All right. Well, thanks, everyone, for bearing with us here at Oppenheimer's Annual Technology Conference. We're very pleased to welcome back the management team of ITRON. I think this might be our 10th straight year, although my memory is a little hazy, hosting the company. We've got CFO Joan Hooper on the line and VP of Tax and Treasury Joel Vash. And thank you both for being here. Really glad to have you here for the discussion.

Yeah, thanks, Noah, and apologies. I couldn't get on the webinar for some reason, but I'm here to help.

Well, you know, that's the unpredictable is part of life. And I look forward to talking a little bit about ITRON's growth trajectory here and, you know, some of the key questions that have been coming up post-quarter. I would just like to start with a high-level question, which is, you know, ITRON has historically been viewed by investors primarily as a metering company. And, you know, today it's clear you're really more of a platform company. How should investors think about that evolution, what it enables, and what advantages it creates compared with point solutions providers?

Yeah, thanks. That's a great question. So to your very point, people often mischaracterize ITRON as just a continuation of what we used to call AMI 1.0. So way back when ITRON started and got in this business, we helped utilities kind of mechanize the billing process. And the meters in ITRON 1.0 played a very key role, and that was really all the way up to, call it, 2010, 2011. As we think about what we are now, it isn't really just a metering company. As you indicated, it's a platform company. So in addition to meters, we obviously have a grid edge intelligence. We've got networks offering software analytics, really services, so really designed to help address the complexity of what the utility customers are facing, and their environment is so much more complex than it was 15 years ago. So certainly there is potential for a quote-unquote refresh cycle of depreciated meters need to be replaced with new meters, but it isn't really about the meter anymore. It's about the solutions that we can bring to the customer for the problems that they're dealing with.

So maybe benchmark for us, Joan, where are we at in the cycle for grid edge intelligence adoption? And I think maybe even help us definitionally understand the difference between that and AMI 1.0.

We're in the early innings. I mean, we have definitely been a leader in this area. So as of the end of the second quarter, we had about 18 million DI-enabled endpoints shipped. So think about that as a leader, but with a computer on the side of it. If you look at the growth year over year, that's like 20% growth year over year from second quarter of a year ago. But that's still a small number of, if you look at, you know, hundreds of, thousands of meters deployed, it's a small percentage. So, again, AMI 1.0 really didn't have this capability. And for years, we had it in the, we started probably selling it in 2018, 2019. And it was really just a couple of customers that would start down this journey. And in many cases, we learned with them as to what capability and what applications we could come up with. But we're very, very excited. The number of licensed apps for the DI-enabled endpoints is up to close to 20 million. And it's like 50% growth year-over-year. But I would still say we're in the early innings in terms of how many are actually in use. So more and more when we sign a new contract, it has a component of networks. It has component of outcomes, and typically it has the ability for the utility to purchase a certain number of apps as well.

How does that change the procurement conversation, and what drives that interest in managed services and platform as a service?

Well, it's certainly a lot more complex with the utility in terms of the procurement process. But again, it's not a discussion anymore of, hey, we need to understand the cycle time of how we bill our customers and get the cash flow. It's really around how do we use grid-edge intelligence to help us manage load growth? How has it become more resilient? How do we deal with distributed energy resources and coordinating things like EV charging? And if you think about the utility customer, what they have to deal with is much more complex, just even in the last five years, than they had to deal with 10, 15 years ago.

It's a great point. When you look at that customer pipeline and the regulatory activity that's underway today, just how does the volume and scope of opportunities compare with what you saw? You talked about, you know, difference between three, five years ago. How does it compare now? And what's changed in the utility investment landscape? load growth is part of it.

So we have never seen the pipeline. So again, not into our backlog yet, but the pipeline of opportunities have never seen it so big. It's primarily electric in the U.S., but gas is now a significant portion as well. And they're really trying to deal with whether it's data centers or just the proliferation of different DERMS activities. There's just a huge increase for load growth. And obviously, they're dealing with the pressure with the regulators for affordability? How do they become resilient? You know, climate and weather disasters have become more frequent than they used to be. How do they ensure that there's reliability? So they're trying to balance all these things. And I think they have, you know, as we have for a while concluded, you know, you can't do it without some new technology that allows you to utilize your assets more efficiently.

Yeah, I think with this customer kind of conversion over to grid edge intelligence. Let me just talk a little bit about, we know where we are kind of in terms of hard adoption, right? We're in sort of mid single digit penetration based off of what you just said. But where are we in the education cycle, you know, both for the customers understanding what the platform can do now, and then really helping the regulators in their different states and jurisdictions understand the benefits. You know, is that still a process that has a lot more runway to go in terms of education and tools, or do we feel like, you know, there's a broader understanding now in the utility marketplace that, you know, these solutions are really key to the future?

There is definitely a better appreciation, both at the customer level and at the regulatory level, but I would still say we're only in it. They have become much more sophisticated. I mean, the beauty of this industry is our customers don't compete with each other, so they're happy to share things that work. And so for those people that were early adopters for grid-edge intelligence, they're able to demonstrate the benefits they got. And so other utilities are obviously interested in that. The regulators are becoming more sophisticated as well. It's not just about, you know, what's the cost of what you want to spend? It's what's the benefit and how do you get benefits to customers, not just in terms of the rates, but also, again, liability, resiliency. How do you satisfy the end customer? So I think both are getting much more constructive than they've been, but I certainly think there's more room to go.

And so the question that we get a lot from investors is really about timing. We talk about these record demand indicators, the robust pipeline, bookings conversion, and revenue conversion has been uneven at times. So what are the primary factors influencing timing today? and what gives you confidence that this pipeline does convert into bookings and revenue?

I mean, the need is there. I don't think anyone is denying the fact the need is there for more growth, for affordable, reliable solutions. So certainly there is a timing element both within the customer and within the regulator. So the customer is dealing with not just distribution issues, but if they happen to own generation and transmission, they have to deal with that. They have to deal with a number of territories. A lot of the IREs in the U.S. have multiple states they're dealing with. So 10 years ago, they may have booked a very large multi-year booking, and today they might say, we're going to go territory at a time. So within the utility, there's other demands for IT-type projects and stuff. So I think there's a lot of demands in terms of it's utility by utility. I don't think you can paint a broad picture that says, here's how it's going to play out. What's clear to us is the underlying need in terms of the customer is not going away. And it will happen. It's just a matter of when. And you know, I know investors would love to know exactly when does the pipeline turn to a booking and turn into revenue, but it just doesn't work that way in utility time.

Yeah. And you've commented, I think in the last couple of quarters, the idea that, you know, larger contracts might get broken up into smaller tranches of deployments focused on, you know, urgent needs or, you know, within sort of sub-regions of utilities territory. You know, so how does this affect the pace of kind of conversion, both from pipeline to backlog and then from backlog to revenue?

We're starting to see that. And again, part of it is, I think, the sensitivity to if you go in with a large rate case that covers all territories in a short amount of time, that certainly puts more pressure on rates. And so we are starting to see utilities and regulators come in with, let's choose one territory at a time. Let's get that project approved and let's start rolling it out and then we'll deal with the next one. And so what that potentially could mean is actually smaller deals, but potentially closing faster from the pipeline into backlog and potentially faster from backlog into revenue. So So today we talk about some of the larger bookings that we have. We used to say three to four years. Many of those are now four to five years in terms of the rollout process. So maybe if you go territory at a time, it's a smaller booking, but it gets rolled out in a one- to two-year time frame. So I think we're still early in this process, but we certainly are seeing both our customers and the regulators talk about, hey, what are the other options here so we don't have this huge influx of new rate cases that increase rates for 10 customers.

Well, it sounds like this will still be predominantly a book and backlog and then convert over time, even if it's over a shorter period of time versus the four to five years. But you've also talked about expectations for more book and ship business, both devices, which is primarily book and ship, but also networks versus that historic, I don't know, call it 20% of volumes. Do you think book and ship continues to increase as a percentage of total revenues based off of this? Or do we see the higher growth in ARR, recurring revenues, kind of cutting against that?

Yeah, it'd be hard for me to say it's going to increase. I don't think we are able to predict exactly how book and ship, as you indicate, devices is primarily that. Networks, we've seen a little bit more of it. We see some of it in outcomes as well. You know, hey, we decided we want to buy some more apps. We can just buy those, you know, from you directly. But, you know, it would be hard for me to say it's going to be. I think network solutions will continue to predominantly be a booking that goes into backlog and then comes out of backlog into revenue based on the deployment cycle.

We know that the company never puts any awards into backlog until they have regulatory approval. As you kind of look out there at the landscape of projects and awards that are pending regulatory approval, anything to comment there in terms of, you know, this providing some confidence or visibility into the bookings outlook, say, over the next, you know, six to 12 months?

Not really anything that I can comment on directly. I would say, again, that if you think about the timing of booking going into deployment, going into revenue, the bookings that will come in the next 12 to 18 months are not going to have a huge impact on revenue in the next 12 to 18 months. So as we did our guidance for the second half of the year, most of that revenue is already in the backlog.

Makes sense. You know, from a demand planning perspective, you know, where are you investing within supply chain and inventory in anticipation of, you know, maybe these stronger orders volumes coming in over time? And if they do convert on somewhat shorter timelines, you know, is there a need to build up inventories further?

Yeah, if I separate it between demand and just kind of supply constraint issues, right now, the thing that we're watching the closest is memory pricing, not as much of tightness in terms of capacity, but in terms of pricing. But we did start buying ahead on memory late last year, and so we feel like we're appropriately buffered. We learned a lot from what happened after COVID. We've got more dual suppliers in place, and I feel really good about what our supply chain organization's done. Your question around, hey, if demand picks up, are you ready? We have a very tightly integrated, we call it S&OP, Sales and Operations Planning Process, that's a day-to-day, week-to-week process between our product teams and our procurement teams and our manufacturing teams, knowing that, and we will make calls and say, yep, we think this deployment's going to go in this timeframe. We'll make sure we have the inventory ready to build it. So I feel like we're in really good shape on that. We continue to have a very strong balance sheet, and we'll use that balance sheet to have more inventory if we think it's necessary. We did that with the semiconductor constraints a couple years ago. We increased inventory a little bit this quarter. We have the flexibility if we see something that's tight, we'll go ahead and buy it and make sure we have it. So we don't want to be in a position like we were, call it five years ago, where we were supply constrained and we couldn't actually get the revenue out of the backlog. Yeah.

And you've also really shifted your pricing muscles around ability to recover inflationary pressures. So does that translate as well to what you're seeing now with memory or anything else that's percolating up in terms of inflation running a little bit hotter?

Yeah, I mean, unlike the semi stuff five years ago, back then we didn't have indices in our normal contracts. So as you recall, we had a lot of backlog that we used to call kind of pre-indexed. And so as that rolled into revenue, it took a margin hit as the component prices were higher than we were able to recover. Since five years or so ago, we've got pricing escalators built in, so we feel like we're pushing. Now, it's not component by component. It's typically on an indice, let's say, like PPI. So we are dealing with the memory cost increases best we can, but we're not turning around and trying to charge a memory cost increase to a customer. That's just not what our pricing model is. It's an indice type thing. Overall, the memory is a pretty small percentage of our building materials, so it isn't nearly the kind of impact that it was when it was semi-connectors.

It certainly hasn't hurt your margin profile. I mean, judging at your financial results, I think that that speaks for itself. Talking about recurring revenue, you know, you introduced the AR metric a few quarters ago, and I think you're looking at mid-teens to 20% growth this year. How should we think about AR growth on a long-term basis and really how that would maybe sort of manifest by segment or by product line?

Yeah, I would imagine we will refresh all the long-term targets sometime in early 27, where you can talk more. But right now, the 20%, ideally a little bit higher than that. Today, what it is, given the size of the segments, it's primarily in outcomes. It's a lot of managed services type things, as well as software as a service. But a lot of it is managed services. Networks have a component of that as well. And then, of course, resiliency is virtually all SaaS-type revenue. So given the size of resiliency solutions, I'd expect that segment to grow the fastest, followed by outcomes. And the outcomes have double-digit growth for probably the last 13 or 14 quarters in a row. So we would expect the ARR to continue to have healthy growth going forward, but a little premature to get a longer-term growth target.

So with resiliency, you know, maybe just there's been two large acquisitions, right, to build this segment. and maybe just help us understand what's been accomplished year-to-date on integrating the acquisitions and what milestones remain for you over the course of the year.

Sure. So first, on the urban acquisition, that one actually closed back in late 2025, and that business is really a SaaS model focused on really three outcomes for our customers, emergency preparedness, response, damage protection, worker safety. That integration is essentially complete. You know, it wasn't a very complex business in terms of kind of the internal plumbing and those kinds of things. So we were able to migrate from a system standpoint then to our systems, you know, within a quarter or two. Locus View closed at the beginning of 2026, a little bit larger business, certainly more complex in terms of the ERP system, et cetera. So we're in the process right now of a project to close down their ERP, convert it over into our ERP system. Likewise, we'll be converting their systems on things like pipeline and those kinds of things into our common tools. That should be all accomplished by early 2027. And, again, what they focus on is digital construction management, really automating the process for the utility from planning through the closeout. A lot of really focused on the field crews and helping them do their job. So we feel good about both of them. In the beginning of the year, we talked about a financial range of $65 to $70 million in revenue with 70% plus gross margins. That is still holding to those numbers, so very pleased with it. Between those two businesses, which are housed within resiliency, they are starting to look at R&D synergies between them, and so just starting to do that process. We just started to introduce, hey, let's have your, because right now they're operating in a separate Salesforce, your Salesforce into the itron Salesforce, let's find cross-selling opportunities. The logos that they currently have are the same logos we have. And so there's an opportunity to get more cross-sell, and I think you'll see that more in 27 and beyond.

And you mentioned that segment, because it's got those acquisitions, that should lead in terms of ARR.

What is sort of the natural growth algo, if you will, for those two businesses, and how much of it depends on really getting the benefits of the ITRON platform, which I think touches a much larger customer base? yeah again we haven't given long-term targets yet for that segment but given the size i would expect that to have the highest growth rate from an accretion standpoint um operationally by you know the end of the year going into next year they will be contributing to earnings per share but obviously we have the dilutive impact of lost interest income on the cash we utilize by the time you get into to 28 even if you net those out i would expect them to be accretive so they're generating nice returns. I think they'll, because of their scale, they'll have the highest growth rates. And we're continuing to expect outcomes to continue to do what it's been doing, which is kind of double digit growth rates it's had now for the last couple of years.

You mentioned the R&D synergies that, you know, two fairly software forward, you know, acquisitions. And I guess I could extrapolate this to the broader company.

Just talk a little bit about how you're utilizing, you know ai tools for coding and you know product development and what impact if any that's having on your your r&d spend and your new product introduction cycle it's really an enabler i mean if you looked at urban's platform it was powered by ai as was as was parts of locus view as well so it's integral in terms of the platform they've built we've been using we didn't call it AI, but we called it machine learning or whatever in our normal R&D processes for years. So we are certainly now further on that journey, not only within R&D, but obviously the rest of the organization. So really all of our even existing software providers, let's say like Salesforce or Oracle, everybody's using AI and everything now. So there's lots of different models being used in the company. And we are expecting productivity improvements from our R&T teams based on this. But in particular, the resiliency solutions group really built their company on the back of the AI.

Yeah, I mean, it's notable that for many, many years, right, and even during the lean years when, you know, the industry was in down cycle, this company just kept investing, right? You kept investing in a leading technology platform. It helped create more of a competitive moat versus smaller players. We see that today. But part of what I'm trying to get at here is, are there R&D productivity or potential R&D intensity gains that can be run out of this from an operating leverage perspective? I know a big portion of it was for the outcomes business.

Yeah, I mean, certainly from a cycle time perspective in terms of R&D development, we would expect that cycle time to shorten. We have been very judicious when we allocate our R&D hours out by segment to focus on those segments we think need to be growth segments. So, for example, if you're sitting in the devices segment, which is really kind of flattish growth thing, it's not getting much R&D. and, in fact, we're peeling dollars away from it because it doesn't give us the return. Most of the R&D, as you indicated, kind of ITRON legacy would have been in outcomes. And the cycle time on that tends to be, you know, it's a different type of R&D versus historical kind of platform or networks type R&D. So, yeah, we're looking for cycle time improvement and the ability to really have product development much more efficient than it used to be.

Very helpful. Going back to the monetization of the Edge Intelligence Network, you mentioned some great stats here around the growth in license apps and endpoints under management being up. I guess how should investors be thinking about convergence or divergence of growth rates between licensed apps, endpoints under management, and where outcomes revenue grows?

Yeah, I think they're different things. So true endpoints under management really represents this broad installed base. And so we don't really talk about that as much anymore. And so many of them are actually under their managed services. So they're part of generating that annual recurring revenue in the form of services revenue. The DI-enabled endpoints we felt is important because in order to be able to get the apps out there, you've got to get the endpoints out there. And so that's the one that's grown kind of 20% year over year. apps license apps have grown nicely i think it's about 50 percent year over year those in use was sort of flattish for a while but did take off this year versus last year so again i think that part of that is we have some utilities that are kind of early adopters who are now talking about what they've been able to do with some of the applications and it's becoming easier for other utilities and regulators to say okay well let's let's try that here and see what we can get in terms of solving our problems. So I think the overall industry acceptance of what you can do with applications is getting better and better.

Very helpful. Should we think about the historical kind of 12-ish month lag between network revenue and initial outcomes, revenues on deployments still holding? Or has that sort of changed at all with the greater shift to grid edge intelligence and, you know, some of the new software offerings?

I think for now that's still a good number, you know, whether it's nine months or 12 months. But until the applications are much more being in use out there, I think that's still the case. So you have a lot of customers who might buy them. So they might buy the applications as they're buying the DI-enabled endpoints. They're part of the booking, therefore they're in backlog. In fact, our outcomes backlog is over a billion dollars at this point of the $4.4 billion. But they may not actually be deciding to use it until maybe they wait till all the endpoints are deployed. Maybe they go territory by territory and say, let's deploy in a territory and then let's turn on some applications and then we'll figure out where we go from there. I think every customer is a little bit different. But for now, given the broad base of what's out there, the nine to 12 months still feels about right.

And, you know, there's been an ongoing story of margin uplift for this business, improved earnings quality. Part of that, I know, was, you know, exiting some legacy devices business that was low margin. But this transition, you know, from legacy AMI to DIN points, I would suspect that there is an uplift there.

Is there a basic way to think about the margin difference, the margin profile difference between legacy AMI and DIN points? you know we we haven't really disclosed a gross margin differential between those but if you look at the um uh the average selling price if you think about the the old endpoints maybe were 80 to 90 an endpoint and now they're more like 120 to 140 so it is a pretty big uplift certainly not all that flows through the margin but the customers are willing to pay that much more because of the the value that's that's being brought to bear so it's increased processing capability. It's the applications and the ability to future-proof their network as things evolve, but certainly it is part of the uplift. In addition, the pricing changes that we made in the last five years, I get asked a lot about networks margin and why is it improving. Well, part of it is certainly the factory utilization. We shut a factory. We're really getting lean on overhead structure, but we also had a large customer that was signed up before we had pricing indices that was quite large and didn't complete until 2025. And the ability now to be ahead of that and to be able to match prices with commodity costs is a big thing for us as well. So I think we've done a lot of things, whether it's closing factories and really making sure we've got the overhead structure right in the factory. Really, our supply chain is much more resilient than it used to be with multiple suppliers. I think all those things contribute to the higher margins, but we're certainly pleased with the progress.

Yeah. So a couple of questions as we approach the end here. The first one's on capital allocation. I think obviously strong balance sheet here. The cash generation is well in excess of what we'd initially modeled. You know, maybe just provide insight into your M&A appetite and pipeline and the criteria for further deals here, both in terms of what you're looking for on a strategic fit and then the key financial guardrails to keep in mind. Sure.

I'll take that one.

Yeah. I was going to say, Joel, why don't you do that?

Yeah. So, I mean, obviously, as an organization from capital allocation, we still invest heavily organically in the organization. I don't want to dismiss that, you know, not upwards of 9% of revenue is invested in R&D to continue to further develop our technologies to support our customers. From an M&A perspective, which we evaluate on a targeted basis, you know, clearly we're looking for things that will grow our outcomes and our resiliency solutions, primarily on a software area. You know, and we look for strategic fit that's got to be critical to us, that it would help us solve important utility and customer problems it has to be something that it complements our existing platform you know something we can invest and sell through our platform rather than maybe a bespoke solution that only is works for a niche portion of the market or one or two customers it has to be something that would help us you know have a credible path to cross-sell or create broader customer engagement with our utilities similar you know urban and locust few, the most recent acquisitions. You mentioned cash. Obviously, you have $745 million of cash. We're sitting at 2.3 times leverage with about $1.5 billion of liquidity currently. So we have a strong balance sheet to allow us to move forward as we look at targets. I would say a couple of things. One, there's a lot of small action in the marketplace, smaller technological companies that maybe haven't received commercial viability yet. We're more focused on maybe larger, more commercially accepted offerings that can help us drive our customer solutions through our platform. Your last question, a portion of that on the financial metrics, we obviously remain very disciplined how we develop the valuation, how we view the margin profile and the path to accretion, which we look heavily at earnings as well as cash flow, which Joan commented on earlier. We don't pursue transactions simply to add revenue, and we expect a relatively short return for accretion for earnings and cash.

What roughly are those expectations around accretion, ROIC, valuation?

We would generally expect to be accreted within two, if not three years. That's generally how we view targets for financial viability.

And any kind of ROIC guardrails?

We don't look at ROIC that much from an M&A perspective, given the market and goodwill impacts and things of that nature. So, no, ROIC, no. We do look at other metrics, obviously, as we analyze the valuation of the business, whether that be IRR or other things, as we analyze where we think that the viability of the business is going forward on a pre-centered basis.

Well, I mean, you've got some favorable mix and technology trends in the industry supporting ROIC. I guess just last question in closing, because I think we're about at time, just in this for both of you. You know, if we look over the next several years, what do you think investors are still underestimating about the opportunity set in front of the company?

I'll start and then Joel or Paul may want to add on. I think we have been kind of talking about this grid edge intelligence and this evolution of the data becoming so important for so many years now. I think it's evident to us the utilities are now moving toward what our vision was and our value proposition. I'm not sure investors totally appreciate all that. I mean, it's so complex now for utilities, and they are starting to realize it isn't the same world that they invested AMI 1.0 15 years ago. So that said, I think sometimes there's still a frustration was, why isn't it faster? If the ROI is so great and it's so compelling, why doesn't this happen overnight? And that, unfortunately, just isn't the industry we're in. I appreciate that.

Joel, anything you wanted to add in closing?

No, I think that's a great way to close since we're a minute over.

All right. Well, we certainly appreciate everyone's time. And we're glad to help with any follow-ups as people do more work on ITRON. Please feel free to reach out to us or to Paul and the fantastic IR team. And with that, we hope everyone has a great conference and enjoy the rest of your day. Thank you.