Good day, and thank you for standing by. Welcome to Itron's third quarter 2026 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. 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.
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 27th, 2026, may materially change, and we do not undertake any duty to update any of our forward-looking statements.
Now, please turn to page four 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 four 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 five. 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 nine. 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.
Taxes and share count had a positive impact of $0.16 per share versus last year. Turning to slides 11 through 14, I'll review the Q3 segment results compared with the prior year. Device Solutions revenue was $102 million. Adjusted gross margin of 35% increased 450 basis points year-over-year, and operating margin of 28% increased 440 basis points due to favorable mix and operational efficiencies. Networked Solutions revenue was $390 million. Adjusted gross margin of approximately 42%, and operating margin of roughly 34%. Both increased 250 basis points year-over-year, reflecting operational efficiencies and favorable mix. Outcomes revenue was $92 million. Adjusted gross margin of 40% increased 110 basis points year-over-year due to operational efficiencies. Resiliency Solutions contributed $16 million of revenue with adjusted gross margin of 74% and operating margin of 26%.
Turning to slide 15, I'll review debt and liquidity at the end of the third quarter. Total debt was $1.6 billion and our net leverage was 1.9 x. Our liquidity position was approximately $1.6 billion at the end of Q3, comprised of cash and equivalents of $840 million and $722 million available for borrowing under our revolving line of credit. Now please turn to slide 16 for our fourth quarter outlook. We anticipate Q4 revenue to be within the range of $621 million-$636 million, which at the midpoint is up 10% versus last year and 5% sequentially. This narrows the full-year outlook range to $2.37 billion-$2.385 billion. We anticipate fourth quarter non-GAAP earnings per share to be within a range of $1.70-$1.80 per diluted share. This raises the full-year EPS outlook to a range of $6.72-$6.82 per diluted share.
We continue to position Itron to benefit from the long-term durable market opportunities to provide solutions for our customers as they modernize their infrastructure responsibly and affordably. Now I'll turn the call back to Tom.
Thank you, Joan. Before we open the line for questions, let me come back to the larger point. The need for intelligence, automation, and operational visibility across utility networks continues to grow, and the environment continues to move towards Itron. We saw this directly last week at Itron Inspire, where more than 1,000 attendees representing hundreds of utilities joined us in Houston. The conversations focused on immediate operating priorities, improving outage awareness, preventing faults, increasing reliability, mitigating wildfire risk, and extending the value of existing infrastructure. These are not theoretical use cases. They are operational and financial issues that our customers must solve. Wildfire risk is not abstract for us. This summer, the Spokane area, home to our headquarters and many of our employees, experienced devastating wildfires that destroyed hundreds of homes and forced more than 60,000 people to evacuate. Our thoughts remain with the families and communities still recovering.
Events like these are why we invest in helping utilities see and act on risk before it becomes an ignition. Earlier this month, we announced an expanded collaboration with PG&E to deploy thousands of Itron Grid Edge endpoints in high-risk areas. Using distributed intelligence and advanced waveform analytics, these devices will detect, classify, and pinpoint fault indicators, such as a downed live conductor that could ignite vegetation, so utilities can act before a fault becomes an outage or a fire. That example captures the broader Itron value proposition. Grid Edge Intelligence is not simply a single end product or application. It is a platform that gives utilities greater visibility into their systems and helps them solve a growing range of operational challenges, all through a reusable investment. We enter the fourth quarter with market leadership, financial strength, and a strong start to bookings.
Our priorities are clear: execute for our customers, grow recurring revenue, protect backlog quality, and deliver durable earnings and cash flow over time. The modernization of energy and water infrastructure is a long-term structural trend. Quarterly timing may move. The underlying need will not. Itron is the intelligence layer of those systems, helping customers unlock capacity, improve reliability, enhance safety, and get more from their infrastructure. The model is working, and the need we serve is durable. Thank you for joining us today. Operator, please open the line for questions.
Thank you. Ladies and gentlemen, as a reminder, to ask a question at this time, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, simply press star one one again. Please stand by while we compile the Q&A roster. Now first question coming from the line of Noah Kaye with Oppenheimer. Your line is now open.
Morning. Congrats on the nice quarter. First, maybe just a quick housekeeping modeling one. OpEx was fairly low as a percentage of revenue. Was that just timing? And what should we be modeling for the whole year?
Yeah. It was somewhat timing, a little bit below our expectations as well. We try to keep a lid on OpEx, but certainly expect Q4 to be higher. Q4 is typically a much higher quarter than Q3, which tends to be our low quarter. You have our customer event that just happened last week, which adds to it, as well as we expect a higher bookings quarter. Typically, Q4 is our highest bookings quarter, and therefore you get sales comp and things of that nature. Going forward, I would expect the OpEx to tip back up to where it had been looking at.
Okay, great. Joan, I can't resist, since you just mentioned the bookings. We've got just a few months left, and as you mentioned, Q4 is usually the high water mark. Is there any way to maybe bracket expectations around those bookings and where we might end up on book-to-bill?
I'll start and then let Tom comment. No, we're not going to guide specifically to book-to-bill, but if you look historically, Q4 is our strongest quarter. I don't know, Tom, if you got more.
Yeah. Bookings are lumpy by nature, so Q3 is not a clear signal in terms of what it looked like. October is off to a really nice start for what we expect. It is the highest quarter as was already mentioned. We like the pipeline that is in front of us. We see the opportunities and are excited to work with the customers to close out on the available items.
Got it. Maybe just one more. I know you had some new deployments that got going here in the back half, supporting the sequential revenue increase. At this point, when you look at the programs that are going on and their expected duration, is the 4Q revenue run rate a good starting point to think about 2027? Any nuance you could put around that?
Yeah. We are not going to get into guiding 2027 today. You will get that in February. Fourth quarter, the outlook that we just put out is underpinned by the bookings, is underpinned by the ongoing deployments. We have some pretty nice deployments going on in the Caribbean, in the Southeast, and in the Northeast that drive that sequential growth and year-over-year growth, which is really what we wanted to see.
Okay. I will take the rest offline. Thank you.
Thank you. Our next question in queue, coming from the line of Ben Kallo with Baird. Your line is now open.
Hey, good morning, guys. Tom, in your prepared remarks, you talked about a western utility, and you mentioned an OpenWay Forward. Could you just go into more detail about the OpenWay Forward and what that entails? And I have a follow-up.
Sure. I normally characterize this as forward-backward compatibility, really, which is a way that a utility that has existing assets in the field, perhaps some of them are not fully depreciated, how do they move those forward seamlessly to have additional functionality and new functionality, meaning the coexistence of older technology and some of the newer, more advanced use cases, and allow that to happen seamlessly? That's exactly what the OpenWay Forward program does for many utilities, some of the earlier adopters that were out there. The deal that was in my prepared remarks really is just another example of how we can allow that asset continuity and enable the utility to seamlessly add new capabilities where they need it and do it at the pace that is affordable to them. The current environment from a regulatory standpoint, I think is important to note.
Okay, regulatory commissions are certainly asking the requisite questions that all of us expect as consumers and users that are on the systems themselves. And when we can enable the utility to work within that affordability concern of the regulator, allow the new functionality that is needed to cope with the dynamic environment that's out there, it really is a win-win for everybody.
And just maybe an extension on the answer there, a question. How does that change just in terms of the bookings? Is it a competitive advantage that allows you to keep your incumbency, or does it lower the amount of bookings that you would get from a project because you are not replacing everything? Or how do you view that?
Yeah. Certainly, it is a very strong moat that is out there. If a customer really needed to rip and replace undepreciated capital, that is very difficult from a financial point of view. So enabling that smooth transition is very good feature from a customer perspective, and that obviously helps the incumbent, which we are to a great extent in the marketplace. On the bookings front, I think it tends to create a smoother bookings profile instead of the really big bang, if you will. So maybe the customer would do $10 million or $11 million, $10 million deals rather than one $100 million deal, just as an example, where you are buying with the area under the curve being the same or greater, and certainly probably greater from a margin perspective, is really what it looks like.
But it tends to make the bookings slightly less lumpy when customers go down the path of utilizing the capability we provide of forward-backward compatibility.
Okay. Thank you very much. I will jump back in queue. Thanks.
Thank you. Our next question coming from the line of Chip Moore with ROTH Capital Partners. Your line is now open.
Good morning. Thanks for taking the question. Tom, you talked again about outsized opportunity on the gas side. Maybe you could put a finer point on that in terms of scale and sense of timing. Are you starting to see that flow through yet, or is that still on the come?
The number of endpoints, if I use that as the metric that we expect will be awarded over the next, let's say, I don't know, two, three years kind of timeframe for the awards, is multiples higher than what the normal run rate for gas would be. Very strong opportunities in the marketplace. The awards come in, let's say, the next two, three years. The rollout of those systems, let's say three, five years, something like that would be my expectation. That gives you a sense of the size of the pie. The underlying dynamics as to why it's that large is you do have an asset life cycle where you have batteries that need to be replaced.
If you're going to roll a truck to go replace a battery and there is much better technology with integrated safety built in, perhaps maybe you want to upsize and replace the metrology as well as the battery that's in the device itself. That's really the underlying dynamic and why we're really optimistic. It has not yet shown itself in the bookings, in the world of the P&L in any significant way. That's still ahead of us.
Perfect. Appreciate that. My follow-up, again, on the regulatory, you have talked about it already and some of the complexities. Any thoughts on midterms? Is there any impact there, or should we expect any changes post-elections? Thanks.
Yeah. I would not expect that there would be any unique impact from the midterms on the regulatory environment. The regulatory environment is handled at the state level by and large. Whatever is going on with the federal government obviously can have some macroeconomic impacts, but I do not think there is anything specific that would apply to our market on the regulatory policy itself, at least not in the short term.
Thanks very much.
Thank you. Our next question coming from the line of Scott Graham with Seaport Research Partners. Your line is now open.
Hey, good morning. Thanks for taking the question. I wanted to maybe ask you about what we're seeing kind of on the water utility side where there's, depending upon where fiscal years are in the budgets, that there's been some crowding out of some of the enterprise budgets from inflation on items that don't need to be replaced, for example, a water meter, just as one example, I'm sure obviously many other things. Can you talk about what your electric utility customers are saying about inflation and how it's impacting their budgets, and if the next sort of budget period, whether that's July or whenever, maybe includes more, contemplates more inflation?
Good question, Scott. I would say that certainly inflation has rolled through the entire supply chain, certainly our input components, and we've obviously done a decent job of managing costs on our side, as well as having pricing mechanisms in place. When that rolls all the way through, it does drive CapEx budgets up across the board. So you've seen increases in distribution capital spending into the low to mid-single digits. That certainly is driven by overall inflation, but it's also driven by the need for more advanced use cases, demand growth, better resiliency, better reliability. So that trend clearly is alive and present in the electricity market itself. You mentioned it in water.
Certainly, I think that there is an inflation component in water, but certainly in Water North America, there's also some changes when it comes to the government stimulus side of things where the stimulus packages kind of rolled through, let's say a couple of years ago, a year ago, and now you're seeing the rebound effects of that certainly in North America, less so in Europe where our water business is a larger portion of the portfolio.
Okay. Well, thank you for that. I would just follow up by just maybe including in the answer to my previous question. There are some GRIP provisions in, I believe it's IIJA, that bar electricity. Maybe you can bring a comment to bear on that. Also more broadly, Itron is a much different company, the way it goes to market and the way you provide solutions today versus five years ago. I know you talk about your north of 50% share in intelligence and network. I'm just wondering, who do you see day-to-day competitively in those markets as your business has changed?
Sure. Let's take the government program first. Some of the initial project awards that came out under GRIP got caught up, and this is 18 months or so ago, in some of the changes around the administration and what they were making. GRIP programs have been replaced with SPARK Programs. Different acronym, slightly different program mix, but those SPARK programs are largely moving through. Some of that money is in years ahead, meaning not yet spent, but looks to be on track to carry forward. Some of that churn that we saw 18, 24 months ago is largely behind us now and things are moving forward. On the competition side of things, I would say that the competitive landscape has not changed dramatically.
There are competitors who are the usual suspects, if you will, that have traditionally played in the utility networking space as well as metrology space. Today, we certainly see a mix of competitors on the Outcomes side, where you have some very large tech-forward companies and some startups that play in the space. In the metrology space at large, it tends to be a very fragmented market outside of the U.S. And again, I have not seen a lot of changes in the competitive dynamics that are present in the marketplace. Certainly growth in cellular technology in certain pockets of the market, more so in the gas and water space, which again, is just another way to attack the market, and our portfolio covers that piece of the puzzle as well.
That's very helpful. Thank you, Tom.
Thank you. Our next question in queue coming from the line of Joseph Osha with Guggenheim Securities. The line is now open.
Thank you. Good morning. I have two questions. First, looking at Outcomes and Resiliency Solutions, especially thinking about things like Urbint, Tom, I am wondering what opportunities you have had to deploy AI and how you are thinking about that going forward. Thanks. I do have a follow-up.
Sure. In the AI space, specifically in Resiliency Solutions, if I narrow my answer to that, for the first part of the question, the weather models that we use, the asset deployment models for storm response are AI-based programs overall. The worker safety module has an AI component to it, which helps you to identify hazards out in the field in real-time. In the digital construction management space, AI allows you to populate the data that is required for construction and compliance. It really does save a lot of time and adds intelligence to how field workers are using products across the board. Whether it is in times of high stress, like a storm response, or just day-to-day operations, worker safety, not that safety is not involved in both sides, or digital construction management.
On the more Itron traditional side of things, certainly our forecasting business has been machine learning, AI-based for decades now. We also see it in things like anomaly detections. One of the items that I mentioned in the prepared remarks around wildfire detection and some of the indicators associated with it, that is AI-based out at the edge of the network. So very strong growth in all of those applications, and it really does solve the types of problems our customers are up against.
Great, thank you. That kind of neatly anticipates my second question. You have gotten really good at edge of the grid anomaly detection. I am a California resident. I know it is not just edge of the grid. We have got fire risk everywhere. So I am wondering if you ever think about deploying some of those skill sets a little further from sort of your core area, more into sort of the transmission level parts of the grid, whether that is a possibility, especially in anomaly detection for fires. Thanks.
Sure. I would say that we probably will continue to move from where we are towards the center of the grid. I think some of the work that we are doing today, where we are integrating edge data with SCADA data at the next level up in the grid by combining both of those data sets and being able to understand what is happening. You can spot precursors for fires, and again, try to get ahead of it, that the best fire defense you have is preventing ignition from the start, which is really around some of the press releases we had done towards the middle of the year in that particular space. So think of it as moving into the substation level next. Transmission somewhere still ahead of us, but I do believe that potentially there is an opportunity there in the future.
Thank you.
Thank you. As a reminder, if you would like to ask a question at this time, please press star one one on your touchtone telephone. We will give it a moment. I am showing no further questions in the queue at this time. I will now turn the call back over to Mr. Tom Deitrich for any closing remarks.
Great. Thank you very much for joining us today. The need that we serve is durable and our model is performing, so we look forward to updating you again next quarter. Thanks.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.