Good day, everyone, and welcome to the Itron, Inc. Third Quarter 2021 Earnings Conference Call. Today’s call is being recorded. For opening remarks, I would like to turn the call over to Ken Gianella. Please go ahead..

Thank you, operator. Good morning, and welcome to Itron’s Third Quarter 2021 Earnings Conference Call. We issued a press release earlier today announcing our results. The press release includes replay information about today’s call.

A presentation to accompany our remarks on this call is also available through the webcast and on our corporate website under the Investor Relations tab. On the call today, we have Tom Deitrich, Itron’s President and Chief Executive Officer; and Joan Hooper, Senior Vice President and Chief Financial Officer.

Following the prepared remarks, we will open the call to take questions using the process the operator described. Before I turn the call over to Tom, please let me remind you of our non-GAAP financial presentation and our safe harbor statement.

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 the comments made during this conference call, and in the Risk Factors section of our Form 10-K and other reports and filings with the Securities and Exchange Commission.

In addition, due to the fluid nature of COVID-19 pandemic, company estimates regarding the impact of COVID-19 on current 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, November 4, 2021, may materially change and we do not undertake any duty to update any of our forward-looking statements. Now please turn to Page 4 in the presentation, and I’ll turn the call over to our CEO, Tom Deitrich..

Thank you, Ken. Good morning, everyone, and thank you for joining us. I will start the call today by updating you on some significant actions we have taken since our Investor Day on October 5. First, we’re pleased to announce the acquisition of SELC, a leader in smart lighting controls.

This acquisition extends our smart city platform to an end-to-end solution, including the canopy network, management platform and now lighting controls. SELC has been a longstanding Itron partner for numerous marquee smart city deployments around the globe.

With Itron and SELC combined, we will deliver more innovative solutions to our customers for many years to come.

Yesterday, we were pleased to announce that we signed the definitive agreement with Dresser Utility Solutions to sell our European commercial and industrial mechanical gas meter business, our gas station meter and pressure regulation business and our global gas regulator business.

This arrangement includes 2 manufacturing facilities in Western Europe. This transaction has benefits for our customers, our shareholders and our employees. Dresser Utility Solutions, a veteran industry player in the gas utility industry, has acquired a strong set of assets combined with a seasoned operational team.

This deal is contingent upon local works council approvals with an anticipated close date in the first half of 2022. It is important to point out that Itron is not exiting the gas utility vertical.

Itron’s focus is on higher-value solutions and networks and outcomes, such as the Intelis gas static meter platform with integrated communications and safety features. This transaction is fully aligned with our asset-light manufacturing and overall company strategies. In conjunction with this transaction, we also announced a restructuring project.

You will hear more details from Joan in a moment, but the focus of this restructuring project is to drive overhead reductions in certain locations and support areas. These actions are part of our ongoing efforts to ensure Itron is stronger and more nimble as we outlined at our recent Investor Day.

Now please turn to Slide 5 as I hand over to Joan to review our third quarter results..

net operating performance, which had a negative $0.46 per share impact versus Q3 of 2020, primarily due to lower revenue caused by component shortages. Lower interest expense resulted in a $0.32 increase in EPS year-over-year. A higher non-GAAP tax rate decreased EPS by $0.24 versus Q3 of 2020.

The higher tax rate was due to the fewer favorable discrete benefits in the current quarter. And finally, changes in foreign currency and a higher share count resulted in a $0.02 per share decrease year-over-year. Turning to Slides 9 through 11, I’ll discuss the Q3 results by business segment compared with the prior year.

Device Solutions revenue was $152 million, with gross margin at 15% and operating margin of 8%. Gross margin increased 310 basis points year-over-year due to favorable product mix and reduced inefficiencies related to COVID-19.

Operating margin increased 160 basis points due to the fall-through of higher gross margin, partially offset by higher operating expenses. Network Solutions revenue was $274 million, with gross margin of 33% and operating margin of 22%.

Gross margin decreased 60 basis points year-over-year due to inefficiencies related to the component constraints, partially offset by a favorable product mix. Operating margin decreased 100 basis points year-over-year due to lower gross profit and continued R&D investment. Outcomes revenue was $60 million, with gross margin of 37%.

Gross margin increased 190 basis points year-over-year due to cost efficiencies. Operating margin was 20%, 140 basis points lower than last year due to an increase in R&D investment, partially offset by the fall-through of higher gross profit. Turning to Slide 12, I’ll cover liquidity, debt and capital allocation.

Free cash flow was $11 million in the third quarter versus $38 million a year ago. The change in cash flow was due to lower profitability and an increase in working capital usage. Cash and equivalents at the end of the third quarter were $189 million. During Q3, we repaid the remaining $31 million of our term loan.

As a reminder, we also have $500 million in bank revolver capacity. Total gross debt was $460 million and net debt was $271 million at the end of the third quarter. Net leverage was 1.6x at the end of Q3 2021 compared to 4.3x a year ago.

On November 1, our Board of Directors authorized a new share repurchase program of up to $100 million of Itron’s common stock over the next 18 months. As we said last quarter, we expect the component headwinds to continue through 2021 and into 2022.

The Q3 revenue impacted the component constraints of approximately $100 million was worse than we anticipated. The full year revenue guidance provided on our last earnings call anticipated approximately $150 million to $200 million of full year component supply headwinds. We now expect that constraint could be as much as $250 million for all of 2021.

Customer demand continues to show recovery. But given the component situation, we are now expecting the full year revenue to be below the range we provided on last quarter’s call. Despite the top line shortfall, we still expect to be within the range of the prior guidance for non-GAAP EPS.

Once component constraints begin to ease, we believe we will recover the vast majority of this delayed revenue in future periods.

Finally, as Tom mentioned at the start of the call, we continue to focus on executing our strategy with the acquisition of SELC, the sale of our European mechanical gas and global regulator business, and a restructuring project. The restructuring project is focused on driving cost reductions in certain locations and functional areas.

We estimate cash costs of approximately $60 million to $65 million, and the actions will drive annualized savings of approximately $15 million to $20 million. The project is expected to be substantially complete by the end of 2024.

While we continue to navigate through the near-term headwinds associated with component constraints, we remain confident in our long-term financial model that we shared with you at our recent Investor Day. Now I’ll turn the call back to Tom..

Thank you, Joan. Let me add some operational insights to the update Joan provided. While our third quarter was impacted by component constraints, our team is continuing to aggressively work with the executive leadership teams of semiconductor suppliers associated with critical bottlenecks to maximize our allocation and alternatives.

We continue to work with customers to align project schedules as the vast majority of delayed revenue is not lost but shifted into future periods. The current visibility for supply recovery is uncertain, but we expect these constraints to linger into 2022.

Even as we face challenges with component supply, we continue to grow our distributed intelligence capable endpoints to over $3.4 million cumulatively, expanding the footprint of our agile, multipurpose, multi-application network. We are also seeing customer success with the at-scale deployment of distributed intelligence edge computing.

Tampa Electric Company recently deployed 600,000 apps across 200,000 endpoints on the same network running their day-to-day meter-to-cash operations. TECO is now able to obtain enhanced analytical insights. More importantly, TECO is acting upon those insights with targeted operational activities that drive improved reliability and safety.

The expected benefits of DI are gratifying to see, but what is truly exciting are the new benefits that are being uncovered now. Our distributed intelligence platform is more than just a product. It’s about the speed of innovation. For example, new applications are moving from concept to field operations in less than 3 months.

This was unthinkable a few years ago. DI is a principal tool for the utility to enhance operations at rates of innovation that are new to our industry. Itron is the only provider in the industry to have this capability performing in the field today. Turning to Slide 14.

With solutions like distributed intelligence, we are seeing strong demand from our customer base. While it should be expected that quarterly bookings are lumpy, we are projecting a strong bookings year, with a book-to-bill ratio of at least 1:1.

Current backlog remains at $3.4 billion in total with approximately $1.4 billion in our 12-month backlog, consistent with the improving demand for our solutions. We are encouraged by the bookings achieved so far this year and continue to see a robust pipeline of additional opportunities.

A highlight of our third quarter bookings was a 10-year AMI extension signed with American Electric Power. The arrangement covers a broad geographical area across the Midwest into the Southwest portions of the United States.

Our current deployment provides AMI services to approximately 2.4 million AEP customers and is growing to 4.5 million at completion. Interest and demand for our technology is high, and we expect it to continue to grow with the dynamic challenges facing the utility industry.

It’s an exciting time for us at Itron to be providing such value and capabilities to the utilities and cities we serve. As we close out today, we would like to thank everyone who participated in our recent Investor Day. Itron remains committed to our operating model and the targets we laid out at Investor Day.

We will continue to drive long-term shareholder value by executing on the business, being proactive with our efforts to deliver an effective operating model while continuing to ensure Itron remains a market leader. Thank you for joining today. Operator, please open the line for some questions..

[Operator Instructions] Our first question comes from Tommy Moll from Stephens..

I wanted to start on the update you gave us regarding guidance. I’m curious, it sounds like revenue is expected to be below the prior range, but earnings per share is still within the prior range. So the inference there would be margins better than you would have expected previously. So I’m just curious what the driver is there.

Is it a mix issue? Is it really low-margin revenue that’s been pushed into next year? Or what would you point us to there?.

Yes. I would say it’s more a continuation of discretionary OpEx controls than it is margin..

Got it.

And just any context you could give us around what that is, Joan?.

In terms of what the controls are?.

Yes..

Yes. Well, I mean, obviously, we have done very, very little travel since the onset of COVID. Initially in some of our guidance, the expectation was Q3 and Q4 would pick up. It really hasn’t picked up.

So we’re looking at continuation of just not spending any dollar we don’t need to, but I would say a lot of it has to do with kind of T&E and things of that nature..

Okay. That’s helpful. And following up, from a strategic standpoint, you gave us some updates on the divestiture and a restructuring. Both of these topics have been top of mind for some time now and been part of your footprint reduction strategy.

So I’m curious, should we think of these 2 updates as mostly cleaning up what was left to be done? Or are there more big initiatives we should expect in the future?.

Sure, Tommy. This is Tom. I can take that one. I would encourage you to think about it very much as continuation of our stated strategy. We want to make sure we are moving our portfolio towards communicating devices, networks and outcomes.

So the assets that we moved out were primarily mechanically -- mechanical related devices, which didn’t fit the strong long-term portfolio, good assets but don’t really fit well for us. There are a couple of manufacturing facilities in Western Europe.

They go along with the deal at close, and that also is part of the strategy as we continue to move towards more asset-light models to allow us to be a little bit more agile as demand would naturally ebb and flow. The last piece of this is really the focus on sustainability and where we spend our R&D dollars towards things that are up the pyramid.

That’s really what is behind it. So we’ll be down to about 5 manufacturing facilities in Europe after this deal were to close. Certainly, we’ll continue to look at ways we can continue to shape our portfolio aligned with our strategy, but this is a really good step for us.

And I think Dresser Utilities got a really good set of assets to go along with the deal as well..

We will take our next question from Ben Kallo from Baird..

On the acquisition, could you -- you talked a little bit about how this, Tom, fills in your portfolio and where you stand with being aggressive or other things to do in the portfolio? And then I have a follow-up..

Sure. The way to think about it is we’ve had a street light offering for smart cities for some time. The offering that was, I’ll say, native to Itron legacy sense was the canopy network and all of the management software, the SaaS that goes along with the overall solution. We had been working with SELC for the actual lighting controller.

And that’s the piece that we added into the portfolio. So it gives us an opportunity to continue to integrate on the hardware side of things to create better and more innovative solutions.

This total solution really is about making sure that we have a good vertical application to go into a smart city to be, I’ll call it, the anchor tenant for that canopy network.

Switching out legacy luminaires towards LED lighting is a good operating cost savings for the city, and they can, therefore, invest in a canopy network, which allows them to monetize that network capability with many, many other solutions going forward.

So once you’ve built the base canopy to control the lights, you now have the ability to do smart parking to do town signage, you can do safety, you can do pollution types of applications. There’s a lot of different things you can layer on top of that.

Now that we have the full solution end-to-end on our side, it opens up the possibility for us to bring more of those solutions to the market a bit faster. That’s really what was behind the acquisition and why we added it into the portfolio. Relative to your larger question, what are we still thinking about, clearly our strategy has not changed.

We want to advance in the outcome space. We’ll continue to think about ways we can enhance our portfolio in that area in the months and quarters ahead..

And I’m sure you saw the ecobee acquisition.

And everyone’s talking about more going into the home and -- but should we think about you guys staying out more to smart cities and software for utilities versus trying to go in to do something like that?.

Sure, Ben. I would think that our home turf, if you will, from a market opportunity is more of a B2B kind of scenario rather than a business-to-consumer marketing model. That really isn’t the sales channel we’re interested in.

That said, I think that the newest version of the meters that we sell, the endpoints that are available do enable partnerships with other companies for the -- inside the home kind of assets.

We do have an ability for the meter to communicate with other advices inside of the house for efficiency programs, for availability of data to help the consumer understand how he or she is using a particular service or how their energy or water is being used to give them better control and insight.

That’s something that we generally do in partnership with our customers, and it’s a model that serves us well..

We will now take our next question from Jeff Osborne from Cowen and Company..

Just a couple of quick questions on the semiconductor issue.

I was wondering on the $100 million impact, is there any risk to either market share losses or fines, for lack of a better word, premier customers, any sort of repercussions of the failure to deliver?.

The revenue that we did not fulfill in the third quarter, the vast majority of that rolls into future periods. Our customers are working with us to work through the scheduling of that as components become available. I would note that we have not seen cancellations in programs. We do not see any significant market share loss or anything of the sort.

In general, our customers tend to work over longer time horizons and not just a quarter-to-quarter deal. It’s kind of the blessing of having those long-term relationships and long-term contracts with customers. So I don’t think that there’s a market share or a particular penalty risk here. Clearly, our customers want to get the product deployed.

And so do we, and hence, we work closely with the semiconductor manufacturers to find alternatives, maximize our allocation and make sure we’re moving product through our supply chain as quickly as we can to fulfill the demand..

Makes sense, Tom. That’s what I thought was the case. Just wanted to double check. And then 2 other quick ones. One, maybe for Joan on the buyback. Does that suggest that M&A is less of a priority in 2022 just given where current valuation is? And then maybe for you, Tom, just quickly on 2022 and your sort of crystal ball around RFI and RFQ activity.

Do you anticipate another robust year in ‘22 just based on what you’re seeing now? Or are things a bit more moderate coming out of COVID?.

Let me start with the first one. I would say, no, it does not really reflect any concerns on our part on the M&A possibility, particularly in outcomes. We just think it’s prudent to have that lever in our toolkit from a capital allocation standpoint. Historically, Itron has just typically always had a share authorization out there.

So nothing specific to read into that.

Tom, you want to talk about RFQ?.

Sure. We definitely have good confidence in our business over the long-term. RFP, RFQ, whatever letter you want to use, the pipeline of opportunities in front of us is very robust, very rich, and we expect that to continue on.

Our customers definitely are faced with a lot of challenges relative to how to integrate renewables into their solutions, how they can deal with increasing levels of natural disasters, climate disruption, things of that sort as well as how they can gauge more closely with their consumers.

You put those things together, it drives some real demand for our technology in our portfolio. And we think that the robust environment that we see in terms of customer activity is likely to continue..

And our question comes from Chip Moore from EF Hutton..

Thanks for taking the question. Wanted to talk about bookings just being a little softer this quarter, but obviously still, right, well above 1:1 year-to-date. Just wondering if you’re seeing any changes on the demand side.

It doesn’t sound like it, but just particularly as it relates to any pausing ahead of federal funding or anything like that, if that could be causing any customers to think about those type of dynamics?.

Good question, Chip. I don’t see any change in customer behaviors. Yes, bookings tend to ebb and flow a bit quarter-to-quarter. So I wouldn’t look at any one quarter as any sort of signal that something has changed in the marketplace.

Year-to-date, we’re -- even including a bit slower third quarter in terms of things coming to the backlog, we’re 1.12:1 in terms of the book-to-bill and very robust opportunities in front of us for Q4. So no change in the marketplace.

Relative to government stimulus or infrastructure spending around the world or in the U.S., clearly that could be a benefit. It’s not something that we’re waiting for or basing our business around. We’ve got a robust pipeline of opportunities.

We don’t see customers changing their behavior in the short run, leading up to any potential infrastructure spending. So change. And in this particular case, that’s a very good thing, given that it’s been pretty robust for the last several quarters, and we would expect that to continue..

Right. Okay. And maybe a follow-up on the sale of the gas device assets, I think you called out that in no way signals less importance for gas markets in general. Just curious if you can expand on what you’re seeing in gas and water, both markets..

Sure. A very important point that you made there. We’re not walking away from the gas market at all. We continue to have a robust portfolio of communication devices, as well as things like the Intelis gas metering platform, which is a static meter with integrated comps and integrated safety features built into that.

That is a robust value-added portfolio of products, which fits our strategy. It goes into that whole notion of networks and then services that live on top of it with things like methane sensing and automatic alarms for triggering to avoid safety incidents, things of that sort.

The part of the portfolio that we did divest good assets for sure, but don’t really fit our longer-term strategy as they are non-communicating and really more device-oriented in how they are used by our costumers. So good interest on the part of customers for both gas and water products.

Coming to the second part of your question, gas customers clearly are interested in safety as well as automating their business processes. So communications become more important, methane sensing and being able to use a canopy network becomes more and more important.

We definitely see customers more willing to work together to reuse a common asset, so more combo deals between electricity plus gas, for example, comes to fruition. On the water side of things, water sustainability is obviously very important.

And that same trend about automating business processes, wanting to get better value out of the data and run their business in a more automated fashion is what we see in the water market as well. So both robust parts of our portfolio, and you’ll see us continue on, but very much aligned to the overall strategic direction of the company..

The next question comes from Connor Lynagh from Morgan Stanley..

Yes. So just a question. I appreciate the supply chain situation is very dynamic right now. I’m curious, we heard from some of your competitors that there’s actually been a decrease in visibility from semiconductor supply in terms of losing plans, time lines from suppliers.

Just curious, have things gotten better or worse over the past few months here? Are you starting to get visibility on where things might get maybe back to normal, it’s too strong a term, but to a stable level that you can sort of build from?.

The -- in terms of the supply that we actually brought into the third quarter and were able to turn into revenue for our -- and get to our customers was, indeed, a little worse than what we had anticipated, and that was reflected in Joan’s comments.

That said, in terms of the overall visibility and things that are going on in the supply chain, I’ll be honest, I don’t see it as things are supposed [ph] to get better than what we talked about previously.

Some of the risks that I highlighted in our prior call, things like shutdowns of various economies in Southeast Asia when countries like Vietnam or Malaysia or the Philippines has to go on lockdown as they work to contain COVID-19. That puts some bumps into the earlier stages of the semiconductor cycle or even in the assembly and test side of things.

What we saw in terms of the near term was -- that was playing through in terms of deliveries in Q3. So that was where exactly the things that we talked about back in the second quarter. I don’t see it as particularly better or worse from what we were expecting overall. So I think that the environment, as you pointed out, is extremely dynamic.

There is a lot of uncertainty in terms of how quickly things can get back to normal. What we really do need to watch for is lead time starting to stabilize and to retract again, and that will play through in the months and quarters ahead.

Last point I would make is we do think this will linger on into 2022, which is what I said in some of our preferred -- prepared comments earlier on in the discussion, again consistent with what we signaled back in Q2, but it’s still the same environment we see today..

Yes. I appreciate that. So just to dial in a little bit. I think you gave some context on this, but the revenue shortfall that you guys have been discussing sounds like it’s mostly moving into 2022 or beyond.

Should we think of that as basically entirely or at least the vast majority in the Network Solutions business? And basically, the question is, how do we think about the margin on that? Is it going to come through with normal margins? Is there any sort of penalties, or just higher input costs we need to think about as that revenue does manifest?.

Yes. Let me take a stab at that. So I would say approximately 75% or so of the component impact hits the Networks segment. And as Tom indicated, that really isn’t loss, it’s delayed. Whether it’s 2022 or beyond really is a function of Tom’s earlier answer, which is when does the environment stabilize, et cetera.

We are watching the environment closely for input costs. I mentioned in my prepared remarks that we did see higher input costs this quarter to the tune of approximately $10 million. So we’re going to have to manage that as well. Obviously, networks margins are higher than devices as an example.

And so when that revenue comes back, it’s certainly from a standpoint of the overall portfolio, it’s higher margin stuff, but we’ll have to manage the input cost side very carefully..

Our next question comes from Noah Kaye from Oppenheimer..

I guess, first one just on the contracting and booking environment. Can you comment a little bit on how you’re seeing the market right now? Obviously, you’ve talked about kind of the robust demand.

Just not sure if there’s any implications for the scope of projects or the kind of projects given the legislation that’s out there, some of the industry-wide supply chain and just trying to understand how the cadence and scope of contracting discussions is trending right now..

Sure. I can jump in on that one. I think that the customers are clearly driven by some of those big trends that I talked about. We’re looking to automate their business process, being able to deal with renewables, with climate disruption, with engaging more closely with their consumers.

All of that drives more technology and more digitalization in their overall infrastructure.

That -- those are the underlying trends that drive customer behavior and the pandemic in some ways, while it certainly puts some volatility into exact timing of things as we talked about back in 2020, in some ways, it is a longer term catalyst as our customers definitely see the need to automate their business and deploy the kind of technology that we provide.

So I don’t see customers hesitating or waiting based on any potential infrastructure spending. I don’t see them any longer slowing things down in terms of the regulatory process. Things are starting to normalize on that side.

Obviously, the time from contracting to actual starting a project does vary a little bit depending on the individual project at hand. And now we’ll have to watch component availability as things start to come back into focus in 2022 and beyond. But overall, I see it as a very robust demand environment. The underlying trends are there and strong.

And people aren’t slowing down or waiting for infrastructure spending. And clearly, it could be a tailwind when and if it would come, but not something we’re counting on or requiring for us to hit the models that we’ve been talking about..

Okay. Good.

And then in the context of the optimization targets and really the vision you shared at Investor Day for continuing to make the business more asset-light, can you kind of frame how much this divestiture -- these planned divestitures get you to that goal?.

Yes. I think the easiest way to think about it, and this is a gross oversimplification a little bit, is we’re taking out 2 factories that were associated with the products that we’re talking about here. So we’re down to 5 factories in Europe. Asia and the Americas are already kind of in the optimized state, more or less that we would expect.

So still portfolio work that we can continue to look at with our devices business, but we really have come a good step forward and we’ll continue to look for opportunities. I think our minds turned a bit more towards growth on the outcome side of things, and that’s an area that we’re continuing to look at..

Our next question comes from Pearce Hammond from Piper Sandler..

My first is, so what specifically drove the backlog decline quarter-to-quarter?.

Yes. It’s basically flat, down very, very slightly, but it’s normal variation. So I would say that the way to think about it is there weren’t a lot of new big projects that came in, just the normal timing of customers signing contracts and achieving regulatory approval.

I would remind everyone that we don’t put something into backlog until you’ve got regulatory approval, and that tends to happen at discrete moments in time. So it’s really -- we consumed some of the backlog, no big projects came in, and that’s what led to the flat and slightly down kind of numbers that you saw.

The 12-month backlog is, again, really ever -- so fractionally up. It rounds to more or less the same number from a view that you tend to see. Total backlog rounded down a little bit. But I wouldn’t look at it as something that is a signal.

The customer activity remains robust and we’ve got a great outline for opportunities ahead, and the backlog is still at near-record levels..

Okay. And then just following up on Joan’s prepared remarks earlier. So essentially, this revenue that you lost in the quarter pushes out and to the right.

So essentially, is it fair to say that the component shortages are kind of equally impacting your competitors so that you’re not necessarily losing sales? It’s just changing the timing of when the sales occur?.

Yes, that’s basically true. As I mentioned, about 75% of the impact is in our Network segment, and those are longer term contracts and committed business. And so we’re working closely with the customers as to when we’ll have the components to build to fulfill the demand. But in general, your comment is correct..

[Operator Instructions] Our next question comes from Michael McGinn from Wells Fargo..

Aside from earnings, it was interesting to get some channel checks done recently as our city upgrades to high-pressure gas, and I have some new Itron equipment in the basin now. So I appreciate that..

Great to hear..

I was looking to get a little more color on kind of the free cash flow build into the out years. It seems like the component shortages are limited to a narrow scope of bill materials.

So as the log jam starts to break here and you get back to growth, any color on what you think free cash flow conversion would look like if your inventory build is only isolated to a few items and kind of how that compares to your other growth periods?.

Yes. The only thing I would probably offer is if you look at the information and the target model we put out in Investor Day a couple of weeks ago, we showed 2024 targets, including cash flow at a range of 8% to 10% of revenue.

So that’s quite a bit higher than it has been, and that’s probably the best color I can give you in terms of a normalized model going forward..

Okay. And then on the smart lighting side, it seems like a lot of the OEMs are passing around these assets. And I’m just curious, GE has some interesting history in the utility space as well.

But now that they have this full suite of C&I and resi kind of exposure, what do you see that kind of matches their investment profile in lighting in terms of, I guess, the smart lighting, the value-add relative to the legacy historically and where we are in kind of the adoption cycle? Any color there would be great..

I would say that our solution is pretty unique in the marketplace given that we’ve got end-to-end capability from the canopy network, the management and the SaaS components as well as the lighting controller. That is a bit unique.

You’ve seen companies make moves that own luminaire plus the lighting controller and cases like that, there’s a bit of consolidation in other parts of the world relative to lighting control piece of it. But really having that canopy network, which is a broader smart city offering. We don’t look at this as something that’s unique to lighting.

It’s much more about a broader smart city play. We want to bring the same ability to have a very agile network in those types of environments to enable cities to really be attractive places to live and enable it overall. So I wouldn’t look at it as something that is a thing. Particularly, it’s more about the network and the overall smart city play.

Lighting happens to be an application inside of that for us..

There are no further questions in the queue. That concludes today’s question-and-answer session. And now I would like to hand the call back over to Tom Deitrich for any additional or closing remarks..

Very good. I thank everyone for joining us today, and we look forward to talking to all of you again soon. Thanks much..

Thank you. This concludes today’s conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect..