem to come on that. But Tom, I'd be curious to maybe get your perspectives on if you think that's the type of thing that can help shine a light on the need for some of these grid edge solutions.

Well, certainly, I think that changing the topology of the grid to try to give you better resiliency and reliability is an important part of the value proposition we give to our customers. It takes more than just our piece of it but we certainly can help give you visibility and control out of the edge of the grid and that is helpful. So segmentation of the grid, microgrid solutions, virtual power plants, peak shaving, demand response, energy efficiency all of these things are what's wrapped up inside of the platform that we provide and it's very helpful when it comes to those kinds of situations. That said, I don't know that I've got perfect insight or nor does anyone at this moment as to exactly what happened in Spain and Portugal. That appeared to be much more transmission related rather than distribution related. But even in those particular cases you can certainly limit the amount of damage and get it back online faster when and if something like that should happen by further deployment of grid edge intelligence technologies.

Thanks. I appreciate that. And maybe one more for you Joan. On the balance sheet at this rate it looks like you're going to be in a net cash position in the not-too-distant future. So maybe an update on M&A funnel and just capital deployment more broadly and buyback et cetera. Thanks.

Yes. I would say the priority for us is still finding that right acquisition that helps us get more software content and help drive the outcomes growth. So there's a lot of activity going on. I would say the PEs in particular a lot of them are sitting on assets that are now four, five years. Some of the valuations I think have come down. There are some that don't necessarily want to accept a down valuation from maybe the peak from several years ago. There's some medium-sized assets out there as well. So we continue to be very active and that would be our first priority from a capital allocation standpoint.

Hi. Good morning. Can you discuss the balance between setup and engineering revenues at customer sites compared to the substantial recurring subscription licensing revenue you mentioned for the quarter?

Yes. If I compare Q1 of last year to this year, we saw a significant increase in revenue with much higher margins. The recurring revenue we generated each quarter can fluctuate based on the business mix, but we achieved about 70% recurring revenue in Q1. While this is on the lower end of our target range, which is closer to 80%, it is expected to fluctuate a bit from quarter to quarter.

Okay. And can you talk about how your grid edge intelligence solutions and networked endpoint products could assist in a blackout situation like we saw in Spain and Portugal?

Yes, regarding the situations in Spain and Portugal, I hesitate to comment too specifically until more details emerge. However, we already implement solutions that enable utilities to reroute power through distribution automation. For instance, if a transformer is hit by lightning and power is disrupted, our mechanisms allow for rerouting power, which helps to minimize the outage area. This approach can also apply in wildfire mitigation scenarios. Instead of shutting down all of Marin County when windy conditions arise, our technology enables more precise targeting to maintain control at the edge of the grid. These are the types of solutions we provide to our customers in distribution.

Our next question comes from Scott Graham with Seaport Research Partners. Your line is now open.

Good morning. Thank you for the question. Can you provide more details about the $50 million? I understand that's a net figure, but could you clarify whether it involves $30 million or $50 million in mitigation, or perhaps $50 million with $35 million in mitigation? It would be helpful to get a clearer idea of the gross amount.

Again, the mix of our product portfolio will change and that probably means that any number that I would hazard a guess on today would be wrong by tomorrow. So it will ebb and flow a little bit depending on how the mix changes and what deliveries on individuals look like. So, I think that the right way to think about it is the net number and that's what would be the impact from a gross margin standpoint.

Okay. Thank you. Then, the other question I had was on networking. The organic there I know really set back by last year's catch-ups. Was the gross margin down because of the comp the catch-up comp? Or was that something else?

It was really just mix and it was not down materially. I think it was down maybe 20 basis points. So that's noise in the scheme of things. It's just mix.

Thank you.

Thank you. And 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.

Very good. Thank you all for joining our call today. We look forward to updating you again in another three months.

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