Been looking at Itron after the drop from the $140s into the low $90s. I used to think of it mostly as the smart meter company, which is still a big part of it, but theres a fair bit more software/services in there now than I realised.
The last quarter looks bad if you only glance at revenue. Sales were down 7% because some of the big utility network deployments moved around, but gross margin went from 37% to 41% and adjusted EBITDA was actually up 8%. Their recurring revenue was up 21% to $417m as well. So I'm not that bothered by the revenue decline yet, especially with $4.4bn sitting in backlog.
They've been pushing further into the software side for a while. The Outcomes segment does stuff like grid management, analytics, energy forecasting etc and was up 13% last quarter. They also bought Urbint and Locusview recently, which adds more utility software. I dont love how much they paid for those, about $850m combined, and the balance sheet obviously looks worse after doing it. For a company with a market cap around $4bn thats not some tiny bolt-on acquisition you can ignore.
Still, at the current price you're paying roughly 14x the midpoint of their 2026 adjusted EPS guidance. Management actually raised that guidance after Q2 even with revenue still expected to be roughly flat for the year. 2025 free cash flow was $383m too, so this isnt one where the valuation only looks cheap because of adjusted earnings with no cash behind it.
I also quite like the customer base here. Utilities aren't exactly going to stop needing meters, grid communications and software because the economy has a bad year, and the amount of work going into grid capacity/reliability over the next decade isnt hard to see. Itron already has the relationships and installed equipment, then gets to sell more software and services into the same utilities. Obviously that doesnt mean every project arrives on schedule, which is basically what we're seeing in revenue right now.
The acquisitions are probably what I'd worry about most. If Urbint/Locusview end up being mediocre businesses bought at software valuations then some of the cheapness disappears pretty quickly. Debt is also higher now. I dont think you can just look at the P/E and pretend none of that happened.
But around $90-95 I think its getting pretty interesting. Earnings and cash generation have improved a lot while the share price is about 35% below the 52 week high, and the faster growing recurring part of the company is still moving in the right direction.
Anyone following ITRI more closely? Mainly interested if theres something ugly in the utility contract/backlog side that I'm overlooking.