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Date
Thursday, July 31, 2025 at 2:00 p.m. ET
Call participants
President & Chief Executive Officer — Tom Deitrich
Senior Vice President & Chief Financial Officer — Joan Hooper
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Risks
Management reduced the midpoint of the full-year 2025 revenue outlook by approximately 3%, citing "slower project deployments and delayed decisions in certain areas."
Customer and regulatory decision-making has become "more complex," leading to slower activity levels and impacting near-term revenue guidance.
Third quarter GAAP revenue midpoint guidance is down 6% versus 2024; the non-GAAP EPS midpoint guidance is down 18% versus the third quarter of 2024, impacted by an expected normalization in the effective tax rate.
Takeaways
Revenue— $607 million in GAAP revenue for the second quarter of 2025, within guidance, and slightly below the previous year due to the absence of prior-year "constrained revenue catch-up."
Adjusted EBITDA— Adjusted EBITDA was $90 million for the second quarter of 2025, representing 14.8% of revenue (non-GAAP adjusted EBITDA) and a new quarterly record. Adjusted EBITDA increased 16% year over year in the second quarter of 2025.
Non-GAAP EPS— $1.62 non-GAAP per diluted share for the second quarter of 2025, an increase of $0.41 year over year in non-GAAP earnings per share, primarily from operational improvements.
Free cash flow— $91 million in free cash flow for the second quarter of 2025, surpassing the previous year's second quarter free cash flow of $45 million and marking a new quarterly record.
Gross margin— 36.9% GAAP gross margin for the second quarter of 2025, the highest on record and 230 basis points higher year over year for GAAP gross margin on favorable mix.
Device Solutions segment— Revenue of $113 million for Device Solutions in the second quarter of 2025, down 8% year over year on a constant currency basis. Gross margin was 29.8% for Device Solutions, and operating margin was 22.6% for Device Solutions, both rising year over year compared with the prior year on improved product mix.
Network Solutions segment— Revenue of $409 million for Network Solutions in the second quarter of 2025, down 1% year over year for Network Solutions revenue. Gross margin for Network Solutions was 38.5%, and operating margin for Network Solutions was 29.6%. Both gross margin and operating margin improved year over year, aided by favorable customer and product mix.
Outcomes segment— Revenue of $85 million for the second quarter of 2025. Outcomes revenue increased 9% year over year, with gross margin at 38.5% for Network Solutions and operating margin at 18.4% for Outcomes. Margin gains were driven by recurring revenue and higher-margin software licenses.
Bookings— $454 million in bookings for the second quarter of 2025, primarily from Network Solutions and Outcomes segments. Management maintained the outlook for a full-year book-to-bill ratio of one to one or better.
Distributed intelligence endpoints— Over 15.3 million distributed intelligence endpoints shipped by the second quarter of 2025, up from 14.4 million at the end of the first quarter.
Liquidity and debt— Total debt of $1,265 million as of the second quarter of 2025, net debt of $41 million as of the second quarter of 2025, cash and equivalents of $1,200 million as of the second quarter of 2025, and net leverage was 0.1 times as of June 30, 2025.
2025 full-year revenue outlook— Now $2,350 million to $2,400 million (previously $2,400 million to $2,500 million) for full-year 2025 revenue guidance, reflecting a midpoint decrease of 3% from prior full-year 2025 revenue guidance. The new midpoint implies approximately 3% year-over-year growth for fiscal 2025 when adjusting for fiscal 2024 catch-up revenue.
2025 full-year non-GAAP EPS outlook— New range of $6.00 to $6.20 non-GAAP earnings per share for 2025, up from $5.20 to $5.60. The midpoint is 9% above 2024 levels for non-GAAP earnings per share and 13% above prior guidance for 2025 non-GAAP earnings per share.
Third quarter 2025 guidance— Revenue of $570 million to $585 million for the third quarter of 2025. Non-GAAP EPS of $1.45 to $1.55 per diluted share for the third quarter of 2025, with the midpoint decline explained by a normalizing tax rate for third quarter 2025 non-GAAP earnings per share.
Operational strategy— Management cited structural changes, including the closure of a France-based electric factory and prior divestitures, as drivers for sustained and elevated margin performance.
Regulatory and customer environment— Management reported a push toward longer project sequencing and increased complexity in regulatory approvals, causing revenue phasing but not project cancellations.
European opportunity— Reemergence of demand for distributed intelligence and edge solutions, with management targeting full solution sales and favorable returns in Western Europe.
M&A prioritization— Capital deployment strategy remains outcomes-focused, with an unchanged M&A approach targeting accretive software and services assets.
Summary
Management described a record-setting quarter for margin and profitability amid persistent macroeconomic and policy headwinds, with elevated non-GAAP EPS and cash flow for the second quarter of 2025, supported by structural operational changes. While project deployments and regulatory complexity drove a cut to the full-year 2025 revenue outlook, orders and high-value software adoption enabled a meaningful increase in non-GAAP earnings guidance for fiscal 2025. Year-end financial targets now emphasize higher profitability on lower revenue, as reflected inItron(ITRI 2.09%)'s updated 2025 full-year non-GAAP guidance, achieved by portfolio mix improvements and expense controls. Cash reserves and modest net leverage expand the company’s flexibility for disciplined capital allocation.
CEO Deitrich stated, "the things that they are buying and driving through are grid efficiency, real resiliency, reliability, types of solutions, tends to accrue towards the higher margin portfolio portion of our portfolio."
Management indicated project delays are primarily a result of annual capital budget constraints and sequencing, rather than cancellations, extending average backlog conversion cycles to nearly 12 months as of the second quarter of 2025.
Western Europe was named as a more active growth area for distributed intelligence solutions, supplementing an ongoing strong performance in water solutions.
Full-year effective tax rate for 2025 guidance is expected at 22%, with management noting variability depending on jurisdictional mix and settlements.
No changes were made to long-term 2027 targets, and management expressed continued confidence in bookings and margin trajectories as customer portfolios adjust to near-term constraints.
Industry glossary
Distributed intelligence (DI) endpoints: Smart devices at the grid edge capable of real-time monitoring, analytics, and autonomous decision-making for utility operations.
Book-to-bill ratio: The ratio of new orders booked to revenue billed in a given period, indicating demand and future revenue trends.
Network as a service (NaaS): A delivery model where network infrastructure and connectivity services are provided to customers on a subscription or managed basis.
Regulatory approval: Formal authorization by a regulatory agency, such as a public utility commission, required before project bookings can be added to backlog and revenue recognition commences.
Catch-up revenue: One-time or non-recurring revenue recognized in a period, typically from prior constraints or delayed projects, not considered part of ongoing run-rate sales.
Full Conference Call Transcript
Tom Deitrich, Itron, Inc.'s President and Chief Executive Officer, and Joan Hooper, Senior Vice President and Chief Financial Officer, will review Itron, Inc.'s second 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 measures of our current and future performance.
Reconciliations of differences between GAAP and non-GAAP financial measures are available in our earnings release 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 in our Form 10-Ks 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 into our current and future operating and financial environment.
Materials discussed today, July 31, 2025, 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.
Tom Deitrich: Thank you, Paul. Good morning, and thank you for joining our call. Itron, Inc. delivered solid second quarter results despite ongoing macroeconomic and trade policy uncertainties. The team performed well, achieving revenue in line with expectations and earnings above the outlook. Financial highlights for the second quarter are detailed on Slide four and include revenue of $607 million, adjusted EBITDA of $90 million, non-GAAP earnings per share of $1.62, and free cash flow of $91 million. Turning to slide five, Itron, Inc. set new quarterly records for margins, profitability, and cash flow. This improved financial performance resulted from the continued execution of our strategy and the expansion of our customers' infrastructure.
Our differentiated outcomes segment continued to drive growth, reinforcing our market leadership in agile distribution infrastructure. During 2Q, demand for Itron, Inc.'s grid edge intelligence platform remained strong. By the end of the second quarter, we had shipped over 15.3 million distributed intelligence endpoints, up from 14.4 million at the end of Q1. The ongoing adoption of DI-capable technology underscores its importance for utilities seeking flexible infrastructure with real-time data capture and analytics. The long-term market outlook remains positive, driven by rising electricity demand, increased resiliency and reliability requirements, and ongoing focus on efficiency and safety. However, in the near term, customers and regulators face a more complex environment, leading to slower project deployments and delayed decisions in certain areas.
Consequently, we are lowering our full-year revenue outlook midpoint by approximately 3%. At the same time, growing customer demand for high-value solutions along with operational efficiencies has raised our full-year EPS outlook midpoint by 13%. Despite more deliberate customer and regulatory decision-making in the short term, Itron, Inc. continues to secure business from forward-looking customers adopting new solutions to address emerging challenges. Our second quarter bookings of $454 million are shown on slide six and are primarily driven by our Network Solutions and Outcomes segments. We maintain our outlook for the full-year book-to-bill ratio of one to one or higher.
Some of the key bookings for the quarter include a large European utility, Greece's Hellenic Electricity Distribution Network Operator or HEDNO, selected Itron, Inc. to assist its efforts to enhance consumer experience, improve operational efficiency, and support Greece's goal of net zero emissions by 2050. Itron, Inc.'s solution will help HEDNO future-proof its infrastructure and enable the adoption of grid edge intelligence platforms while establishing a strong operational foundation. Tucson, Arizona selected Itron, Inc. for a large-scale initiative that will support the city's critical water conservation goals. This network as a service deployment will enable the city to efficiently collect and manage water consumption data without the burden of maintaining additional infrastructure.
Now Joan will provide details about our second quarter and our outlook for the third quarter and the full year.
Joan Hooper: Thank you, Tom. Please turn to slide seven for a summary of consolidated GAAP results. Second quarter revenue of $607 million was within the range we expected and slightly lower than the prior year, which included a significant amount of constrained revenue catch-up. Gross margin of 36.9% is an all-time quarterly record and was 230 basis points higher than last year due to favorable mix. GAAP net income of $68 million or $1.47 per diluted share compares to $51 million or $1.10 per share in the prior year. The improvement was driven by higher levels of operating and interest income.
Regarding non-GAAP metrics on slide eight, non-GAAP operating income of $82 million was an all-time record and increased 19% year over year. Adjusted EBITDA of $90 million, 14.8% of revenue, was also a new record and increased 16% year over year. Non-GAAP net income for the quarter was $75 million or $1.62 per diluted share versus $1.21 a year ago. Q2 free cash flow of $91 million was a new record and compares to $45 million a year ago. This improvement reflects strong year-over-year operational earnings growth, higher interest income, and lower tax payments. Year-over-year revenue growth by business segment is on Slide nine.
Device Solutions revenue decreased 8% on a constant currency basis, primarily due to the expected decline in legacy electric product sales partially offset by continued growth in water. Network Solutions revenue decreased 1% year over year, primarily due to the non-recurrence of revenue catch-up that occurred in Q2 of last year. Outcomes revenue increased 9% year over year, due to continued growth of recurring revenue and software licenses. Moving to the non-GAAP year-over-year EPS bridge on slide 10. Our Q2 non-GAAP EPS increased $0.41 year over year to $1.62 per diluted share. This was primarily driven by strong pretax operational performance, which contributed $0.39 year-over-year improvement.
Turning to slides 11 through 13, I'll review Q2 segment results compared with the prior year. Device Solutions revenue was $113 million with a gross margin of 29.8% and an operating margin of 22.6%. Gross margin increased 350 basis points year over year, and operating margin was up 260 basis points due to the favorable change in product mix. Network Solutions revenue was $409 million with a gross margin of 38.5% and an operating margin of 29.6%. Gross margin increased 160 basis points year over year, and operating margin was up 110 basis points due to improved products and customer mix. Outcomes revenue was $85 million. Gross margin was 38.5%, and operating margin was 18.4%.
Gross margin increased 370 basis points year over year, and operating margin was up 470 basis points due to a higher margin revenue mix. Turning to Slide 14, I'll review liquidity and debt at the end of the second quarter. Total debt was $1,265 million, and net debt was $41 million. As of June 30, net leverage was 0.1 times, and cash and equivalents were $1,200 million. Now please turn to slide 15 for our third quarter outlook. As Tom noted, our customers are becoming more deliberate in their decision and slowing their activity levels in response to economic uncertainty driven in part by the evolving trade policies.
Although our long-term market expectations remain unchanged, we now anticipate a period of slower activity levels in the near term, as our customers take time to assess the impact of emerging macroeconomic crosswinds on their business. Given this background, we now anticipate third quarter revenue to be between $570 million to $585 million. The midpoint of this range is down 6% versus 2024. For non-GAAP earnings per share, we expect a range of $1.45 to $1.55 per diluted share. At the midpoint, this is a decrease of 18% versus Q3 of last year, which had an unusually low effective tax rate of just 4.5%.
Normalized for a 25% effective tax rate, the midpoint of this range is up 4% versus Q3 of last year. Now please turn to slide 16 for an update to our annual 2025 outlook. We now anticipate 2025 full-year revenue to be within a range of $2,350 million to $2,400 million versus the $2,400 million to $2,500 million range we provided in February. At the midpoint, this represents a 3% decline versus our initial full-year outlook. It also represents a 3% decrease versus 2024, which had approximately $125 million of catch-up revenue. Normalizing for the 2024 catch-up revenue, the midpoint of our updated guidance is approximately 3% year-over-year growth.
Our non-GAAP earnings per share full-year outlook range is increasing versus prior estimates. Our current expectations for 2025 non-GAAP earnings per share is a range of $6 to $6.20 per diluted share, versus our February outlook of $5.20 to $5.60 per share. At the midpoint, the updated non-GAAP earnings per share estimate is up 9% versus 2024 and 13% versus prior guidance. We are proud of the work we have done to improve the margin profile of the business, which has allowed us to drive higher profitability on lower revenue. The revised full-year guidance assumes a 22% effective tax rate. The actual tax rate could fluctuate based on jurisdictional mix and the timing of tax settlements.
Clearly, there has been more uncertainty in the market environment than expected when we started this year. Our teams have and will continue to make the tactical adjustments necessary to support our customers' priorities as we maintain our long-term strategic course. Now I'll turn the call back to Tom.
Tom Deitrich: Thank you, Joan. Our teams effectively managed macroeconomic and trade policies uncertainty in the second quarter, achieving expansion in both margins and free cash flow. Our intelligent connectivity and Grid Edge Intelligence offerings continue to scale in line with our strategic objectives. Although customers and regulators have recently slowed their activity to address increased decision complexity and policy uncertainty alongside their existing operational priorities, the outlook for market growth remains strong. Itron, Inc. remains confident in delivering value for stakeholders through disciplined capital allocation and sustainable returns. Thank you for joining our call today. Operator, please open the line for some Q&A.
Operator: Star one on your telephone and wait for your name to be announced. To withdraw your question, simply press star 11 again. Please standby while we compile the Q&A queue. Our first question is coming from the line of Noah Kaye with Oppenheimer. Your line is now open.
Noah Kaye: Hi folks, thanks for taking my question. I do want to get to the revenue outlook, but I have to start with margins. You know, I think the I know you don't guide the EBITDA margins, but backing into something like 15% for the year. So you'd be seeing almost a couple of hundred bps expansion on lower revs. And you commented some on it, Tom and Joan, in prepared remarks, but just want to understand, is there anything atypically beneficial to kind of the mix this year? You know? Or do you think, you know, these are kind of the right margins of the jumping-off point as we look at next year?
Joan Hooper: I would say the EBITDA margin is a little bit higher than we would have expected when we started the year. We have definitely benefited from the structural changes we made in the device business. So we shut an electric factory in France at the end of last year. Those products and the customers that were supported out of that factory were lower than average margins for the segment. And obviously, we've done some things over the years, whether it was sell the Latin America business or sell the business we did a couple of years ago, the gas business. Structurally, we have been very focused on getting device margins up.
So they being close to 30% is certainly ahead of what we would have expected. But at this point, that's probably a good level for them. Networks margins will tend to vary quarter to quarter depending on the specific deployment and the phase of the deployment. So again, they're on their path to hitting the margins we expect this quarter a little bit higher than we would have expected. Outcomes, as we've talked about, is going to fluctuate quarter to quarter based on the software mix. So we feel really good about the gross margin trajectory that we're on, stand behind the 2027 targets. And obviously, that had an EPS range of 15% to 17%.
And as you say, we're already close to 15% now.
Noah Kaye: Yeah. I did want to ask about the near-term outlook. Is the implication here that some of the kind of faster book and ship business is just really what's seeing the slowing? Is there anything in kind of the backlog and networks where there's some, you know, delay, whether it's sort of funding availability for projects, government funding, or the like? Just give us a little bit of color on kind of whether this is a push out of backlog or kind of more booking shifts.
Tom Deitrich: Yeah. It's more the backlog portion rather than the book and ship portion of the business. Book and ship is at least through 2Q has been humming along at the level that we would expect plus or minus. On the project side of things, meaning the things that flow through longer-term backlog, customers are really bumping into some constraints here and there. Whether it's labor constraints or project sequencing, they gotta finish this before they start that, and they're stretching out timelines on projects a bit to live within a constrained capital budget for the year. So none of the backlog is going away. That's not the point. We're not seeing any project cancellations at all.
It's I would say it's just 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 buying and driving through are grid efficiency, real resiliency, reliability, types of solutions, tends to accrue towards the higher margin portfolio portion of our portfolio. Again, we feel good about what customers are buying. We're working with them as they manage through some of the constraints on their side of the business, not slowing down the outlook for the market longer term. I think this is a temporal thing that will roll through the business.
Noah Kaye: Right. And then I guess just a final observation to make sure I got it right is that if this is just sort of a push out of revenues that are kind of in the bag, that sets up an easier comp moving into next year. Is that a fair way to think about it?
Tom Deitrich: Yeah. I think it's as you it's a little too early to get ahead of where we will land next year. It'll depend a little bit on what the trajectory of bookings are for the back half of the year as to where 2026 will ultimately go. But your view of the revenue wasn't going away. It's just phased out in time. We do still expect growth over the year ahead.
Noah Kaye: Thank you.
Operator: Our next question is coming from the line of Jeff Osborne with TD Cowen. Your line is now open.
Jeff Osborne: Yes. Thank you. Good morning. Maybe just a follow-up to Noah's line of questioning. Tom, I think you count backlog when you get regulatory approval. Can you just talk about the sequencing or the pace of technical approval, which oftentimes has a lag between when you're receiving that notification versus when the regulator approves?
Tom Deitrich: Yeah. I would say that we're in the normal-ish range for things that have been awarded but not yet regulatory approved. So it is not yet in our backlog. Sometimes that number gets to be very, very large as I had talked about towards the back end of last year, there's usually a couple of hundred million dollars plus or minus that is in the category of awarded not yet approved nor in backlog, and that's kind of the level that we're sitting at now. The opportunities that are planned for the back half of the year that to ultimately come into bookings. There are some reasonable-sized projects that are inside of there that will require regulatory approval.
So the pace of regulatory approvals continuing to move forward is important for the half of the year, but things look to be lined up to achieve a book to bill for the full year of one to one or greater as I mentioned in the prepared remarks.
Jeff Osborne: Got it. And then maybe just reconciling your answers to Noah's question relative to the prepared remarks. In the prepared remarks, you seem to blame the delays and the lower revenue guidance on tariffs and trade uncertainty and sort of big macro political things was the way I interpreted it. I think the majority of your customers are actually increasing their CapEx budgets and then in response to Noah, you mentioned more reprioritization of projects, things taking a bit longer, and labor availability. Can you just sort of weigh the two? Like, big picture macro things versus micro things at the utility level as to what the delays are?
Tom Deitrich: Yeah. So, one step at a time. I agree with you that as a general rule, CapEx budgets for our customer base at large are increasing. Those CapEx budgets and we see those announcements, they tend to be multiyear types of things. Hey, we used to have x we have x plus y over the next three years. What causes slowdowns or constraints relative to budgets that I was mentioning when it comes to revenue in the next quarter or two really has more to do with CapEx budget for this year. So they tend to live within that annualized bucket.
So I think that there's a difference there in terms of the dividing line of folks having to live within their meetings for this year even though the total bucket is going up over a multiyear period. That gives us confidence in the long-term trajectory of the marketplace for sure. We have confidence in the strength of the portfolio based on the prioritization that we see customers making around constraints that they are living within. They're buying margin accretive portion of the portfolio.
Jeff Osborne: My last one is just our I think in the past you gave a rule of thumb of sort of nine to twelve months lag between regulatory approval and the start of revenue recognition for Itron, Inc. Just given that this is highly complex stuff, requires a lot of IT modernization, are you seeing any lengthening out of that timeline just as people work with consultants and handle the what data will be done at the level versus the cloud, etcetera?
Tom Deitrich: We've seen that in certainly some isolated cases. And I kind of mentioned that, I think, in response to Noah's question where projects are getting sequenced. If you do have a delay in an IT project, for example, you may not want to start the next one until you finished up the prior. So there is some sequencing that we have seen going on. Overall. So I think that general rule in the air some of nine to twelve months. We're probably most pushing more towards the 12 than the nine based on the pace of what we see in the marketplace today.
Jeff Osborne: Great. Thanks for the detailed response. That's all I had.
Operator: Sure. Thank you. Our next question is coming from the line of Ben Kallo with Baird. Your line is now open.
Ben Kallo: Hey, good morning, guys. Thanks for taking my question. Maybe just following along the previous questions. On the M&A front, has the regulatory stuff changed your view on M&A? As you build up more cash, maybe you could just remind us of priorities for capital deployment right now. Thank you.
Tom Deitrich: Sure. So the regulatory environment hasn't changed our view on M&A at all. We remain very active in the space and are looking for the right asset to add to our portfolio. Consistent with comments that I have made in the past, we're looking for something that is accretive towards our software service portion of the portfolio, think more outcomes-oriented types of acquisitions is what we are looking for. Count on us to be disciplined with the capital allocation that we would make, but still an area that we're very active in.
Ben Kallo: And then maybe just a follow-up, as we look at the backlog and then into next year, how do we think about your ability to grow earnings, I guess, more than revenue? We set the twelve-month backlog, but just how if you can give us any kind of thoughts on into next year.
Joan Hooper: Yeah. We stopped talking about on the call the twelve-month backlog a quarter ago because we thought it was actually getting confusing to investors because it is essentially a snapshot in time of the timing the wants in terms of the deployment and it changes all the time. If I think about the broader question, kind of what's the trajectory going into next year, as Tom said, it's a little too soon to say, here's what we expect for 2026. We do expect growth year over year from 2026 over the 2025 numbers we've just provided. A lot is gonna depend on how back-end loaded the bookings are this year.
So obviously, last year was very back-end loaded with, by far, the biggest percentage of our bookings in Q4. If that were to repeat itself, that tends to push the revenue out a little bit. If Q3 is a really strong bookings quarter, that tends to make it more potentially more growth in 2026. Again, a little too soon to talk about that. We're comfortable. We've got a good pipeline of opportunities to get to the one to one bookings that Tom mentioned.
Ben Kallo: Thanks, Joan. Thanks, Tom.
Operator: Thank you. Our next question is coming from the line of Joseph Osha with Guggenheim Partners. Your line is open.
Joseph Osha: Thank you. Good morning. Two questions. First, I'm wondering if some of this greater complexity that regulators are talking about might reflect a change in the nature of the projects themselves, the services and products that you're delivering. Becoming more complicated and perhaps, you know, a little more for regulators to understand. Is that maybe part of what's going on here?
Tom Deitrich: No. I don't think so. I would look at it in a broader context, Joe. The regulators are primarily focused on what is the rate that ultimately would be flowing through to the consumers in their territory. They're primarily economic regulators. So they're trying to balance the pressure that consumers are under from a cost perspective with the needs of new technology that utilities are trying to deploy to achieve their mandate of more resilient and reliable service overall. So it is that natural push and pull, if you will, that is present on the minds of the regulators.
The value that we provide our customers is what we work on to make sure that we help the customer put the right rate case forward to make sure that the regulator can clearly see the return on any investment they would make. And, generally, rate cases are being approved when they're put forward. So I haven't seen the process stall. That isn't the point that we wanted to make. But it is a bit more complicated just in a general sense as utilities are trying to juggle some pretty big CapEx deployment to be able to keep up with demand as well as cope with the supply constraints that are out there.
Regulators are trying to make sure that it is a reasonable deal with the right return on investment, and it isn't going to cause undue consumer spending constraints overall. So that's more of the environment. It has less to do with Itron, Inc.'s specific portfolio.
Joseph Osha: Okay. Well, that's interesting because I feel like there's another point coming out here if I go back to think it was Jeff's point earlier about utility CapEx generally going up, which it is, it sounds like you're saying yes. It is, but, you know, you're getting some PUC pushback because of, you know, ratepayer and you know, political unhappiness with retail rates. Is that part of it? It's just the intersection of the need to spend money with, you know, I think what we all know are very, very high retail rates at the moment.
Tom Deitrich: Yes.
Joseph Osha: Okay. That's interesting. Thank you very much.
Operator: Thank you. And as a reminder, to ask a question, please press 11. And our next question is coming from the line of Chip Moore with Roth Capital Partners.
Chip Moore: Good morning. Thanks for taking the question. Maybe just on a little bit more on Europe. It looked like you're starting to see some early traction at least on edge intelligence over there. Just how to think about that opportunity over the next, call it, four to five years?
Tom Deitrich: You are correct. We have seen a reemergence of interest on the European side of things where they had gotten through their original call it AMI 1.0 deployment, which was a pretty basic meter to cache kind of setup. And they absolutely are understanding the need now to get more value of the distribution network. With things like distributed intelligence and just edge intelligence overall. So we have been mindful of making sure we are getting the right margin profile associated with these things. We're focused on selling complete solutions rather than individual piece parts to make sure that it does generate the right return.
And as we work with customers on that, we absolutely have seen more success in this particular area. I would say that it's important for us to keep the right balance here. We want to make sure that the associated value that we create for our shareholders and our customers is well aligned. When we do those arrangements. But I do see, Mark, the European market Western Europe specifically, as a more active place for us in the years to come. That's on top of the water business, which yeah. Just I don't want to gloss over it. It is on top of the water business, which continues to along at a pretty nice clip for us.
Chip Moore: Thanks, Tom. Appreciate it.
Tom Deitrich: Sure.
Operator: Thank you. Our next question is coming from the line of Scott Graham with Seaport Research Partners. Your line is now open.
Scott Graham: Yes. Hi. Good morning. I want to see if you're able to answer this question. You know, your 2027 aspirational goal of $2.6 to $2.8 billion in sales, does this sort of near-term couple, three quarters of uncertainty change that?
Joan Hooper: No. There's no change to the targets we have for 2027. You know, we never expected when we set these in early 2024 it would be a straight line, but we still feel very confident in the 2027 targets.
Scott Graham: Got it. Thank you for that. And then while I have you, Joan, the mix factors, obviously, mix played a big role. Could you maybe isolate the one, two, three mix factors across the businesses which drove the gross margin? Largest ones?
Joan Hooper: Well, again, when I earlier comments I kind of made by segment, they're really different in each segment. In the case of devices versus a year ago, we had some low margin electricity products that we essentially end of life when we closed that factory. So the device business has done really well with water in general. The water margins are higher than the electric product margins. So structurally, that has taken place as we expected and in fact, a little faster than we expected. In the case of networks, there's a lot going on under networks. It's different customers with different price points of their deployments, different stages of their deployments.
But in general, all of our segments have been focused on pruning their portfolio to accelerate margin growth. And I think they've all done a really nice job of doing that. Outcomes margins have more room to go up. And as we've talked about in the past, if you get a higher software content quarter, you'll end up with higher margins. But I think they're on their pace to hit the margin targets for 2027 as well.
Scott Graham: Great. Thank you. And if I may just sneak this last one in, the outcome sales sub 10% for the first time in a number of quarters. Is there anything we should read into that? Because I that as you have talked about, you know, is led by networks on the delay there and networks was, you know, really strong for, you know, up until the fourth quarter. Double digit. Is the second half outlook for outcomes kind of the same high single, or do we get back to double digit?
Joan Hooper: So, again, we don't guide by segment, but I would say I don't think there's anything different with the outcomes business and to the extent it's been continuing to grow year over year, we would continue to see that.
Tom Deitrich: Right. The real drivers inside of that, things like DI-capable endpoints being up 36% year over year. We still have 10 plus million in backlog. We've got 18 plus million licenses that have applications that have been licensed. That's up about 140% year over year. So the business is still ticking along as we would like. I wouldn't read into one point below the 10% threshold as anything other than just normal ebb and flow on a quarterly basis.
Scott Graham: Appreciate your responses. Thank you.
Operator: Thank you. I'm showing no further questions in the Q&A queue at this time. I will now turn the call back over to Mr. Tom Deitrich for any closing remarks.
Tom Deitrich: Thank you, Lydia. Thank you all for joining our call, and we look forward to updating you again next quarter.
Operator: This concludes today's conference. Thank you for your participation, and you may now disconnect.