Graham Price: Hi, good morning. This is Graham Price on for Pavel. Thanks for taking the questions. I guess first one for me, you called out strength in water for the Devices segment. And I think you touched on it a little bit in the previous question, but was just wondering if you could talk a little bit further on that strength and how that rolls into 2024?
Tom Deitrich: Sure, so the strength that we’ve seen for most of this year and certainly continued on into the third quarter results that we just printed, water in Europe specifically has been stronger than we expected as we came into the year. It really is investment in automating metering, automating water services, improving the efficiency, so reducing leaks is what’s driving that strength. And just given our footprint, we’ve seen it primarily in Europe. In the Americas, the water communications portfolio, we have continue to move along more or less at the pace we expected, which is part of the network’s solution. But in Europe, it really was stronger than we had anticipated. Certainly, we’ll continue to watch and monitor that as we go through the fourth quarter and into next year.
I think it’s a little premature to forecast exactly what ’24 would look like. But very much pleased with the performance of the Water segment in devices through this year. That has really contributed to some of the dramatically improving gross margin levels that is present in the devices business year-over-year.
Graham Price: Got it. Thank you for the color on that. And for my follow-up, you’ve mentioned longer lead times, but is the concept of the Golden Screws, the Golden Screw bottlenecks that you’ve dealt with in the past, is that error pretty much over at this point?
Tom Deitrich: Certainly, there are some mismatched sets of components that are still in our inventory level today. But I would say about 80% plus of those golden screws, if you will have been recovered. And we continue to see things moving in the right direction. So I think supply chain certainly it has normalized and that has helped the revenue. So some of the pull forward of things that we thought coming into the year, we would only be able to deliver in ’24. We’re taking that advantage of and the supply chain team has done a really nice job of being able to turn those golden screws, those components into finished goods and delivery teams getting them installed and in operation with our customers. So rolling all the way through, it has been a very successful effort on the part of the team.
Graham Price: Understood. Great to hear. I’ll pass it along. Thanks.
Tom Deitrich: Thank you, Graham.
Operator: Thank you. And our next question coming from the line of Ben Kallo with Baird. Your line is open.
Ben Kallo: Hey guys. Good morning. Congrats on the quarter. Tom, maybe just, can you talk to us just about, I guess the environment for new deals, both on the networking side as we’re talking North America as well as Outcomes. Just as we get a lot of talk about utility rates going up and just wondering about, how you balance new infrastructure with pushing out higher utility rates to customers at the PUC level. I have follow-up.
Tom Deitrich: Very good. So, there are a couple of layers to your question. So first and foremost, quoting activity remains strong and robust for some of the underlying causes that I outlined earlier. Resiliency, reliability, distributed energy, resource management efficiency in the overall operation, whether you’re talking about reducing leaks, improving safety, or just doing a better job of managing the assets. All of those types of needs are very acute with our customers today, and that fuels a lot of the quoting activity and the expectations we have for bookings into Q4. There are awards, as I hinted at earlier, that haven’t rolled into backlog yet as we finish out some of the process, which again gives us good visibility.
We do see utilities continuing to replace and improve the assets that they have in the field today. It absolutely is going into rate cases and rate case approvals are moving along at the pace we would expect. We also start to see some of the IIJA monies starting to be awarded. There was about $8 billion of North American projects that were just approved, or at least $3 billion in government funding towards those $8 billion. Those awardees were just announced in the last, let’s say two weeks approximately in the electricity and energy space. That probably shows up in terms of revenue for us in maybe the 2025 range and beyond. So we’re still a bit away from that rolling through the P&L but still see good policies, good regulatory pace overall.
And I don’t necessarily look at this as only a balance of near-term rate cases, but it is a need to provide resilient and reliable service and upgrade the investment or the decisions that our customers are making. Oftentimes, the non-wires approach in terms of making investments in the distribution grid is less expensive and faster to implement than doing some of the big generation or transmission projects, which means that it’s a little bit less expensive and perhaps easier to upgrade things in our portion of the grid than some of the big iron, which in this kind of environment is helpful and gives us a good tailwind for our business in the years ahead.
Ben Kallo: Thank you for that. Just a follow-up. Just on backlog, can you just help us think about the kind of mix for Outcomes and then also just the tail of some of that. And then as we move forward in our years, how your mix changes in your P&L, not backlog from devices to Outcomes in networking. So just to give us a sense of how this all evolves going forward.
Tom Deitrich: Sure, happy to. So the total backlog, the $4 .3 billion that’s there, that’s about three to four years, is where the majority of that backlog will roll through the P&L. That is 90% approximately Outcomes and Networks based today. In terms of the business mix going forward, I would expect that devices stays at about that $100 million plus or minus per quarter, but I do think that the Networks and Outcomes businesses will continue to grow. So that’ll give you some sense of what you should expect over the next couple of years in terms of the mix of our business.
Ben Kallo: Thank you. Congrats again, guys.
Tom Deitrich: Thank you.
Operator: Thank you. [Operator Instructions]. And our next question coming from the line of Scott Graham with Seaport Research Partners. Your line is open.
Scott Graham: Yes, hi. Good morning. Thanks for taking my question and congratulations on a nice print. I was wondering about the backlog and your comment, Tom, about 70% has been repriced and is in there and 30% of it is sort of not repriced and we’ll roll out over the next 12 months. And look, I know that this is real fuzzy math that’s kind of gets you to a little more than half of last 12 month sales. And does this suggest that the second half gross margins could be pretty meaningfully higher than the first half gross margins in ’24?
Tom Deitrich: Yes, I don’t know that I would read that much into it, Scott. We want to be thoughtful and we’ll set 2024 guidance where we get into early next year. So in our February call approximately is when we would really set a 2024 number. I do think that the next 12 months is where we will roll through the majority of that pre-pandemic backlog. But you got other factors in there beyond price. There’s certainly mix that can move things up and down as well as what could happen with inflation and utilization overall. So I don’t want to get too far ahead of ourselves on 2024 just yet. It’s probably the best way to think about it. But we are pleased with the pace of rolling through the backlog. Some of that pull forward. We have allowed us to chew up some of that pre-inflation priced backlog and what we think will be a move through the majority of the remaining amount over the next 12 months.
