Itron Inc (ITRI) 2008 Q1 法說會逐字稿

Good day, everyone, and welcome to the Itron, Incorporated First Quarter 2008 Earnings Conference Call. Today's call is being recorded. At this time for opening remarks and introductions, I'd like to turn the call over to Ms. Delores Duquette. Please go ahead, ma'am.

Good afternoon, everyone, and thank you for joining us today. On the call today we have LeRoy Nosbaum, our Chairman and CEO, Malcom Unsworth, our President and COO, Steve Helmbrecht, our Chief Financial Officer, and Philip Mezey, Chief Operating Officer for Itron North America.

The earnings release that we issued today includes an outlook for revenue, earnings, and adjusted EBITDA for 2008. We will also talk about other issues on today's call that could be forward-looking in nature. The outlook and other forward-looking information we are providing is based on what we know to date and is subject to a number of risks and uncertainties. I encourage you to read the forward-looking disclosure in our press release, which alerts you to a number of factors that can cause a difference between our expectations and our actual results. You should also refer to our 2007 Form 10-K and other related SEC filings for more complete disclosures of specific risks and uncertainties related to our business.

We do not assume any obligation to update or revise forward-looking statements, although we may do so from time to time. Our earnings release includes non-GAAP financial information that we believe enhances your overall understanding of our current and future performance. Schedules reconciling GAAP to non-GAAP financial information are included with our press release and are also available on Itron's external website. Today we are going to follow a format that is similar to last quarter where Steve will start the call with a financial highlights discussion, then Philip and Malcom will each give operational updates for their respective businesses, after which LeRoy will wrap up with prepared remarks with some of his thoughts. We will finish with a question and answer period. I would also like to make you aware that, as we did with our last call, we posted a presentation on our website under the Investor Section that includes some of the pertinent points that each officer will discuss today.

Now, I would like to call--turn the call over to Steve Helmbrecht, Itron's CFO.

Thank you, Delores. Good afternoon, everyone. As in the past couple of calls, we're going to have Philip and Malcom each review performance for their operating segments, so I will provide a financial review of the quarter compared to the guidance we issued and focus on corporate expenses and some items below the operating income line.

So let's start with the results for the first quarter. We had record first quarter revenue of 478 million, which was above our guidance range of 450 to 465 million. Both Itron North America and Actaris revenue were better than expected, and as well, Actaris benefited from about a $9 million increase in revenue because of the stronger than expected euro. As we talked about last quarter, although the stronger euro contributed to part of the revenue increase, it also increases cost of sales and operating expenses. The stronger euro contributed less than $500,000 to operating income despite the 9 million revenue contribution.

Corporate unallocated expenses in the quarter were about 2.3 million higher than the first quarter of 2007, primarily due to increased compensation expenses and Actaris-related acquisition expenses for tax consulting and Sarbanes Oxley implementation. Non-GAAP operating margin was 12% for the quarter, which is about where we expected it to be. Our non-GAAP tax rate for the quarter of 27% was in line with expectations. However, I would like to remind everyone that our rate can and will fluctuate. The rate can change depending on the proportion of revenue coming from any given country. Some countries have higher rates while other countries are lower. We anticipate a non-GAAP tax rate of about 28% for 2008.

Non-GAAP net income was somewhat higher than we expected due to the increased revenue during the quarter, combined with lower than expected operating expenses. Our diluted share count included 1.4 million shares related to our convertible notes, as our average stock price during the quarter was approximately $88 per share. You will notice that we have reclassified our convertible notes to short-term at the end of March rather than long-term. This is due to the fact that our stock price exceeded 120% of the strike price for 20 days before the end of the quarter, making the notes eligible for conversion. You may remember that this was the situation at September 30 of last year as well. We do not expect that the notes will be converted as they are trading at a premium in the market. Weighted average shares outstanding are expected to be about 33 million, although if the stock price remains at the current levels, it could increase shares by about 500,000.

We had adjusted EBITDA of 72 million, which equates to an EBITDA margin of 15%, good performance for the quarter. We had a very good quarter from a cash flow perspective. Cash flow from operations of 56 million was at one of the highest levels ever, which resulted in very nice free cash flow for the quarter of 43 million. And we used that free cash flow to pay down debt. In addition to 3 million of scheduled payments on our debt, we made a total of 44 million of optional prepayments, consisting of $20 million in prepayments on our U.S. dollar tranche and EUR15 million in prepayments on our euro tranche.

Our strong cash flow in the first quarter allowed us to repay debt above our original expectations. You will notice that our total debt balance only increased by about--only decreased by about 14 million despite the higher level of prepayments. That is because of the strong euro at March 31. Our debt is valued at the end of each quarter using the spot foreign exchange rate on the last day of the quarter.

At March 31, the euro to U.S. dollar rate was $1.58. So in dollars, the balance on our euro debt actually increased $7 million rather than decreasing $20 to $25 million as we expected. We ended the quarter with a ratio of 5.3 times debt to EBITDA and an interest coverage ratio of 2.7 times. Keep in mind that these ratios are calculated based on trailing 12-month EBITDA, which is calculated using trailing average foreign exchange rates for Actaris, and also includes the add back of approximately 12 million in stock based compensation expense. As discussed previously, we are focused on generating cash flow to pay down bank debt and will continue to monitor our capital structure.

While we are on the subject of currency rates, I think it would be worthwhile to go into some level of detail about our Actaris operations and the currencies in which we do business, so that there is more clarification about our reported operations and our expectations. When the euro is appreciating versus the U.S. dollar, as has been the case recently, we benefit in the form of higher Actaris revenue. However, not as much as you may expect because of the impact of the other non-euro currencies that contribute to revenue. Although Actaris is predominantly a European operation, nearly 50% of Actaris' revenues are generated in currencies other than the euro. The top three non-euro currencies - the U.K. pound, Brazilian real, and the U.S. dollar - make up about 25% of Actaris' revenues.

Obviously, the higher euro dollar exchange rate affects Actaris' cost of sales and operating expenses as well, which has an offsetting impact on operating income and EBITDA. So our percentage operating margins have been negatively impacted by the appreciating euro because the relative increase in operating income is smaller than the relative increase in revenue.

Our revised guidance for 2008 may seem somewhat cautious to you based on our strong first quarter results. We feel that being somewhat conservative at this point is a prudent approach. We had a very nice first quarter, both in terms of revenue and EPS, but at this point some of the goodness was timing of revenue because orders were received earlier than expected, and as well, operating expenses were lower due to a slower than expected ramp-up of research and development expenses.

In summary, we are pleased with our results for the first quarter, which is a good start to 2008 and I look forward to future calls to update you on our progress. With that, I would like to turn the call over to Philip Mezey, COO for Itron North America.

Thanks, Steve, and good afternoon, everyone. There are just a couple of points that I would like to touch on today regarding our North American business. First off, we had a good quarter. Revenue grew 6% over the first quarter last year, which is in line with our expectations. Margins of 39% were lower than expected due to a couple of things. We did have a change in mix during the quarter in that we shipped fewer AMI modules than in the first quarter of last year. We have also ramped up our hiring and training of AMI resources, which has temporarily decreased our services margin. We expected this was a short term issue and that margins should return to the low 40% level for the year as planned.

From a revenue perspective, we are still being affected by the AMR slowdown caused by customers considering AMI. However, our current forecast and guidance have accounted for this slowdown. We shipped 1.3 million electric meters during the quarter, 13% more than we shipped in the first quarter of last year, and approximately 60% of those meters had Itron AMR embedded in them, compared to 43% in the first quarter last year.

Operating expenses were similar to the first quarter of last year, although there was a shift to increased R&D and marketing expenses that was offset by lower G&A and amortization of intangibles expense. Operating margins on a non-GAAP basis were 15.3% for the quarter, compared to 17.7% in 2007. The decrease is due to the lower gross margin. Bookings for the quarter were $127 million or about .9 to 1 book to bill ratio. We did not book any additional revenue for our contract with SCE as we expect the 11 million booked at the end of 2007 should carry us through the first half of this year.

We continue to make good progress internally on developing and focusing resources on the viable AMI opportunities we see. We have been working on the next version of OpenWay with new features and reduced manufacturing costs. We have enhanced our project management team, so that we will have the internal resources available for projects as they arise. We also continue to work with other vendors to expand our offerings for AMI. You probably noticed an announcement that we made with Silver Spring earlier this month regarding a project to integrate Silver Spring communication modules, which is an IP based solution, into our industry standard C12.19 OpenWay meter.

While we believe that most customers will be interested in AMI solutions that OpenWay addresses, which is standard spaced, flexible, and extendible, we think that in keeping with the OpenWay vision of open architecture it is important to offer customers a choice if they would like to pursue an IP to the meter strategy. We continue to work with a number of partners in this market and believe that it is important to offer our customers a variety of choices, so that we can help them customize a solution that addresses their individual needs.

So now, let's talk about what's going on in the North American market in general. Demand remains strong for our existing core products with shipments consistent with our 2008 forecast. We feel that we have accurately accounted for any effects of economic uncertainty and the challenge that rising commodity prices will have on our margins. AMI activity, both on accounts that have publicly announced in the market and those just coming to RSP, remain strong.

That said, I must repeat that the timing of this business is complicated by the large capital commitments that are required. AMI projects generally require board level approval, regulatory approval, and some level of support from consumer groups and other stakeholders. The process of alignment required to deploy large scale AMI projects is time consuming and involves uncertainty for both the utility and its suppliers. While this process is underway, we are bound by confidentiality clauses to severely limit our comments on the likelihood and timing of awards. This confidentiality is required to allow our customers to complete their internal and external negotiations and approvals.

The high profile AMI projects that we have previously discussed should be close to making a decision. Itron has recently signed a master agreement with CenterPoint Energy, the details of which will come from CenterPoint Energy in a filing with the Texas PUC in the next few weeks. And as David McClanahan stated on CenterPoint's earnings call this morning, they expect to begin their deployment with 250,000 units driven by the demand from retail electric providers. This is great news, getting this product off to--project off to a solid start that we think will transition smoothly to a broad based deployment.

We are still engaged at the accounts that we have discussed in the past, however, the other customers have not made a final decision at this point and we cannot talk about them in more detail other than the fact that we are still being considered for their projects.

As we have stated before, we expect that there will be minimal AMI shipments in 2008 and that 2009 will be the year for real deployments. We would also expect that as the year continues, other utilities will become more public about their intended deployment plans for AMI projects. So the industry continues to be exciting. And as always, I would like to remind everyone that while AMI continues to be one of the most important and exciting things to happen in this industry in quite some time, Itron North America sold over $150 million worth of AMR, handheld software, meters, and other products to electric, gas, and water utilities all over North America in the first quarter of this year. Our proven systems continue to be adopted by customers and we continue to invest in all of our technology, not just in AMI systems.

And with that, I will turn it over to Malcom.

Thank you, Philip, and good afternoon, everyone. As I did last quarter, I am going to focus on a couple of items related to Actaris results for the quarter, including the effects of the euro, and then talk about some of the activity in Actaris' market that has changed since we talked a couple of months ago. First of all, revenue was $328 million for the quarter, which is one of the highest revenue quarters that Actaris has ever had. However, it does include some revenue from Brazil and Europe that was reported as part of Itron North America's operations through December 2007.

Actaris' revenue was about $9 million higher than expected, due to the stronger euro in the quarter. Just as a reminder that Actaris sells products and services in multiple currencies and about half of the revenue in euros while the rest is local currencies. Each business unit has strong sales with about 38% of the revenue coming from electricity, 30% from gas, and 32% from sales of the water and heat products. The percentage of revenue from water products was higher in the first quarter versus previous quarters because of a mandatory replacement program in Germany for heat and water meters. Therefore, Actaris' first quarter results are positively impacted by these sales, most of which tend to be replaced at the beginning of each year rather than throughout the year, as other meters usually are.

Gross margins of 32% were very strong during the quarter and were positively affected by product mix, including a higher proportion of AMR meters shipped. 12% of all meters shipped during the quarter had AMR in them and 28% of the electric meters included AMR, which positively affects margins. The stronger euro increased gross profits about 3 million more than originally expected. Operating expenses of $84 million for the quarter were more than $11 million higher than the fourth quarter, about $2.5 million reflects higher expenses due to the stronger euro in the first quarter, about half is due to increased amortization of intangibles and expenses, and the remaining 3 million is due to increased sales and product development expenses in each of the segments.

The stronger euro increased our operating income about 500,000 more than we expected. Total meter shipments for the first quarter were 4.6 million versus 4.4 million in the fourth quarter, reflecting a 4% increase. Increased shipments were primarily driven by sales of heat meters.

Actaris' non-GAAP operating margins were 13.8% for the quarter, compared to non-GAAP operating margins of 13.5 in all of 2007. Bookings for the first quarter were a very healthy $357 million, or about 1.1 to 1 book to bill ratio. This is similar to prior years where Q1 book to bill ratios are higher than 1 to 1, due to some customers placing orders for the full year in the first quarter.

So let's talk about what's happening in some of the Actaris business units and in the world outside of North America. As we discussed on the last call, one of the largest AMI projects in Europe is with EDF, which has announced plans to replace their install base of 35 million meters with advanced smart meters by 2017. EDF carried out initial trials with four system integrated consortiums to determine which consortium they will choose for their 300,000 point--smart metering pilot commencing January 2010. EDF has narrowed it down to two consortiums and we are participating with both of them.

Elsewhere, the U.K. government has been asked to introduce a mandate for the rollout with smart meters in an effort to cut carbon emissions and energy bills, which would be in support of the white paper issued in May of last year. Currently, there are a number of smart meter trials running in the U.K. and the Energy Retail Association has been looking at the best ways of replacing all 45 million meters and is waiting for the government to give the green light to the mandatory installation over the next 10 years. We will continue to monitor the progress and update you when possible.

ESP Ireland announced its plans to spend EUR22 billion over the next 12 years on electricity infrastructure and renewable energy. The first round of smart metering bids for the project are due early next month. These are just a few examples of increased focus on smart metering in Europe. We also have seen some significant growth opportunities in the Middle East, India, and Asia compared to previous quarters in all metering segments - prepayment systems in AMR technologies.

So I would like to wrap up some of my thoughts regarding my new position. But before doing so, I am pleased to state that Marcel Regnier, who joined Itron as part of the Actaris acquisition in April 2007, and who has been the Managing Director of the water division for the past seven years, with 20 years experience in R&D, marketing, and operations, will be my successor. I am excited to work with both Philip and Marcel in the future to evaluate increasing revenue opportunities, maximize operating synergies, and drive profitable growth between the North American business and Actaris.

I already stated--I already started this process by having a number of management meetings with Actaris and the Itron North America personnel reviewing organizational integration with HR managers, product system and marketing integration, research and development and technical discussions with R&D managers, manufacturing and purchasing, and large scale project management topics. And I have found that there is a strong desire to work together and learn from each other and believe that we've only just begun to see the possibilities of this combined company or group--and group of extremely talented people.

I look forward to updating you in the future on my progress in this new role. And with that, I'd like to turn it over to LeRoy.

Thanks, Malcom. Good afternoon, everyone. Another good quarter. We are certainly pleased with the results that Steve, Philip, and Malcom have described. From my perspective, the year is playing out about as expected. AMR and gas and water are doing fine. AMR in electric is being challenged by a decision to look at or move to AMI. Yet, we do continue to ship against those projects that we booked last year, including MidAmerican and Trinidad and Tobago.

We are not seeing any noticeable effect from the slowdown in the economy or housing in North America or Europe. Kind of a steady as you go quarter. On the AMI front, Itron continues to pursue a number of opportunities with OpenWay in North America. I like the momentum in the market. I like our competitive positioning. We would all like the announced opportunities to move along on a more precise schedule, but in fact, they are moving on what I might call utility schedules, which Itron is very familiar with. Utilities, regulators, boards, all are wrestling with very complex matters in these very large projects.

We were quite pleased with the CenterPoint earnings release call this morning, although the market seemed a little bit disturbed. They are going to file. We've all been waiting for that. The initial phase is 250,000 meters with full expansion, if successful. None of these projects are going to go forward if not successful. They appear to have an approach they think will satisfy both the Public Utility Commission of Texas and their board - good news. And they are already thinking about how to accelerate. All of this is great news from their call this morning.

There are a lot of AMI projects moving forward. The exact timing is unknown, but there continues to be momentum. The utilities are not stagnant. The AMI and AMR market in Europe continues to develop and our Actaris team is focused on a growing number of opportunities, some of which require development effort, some of which already have the requisite product and expertise. This is a long process with Malcom and now with Marcel focused on where to place resource and effort, including expertise and technology from the United States.

Speaking of Malcom and Marcel, toward the end of the quarter we announced the promotion of Malcom to the position of Chief Operating Officer and President for the whole of Itron. Given his Actaris experience and his prior Itron experience, we now put Malcom in position to begin to coordinate the operational efforts of both Itron groups, Itron North America and Actaris. His charter is simple - find synergies, look for operational advantages across the two groups, ensure that each group is leveraging the other to the extent possible, maximize potential, minimize costs, ensure a solid future by driving profitable growth.

The Board and I are very comfortable with Malcom's talent, breadth of experience, and exposure to Itron's worldwide enterprise as we make him our Chief Operating Officer and President.

As we promoted Malcom, the question as to who should head Actaris was easily answered. We have an exceptional talent pool at Actaris. Marcel Regnier rose to the top as our best candidate. Although we have known him for only a short while, his breadth of experience, as Malcom has detailed, make him well qualified for the job.

A few words on guidance before I close. Operationally, we are very comfortable with the year's forecast. We do, however, have a bit better handle on some of the non-operational items like currency and interest expense. Accordingly, we are adjusting our revenue guidance, but slightly, and raising the floor of our earnings guidance. We are working hard to close a number of AMI contracts. Of those, including Southern California Edison and CenterPoint, only a very modest amount was ever in our guidance for 2008.

Clearly, there is a lot of book and ship business yet to close, but that is also well in hand. So for the year, on a non-GAAP basis, we are at 1.88 billion to 1.93 billion in revenue and $3.25 to $3.45 in earnings per share.

I feel good about the year. With that, let's open up for questions.

Very good. Thank you. (OPERATOR INSTRUCTIONS.) And our first question will go to John Quealy at Canaccord Adams. Please go ahead.

Good afternoon. Congratulations on a great quarter, guys.

Thanks, John.

John Quealy; First, on Actaris, if I could, I know you gave us some good details in the slides and in the commentary, but even if you strip out FX it looks like year on year, if I read your pro forma chart right in the slide, you're up double digits in revenue, again, assuming some currency issues there. Is it just the mix in the heat pump business that seems to be tracking above--I think you guys have talked in the past maybe 8% plus organic growth in that business?

Yes, John, just a little bit of clarification. The $9 million that both Malcom and Steve talked about on the call about being up, that was in relation to what our original forecast was. And we were using a euro rate of about 1.45. Just a reminder that when you're looking back to Q1 of '07, that rate was closer to 1.3. So although Actaris business has grown over the first quarter of last year, from a euro perspective it's not as substantial as it looks from a U.S. dollar perspective.

Correct. But it still seems to be above 8%, as I factored that in. Is that a fair comment or not?

I don't think that it is that much of an increase over their first quarter of last year when you're looking euro on euro. And the other thing, John, we did do a reclassification of our Brazil and Europe business that accounted for about $10 million during this quarter that is not in that graph that I'm showing last quarter--.

--Got you. Okay. Got you. That helps me out. So let me just close the Actaris piece with this. In terms of revenues on a local currency basis, how much does the German heat business and water business in that seasonal period help you in Q1?

We have most of the revenue from heat significantly in Q1. As far as the actual numbers--.

--I don't know that we quantified it to tell you the truth. If you would look on a trended basis, water tends to be about 28% of the revenue. This quarter it was 32. I think you could basically take that delta and get close.

Yes, it's typically higher in the first quarter because of the replacement business in Germany.

Got you. Okay. Let me switch gears back to the States here. In terms of, LeRoy, I think last quarter you talked about 20 utilities that you had AMI smart meter discussions with. You gave us some great color and commentary with regard to CenterPoint and some other things that are on people's minds. Could you give us a little bit more detail with regards in the different approaches that states and utilities are taking, whereas some states are having the PUC lead the process and in other states some utilities are leading, and how that colors your expectations for the timing, if that's an appropriate way to look at this?

Well, I mean, John, you alluded to an important factor in the market right now. Clearly, depending on what kind of push public utility commissions are giving to these projects, there's either sort of forced timelines or a more leisurely process. I think you also have to bifurcate between sort of a different market structure in Texas, for instance, than you've got in almost any other state in the Union. I would say that as we look across the 20 or so utilities we're talking to, we run the gamut from the California guys who have edicted, to the Texas guys who have strongly encouraged to others that have just said, hey, we think you ought to be looking at this because other people are looking at it.

I think as we begin to come through 2008 toward the end of the year, we're going to see a number of utilities because more contracts are going to be announced - a number of utility commissions that are going to say, hey, guys, why aren't you doing something all these other people are. There is a level of activity out there that you guys aren't seeing because it's still under the covers where utility commissions have asked utilities to run various kinds of scenarios surrounding AMI and taking a look at whether or not they can cost justify it. I also think that as we come through this year and we continue to see prices of electricity go up and other economic factors affecting consumers, we're going to see more and more pressure from utility commissions in general.

We certainly at Itron are being asked more and more by both utility commissions and the national utility commission body to show up and talk about AMI and what it can do. And I'm on a couple of programs later this year.

And just two more follow-ons here. And then, we're also seen recently the rise of consortiums, not necessarily the EDF stuff, but rather--or actually an extrapolation of the EDF sort of IBM system integrator leading the way. And we've seen that most recently in Australia. Can you comment on that, LeRoy, in the international space? And do you think it bleeds into the U.S. where you get these super consortiums start going around with one-stop shopping for a smart grid?

I'll comment on it and then maybe Philip might have a North American comment as well. There is no question about it we're seeing it. We see it worldwide and we're beginning to see some of that activity in Canada as well. And I think you're going to see a continuing amount of it because these projects are so large that a utility either doesn't have the manpower or does not want to take responsibility for not only the integration but, if you will, even the project planning. It's just beyond the utility's capability. And so, IBM, Accenture, CapGemini, [KEMA], all those kinds of guys show up and say, well, this is what we do for a living. We're well qualified to do that.

The good news there is that Itron has relationships with all of those people. And to be honest, the less than good news--I won't go all the way to bad news. But the less than good news is it puts somebody between us and our customer, which we frankly never like. However, we have certainly come to be able to operate in that realm over the course of the last two or three years as these guys have shown up. John, I think we're going to see more and more of that. I think it's a fait accompli to be honest.

Philip, do you have a thought around that?

John, there has been some consortium activity in North America. The wide range of RFPs we've seen has broken apart the piece--system integration separated out from communications, even the meter or possibly even the software. So we see a range of disaggregated bids all the way up to fully aggregated through integration. So there are a variety of different models with more emphasis so far on disaggregated models, I would say.

And my last one for Steve, the June '07 quarter had a tough comp on a pro forma basis - $0.89. I know it's the first quarter of Actaris last year. I thought there was something in the neighborhood of $0.10 to $0.12 of tax related benefits related to Actaris. Can you just remind us how to look at that apples to apples moving into the June quarter in '08?

John, that's right. We--when we went through the close of the transaction there was also, not only tax, but we--as part of the close process we had some foreign exchange gains, as you might recall, where we had hedged the purchase price of the acquisition. And so, it's the combination of those that would be--we'd consider one-time items, favorable items, in Q2 of last year.

Yes. And John, we can't remember the exact cents per share, but $0.06 to $0.07 sticks in my brain as [added to] last year for the closing of those transactions.

Okay. Thanks very much, folks.

Yes.

And our next question will go to Steve Sanders at Stephens, Inc.

Good afternoon. Good quarter.

Thanks, Steve.

Congratulations, Malcom, on the additional responsibilities.

Thank you.

Just coming back to the consortium question and maybe EDF would be a good example. Malcom, first, did you say that EDF had narrowed it from four consortiums to two and you were in both of them?

Yes. There's--there were four originally and we participated in three of them and now it's been narrowed down to two and we're in two of them.

Okay. And then, maybe using that particular opportunity as an example, where do you sit in terms of the relationship with EDF? How much interplay do you have with them throughout the process versus a broader integrator like some of the big IT companies that would be involved as well?

Well, you've got to remember, Actaris has been a meter provider to EDF for many, many, many years. And so, the relationship goes back a long way. So if a utility--if EDF would like some information on metering, they usually come to us and a couple of our major competitors. When they're doing this kind of rollout, it is absolutely huge. So--and when you think how often they bill their customers with real time billing, they need some serious help with system integrators. So they come to us for metering expertise. And then, when it comes to all of the other things that need to be done, they go to the--they go to the systems integrators. So--.

--Okay. And then, sticking with you for a second, Malcom, on the mix of your meters with AMR, I think you said 12% overall and that's increasing, and 28% on the electric side. Can you talk a little bit more about what you expect there in terms of a trend over the next year or two?

Many of the meters that we are providing today are prepayment meters, and they are one-way and two-way prepayment. We see that business continuing to grow. And at the same time, the AMR business on electricity is starting to take off. And on the water side, it's starting to be significant. So it is--it's a growth that we will continue to focus on. But as we look in the short-term, it's growing. In the long-term, it will definitely grow.

Yes. If you had to look at it for the year, Steve, again, we haven't necessarily modeled out every AMR versus the other. It's probably going to trend right around there. Although from quarter to quarter you could see a little bit of change and that might affect your margins a point or two, which is why Malcom's talking about he still thinks for the full year that Actaris should be around 30% margins.

Okay, thank you. And then, LeRoy, specific to CenterPoint, I think there was certainly a view out there in the investment community that CenterPoint's detail on their AMI initial rollout was maybe a bit more cautious than we were expecting. It doesn't sound like it was relative to your expectations. Could you just talk a little bit more about that and maybe more broadly your view on as utilities move from the early evaluation of AMI to sort of the middle innings and ultimately the implementation, do you think they're accurately capturing the complexity of the rollout and avoiding getting tripped up by some of the issues that may come up as you get a little deeper into the project?

Yes. Steve, a few points to make. By the way, an insightful series of questions. I think one of the things that clearly I'd point to at CenterPoint is that we're certainly in closer contact with them than the industry. I mean, we're talking to those guys every day, if not every week, and have a pretty good feel for the issues that they're trying to resolve. And you'll recall in the last few calls we certainly talked directly to the fact that they were sort of in between their board and the public utility commission about a project that had grown in expense and the commission was fighting because the underwriting of that by the rate payer was getting called into question.

I think in one sense what they talked about today - David McClanahan - was an artful compromise to say, okay, everybody's nervous--and McClanahan said it--about spending $1 billion on this project. Let's see if we can get into it, prove its worth, judge it quickly as we move along, and then we'll go ahead and rollout the full project. I mean, the reality of that is there's not a utility out there that's going to enter into an AMI project, get halfway through it with miserable results, and keep right on going. McClanahan at least had the nerve to say that. And so, I don't look at that any more than the reality of what any utility will actually do.

I do, frankly, look at it as an artful compromise, as I said, to get moving on this thing and certainly was very pleased when he said we're even looking at some ways to accelerate so that we don't have to wait for the full 150 days before we deploy. I would say, as well, that it does point, as you sort of point to, to the fact that these are very complex projects. And whether it's a Southern California Edison or a PG&E or a CenterPoint or others that are contemplating or are already moving forward, as you get into these things, it's a bit like trying to pick up a porcupine. From 100 yards away you just say, well, let's go pick it up. But when you get real close to it, there's lots of things that reach out and get you, and this is no different.

And so, they're--they struggle as they get close to these projects with bits and pieces that don't come together quite as fast as they thought they would. Some of those are just people issues, whether it's boards or commissions or commission staff. Some of them are actual technical issues. And I wouldn't be surprised at all if we saw in the coming months - whether it's an Itron project or somebody else's - that you're going to see a delay here or a delay there, because a technical issue or a people issue doesn't come together quite as quickly as a utility thought.

And to the previous question on why do we see as many consortiums with these big system integrators, in theory that's the kind of work those guys do is to think through these very, very large projects. And so, I think in some cases utilities are trying to guard against that, but we'll see. It's just going to happen. And it's well to note this is new territory literally for everybody. Utilities have not done these AMI projects before. None of the vendors have. We've probably come as close as anybody, maybe even more so. But these are huge undertakings across a broad range of departments and technologies.

Okay. And then, just final question, specific to OpenWay. Your current thoughts on how the system is performing in the field, how you guys are doing on lowering costs, preparing to ramp the manufacturing, integrating to the extent that you need to with the various systems that are out there. Any color there would be helpful.

Yes, Steve, it's Philip. I mean, we're very pleased with the progress. We have I think had a terrific relationship with our early customers and prospects in having a very open relationship with them about the state of our technology. It's maturing very rapidly. We're just in this terrific position of being able to make the investments we need to in order to move the technology along quickly and to drive down that manufacturing cost. So I made comments that we've staffed the project appropriately. LeRoy has given tremendous support on the investment side, so that we're really able to move the project forward and are very, very pleased with our progress.

Okay. Thanks very much.

Thanks, Steve.

And we'll go next to Sanjay Shrestha, I believe it is, at Lazard Capital Markets. Please go ahead.

Great. Thank you. Once again, congratulations, guys, on a great quarter. LeRoy, a follow-up on that prior comment that you made on the AMI side of the business. So I wanted to actually ask one more question on that. So you mentioned that there's a lot going on behind the scenes and what we can see from outside there's a lot of discussion between you guys and the utilities. So what's sort of been the feedback from them? Has it sort of like--is it more the delay, if you would, or the longer time and it's just a typical utility dynamic or is it more like--is it the cost consideration? Is it the benefit consideration? Is it a technology consideration? Can you go into a little bit more detail as to what are some of the factors that these guys want to see before all of some 20-odd projects that are on the drawing board gradually start to move forward?

I think it's a bit of all of that, Sanjay. I mean, clearly, I'd say generally as utilities are making decisions to move forward, then it's not so much technology, because they do a huge amount of technology due diligence, but they've got a whole cast of people that they've got to get comfortable and it's staffs and commissions, and it's intervening bodies. And we're certainly seeing more intervening bodies than we have early on let's say last year. So people that are concerned about low income folks or elderly who are retired and on fixed incomes, those people are coming out of the woodwork. And so, utilities are retrenching a little bit and spending some time there.

After projects are awarded, and now we're proceeding to put the thing together and actually bring it into place, I think there we are seeing and we will see whether it's technology issues or somebody couldn't get enough people hired, we'll see those kinds of delays. And I missed one and I think you get into here on both sides of the line a bit of a hassle, which is the cost of the thing. I mean, clearly, we saw CenterPoint have a little issue over cost before they actually awarded and before they began to move forward forcefully. I would imagine a utility or two is going to have a cost issue after they get into something and they're going to have to go back to a commission and say, hey, this piece of it's costing more than we thought it would. Can we have relief? And the commission is going to instantaneously say, no. And then, they're going to argue about it for a while. That's typical utility kind of process. We're really used to that. You guys shouldn't be, because you haven't seen it routinely, but I would guess by the end of '09 you'll have gotten quite used to it.

We'll get used to it. Yes, fair enough. So then, one other thing on that. Like as CenterPoint chose to do sort of the 10,000 and 250,000 and as you mentioned they're looking to sort of see how they can accelerate even the 150-day process. So before they decide to move forward on the full scale, what are some of the key things that--for us outside that we have to see, so that we can kind of expect that, okay, this is now going to start to move forward. And the second part to that question, could we also see some of the other larger utilities that have been talked about a lot as to being ready to sort of release the project? Instead of going into several million end points, could it also end up becoming 200,000 and the dynamics such that '09 is a good growth here in the AMI, but it's really 2010 where Itron ends up seeing most of the benefit?

Let me start with the CenterPoint question. I won't go any further than David McClanahan said this morning, which is we're going to look at consumer reaction. And I think that's a key at virtually every utility doing this kind of stuff. Does a consumer respond to price signals, rate offerings, all the rest of it? And that's a key issue for every utility.

Next point, I don't think there's a real big difference from what CenterPoint said, which is we're going to do 250, look at it, decide to do the rest, than anybody who says, we're going to go the whole route, because they're going to look at it as they go along as well.

To your last point, on 2009, there is a huge amount of potential business in the AMI world for 2009. We've got the three big utilities in California absolutely mandated to move forward. They will play hell to delay. We've got what is a good kickoff at CenterPoint. We've got some other people that we've talked about that are going to kick off projects. I mean, if a dip in the market today was because people thought '09 was fading, that was bad thinking. '09 is as strong as it ever was.

Exactly what I was trying to get at. That's great. And once again, congratulations on a great quarter, guys. Thank you.

Thank you, sir.

And our next question will go to Carter Shoop with Deutsche Bank. Please go ahead.

Yes. Hi, guys. I wanted to follow up on CenterPoint a little bit. First off, LeRoy, you mentioned that you didn't have a lot of AMI revenue earnings built into '08. Is there any way to quantify how much of that was for CenterPoint in '08 that is no longer going to be there?

Carter, there's no way to quantify. We certainly don't give that information out by customer. But we stated publicly that our '08 assumptions included less than 5% of Philip's revenue that was AMI related. So we've always talked about the fact that 2008 just didn't have a lot of AMI shipments in it because it was primarily [trust].

Absolutely. Not a whole lot of ramping--.

--Carter, let me add something to that. I mean, as we look at '08 and think about AMI or think about any order, we never put any whole order into a forecast. Things come, things go, things pull in, things pull out. We get bluebirds, we get things that were rock solid disappear on us. Same with AMI. And so, as we looked at '08, we might have thought to ourselves they're going to get X amount from CenterPoint, X amount from Southern California, maybe X amount from somebody else. We would never have put all of that into our forecast. I mean, we've learned over the years that things happen, so you just don't do that.

In regards to CenterPoint, it might be helpful to maybe discuss a little bit about how they ran into cost overruns and maybe also discuss why Texas is unique, both on the regulatory front and also maybe in regards to the BPL technology that they're looking at.

Yes. I'll touch one of those and I won't the other two. On the what cost issues I ran into, if you can get that out of David McClanahan, good luck, but you won't get it out of us. Reasonable to ask, we're just not going to answer it. On the BPL issue, same thing. I'm just not going to comment on what he said this morning. Although I will say briefly that BPL infrastructure is expensive to deploy system-wide. They can do some [radial] stuff surgically, which is what they're going to do with GPRS and that's a reasonable approach. I don't think it's any more than that, but for clarification, I'd go to those guys.

What was the third one that I said I would comment on?

The Texas regulatory issues and how that--.

--The difference in Texas is that's deregulation to the max. I mean, if you're a homeowner in Texas, you can buy electricity from about 15 or 16 different energy suppliers. All CenterPoint does is pump it through their lines. And so, the different kind of cost benefit analysis that a CenterPoint can do versus a Southern California Edison where they're actually selling electricity, they have the exposure of spot price markets when demand is high, is way, way different. And so, the consideration for a CenterPoint or a TXU in Texas - very, very different.

Okay. As a follow-up question in regards to the integration of Actaris and Itron. When we originally--when the deal originally closed about a year ago, it didn't sound like you guys were overly optimistic about realizing a lot of synergies from the deal. It sounds like moving Malcom into the COO position you guys might have become a little bit more optimistic about realizing some synergies between the two. Am I reading that correctly? And if so, can you maybe try to quantify that?

Yes. I mean, what I would say there is synergies is a word that we toss around internally and frankly a couple of us get real nervous about using, because it has a different and a stronger and specific meaning to some of you guys. I mean, I would say that the opportunity for cooperation, so that we don't reinvent the wheel on two sides of the ocean, the opportunity for joint purchases, the opportunity to not try to do too many things differently, so that we can coordinate research and development, all of those are strong.

I know Malcom's got some thoughts on that. Synergy is probably a word that we should have used a little more cautiously, although I would say in [the main], I completely agree. We never did this acquisition because we thought we could essentially produce synergies by closing factories or any of that kind of stuff. And we're still in that space. Malcom's got some thoughts.

One of things that we have found having spent the last year there is that when we first started to look at Actaris, we really thought it was a metering company. We really did. And most of the revenue there's no question is derived from metering. But having spent the last year there, and you start looking at what kind of AMR and AMI technologies--they have developed a significant amount of technologies. GPRS, PLC, RF, hand-helds, prepayment, software. And so, there's a lot of--the word synergy again. There's a lot of technology that we can utilize and not have to completely do over again and transfer from North America.

We talked about prepayment opportunities in some form or fashion in North America. And that obviously will start once you introduce AMI. And there's a possibility we could do something like that with the utilities in North America. And so, there are significant technology opportunities on both sides. And so, rather than just say, it's going to be purchasing, which we have done and which we're working on, it's also some technologies and we've had some significant meetings between both groups. So just a word to add a little bit of color on the technology that Actaris has.

Anything else from Mr. Shoop?

That's all. Thank you.

Thank you. Our next question goes to Stuart Bush at RBC Capital Markets. Please go ahead.

Yes. Hi. Good afternoon, guys.

Hi, Stuart.

Hey, Stuart.

I know we've talked a lot about timing on all of these AMI projects. I would like to get back to the issue of cost. And I think it could be helpful to us and investors if you could help us understand what the breakout--or give us a range of the CapEx per endpoint for a large AMI project for all the different pieces. So how much is it for the communications, the meter, the software, and the systems integrator? If we're talking about a multi-million-dollar--I mean, multi-million endpoint size territory, how does that opportunity break out amongst all the different providers that have to come together?

Stuart, that is just going to be really hard to do--to put any definitive numbers toward that, obviously. I would encourage you to look at someone like a So. Cal Ed's filing, because what they do is they break it down in categories as to what the hardware portion of their total 2 billion or so spend is versus the communication versus the installation, versus the software, versus internal costs. And so, it will give you a relative percentage of it. We generally say, if you look at one of those large projects, the hardware business is going to be about half. Then you've got software systems integrator, installation, and all of that.

And so, if there was any concerns at some of these utilities about cost issues, where--which part of the consortium or a consortium would the costs be pushed--would they push back on the most do you think?

Well, one of the decisions they can make, Stuart, is how much custom software they're going to require, depending on what they're going to use, and who's going to build that software. I mean, there are some utilities out there that have enough internal capability to do some of that. They also have internal capability to do some of the integration and they can manage the installation process themselves. So they--there's some places they can push back and work some of those issues.

The other thing you can see is the utility who is not only doing what I'll call smart metering, or AMI, but pushing the envelope on smart grid or intelligent grid, they can scale back some of that intelligent grid stuff and reduce some of those costs as well.

Okay. And there's--there's also been some talk about Progress Energy looking for a demand response solution. I mean, can you talk a little bit about how that would tie into their already implemented AMR solution?

Stuart, it's Philip. Demand response in order to determine whether or not a load reduction has actually occurred, there are two different methods that can be used. There's a statistical method in which you're looking at the system level for a load reduction, and then there is a more quantitative in which when a command is issued to do something like adjust a thermostat in the home that you actually are making direct measurements as to whether or not there has been a change in load at the premise. And the current deployed endpoints could be used in order to verify load reduction in a demand response scenario.

Yes. But I guess what I'm getting at is, it's not likely that a utility that just put in a large AMR solution would upgrade all the way to a full blown AMI system. Is that right?

It is very possible. We are talking to a large number of very happy AMR customers who have derived their business cases and are--have been very successful deployments who are looking at AMI very, very seriously.

Yes. Stuart, I would just add I think that Progress Energy was quite public about the fact that with their mobile AMR system they had about a three-year payback on that system.

Very interesting. Okay. All right. I think most of my other questions have been answered. Thanks.

Thank you.

We'll go next to Paul Coster at J.P. Morgan.

Thank you. Good afternoon.

Hi, Paul.

Hi, Paul.

Hi. A couple of questions. First will be, clearly, some of these contracts are going to be very complex and best of breed. And when the communications subset of it goes against you, does it really matter to you from the perspective of the overall economics? And the sort of tag-on is, is it different in Europe versus North America?

Well, the first one, Paul, sure it matters to us. I mean, we--it matters both from an economic perspective because we would have made more margin on the communication piece. However, that said, if we're providing the meter and we're integrating the communication, it's not an unattractive piece of business. It is very attractive, and we will make sure we make money on it, just like we do on everything else.

Europe is a bit different. The fundamental difference is that we see a number of the larger utilities in Europe who actually come to you with their own intellectual property, as EDF does. And we'll see it in a couple of the other big guys. [Ebadrola's] been talking quite publicly about a technology lately. And so, there they turn you into more of a commodity supplier, because they dictate what you're going to do and the way you're going to do it. And as well, depending on where you're trying to sell something in Europe, you might be narrowed into power line carrier, you might be narrowed into GPRS. They have a far better GPRS system and they run it quite more efficiently than we do in the United States in most places in Europe. And so, the choice of a communication kind tends to be something that utilities sort of dictate more than they do in the United States.

Got it. So--but just going back to the North American subset of that answer, am I correct in interpreting your comments to mean that the communications segment has higher margins, but generally speaking, lower gross sort of revenue--or gross dollars associated with it?

No. If I said that, I didn't mean to--mean that. What I meant to say is, as you put communications on top of a meter, because you are giving more functionality, more value to the end customer, the gross margin of that whole meter communication together tends to rise. You get some benefit from the whole thing. Consider, for instance, an OpenWay meter with somebody else's communication. We have a switch embedded. We have electronics that those--quite sophisticated things in the meter register. We may well have a Zigbee communication component to that thing. All of that might accrue to the meter vendor and not to the communication vendor and there's great margins in all of that, compared to just the plain old bread and butter meter.

Okay. Malcom, with respect to your commentary, I guess the way I interpreted it is that the European business is not a turns business anymore, or at least not as much as we thought. Is that correct? Can you quantify that which is visible in each quarter?

You are saying it's not a book and ship business?

Well, less so than we've been--originally assumed.

Well, now, today, most of the revenue is associated with metering with some--starting to deploy some smart metering. We don't book the whole order. We book it based on what we call frame contracts. Frame contracts are where a customer will say, we think we're going to buy this many meters from you in the next two years. But until they give you a purchase order, that's not booked. So the book and ship business that we have is quite predominant. If we do get a large rollout for a large contract with defined delivery dates that's [definitable], we do book that. So most of the revenue that we have today is associated with book and ship. And there are a few that we've got, like the areas we have in Sweden, where we've got some large contracts in there, which we do have some AMR contracts in Sweden. So it's changing, but the way we book these orders is when we get the delivery dates of the meter and the communication modules.

Okay, got it. And then, lastly, LeRoy, can you comment on the likelihood of a [secondary]. What's your latest thinking on that?

Well, Paul, no, I'm not going to comment on that specifically. I mean, we have a very active process. We're continuously looking at debt and capital structure. And so, we review that all the time. It's part of the routine, but we're not going to comment on our current thinking along those lines.

Okay, great.

Good question though.

And we'll go next to Andy Young at Thomas Weisel Partners.

Hi. Good afternoon. I have a couple of questions. First you mentioned--.

--Hey.

Hi. First you mentioned that the AMI is having some impact on your AMR sales. Can you give us a little bit more insight on the dynamic in the United States and outside the United States?

Well, outside the United States, probably virtually none. But if you look at our growth rate inside the United States, it had been in the double-digit area in electric AMR and that has certainly not only reduced, but it's reduced because of consideration of AMI. So whereas a couple of years ago, AMR electrically was growing 14 or 15%, I mean, we're certainly not seeing that kind of a number now. Because utilities are looking at should I do AMR, should I do AMI. They've been mandated to look at AMI by the federal government and their public utility commission. So we have seen what I would say--and this one is very, very difficult to quantify--a number of utilities that would have gone AMR by now going AMI or thinking about going AMI.

If you just think about the three large utilities in California - PG&E, Southern Cal, and San Diego. Besides a teeny little bit of AMR, 300,000 or 400,000 points at Southern California Edison, they were doing none. So they had meter readers running around the streets reading meters by walking up to them. Well, by now, certainly if AMI hadn't come to the fore, I think at least one of those would have begun a more aggressive AMR program. And I think we're seeing that all over the States. But as we did with MidAmerican last year, they considered strongly AMI and went back to AMR, but nonetheless delayed their project by a little bit over six months period of time.

So that's the sort of stuff we're seeing. There wasn't enough AMR going on outside of North America to see any downturn in growth rates or delays caused by AMI. But I think you will see utilities--EDF's a great one that said why should we ever even think about AMR? We're going to AMI. But you also have to remember that outside the United States in a real sort of typical manner, utilities for reading meters once a quarter or once a year, the economic justification for an AMR program with the utility reading meters once a quarter are pretty poor.

Okay, great. Thanks. On a different topic, from a (inaudible) standpoint, can you give us an update on AMI (inaudible) at Actaris, and also gas and water meters in Itron North America?

You're talking about sales of gas and water meters in Itron North America?

Yes, like the synergy between product developments moving some of the product from Actaris in water and gas meters in North America?

Well, obviously, part of the Actaris results has gas and water meter sales, but they are classified as Actaris right now. It's certainly one of the things that we continue to evaluate going forward. But right now it's classified as Actaris operations as they always have been.

Yes. I mean, to qualify--to sort of make sure we're all on the same question here, I mean, Actaris makes gas meters in Owenton, Kentucky in North America. They're maybe the third market share supplier of gas meters and maybe the leading market supplier of gas regulators for residences in North America. So that business is alive and well, sold under the Actaris banner. And that--the hardcore engineering for that occurs in Europe, but products are certainly alive and well in the States.

Water is a different situation. Actaris only several years ago started to try and sell water meters in the United States. And they've done a good job so far, but they haven't been able to penetrate the market to where they're a material player yet in North America, and that is a strategy that we're honing as we move through 2008, to make them a material player in North America and to grow that business to where we're comfortable with it. They actually make meters in Greenwood, South Carolina, in a fairly integrated facility, except for the casting of water meters. And so, we're thinking about how to grow that business as we go through time.

And for the water meters, is that--what's the reason why they weren't able to penetrate the North American market as well?

Well, if you think about selling meters in North America, there's two issues you have to generally deal with. One, you have to sell to 55,000 water utilities. And so, that leads you to have to have a well-established distribution channel. If you're the new kid on the block, convincing any established water distributor who is selling water meters, pipes, and lots of other stuff, to take your brand new product and give up on some established vendor, that's tough and they've found it to be so. The other issue is just approval of your meter at water utilities. Approval of a meter, whether it's water, gas, or electric, is not a couple of weeks, months, kind of a project. It is a couple of years project for most utilities. And so, it's timing and it's distribution channel.

And Andy, maybe just a little bit of background on that as well. If you look at Actaris, they were spun off from Schlumberger. They were a business outside of North America. So they had all the meter business outside of North America. They did not have a water meter presence inside North America. That ended up with another company. Now, Itron turned around and bought the electric side of that and ended up with Schlumberger electricity metering. But they were trying to introduce a water meter in the U.S. It wasn't that they had one when they were Actaris and were spun off from Schlumberger.

Got it. And is there any intention or like interest in acquiring a water meter company in North America?

Well, if I could find a water meter company at a price that I thought was reasonable, we'd be interested in it, if our level of debt wasn't what it is today. I've said that fairly publicly. So it's one of the strategic considerations. Although if you look at the currently successful water meter companies in the United States, they're all doing real well. And they're all quite pricey.

Great. Thank you very much.

You're welcome. Operator, how many other calls do we have on hold? We've gone about an hour and 15 minutes already.

Right. You have four questions in the queue at this time.

Okay. Let's take those and cut it off, then.

All right, very good. We'll go to [Craig Platner] at Elm Ridge Capital. Please go ahead.

Hi. I just wanted to get some clarification on the balance sheet. What was the movement on intangible assets and goodwill?

Sure. Yes. What we had--because we've got a year to do purchase accounting adjustments after we acquire Actaris, that means that we revaluate those balance sheet accounts on a periodic basis. We looked at our trademarks for Actaris and did a revaluation and there was about a $70 million reclassification out of intangible assets and into goodwill related to that. The rest of it's foreign exchange impact.

Okay. And was it a similar type of FX impact on the warranty and pension, and actually on the deferred revenues as well?

There was some increase on the pension related as well to FX. The pension plans relate to Actaris in Europe and some amount as well warranties. So any of the Actaris or the euro-denominated balance sheet items increased relatively speaking because of the strengthening of the euro. And the unearned revenue, some of that's just timing of when we have annual billings for annual contracts and maintenance. And that tends to be on a calendar basis, so you tend to see that increasing in Q1.

Okay. But there wasn't any--well, the reason I ask on the warranty and the pension is it seemed to have dipped down last quarter, and then just kind of rebounds back. Was it--?

If you look at deferred revenue at any rate, you bill all of those customers in January and they pay for it before the end of the quarter, but you haven't recognized that.

No, I understand that. I'm just talking about on the warranty and the pension, what was the movement last quarter. And then, the--kind of the rebound this quarter?

I don't have in front of me the rebound in the prior quarter. But primarily, it was driven by an FX change. There's no fundamental change in the--.

--Yes, there's no material change--.

--Pension plan or warranty at all.

Okay. Thank you very much.

Yes.

We'll go next to Patrick Forkin at Tejas Security.

Good afternoon. Congratulations on a really solid quarter. And Malcom, congratulations on your new role.

Thank you.

Thanks, Pat.

LeRoy and Philip, switching gears with you a little bit here. We're seeing some of the larger utilities start to get a little more engaged on how they're going to satisfy the various state renewable portfolio standards. And there's been a little chatter - folks wondering if that will compete with AMI projects. I don't believe it will, but I'd like to get your take on it.

Well, I--I'll let Philip be expansive on this, but I certainly don't think it will, because utilities attack different issues with those two things. Renewable portfolio--I mean, they're looking to add to their electricity supply with all things renewable. If anything, you might see some competition in spending. But the forcefulness with which public utility commissions are talking about AMI, I don't think let's utilities turn from AMI because of renewable portfolios. Philip, I don't know if you have a different feel.

No. I--Pat, I mean, I really think that--and [Jim Rogers] said this so well--that energy efficiency is the available fuel with very desirable economics compared to these other renewables. And there's even some talk about including energy efficiency and demand response as a--countered against a renewable quota, and therefore, investments in advanced metering, which enable demand response, are very complementary to RPS investments and I think are in many cases much more available and have more attractive economics in a shorter timeframe.

Right. Every study we've seen on reducing the carbon footprint, I mean, it's coming back consistently that efficiency is the low hanging fruit. And I don't know how you can get efficient without the customers becoming more numerical. And I would think that that would lend itself to your AMI projects. So that's all I had. I appreciate it. Congratulations on a good quarter.

Thank you.

Thanks, Pat.

And we'll go next to Chris Summers at Greenlight Capital.

Hey, guys. Two quick questions. Of your 484 million of bookings, how much of that was from So. Cal Edison?

None.

Okay. And then, secondly, versus what you guys were thinking at the end of the fourth quarter, is there any hope that So. Cal Edison can have any greater amount of shipments in 2008 now?

We have no difference of opinion about So. Cal's shipments in '08 between what we said in the fourth quarter and what we've just said.

Okay. Thanks, guys.

And our final question goes to [Ben Callow] at The Stanford Group. Please go ahead.

Hi. Good afternoon. Michael's traveling today, so he apologizes for not being able to be on the call today.

No problem.

Could you--you mentioned a couple of partnerships you guys made, specifically Silver Spring, and then there was the announcement about SAP. Are the partnerships specifically for certain projects or is it more of a broad base just enhancing technology there? Could you talk about that?

Yes, they're broad based.

Okay, broad based. And then, on the regulatory front, when we're looking at So. Cal Edison, are there specific dates that we should be looking towards to see when that gets approved by the CPUC?

They're--Southern California Edison I believe has stated that their intention is to file with the Commission in the mid-year timeframe.

Okay. So nothing further than that though?

No.

Not that we've seen.

Okay. And then, on the international front, is the regulatory process longer or shorter, or could you just give us some more color on that?

It depends on which country you're in.

Okay. So if we're looking at EDF, specifically.

They have been talking about this for quite some time. So they've published--they've still got to go through regulatory approval. And so, it's exactly the same as in North America. It's very slow and very long.

Okay. And then, CenterPoint, you guys mentioned that you had a very small number in your estimates for 2008 in your guidance. Is that--can we say that's less than 25 million?

Well, I mean, what we've said publicly, and again, we're not going to say what we have for any particular customer.

Okay.

What we've said publicly is that all AMI revenue expectation in '08 was less than 5% of Philip's revenue. So that kind of gives you a good feel for what we were thinking.

Okay, great. Very good quarter, guys. Thank you so much.

Thanks.

Good deal. Thanks.

And Ms. Duquette, I'll turn it back to you for any closing comments, ma'am.

Okay. Thank you, again, everyone, for joining us today. And as always, if you have any follow-up questions, please feel free to give me a call. Thank you.

Thank you. That does conclude the call. We do appreciate your participation. Let me also give you the replay information before we disconnect. There will be an audio replay of today's conference available later today. You can access the audio replay by dialing the following numbers - either 1-888-203-1112--again, 888-203-1112. Or if you're calling internationally or outside the United States, 719-457-0820. Again, 719-457-0820. You will need to use the passcode 4372276. Again, a passcode of 43722765. Or you may go to the Company's website at www.Itron.com. Thank you. At this time you may disconnect.