Itron set company records for gross margin, profit, and free cash flow in the third quarter on revenue of $582 million near the top of its guided range, with gross margin up 360 basis points to 37.7% and free cash flow nearly doubling to $113 million on favorable mix and improved working capital. Revenue declined year-over-year on project-deployment timing and portfolio changes, bookings of $380 million came in lower than expected, and non-GAAP EPS fell $0.30 to $1.54 on an unfavorable tax comparison. Management tempered year-end booking expectations amid federal funding uncertainty but reported no cancellations, raised full-year EPS guidance on a favorable tax item, reaffirmed its 2027 targets, and announced the $325 million all-cash acquisition of Urbint.
Good morning and welcome to Itron's third quarter 2025 earnings conference call. Tom Deitrich, Itron's President and Chief Executive Officer, and Joan Hooper, Senior Vice President and Chief Financial Officer, will review Itron's third 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 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 comments made during this conference call as well as those presented in the Risk Factors section of our Form 10-K 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 to our current and future operating and financial environment. Materials discussed today, October 30th, 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.
Thank you, Paul. Good morning, and thank you for joining our call. During the third quarter, Itron set new records for margins, profit, and free cash flow on revenue in line with expectations. Financial highlights on slide four include revenue of $582 million, adjusted EBITDA of $97 million, non-GAAP earnings per share of $1.54, and free cash flow of $113 million. On slide five, our third quarter bookings were $380 million, with a total backlog at the end of the quarter of $4.3 billion. Turning to slide six, utilities are operating in an increasingly complex environment marked by accelerating load growth, rising costs, heightened regulatory scrutiny, and greater technical demands. Customers are adapting to this landscape by sequencing initiatives and, in some cases, extending project deployment schedules. While regulators generally share utility strategic objectives, growing sensitivity to consumer costs is leading to more rigorous evaluation of project investments.
Despite a slower pace on some projects, our customers remain focused on enhancing grid performance and reliability through the adoption of grid edge technology that delivers greater visibility and control at the edge. This is reflected in the ongoing expansion of distributed intelligence-enabled endpoints, which topped 16 million deployed by the end of the third quarter, with more than 10 million additional units in backlog. Licensed DI applications grew 119% year over year to 20 million at quarter end. Grid Edge Intelligence defines the future of agile, data-driven distribution infrastructure and continues to expand opportunities for our Outcomes segment, which grew 11% year over year, led by higher recurring revenue. With respect to recent federal funding actions, Itron has seen no project cancellations, stoppages, or decline in customer interest. However, these deployments introduce greater near-term market uncertainty and add to the complex challenges our customers face.
Lower than expected Q3 bookings and heightened uncertainty have tempered our year-end booking expectations. While achieving a one-to-one book-to-bill ratio for 2025 remains possible, we anticipate current dynamics to persist this quarter, resulting in bookings below that target. Although project conversion to backlog is taking longer, lumpy bookings are a familiar pattern and do not alter our long-term business trajectory. Importantly, these changes are not due to competitive dynamics nor fundamental changes in the market. Our opportunity pipeline has expanded by over 25% since the start of the year. Moreover, Outcomes-related bookings continue to lead relative backlog growth across our three segments. Lastly, we recently announced the acquisition of Urbint, with the transaction expected to close during the fourth quarter of 2025. The Urbint business aligns well with our M&A priorities. Its software-oriented, scalable platform complements our current portfolio and addresses the needs of critical infrastructure providers.
Urbint's SaaS business model delivers solutions for emergency preparedness and response, damage prevention, and worker safety. We are excited to welcome the Urbint team on board soon. We will share more details about Urbint and the expanded Itron portfolio on our next quarterly call. Now Joan will provide details about our third quarter and our outlook for the fourth quarter.
Thank you Tom. Please turn to slide seven for a summary of consolidated GAAP results. Third quarter revenue of $582 million was near the top end of the range we provided and lower than the prior year due to planned portfolio changes and the timing of large project deployments. Gross margin of 37.7% set a company record for the second consecutive quarter and was 360 basis points higher than last year due to favorable customer and product mix. GAAP net income of $66 million or $1.41 per diluted share compared to $78 million or $1.70 per diluted share in the prior year. The decrease was due to higher tax expense with the prior year benefiting from favorable resolution of a foreign tax audit. This was partially offset by higher GAAP operating income.
Regarding non-GAAP metrics on slide eight, non-GAAP operating income of $89 million or 15.3% of revenue was an all-time quarterly record and increased 13% year over year. Adjusted EBITDA of $97 million or 16.7% of revenue were both all-time records and EBITDA dollars increased 10% year over year. Non-GAAP net income for the quarter was $72 million or $1.54 per diluted share versus $1.84 a year ago. Higher income tax expense more than offset higher non-GAAP operating income. Q3 free cash flow of $113 million or 19.5% of revenue is a new company record and compares to $59 million a year ago. This increase reflects improved working capital, lower tax payments, and higher operational earnings growth year over year. Revenue growth by business segment is on slide nine.
Device Solutions revenue decreased 19% on a constant currency basis due to the expected decline in legacy electricity products in EMEA and lower water volumes in North America. Network Solutions revenue decreased 6% year over year primarily due to the timing of project deployments. Outcomes revenue increased 10% on a constant currency basis due to the continued growth of recurring revenue. Moving to the non-GAAP year over year EPS bridge on slide 10, our Q3 non-GAAP earnings per share decreased $0.30 year over year to $1.54 per diluted share. Higher tax is the driver of the year over year EPS decline contributing -$0.51 per share. Prior year tax expense was unusually low due to a favorable resolution of a foreign tax audit. Pre-tax operating performance contributed a +$0.22 per share improvement driven by the fall through of higher gross profit.
Turning to slides 11 through 13, I'll review Q3 segment results. Compared with the prior year, Device Solutions revenue was $104 million with a record gross margin of 30.9% and operating margin of 24%. This segment continues to deliver strong profitability improvement. Gross margin increased 370 basis points year over year and operating margin was up 240 basis points due to the favorable change in customer and product mix. Network Solutions revenue was $394 million with gross margin of 39.3% and operating margin of 31%. Gross margin increased 340 basis points year on year and operating margin was up 330 basis points due to improved customer and product mix. Outcomes revenue was $84 million with gross margin of 38.9% and operating margin of 19.9%.
Gross margin increased 390 basis points year over year and operating margin was up 520 basis points due to a higher margin revenue mix and operating leverage. Turning to slide 14, I'll review liquidity and debt. At the end of the third quarter, total debt was $1.265 billion and cash and equivalents were $1.332 billion. Please note that our recently announced $325 million all-cash acquisition of Urbint is expected to close during the fourth quarter. During the third quarter, we amended and increased our revolving line of credit to $750 million, which now matures in 2030. Now please turn to slide 15 for our fourth quarter outlook. We anticipate fourth quarter revenue to be between $555 million-$565 million. The midpoint of this range represents a decline of 9% year over year.
For non-GAAP earnings per share, we expect a range of $2.15-$2.25 per diluted share, which assumes a negative effective tax rate of approximately 19%. This negative tax rate is driven by the favorable conclusion of an uncertain tax position, which will be recorded in Q4. At the midpoint, this EPS implies an increase of $0.85 versus Q4 of last year. Normalized for the tax rate, the midpoint EPS estimate is up approximately 7% versus last year. Please note our fourth quarter outlook does not include any impact from the Urbint acquisition. 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 $2.35 billion-$2.36 billion. At the midpoint, this is down 3% versus 2024, which had approximately $125 million of catch up revenue.
Normalizing for the 2024 catch up revenue, the midpoint of the updated guidance is approximately 2% year over year growth. Our non-GAAP earnings per share full year outlook range is increasing versus prior estimates due to the favorable tax item I just mentioned. Our current expectation for full year 2025 non-GAAP earnings per share is a range of $6.84-$6.94 per diluted share with an expected annual effective tax rate of approximately 12%. At the midpoint, the updated non-GAAP EPS estimate is up 23% versus 2024 or 16% when normalized for the tax rate. While our revenue growth has been challenged with lower than expected bookings and the push out of ongoing project deployments, we are proud of our progress to improve the margin profile of the business, which has allowed us to drive higher profitability on lower revenue. I will now turn the call back to Tom.
Thank you, Joan. The market we serve is unique, and although recent volatility has increased, the industry's long-term growth trajectory remains unchanged. Our record financial results, despite industry headwinds, reflect our multi-year strategic efforts to optimize the product portfolio and global supply chain. The team is performing well, and our grid edge intelligence solution leadership is undeniable. The opportunity pipeline continues to grow and is at record levels. Together, these factors reinforce our confidence that we remain on track to achieve our 2027 targets. Finally, Urbint adds a new dimension centered on operational resilience solutions with strong growth potential. As we build out this solution set, including cross-pollination of data streams to create new offerings, significant opportunity lies ahead. Leveraging the strength of our balance sheet, we remain actively engaged in pursuing inorganic growth opportunities. We are in the early stages of the digital transformation in energy and water systems.
Itron is well positioned to expand its business alongside these global infrastructure shifts and ongoing growth in the years ahead. Thank you for joining our call today. Operator, please open the line for some questions.