Itron, Inc. (NASDAQ:ITRI) Q1 2024 Earnings Call Transcript

Itron, Inc. (NASDAQ:ITRI) Q1 2024 Earnings Call Transcript May 2, 2024

Itron, Inc. beats earnings expectations. Reported EPS is $1.23, expectations were $0.85. Itron, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to Itron's First Quarter 2024 Earnings Release 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. [Operator Instructions] Please note that today's conference is being recorded. I will now hand the conference over to your speaker host, Paul Vincent, Vice President of Investor Relations. Please go ahead, sir.

Paul Vincent: Good morning, and welcome to Itron's first quarter 2024 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 2, 2024, 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.

Tom Deitrich: Thank you, Paul. Good morning to everyone, and thank you for joining our call. Operational execution and market conditions improved for the sixth consecutive quarter, and our entire value chain from component supply to field installation performed better than anticipated, which increased our top and bottom line results. Market interest and adoption of our Grid Edge Intelligence platform continued to grow, and our pipeline of opportunities is expanding as our customers accelerate their adoption of new digital technology and non-wires grid solutions. In addition to organic growth through innovation, M&A is a key strategic initiative of ours, and during the quarter, we acquired Elpis Squared. We now have added real-time power flow analysis and grid planning capabilities to our offerings, furthering our capacity to scale the Outcomes segment more rapidly in the years ahead.

Now looking at Slide 5. Financial highlights for the first quarter include: year-over-year revenue grew 22% to $603 million; adjusted EBITDA of $76 million, an increase of 94% year-over-year; non-GAAP earnings per share of $1.24, an increase of 153%; and free cash flow of $34 million, an increase of approximately $40 million year-over-year. Turning to Slide 6. The backlog at the end of the first quarter was $4.3 billion. Bookings for the first quarter of $361 million reflects normal seasonality and the timing of new bookings. We maintain our full year outlook for a book-to-bill ratio of 1:1 or greater. Across our customer base, engagement is related to Itron's Grid Edge Intelligence platform continues to grow due to a variety of factors, including, data center related demand growth; reindustrialization and production localization; and electrification of transportation and the home; water scarcity and the automation of water infrastructure, safety applications for gas customers and the digitalization of their operations.

Notable backlog added during the quarter includes, Oklahoma Gas and Electric renewed their long-standing partnership with Itron. This agreement consolidates a comprehensive range of hardware, software and services across OG&E's territory that enables the adoption of new technology as their needs evolve. Also during the quarter, the city of Fort Collins selected Itron to provide a distributed energy resource management solution to manage demand response, energy efficiency and customer engagement programs. Itron's software solution provides a single enterprise platform to support control strategies for a range of use cases, including EV charging and battery management. Now, Joan will provide details about our first quarter and our outlook for the second quarter.

Joan Hooper: Thank you, Tom. Please turn to Slide 7 for a summary of consolidated GAAP results. First quarter revenue of $603 million increased 22% year-over-year and was our highest level since the fourth quarter of 2019. The growth was driven by conversion of previously constrained revenue and continued customer demand. You may recall, we entered 2024 with approximately $125 million of previously constrained revenue. More than half of this was fulfilled in the first quarter, which resulted in higher than expected revenue. Gross margin of 34% was 240 basis points higher than last year, primarily due to favorable product mix and operational efficiencies. GAAP net income of $52 million, or $1.12 per diluted share, compares to a loss of $12 million, or $0.26 per share in the prior year.

The improvement was driven by higher operating income due in part to a restructuring charge booked in the prior year. Regarding non-GAAP metrics on Slide 8. Non-GAAP operating income of $67 million increased to 115% year-over-year. Adjusted EBITDA of $76 million nearly doubled from the prior year. Non-GAAP net income for the quarter was $57 million, or $1.24 per diluted share, versus $0.49 a year ago. This quarter was a record high for non-GAAP earnings per share. Free cash flow was $34 million in Q1 versus negative $5 million a year ago. The improvement reflects significant year-over-year earnings growth. Year-over-year revenue comparisons by business segment are on Slide 9. Device Solutions revenue of $127 million increased $7 million or 6% on a constant currency basis, driven by growth in water meter and communication module sales in the EMEA region.

Network Solutions revenue of $408 million, a new quarterly record, increased 30% year-over-year. Revenue growth was driven by improved component availability, operational efficiencies and project scheduling alignment. Outcomes revenue of $69 million increased 10% year-over-year, primarily due to an increase in recurring revenue. Moving to the non-GAAP year-over-year EPS bridge on Slide 10. Our Q1 non-GAAP EPS increased $0.75 per share year-over-year to $1.24 per diluted share. Pretax operating performance contributed $0.88 per share year-over-year improvement, driven by the fall through of higher revenue and gross profit, partially offset by higher operating expenses. Higher tax expense had a negative year-over-year impact of $0.11 per share, and FX and share count had a negative $0.02 per share impact.

Turning to Slides 11 through 13, I will cover two month segment results compared with the prior year. Device Solutions revenue was $127 million, gross margin was 23.7% and operating margin was 17.1%. Gross margin was up 360 basis points year-over-year, and operating margin was up 520 basis points, reflecting a higher value product mix and operational efficiencies. Network Solutions revenue was $408 million with gross margin of 37.1% and operating margin of 28.6%. Gross margin increased 340 basis points year-over-year, and operating margin was up 470 basis points due to favorable product mix and volume related efficiencies. Outcomes revenue was $69 million with gross margin of 35.1% and operating margin of 13.1%. Gross margin decreased 760 basis points year-over-year and operating margin was down 740 basis points due to a lower margin revenue mix and increased services costs.

Turning to Slide 14, I'll review liquidity and debt at the end of the first quarter. Total debt was $460 million, and net debt was $159 million. Net leverage was 0.6 times at the end of Q1, and cash and equivalents were $301 million. During the first quarter, we acquired Elpis Squared for cash consideration of approximately $34 million. Now please turn to Slide 15 for our second quarter outlook. We anticipate Q2 revenue to be within a range of $595 million to $605 million, an 11% year-over-year increase at the midpoint. We expect the remaining approximately $40 million of previously constrained revenue will be delivered in the second quarter, and this is reflected in our outlook. We anticipate second quarter non-GAAP EPS to be within a range of $0.90 to $1 per diluted share, which at the midpoint is approximately 46% year-over-year growth.

Now, I'll turn the call back to Tom.

Tom Deitrich: Thank you, Joan. Our Grid Edge Intelligence platform is at the core of our ability to innovate and continue to offer our customers advanced solutions that address the growing complexity of energy and water management. Two recent milestones signify the scale and breadth of Itron solutions. The differentiated services we offer through our Outcomes segment are a competitive advantage, and we are honored to have recently surpassed 100 million endpoints under Itron management, 365 days per year, 24 hours per day. This is possible due to the consistent delivery of reliable, critical infrastructure and the trust that a wide range of customers have granted. Additionally, a long-standing customer, Xcel Energy, recently deployed its 2 millionth distributed intelligence endpoint and continues to expand its deployment.

These endpoints are critical in Xcel's efforts to provide cleaner, safer and more reliable energy to their customers across 8 states. This milestone is an important marker as the nature of what we do requires careful planning and project resiliency. Finally, during the quarter, we hosted an Investor Day. Presentations included detailed discussions of our Grid Edge Intelligence platform, customer testimonials and a comprehensive segment level discussion, new long-term financial targets and a virtual technology demonstration. I encourage anyone interested in learning more about Itron to visit our website where these presentations are available for replay. Thank you for joining us today. Operator, please open the line for some questions.

Operator: Thank you. [Operator Instructions] And our first question coming from the line of Noah Kaye with Oppenheimer. Your line is open.

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