Itron's Q3 2025: Contradictions Emerge on Network Revenue Decline, Tariff Impacts, and Deployment Challenges

Date of Call: October 30, 2025

Financials Results

• Revenue: $582 million, near top end of range and lower than prior year due to planned portfolio changes and timing of large project deployments; Q3 bookings $380M, backlog $4.3B
• EPS: Non-GAAP $1.54 per diluted share, down from $1.84 a year ago (decline driven by higher tax); GAAP $1.41 per diluted share versus $1.70 prior year
• Gross Margin: 37.7%, company record for second consecutive quarter, up 360 basis points year-over-year
• Operating Margin: 15.3% non-GAAP operating margin (all-time quarterly record), non-GAAP operating income $89M, increased 13% year-over-year

Guidance:

• Q4 revenue expected $555M–$565M (midpoint down ~9% YOY); outlook excludes impact from Urbint
• Q4 non-GAAP EPS $2.15–$2.25, assumes ~-19% effective tax rate driven by a discrete ~$39M benefit (~$0.84/sh)
• 2025 full-year revenue $2.35B–$2.36B (midpoint down ~3% vs 2024; ~+2% normalized for 2024 catch-up)
• 2025 non-GAAP EPS $6.84–$6.94 with expected annual tax rate ~12% (midpoint up ~23% YOY; ~16% normalized)
• Urbint acquisition expected to close in Q4 for $325M cash; excluded from Q4 outlook

Business Commentary:

* Record Financial Performance: - Itron reported revenue of $582 million for Q3 2025, with adjusted EBITDA of $97 million, and free cash flow of $113 million. - This performance was driven by new records in margins, profit, and free cash flow, along with revenue in line with expectations.

• Bookings and Backlog:
• Third quarter bookings were $380 million, with a total backlog at the end of the quarter of $4.3 billion.

• Lower-than-expected bookings were attributed to federal funding actions introducing near-term market uncertainties and slower project deployment schedules due to regulatory scrutiny.

• Segment Performance:

• Device solutions revenue decreased 19% due to the expected decline in legacy electricity products in EMEA and lower water volumes in North America.

• Network solutions revenue decreased by 6%, primarily due to the timing of project deployments, while Outcomes revenue increased 10% due to strong recurring revenue growth.

• Acquisition and Strategic Moves:

• Itron announced the acquisition of Urbint, expected to close in Q4 2025, which aligns with its M&A priorities and complements its current portfolio, addressing needs of critical infrastructure providers.

• The acquisition aims to expand solutions for emergency preparedness and response, damage prevention, and worker safety, enhancing operational resilience.

• 2027 Targets and Growth Outlook:

• Despite recent volatility, Itron remains on track to achieve its 2027 targets, bolstered by a record opportunity pipeline and strong recurring revenue growth.
• The confidence in these targets is supported by the ongoing grid edge intelligence leadership and strategic optimization of the product portfolio and supply chain.

Sentiment Analysis:

Overall Tone: Neutral

• Management highlighted 'record' margins and cash (gross margin 37.7%, adjusted EBITDA $97M, FCF $113M) while also noting 'lower-than-expected Q3 bookings' and that 2025 bookings are likely to be below a 1:1 book-to-bill due to project timing and regulatory-driven deployment delays.

Q&A:

• Question from Noah Kaye (Oppenheimer & Co.): Can you clarify the revenue delta versus prior implied guide — is lower revenue primarily in networks — and how should we think about gross margins directionally?
  Response: Weakness is primarily in networks as customer deployments are being pushed out; Q4 gross margin expected to be roughly in line with Q3; the tax discrete is ~$39M (~$0.84/sh).

• Question from Noah Kaye (Oppenheimer & Co.): What's causing conversion delays from pipeline into bookings and how do you see that trending over the next few quarters?
  Response: Demand remains strong (pipeline +25% YTD, win rates at/above historical); delays are timing pushes on hardware-oriented projects while software/recurring bookings are strong (outcomes backlog +36% YoY).

• Question from Jeffrey Osborne (TD Cowen): On the 6% decline in networks, is this due to new customers delaying DI rollouts or customers elongating multi-year projects to manage CapEx?
  Response: Decline reflects timing — completion of a major networks deployment and customers re-profiling multi-year projects (e.g., 3→4 years), not loss of backlog or demand.

• Question from Jeffrey Osborne (TD Cowen): Are customers giving clarity on when deployments will resume and what visibility do you have into plans into next spring?
  Response: Deployments are being reprofiled but no projects have stopped; customers may pursue funding options and management expects the timing churn to level out in upcoming quarters.

• Question from Jeffrey Osborne (TD Cowen): What tax rate should we assume for 2026 and can you confirm outcomes magnitude/duration in the backlog (e.g., outcomes >$800M)?
  Response: Outcomes represent well over 20% of the $4.3B backlog and are up ~36% YoY with typical backlog visibility ~3–4 years; 2026 tax rate is too early to finalize but a top-end placeholder is ~25%.

• Question from Alfred Moore (ROTH Capital): Given current dynamics, how should we think about growth trajectory for 2026 — should we expect growth or muted organic performance?
  Response: Too early to give 2026 guidance; management expects growth but the magnitude will be set when guidance is provided early next year.

• Question from Alfred Moore (ROTH Capital): Can you discuss how the Urbint deal came about, customer overlap and potential synergies?
  Response: Urbint is a SaaS business with substantial utility customer overlap; it provides AI-driven operational resilience (emergency response, damage prevention, worker safety) and offers cross-sell and analytics synergies with Itron data.

• Question from Scott Graham (Seaport Research Partners): Could you revisit 2027 targets in six months and potentially lean more into margin than sales?
  Response: Management does not anticipate revisiting 2027 targets; it's possible revenue could be on the lower end while margins/free cash flow are higher, but results should remain within the overall 2027 target range.

• Question from Scott Graham (Seaport Research Partners): How much have delivery times in backlog been pushed out (e.g., by 2–4 quarters) and what portion is affected?
  Response: Some larger projects have been reprofiled (e.g., deployments stretched from ~3 to ~4 years), spreading revenue timing for a subset of orders; this is not universal across all backlog.

Contradiction Point 1

Networks Revenue Decline and Project Delays

It highlights a shift in the company's narrative regarding the reasons for the network revenue decline and project delays, which is crucial for understanding the overall health of the business and revenue projections.

What caused the decline in network revenue—new customer acquisition or existing customer expansion? - Jeffrey Osborne (TD Cowen, Research Division)

2025Q3: The revenue decline in networks is due to the completion of a major deployment, customers spreading projects over longer periods, and some customers facing budget constraints. No projects have stopped, and customers are working through these challenges. - Thomas Deitrich(CEO)

Are the current margins unusually favorable due to product mix this year, or are they a suitable baseline for next year's expectations? - Noah Duke Kaye (Oppenheimer & Co. Inc.)

2025Q2: It's really more of a little bit slower deployment pace than what we saw in the first half of the year. That said, the things that they are prioritizing, the things that they are buying and driving through are grid efficiency, resiliency, reliability types of solutions, which tends to accrue towards the higher-margin portion of our portfolio. - Thomas L. Deitrich(CEO)

Contradiction Point 2

Revenue Outlook and Demand Environment

It involves differing outlooks on revenue guidance and the robustness of the demand environment, which are crucial for investor expectations and strategic planning.

How are project delays affecting revenue, demand, and bookings? - Noah Kaye(Oppenheimer & Co. Inc., Research Division)

2025Q3: We continue to expect revenue to be in the range of $830 million to $860 million, reflecting weakness in Network Solutions due to deployments being pushed to the right. - Joan Hooper(CFO)

Given the expected $0.25 EBITDA impact from tariffs this year, are you still confident in the full-year guidance? - Noah Kaye(Oppenheimer)

2025Q1: We delivered another quarter of strong financial and operational performance, driven by robust demand across all regions and market segments, and we are reaffirming our full year financial guidance. - Tom Deitrich(CEO)

Contradiction Point 3

Impact of Tariffs on Financial Performance

It involves differing perspectives on the financial impact of tariffs, which is important for understanding the company's cost management and financial forecasting.

What is the Q4 revenue guidance? Where is the revenue weakness concentrated? What are the expectations for Q4 gross margins? - Noah Kaye(Oppenheimer & Co. Inc., Research Division)

2025Q3: For the full year, we now expect the impact of the tariffs on our operating results to be closer to a $0.80 dilution per share. - Joan Hooper(CFO)

Given the estimated $0.25 EBITDA impact from tariffs this year, are you still comfortable with the full year guidance? - Noah Kaye(Oppenheimer)

2025Q1: For the full year, we expect an additional $15 million in operating expenses due to tariffs and the impacts of inflation. - Joan Hooper(CFO)

Contradiction Point 4

Networks Revenue and Deployment Challenges

It involves differing explanations of the reasons behind the decline in networks revenue and the timeline for resuming normal deployment rates, impacting investor expectations.

What caused the decline in networks? Is it due to new customer adoption or existing customer expansion? - Jeffrey Osborne (TD Cowen, Research Division)

2025Q3: The revenue decline in networks is due to the completion of a major deployment, customers spreading projects over longer periods, and some customers facing budget constraints. No projects have stopped, and customers are working through these challenges. - Thomas Deitrich(CEO)

Can you discuss regional demand trends in North America and any regulatory challenges from public utility commissions regarding electricity rate hikes? - Ben Kallo (Baird)

2024Q4: We do think we'll continue to see lumpiness in the bookings quarter-to-quarter. I think if you look at the back half of last year, 2023, we saw a significant increase in bookings as projects really started to come through the pipeline. We're seeing a similar pattern right now. - Thomas Deitrich(CEO)