Itron Inc 2026 Q3 Earnings Call

Please go ahead. Good morning, and welcome to Itron's third quarter 2026 earnings conference call.

Tom Deitrich, Itron's President and Chief Executive Officer, and Joan Hooper, Senior Vice President and Chief Financial Officer, will review Itron's third quarter results and provide a general business update and outlook. Earlier today, the company issued a press release announcing its results. This release also includes details related to the conference call and webcast replay information. Accompanying today's call is a presentation that is available through the webcast and on our corporate website under the Investor Relations tab. Following prepared remarks, the call will open for questions using the process the operator described. Before Tom begins, a reminder that our earnings release and financial presentation include non-GAAP financial information that we believe enhances the overall understanding of our current and future performance.

Reconciliations of differences between GAAP and non-GAAP financial measures are available in our earnings release and on our investor relations website. We will be making statements during this call that are forward-looking. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially from these expectations because of factors that were presented in today's earnings release and comments made during this conference call, as well as those presented in the Risk Factors section of our Form 10-K and other reports and filings with the Securities and Exchange Commission. All company comments, estimates, or forward-looking statements are made in a good faith attempt to provide appropriate insight to our current and future operating and financial environment. Materials discussed today, October 27, 2026, may materially change, and we do not undertake any duty to update any of our forward-looking statements.

Now, please turn to page 4 of our presentation as our CEO, Tom Deitrich, begins his remarks.

Thank you, Paul. Good morning, everyone, and thank you for joining us today. Itron delivered a strong third quarter. Revenue returned to year-over-year growth at the top end of our outlook. Adjusted EBITDA set a new quarterly record, and non-GAAP earnings per share were well ahead of our expectations. In July, I said Itron is a different company than in prior cycles. The third quarter proved it again. Last quarter, we delivered record gross margin on lower revenue. This quarter, growth returned with strong margins. Non-GAAP operating income grew 20% on 3% growth. That is structural, the product of several years of commercial and operational work, not an industrial cycle. Not every quarter will set a record, but our performance now starts from a higher floor. We are delivering earnings leverage while continuing to invest in technology and capabilities our customers need. Turning to slide 4 for the highlights.

Revenue of $599 million. Annual recurring revenue of $423 million. Adjusted EBITDA of $115 million. Non-GAAP earnings per share of $1.94. And free cash flow of $96 million. Turning to slide 5. The operating environment remains dynamic, and the long-term demand drivers are strengthening. Utilities must address load growth, aging infrastructure, reliability, resiliency, and affordability all at the same time. These pressures are not temporary. They are fundamental, and the investment in technology and infrastructure they require is, in our view, inevitable. New generation and transmission are part of the answer, but those assets take years to plan and build. In the meantime, utilities need more capacity and better performance from the infrastructure they already have. Intelligence is the fastest and least expensive capacity still available. This is exactly where Itron sits in the value chain.

Our technology gives utilities greater visibility into the distribution system and enables them to operate existing assets more intelligently. We see the demand across our markets. In electricity, opportunities for non-wires alternatives, time to power, and reliability solutions are expanding. The opportunity with gas distribution customers remains outsized relative to historic norms. The regulatory environment is complex but constructive. Regulators are focused on the same affordability, reliability, and resiliency priorities as the utilities they oversee. Grid Edge Intelligence is scaling. We have now shipped more than 19.4 million distributed intelligence-enabled endpoints, expanding the installed base. Our applications, software, analytics, and services portfolio drove annual recurring revenue growth to approximately 25% year over year, accelerating from 21% last quarter. Endpoints become platforms, and platforms become recurring revenue. That is the model, and it is working, with adoption continuing to broaden into the mid-market.

Our supply chain remains steady across labor and most materials. Memory and selected component costs are rising, and we have kept pace with them as third-quarter gross margin demonstrates. We continue to thoughtfully buffer materials, diversify our supply base, and employ pricing mechanisms and other productivity actions to create earnings leverage. Integration of our Resiliency Solutions segment continues as planned, and we are beginning to see the benefits of the combined portfolio. A few of the awards I will mention in a moment came from that segment. Turning to slide 6, third-quarter bookings were $482 million, up 27% year over year and in line with our expectations. October bookings have given the fourth quarter a strong start. Total backlog was $4.3 billion at quarter end, with our Outcomes and Resiliency Solutions segments, our most software and services-intensive segments, together represent more than 25% of the total.

Large customer awards will always be uneven quarter to quarter because they are tied to utility and regulatory processes. Regulatory calendars shape when programs move forward, rarely whether they move at all. What matters is the pipeline behind them, and it is growing with strength in gas and Grid Edge Intelligence. Several wins during the quarter illustrate the breadth of demand. Pepco Holdings, an Exelon company, selected Itron to expand its distributed energy resource program, adding to the value of the multipurpose Itron network. The program will provide real-time operational data and significantly increase the flexible load Pepco can call on, capacity it can offer into the constrained PJM region and use to support the grid. Customers value our ability to move their installed base smoothly to more advanced solutions.

Through our OpenWay Forward program, we continue to support a large utility in the Western U.S. as it moves towards next-generation use cases and distributed intelligence. Resiliency Solutions gained momentum in the quarter, adding multiple new customers across our worker safety, damage prevention, and digital construction management applications. A large Midwestern utility selected our worker safety application after seeing clear improvements in hazard recognition and field engagement. We also expanded worker safety at another utility from a single operating company to a five-year enterprise agreement covering its operations in Pennsylvania, Kentucky, and Rhode Island. A diversified energy company broadened its use of Itron damage prevention, adopting ticket and intervention management across multiple operating companies, asset types, and states. Together, these wins show a repeatable pattern. Customers come to Itron to address a problem and stay for the portfolio.

That demand and the way we are executing against it gives us the confidence to narrow our full-year revenue range and raise our full-year earnings outlook. With that, I will turn the call over to Joan to walk through the details.

Thank you, Tom. Please turn to slide seven for a summary of consolidated GAAP results. Third-quarter revenue of $599 million was at the top end of our outlook range and increased 3% year over year, driven by continued growth in Outcomes and the contribution from Resiliency Solutions. Gross margin of 41% increased 320 basis points year over year due to favorable mix, operational efficiencies, and continued cost discipline. GAAP net income of $71 million, or $1.61 per diluted share, compared to $66 million or $1.41 per share in the prior year. The increase was due to higher operating income. Moving to the non-GAAP metrics on slide eight, adjusted gross margin of 41.3% increased 350 basis points year over year. Non-GAAP operating income of $107 million increased 20% year over year. Adjusted EBITDA of $115 million, or 19% of revenue, are both new quarterly records for Itron.

Non-GAAP net income for the quarter was $86 million, or $1.94 per diluted share, versus $72 million and $1.54 a year ago. Free cash flow was $96 million in Q3 versus $113 million a year ago. The decrease was primarily due to growth in working capital, higher tax payments, and lower interest income. Year-over-year revenue growth by business segment is on slide 9. Device Solutions and Networked Solutions revenue both decreased 1% on a constant currency basis. Outcomes revenue increased by 9%, driven by higher services, and Resiliency Solutions contributed $16 million of revenue in Q3. Moving to the non-GAAP year-over-year EPS bridge on Slide 10, our Q3 non-GAAP EPS of $1.94 per diluted share increased $0.40 year-over-year. Operating income contributed an increase of $0.38 per share, which was partially offset by lower interest income of $0.14 per share.