ITRI Q1 Earnings Call: Margin Expansion and Software Growth Offset Revenue Miss

Resource management provider Itron (NASDAQ:ITRI) missed Wall Street's revenue expectations in Q1 CY2025, with sales flat year on year at $607.2 million. On the other hand, the company expects next quarter's revenue to be around $610 million, close to analysts' estimates. Its non-GAAP profit of $1.52 per share was 15.3% above analysts' consensus estimates.
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Revenue: $607.2 million vs analyst estimates of $614.1 million (flat year on year, 1.1% miss)
Adjusted EPS: $1.52 vs analyst estimates of $1.32 (15.3% beat)
Adjusted EBITDA: $87.93 million vs analyst estimates of $83.5 million (14.5% margin, 5.3% beat)
Revenue Guidance for Q2 CY2025 is $610 million at the midpoint, roughly in line with what analysts were expecting
Adjusted EPS guidance for Q2 CY2025 is $1.35 at the midpoint, above analyst estimates of $1.29
Operating Margin: 12.6%, up from 10.4% in the same quarter last year
Free Cash Flow Margin: 11.1%, up from 5.7% in the same quarter last year
Market Capitalization: $5.19 billion
Itron's first quarter performance was shaped by favorable shifts in product mix and continued operational execution, as highlighted by CEO Tom Deitrich. The company saw expansion of gross margins and operating efficiency, particularly due to disciplined manufacturing and customer demand for its grid edge intelligence platform. CFO Joan Hooper pointed to record margins in Device Solutions and improved recurring revenue in Outcomes as supporting factors for margin growth, despite revenue coming in flat compared to the prior year.
Looking ahead, management noted that expected tariff impacts and a stable demand environment are key themes for the remainder of the year. Deitrich acknowledged the fluid tariff landscape, estimating a $15 million EBITDA effect for 2025, but emphasized that mitigation strategies and ongoing supply chain adjustments should help maintain margin strength. Hooper added that recurring software revenue and disciplined capital allocation remain top priorities as Itron navigates macroeconomic and trade uncertainties.
First quarter performance was driven by a favorable product mix, margin expansion, and continued demand for advanced grid intelligence solutions. Management emphasized operational discipline, recurring software growth, and resilience to evolving trade policies.
Margin Expansion Through Product Mix: Gross margin reached a quarterly record, supported by a shift toward higher-margin products in Device Solutions and Outcomes. Portfolio pruning and a move away from legacy electric offerings contributed to improved profitability.
Software and Recurring Revenue Growth: Outcomes segment revenue grew 14% year-over-year, with management highlighting four consecutive quarters of double-digit growth. Recurring software licenses made up approximately 70% of Outcomes revenue, with an ultimate goal of reaching 80%.
Grid Edge Platform Adoption: Customer adoption of Itron's distributed intelligence and grid edge platforms continued, with 14.4 million endpoints shipped and another 10 million-plus in backlog. Key utility projects—including those with FirstEnergy and Public Service Company of New Mexico—drove demand for solutions that enhance outage detection and infrastructure agility.
Tariff and Supply Chain Management: The company's regional supply strategy, including significant manufacturing in the U.S. and USMCA-compliant sourcing from Mexico, is helping to mitigate tariff impacts. Management estimates a $15 million net EBITDA impact from current tariffs for 2025, with most of the cost expected in the second half of the year.
Constructive Regulatory Environment: Management described a supportive regulatory backdrop for utility software purchases, with the majority of states enabling rate-base inclusion for software and performance-based rates, facilitating ongoing Outcomes segment growth.
Management's outlook for the next quarter and the remainder of the year centers on navigating tariff headwinds, sustaining margin improvements, and driving recurring software revenue growth, while acknowledging macroeconomic and regulatory uncertainties.
Tariff Impact Mitigation: Itron is focused on offsetting anticipated tariff impacts through regional manufacturing, sourcing flexibility, and selective pricing adjustments, aiming to minimize disruption to margins and profitability.
Recurring Revenue Expansion: Strategic emphasis remains on growing the Outcomes software segment, with management targeting a higher proportion of recurring revenue and ongoing margin expansion through product mix and operational leverage.
Stable Utility Demand: The company sees steady customer demand for infrastructure modernization and grid intelligence solutions, although management noted that broader macroeconomic shifts could affect order timing or project execution later in the year.
Noah Kaye (Oppenheimer): Asked if tariff headwinds would alter full-year guidance; management said it is too early to update, but current mitigation keeps guidance on track.
Ben Kallo (R.W. Baird): Questioned regulatory progress on utilities capitalizing software; Tom Deitrich pointed to positive trends and mechanisms in most states enabling inclusion in rate bases.
Jeff Osborne (TD Cowen): Inquired about the timing of tariff cost impacts and CapEx implications; management expects most tariff costs in the year's second half and no material change to capital expenditures.
Joe Osha (Guggenheim): Sought clarity on margin sustainability in Outcomes after strong results; Joan Hooper said margins will fluctuate with software mix but expects year-over-year margin growth.
Chip Moore (ROTH Capital Partners): Asked about capital allocation priorities; Joan Hooper indicated acquisitions to expand software capabilities are the top focus, with active exploration of potential deals.
In the coming quarters, the StockStory team will closely monitor (1) the pace of recurring revenue growth in the Outcomes segment, (2) the effectiveness of tariff mitigation strategies as new trade measures are implemented, and (3) ongoing customer adoption of Itron's grid edge and distributed intelligence solutions. We will also watch for updates on potential software-focused acquisitions, which could accelerate recurring revenue and margin expansion.
Itron currently trades at a forward P/E ratio of 20.7×. Should you double down or take your chips? Find out in our free research report.
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