Itron Inc (ITRI) 2009 Q1 法說會逐字稿

Good day, everyone. And welcome to the Itron Inc. first quarter 2009 earnings conference call. Today's call is being recorded. At this time, I'd like to turn the conference to Ms. Deloris Duquette. Please go ahead.

Good afternoon, everyone. And thank you for joining us today. On the call today, we have Malcolm Unsworth, our President and CEO; Steve Helmbrecht, our Chief Financial Officer; Marcel Regnier, Chief Operating Officer for our International Operations; and Philip Mezey, Chief Operating Officer for North America.

We may talk about issues on today's call that could be forward-looking in nature. The forward-looking information we are discussing is based on what we know today and is subject to a number of risks and uncertainties. I encourage you to read the forward-looking disclosures 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 2008 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 enhance 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. Supplemental information is posted on our website under the Investors tab that you may find helpful in today's discussion.

Steve is going to start our prepared remarks today with an overview of our financial and operational results. And then Malcolm will give his thoughts on the quarter and the rest of 2009.

Philip and Marcel will participate in the Q&A session of the call. And with that, I'd like to turn the call over to Steve Helmbrecht, Itron's CFO.

Thank you, Deloris. I will spend some time reviewing our first quarter results and then I'll discuss our capital structure in light of the recent amendment to our credit agreement. After that, Malcolm will give his perspective about the quarter and the rest of the year.

Before we begin, I wanted to make everyone aware of some of the changes our current earnings release includes, which have changed our prior period results. First of all, we realigned our operating segments at the beginning of the year to reflect the way that we are now running the business. We have two businesses located in the US, gas and water, that were reporting into the Actaris segment. We have now moved those operations into Itron North America. 2008 has been restated to reflect that realignment for comparison purposes.

Also, we recently completed an internal rebranding project under the Itron name. Going forward, we will be reporting Actaris as Itron International.

During the quarter, we applied FASB Staff Position APB 14-1. This new provision applies to convertible debt instruments such as ours that settle in cash or a combination of cash and securities. FSP 14-1 calls for the convertible debt to be shown at a discounted value with the discount accreted over time in the form of additional non-cash interest expense.

It requires retroactive restatements of all prior periods, so you will notice that our GAAP operating results and balance sheet for 2008 have been restated accordingly. So, let me turn now to our operating results for the first quarter.

We went into the quarter knowing that Q1 of 2008 would be a tough comp. And we would face headwinds in the form of a stronger dollar, the economic slowdown, and uncertainty with utility capital spending.

Total revenues were $389 million, at the low end of our guidance range, and $90 million or 19% lower than the first quarter of last year. Of the $90 million decrease, nearly 60% of it, or over $50 million was due to the stronger dollar against the currencies in which we do business.

To give you a couple examples of the severe FX movements we have experienced, the Euro, which makes up about 40% of total Itron revenue, has decreased nearly 13% from the first quarter of 2008 to 2009. And the British pound and Brazilian real, which accounted for over 12% of total Itron revenue in the quarter, have decreased 27% and 25% respectively.

North America had lower revenue as well, which was due primarily to the completion of a couple of AMR contracts in 2008. And the fact that our business in North America is being affected by the recession and a slowdown in spending.

Gross margin for the quarter of 33.4% was 60 basis points lower than last year due to lower margins in our international business. International had a mix shift and shift a lower percentage of AMR and prepayment meters during the current quarter, and had a higher percentage of service revenue with lower margins.

Operating expenses for the quarter were over $14 million lower than last year. Almost half of the decrease was due to lower expenses related to our amortization of intangibles and the remainder of the decrease is primarily due to the stronger dollar.

Our non-GAAP operating margin was 8.3%, which is substantially lower than the 12.2% last year, primarily due to the lower revenue. We are focused on improving operating margins through cost reduction initiatives, which Malcolm will discuss.

Net interest expense is lower for the quarter by nearly $11 million, due to the substantial repayment of debt over the last year, and lower interest rates.

Interest expense for both the current quarter and last year includes the effect of the adoption of FSP 14-1, which calls for allocating our convertible subordinated notes between debt and equity and booking non-cash interest expense at a rate higher than the 2.5% coupon rate. We add this non-cash interest expense back for non-GAAP results.

We also had a $10 million non-cash net loss in the extinguishment of debt related to the convertible debt exchange we did in January. The exchange resulted in a net loss because the number of shares we issued was greater than the specified number of shares under the terms of the convertible notes. We excluded this non-cash debt extinguishment loss from our non-GAAP results.

Our non-GAAP tax rate was 32% for the quarter, driven primarily by the tax effect of certain foreign subsidiary interest expense. Non-GAAP diluted EPS was $0.33 for the quarter, compared with $0.82 in the first quarter of 2008. Again, the lower revenue significantly affected our earnings.

Now I would like to turn to our capital structure and a couple of things we did over the past months to improve our financial position, and provide operational flexibility.

During the quarter, we made $68 million in debt repayments on our term debt. In addition, we previously reported exchanging $121 million in convertible debt for common stock. So, in total we reduced outstanding debt by nearly $190 million during the quarter.

We have previously discussed that our credit agreement had a steep step down in our debt to EBITDA covenant from December 31st to March 31st, 5.5 times debt to EBITDA to 4 times. Our debt to EBITDA ratio was 3.7 times at March 31st in compliance with our debt covenant.

Earlier this week, we announced that we completed an amendment to our senior debt agreement. Give we were in compliance with our covenants, why did we decide to seek an amendment to the agreement? With the current economic environment and volatile foreign exchange rates, we considered it prudent to have more cushion in the covenants as well as future step down and step up schedules that are more gradual. Also, we wanted to support growth in AMI by increasing financial flexibility, particularly the ability to increase our revolver by up to $75 million in the future to support the issuance of bid and performance bonds.

The new agreement provides for more flexibility in our covenants, and an opportunity to increase our revolver, should we need to, but it will cost us more in interest. Our rate has increased from 1.75% over LIBOR to 3.5% over LIBOR as of April 24th. We expect the increased interest expense to be about $0.20 dilutive to non-GAAP earnings during 2009.

With the convertible exchange and the debt repayments, we now have $979 million of total debt outstanding. The increased rate on our amendment raises our blended interest rate from 4.7% to 5.9%. We are satisfied with the amendment terms and pricing and will continue to focus on using free cash flow to repay debt.

Cash flow from operations was $43 million for the quarter, which is about $13 million lower than in the first quarter of 2008. Our capital expenditures for the quarter were about $13 million, resulting in free cash flow of $29 million. This is lower than the $43 million in free cash flow we generated in the first quarter of 2008, due primarily to the lower income, but much higher than the $15 million we generated in the fourth quarter of last year.

We ended the quarter with $102 million cash. Keep in mind this is after our $68 million in debt payments. We had good AR collections in the quarter, and customer credit quality continues to be strong.

We had adjusted EBITDA for the quarter of $43 million, significantly below the $72 million we generated in the first quarter of last year, due to the lower revenue.

In summary, we had a tough quarter in terms of both revenue and earnings. However, we had another strong quarter in terms of bookings. New order bookings for the quarter were $625 million compared with $484 million in 2008. Our book to bill ratio was 1.6 to 1. The most significant booking in the quarter related to our AMI contract for San Diego Gas and Electric. The first phase of the project has been accepted by SDG&E and we are proceeding to the next phase.

Including Q1 bookings, our total backlog at March 31st was $1.5 billion, a new record and more than double our $683 million backlog a year ago. We believe we are well positioned to weather this challenging environment and take advantage of the opportunities this market is presenting in the long-term.

With that, I will turn the call over to Malcolm.

Thank you Steve, and good afternoon, everyone. I'm going to make a few comments about the first quarter and then spend most of my time talking about my areas of focus for the year.

The first quarter was certainly challenging. Volatile currencies and a stronger dollar had a very negative impact on the results of our international segment. With some variations country to country, the slowing economy has caused many utilities to squeeze their expenditures by replacing meters more slowly than they have in the past and reducing their inventories. This is quite a departure from past utility practice.

For example, utility budgets used to be set in the fall and could generally be relied upon as good guideline. Today, we find budgets are being changed quite frequently. In the US, while the conversion to AMI is gaining traction, it's slower than we would have liked. And we are being negatively impacted by the cannibalization of AMR.

Lastly, housing starts continue to be at a historic lows. On the other hand, our US AMI project deployment schedules are encouraging. Both CenterPoint and San Diego have started deploying. Southern California Edison is on schedule to begin deployment later this quarter. Our OpenWay system is performing very well. In March alone, we shipped more than 23,000 OpenWay meters and gas modules, so we are well on our way.

I have three areas that I am focused on in the short-term. First, AMI strategy, deployments and execution. Second, international growth and positioning. And third, cost reduction measures to right size the Company.

Starting with AMI, I held meetings with each of our four large AMI customers to discuss their individual smart metering projects, including system performance against expectations, current and future plans, and feedback on how we're doing.

I was reassured that all four of our customers are testing their systems and solidifying their deployment schedules and plans. I am pleased to report that the results of those tests in which they are also testing cyber security, are very positive and the customers are confident in our OpenWay solution.

To remind everyone, our OpenWay system has Certicom and Industrial Defender technology, which comply today with the standards that NERC is requiring. OpenWay is critical for our growth in North America; therefore execution of our current contracts is first and foremost for 2009. As well, we are focused on gaining momentum with other electric, gas, and water customers in order to transition them to our OpenWay and our other AMI solutions.

My second area of focus is international. I believe that international is a growth market for this Company because it is where most of the opportunity for automation and revenue lies. I have been visiting our business operations around the world, performing comprehensive business reviews and getting feedback from some of our international customers.

For example, I recently met with Beijing Power to get a sense of China's view of the smart grid and to tell them how Itron, with its international platform, could be an integral player in helping them accomplish their objectives.

We also completed a comprehensive business review of our strategies and product offerings in South America. We are confident that each of our business lines has an effective strategy, which will enable us to grow each of our businesses in this region. We have solutions to help electric utilities better manage their high non-technical losses, provide fixed network solutions for water customers, and deliver prepayment solutions to some of our gas customers.

In Europe there continues to be encouraging signs regarding AMI plans. Last week, the European parliament approved an agreement to liberalize the European Union energy markets, which requires EU member states to implement intelligent metering systems. The electricity directive calls for full deployment of smart metering by 2022, with 80% of consumers equipped with smart metering systems by 2020.

As a reminder, there are approximately 220 million electric meters and 110 million gas meters in Europe, most of which will be impacted by the legislation. At this point, there are no deadlines in the gas directive, but we see the legislation as another encouraging sign that utilities in Europe are moving towards smart meters, which proves that even in these economic times, we are beginning to see smart meter projects come alive in some areas of the world.

My third area of focus is on cost reductions and right sizing the Company in order to invest in the areas that will drive the future growth of the Company. We know that 2009 is going to be a challenging year, so we have already taken a number of steps to mitigate the bottom line effect of the slowdown.

In the US, we have suspended compensation increases in 2009, suspended bonus and profit sharing, and suspended option grants. And Company wide, we have made selective headcount reductions and are continuing to scrutinize any new positions.

We have had a comprehensive review of spending policies and will continue to monitor spending at all levels to ensure that we are being cost effective and efficient. We have identified and implemented millions of dollars in cost reductions in these areas to allow continued spending on programs that will drive future growth, including a water meter factory in China, AMI automation in South Carolina, and smart metering automation in the UK and France.

So, let's review the rest of 2009. There are obviously a number of factors that will have significant impacts on us in the balance of 2009. The US and world economies, the unprecedented drop in housing starts, the exchange rate volatility, the impact of the stimulus bill, concerns about standards and security for smart grid, and most importantly, the decisions by our uncommitted customers to either move forward with AMR or AMI systems, or just sit on the fence.

We came into the year with expectations that our North American business would grow between 5% and 10%. And that our international business would grow at single-digit -- at mid single-digits in local currency. We now believe that North America will likely be flat to down by single-digits, and that our international business will also likely be flat in local currencies.

Given the status of the world economy, the volatility of foreign exchange rates, and the move to new technology, we are finding that our ability to confidently forecast revenue is limited. Even though we are continuously talking with our customers about the states of their business, their plans are changing because they simply don't know. Accordingly, we are temporarily suspending guidance.

Two main concerns have driven this decision. First, increased volatility in foreign exchange. Second, our customers have changed their practices and they are not as predictable as they once were. We believe that this is a short-term exception in reaction to today's economic environment, but time will tell. While we are very confident of the outlook for AMI North America, we are less confident with the rest of North America and international. We will revisit guidance as soon as confidence in our forecasting ability returns.

We will spend our assets in 2009 on the three areas that I discussed -- AMI deployments and strategy, international growth, and cost reductions. I want us to be able to focus our attention on these critical areas rather than EPS targets throughout the year. We are executing against a long-term strategy and will get through this current challenging environment. As I've said before, we have the right strategy, the right technology, and the right people.

With the work we've done to improve our balance sheet by the convertible debt exchange, the debt repayment, and the amendment, we now have the ability to concentrate on the long-term. Itron has a great future and has all the pieces in place to take advantage of the market opportunities in front of us. We believe 2009 is a short-term challenge and we are keeping our focus on the long-term perspective. We will come out of this year stronger than ever. With a record $1.5 billion backlog, we are well positioned for the future.

And with that, I'd like to open it up for questions.

Thank you. (Operator instructions) And the first question comes from Steve Sanders with Stephens, Inc.

Good afternoon, everyone.

Hi, Steve.

Hi, Steve.

I guess first, on the guidance, it looks like Actaris and constant currency, or I'm sorry, Itron International and constant currency was down 2% to 3% in the quarter. I realize you're not providing any detailed guidance, but do the near-term trends appear to be similar to that? In other words, that feel like what we'll see in the second quarter?

Well, I think Malcolm talked about in his prepared remarks that at this point in time we feel like Itron International could be flat to slightly down. So, however you want to end up in that range.

Okay. And --

In local currency.

-- I assume that that anticipates a little better second half than first half.

Yes, consistent with last year's patterns. That's correct.

Okay. And then on your four AMI projects, does it still look like the schedules are comparable to what they were a few months ago? Center point started, San Diego started, you made the comment that SoCal looks to be on schedule. Has anything slipped on those four projects relative to a few months ago?

Steve, it's Philip. No, the schedules have stayed intact.

Okay. And then just directionally, in terms of revenue for the second quarter versus the first quarter, typically you see some seasonal pick up. Is that something that we should be expecting this year?

I guess that's one of the things that we don't know and one of the reasons that we're not commenting. I would say that what we continue to believe is that the year will be more backend loaded as we've stated before.

Okay. And then, Philip, maybe this is a question for you, maybe for Malcolm. But it looks like the early proposal from the DoE is for small awards on a large number of projects. I guess there's a comment period that lasts for a few months here. Can you talk a little bit about your view on how this plays out? Kind of summarize the arguments for allocating more of the funds to larger projects, as it seems like the -- it's really the population centers that have the most acute issues. Can you talk about that a little bit?

Sure, Steve. The -- first of all, your statement is correct that the original guidelines have come out and they've authorized up to 50% matching -- that does not guarantee 50% -- up to 50% matching for projects up to $20 million. So, and that was, I think, surprised the industry somewhat. We are now in a comment period in which a substantial number of comments have been filed. Many requesting that that limit be raised.

And the -- our take on that is if the objective of the stimulus funding is to create jobs, that we feel that the matching cap should be significantly higher, favoring large projects that are so-called shovel-ready that will allow companies to go out and create new jobs as opposed to smaller projects which would tend to suggest a little bit more R&D and sort of proof of concept work, which may advance smart grid technology, but are not quite as job intensive.

So, if we optimize for jobs as many of the comments are pushing for, we hope to see higher caps, which you could definitely draw the line would be tied to the types of projects that we are typically involved in.

Okay. And then a final question for, I guess for Malcolm. As you look at the international business, can you just talk a little bit about some of the key markets in Europe? And things you're seeing in Europe generally versus what you're seeing in some of the markets that could potentially continue to grow through this trouble? Specifically, Central and South America, the Middle East, Asia. Just differentiate a little bit about the trends you're seeing in the various international markets.

I'm going to let Marcel answer that, Steve.

Okay, thanks.

Steve, Marcel speaking. I think you partially answered yourself to the question. We still see Europe presently flat. We see East and Central Europe pretty much affected by a big drop of the currencies. Where we see more of Asia, Latin America, and also Africa, and Middle East still having nice projects that we are working on.

Okay. Thanks very much.

Thank you, Steve.

Next question comes from John Quealy with Canaccord Adams.

Hi, good afternoon, folks.

Hey, John.

With regard to the guidance, you just renegotiated the term loans with obviously pretty detailed schedules on total leverage, et cetera. Obviously I would assume that you had these results in hand when you finalized the paper. Can we just look at -- I mean what's the difference between public not giving us guidance and then giving a term loan that has basically covenants in it that will walk us through at least the EBITDA line? What's the two pieces that need to be reconciled there?

This is Steve, John. A couple of things again, as I mentioned, is that -- as you looked at the original structuring of the agreement there were pretty steep step downs year-over-year, which effectively became a quarterly step down. So, we believe that alone warranted an amendment process. As in addition, we have about $50 million of our $115 million in revolver outstanding for our performance bonds, and we believe we're going to see more of that as international starts to adopt AMR, AMI. And we wanted more financial flexibility. So, that was a -- those were key drivers for the amendment process.

To your point about the specific levels, we certainly went through a process to arrive at that and part of that was also making sure, or being more comfortable with the level of cushion that we have in place that would help us deal with more uncertainty going forward, particularly as I mentioned the 20%, 30%, 40% year-over-year decline in FX, and not knowing in the future where the Euro dollar rate and where the other currency dollar rates are going to go.

And so, that's something completely out of our control. And we felt that the amendment process would help us be able to deal with that going forward. And at the same time, that uncertainty also drives a lesser confidence in the ability to forecast and provide that kind of guidance going forward.

And Steve, maybe I should have just asked the question this way. In Q4, I think it was 3.7 times on a 4 covenant. All else in, are you comfortable with that quarter turn headroom? Or how would you like to manage the business? With a half a turn or quarter turn? What's generally, in a normalized environment, how much cushion do we like to have against those -- against that headroom?

Yes, we're more comfortable at the half a turn or more. But we like a half a turn at a minimum going forward.

Okay. And then in nominal dollars, R&D spending was up 7% year-on-year. Is that an area to focus on for cost cutting? Or can you give us a little bit more quantification of it doesn't really look like you've cut a lot of costs in the Q1 period. What sort of benefits should we be looking for in calendar '09 for that type of activity?

Well, I'm not going to -- this is Malcolm -- I'm not going to tell you the kind of numbers that we've got in that obviously. But we're reviewing every single program that we have in all of R&D and all of our R&D areas. Obviously the most important thing in North America is to make sure we do not sacrifice anything with regards to AMI. That's absolutely critical and number one importance.

We're reviewing all the other various products that we have to decide is that important? Could we move that to the right a little bit? And so, we're making sure that we do look very carefully at every R&D plan.

And as far as international is concerned, they're doing exactly the same. They're looking at can they get by with what they have? Can they reduce some of their contractors that they have? But one of the things we find important is to make sure that we try not to lose the skill sets that we have in all the various areas.

So, contractors are easy to do something about. But we're really scrutinizing what we do with regards to spending to make sure that our future does not get affected.

And just two last questions. Excluding CenterPoint in San Diego, the last two quarters in North America, it looks like Itron North America bookings were up in Q1 about 30% from the December period. Again, excluding those two major contracts. How does that reconcile with your view that things are slowing down in North America where it looks like it held steady and even improved a bit in Q1? Is it just mix?

Yes, I mean, John, I -- it is just mix. I mean those bookings are over different periods of time, so I mean some of those announcements, one of them that you commented on, is a multi-year contract. And so, we really are -- you're talking about bookings as a short-term measure of quarterly performance. And so, when we -- so, when we're talking again about a mix of time periods in those bookings, the fact that it is less than one-to-one in that core business area is indicative to us that we are experiencing slowing.

And then lastly, I think San Diego publicly stated today that they would like to lift the meters installed in calendar year '10 to about 7,000 per day from the previous plan of 5,000. How does that work with your capacity and your budgeting plans? I realize we have to live through a lot of months to get to that, but I'm just wondering on how that reconciles with your recent conversations with these big AMI customers.

Bring it on. Yes, no, it is well within the capacity of the fully automated line that we are commissioning. So, it fits within our plan.

Thank you.

John, I mentioned a little bit about our investments in automation, which we are continuing. I was actually there last week with Philip and we looked at the OpenWay line. It is up and running starting next week actually in the factory.

Great. Thank you.

And next question comes from Stuart Bush with RBC Capital Markets.

Yes, hi, guys. Back to the question on the deployment schedules at the existing AMI customers, have you seen any delays at all in addition from what we saw before on the hardware installation? Any questionable -- any additional questions that have been raised about the security side? Maybe you can just go into that a little bit more on where we stand today.

Yes, Stuart, it's Philip. I believe the question was asked have the schedules changed in the past several months? And the answer was no, they have not.

And if your question is about security, certainly on the year-end call there were a lot of concerns about security. We haven't, to our knowledge, encountered anymore from those four customers on the security issue, no.

Correct.

Okay. And then, one for Steve. We had 32% tax in the quarter. Have - has your outlook changed on what tax rate you think we'll incur for the entire year? I guess to my -- to that point will we see a benefit in the back half?

Yes, we would -- let's see, we would expect for the year to be lower than the first quarter, but higher than last year by a couple of points. But I do a qualifier to that would be any new legislation that comes out this year. For example, elimination of deferral on multi-nationals in foreign earnings, which would be another -- is for us another major source of uncertainty going forward. But assuming no legislative change of that magnitude, we're comfortable with the rate of a couple of points higher than last year.

Okay, and then my last question is on the legacy North American business. I'm just trying to get an understanding of the two pieces that encompass that, the actual meters sold and then the AMR. Both are under pressure. Directionally, is one under pressure more that you're seeing at this point?

You're talking about meters with and without AMR?

Yes.

I -- we would say both are under pressure at this point in time in all fairness.

Okay, thanks.

Moving on to Paul Coster with JPMorgan.

Thanks, Steve. Forgive my ignorance, but are bid and performance bonds and why do they justify this higher interest rate on the debt?

When we -- what we see increasingly with large contracts for -- where we come in either as a prime or participating, part of that, and part of our financial strength is the ability to back our commitment to the technology with our financial strength in the form of a bid or performance bond. And that requires some backing of letters of credit, which requires credit capacity.

So, it's simply that. We are not out of pocket, and as we execute on our plans and meet those commitments, we don't make payments on those bonds, they're simply there as insurance to the customer. We would expect as we grow internationally, we'll see more of those requirements as well. And the additional revolver will give us the ability to back those -- or user revolver to back additional issuance. So, that's really the finance group's effort to support the ops group as they continue to grow and give us their views about what they're going to need going forward.

And I did not mean to imply that that in and of itself warranted the additional pricing, Paul. I don't want to minimize the tight covenants. That's been something we've certainly looked at and it's been talked about. And I would view that as the primary objective of the amendment was the change in the covenant level and the future schedules.

Well, thank you, Steve. That helps. As you go through this downturn, Malcolm and for that matter Steve, are you using an operating margin or an EBITDA margin as sort of target level for the trough here? Or is it more of a sort of you know it when you see it type expense level?

Well, we do have internal targets, but we can't really say what that is of course.

Okay. The backlog you have, beyond the 12 months, can you just give us some color as to the composition of the global -- international versus domestic AMR versus AMI versus other? Anything that you can share there that might give us a little bit of color?

Yes, we -- this is Malcolm -- we've got on the international business, we traditionally have had a book to build business in the past. It's still pretty much the same. We have about $200,000 of international backlog. Or million, should I say, $200 million. And we also have $1.3 billion of North American backlog.

Okay. And is that primarily AMI type of projects, Malcolm?

I would say yes.

Yes. Okay, and then my last question is I have this question a lot from investors. And that is, during this period of the downturn, are you seeing your competitors behaving rationally? Is pricing pretty easy to predict? Or are margins going to come under pressure?

I guess it depends on what particular part of the world you're in. We're in a business where it's always competitive. There's no question. We -- it's always been competitive. And if volume goes down, then obviously prices go down to get the volume. So, overall, we're seeing probably a bit more pricing pressure. But again, it depends on which products we're talking about.

If we're talking about our AMI offerings, no, I think that's holding its own. If you're looking at meter prices in various parts of the world, absolutely it's competitive. It's as competitive now as it always has been.

So, yes, we just live with that everyday. And one of the things that we try to do is to make sure that we have cost reduction plans in place for product cost reductions and also other cost reductions that we have for operating expense. So, yes, we're always looking at that.

Great. Okay, thank you very much.

Thank you.

Thanks, Paul.

Next question comes from Carter Shoop with Deutsche Bank.

Good afternoon. On previous calls, I think in the last call, you mentioned that Actaris was bidding on projects worth about $1 billion and there are about 100 projects. I think it was called bid activity. I'm not sure if you guys are currently bidding on it or not. Could you give us an update on that?

Thanks, Carter. Marcel speaking. Yes, actually the bid activity is not down, it's stable. We're still running on above 100 projects of which some are -- of which a significant portion is AMI, but not only that. And of course, I can't resist to make a comment on the ERDF 1, which is still ongoing and absolutely not postponed. ERDF is making a public promotion about it and moving forward as fast as they can.

Out of that 100 projects or $1 billion pipeline, how much of that could be realized in 2009?

2009 a little. Most of the -- as we have consistently said, most of the major all out of AMI would be 2011, 2012, and the next -- the following 10 years to come.

In regards to Actaris or Itron International, if foreign exchange rates hold constant at today's levels, how much of a decline would you expect to see in international sales in 2009?

We -- as we -- as Malcolm mentioned in his prepared remarks, talking about local currency rates, again it varies by market, but as Malcolm mentioned, flat, slightly down in local currency rates overall.

And I guess, Carter, if you're thinking in terms of US dollars -- were you thinking in terms of US dollars?

That's correct. That's what I was looking for. Thank you.

Yes, that one's hard to really quantify. I mean we talked about the effects of the quarter was in excess of $50 million. We had about a 1.5 Euro to dollar ratio last first quarter. We have about a 1.3 this quarter. Now, obviously that came down throughout the year, but that's what makes it really hard to even give any color on an annual basis because it did change every quarter last year.

And just to add some extra color, we've been looking at exchange rates from particular institutions and they're really all over the map as far as what the predictions are for 2009. It goes from, Steve, 1.1?

As low as $1.10, as high as $1.50. And there's a range obviously that's what make markets is there's a wide view of -- divergent views, let's say, about where the dollar goes going forward. And so, that makes it difficult. We don't profess to be able to forecast the future rate of the dollar, but simply try to manage the business accordingly. And so, that's part of again, the uncertainty we're in right now where volatility has increased significantly in the last six months.

Two more questions if I may. Can you discuss what the impact to gross margins was for the Itron International part of the business for foreign exchange on a year-over-year basis?

It didn't really affect gross margins per se.

Yes, we do see a little bit of -- let me start with this, that one of the strengths we have in terms of currency hedging is that we have a multi-local approach. So, that we manufacture, for example, a lot of our product in that -- for the European market in Europe. So, the costs and revenues are both in Euros. But there are certainly situations where inbound costs are in one currency and we sell in the other and certainly see some hit negative to margin on a net basis. But the primary impact to our aggregate financials is around the overall re-translation of our Euro and other currency results back into the dollar.

Last question on the performance bonds. It sounds like this is a relatively new phenomenon in this industry and we obviously have it in some of the contracting markets for transmission and distribution. Is this something that happened over the past quarter or two? Or is this something that we've seen for several years now?

We've -- as I said, we've had outstanding performance bonds for a long time. And if you look at -- part of our -- again, our focus in the finance group is where's the business going in the future? And as you see from some of these contracts where we have $1.5 billion in backlog and we've talked about four deals, these are getting very large.

And so, our focus financially is to have the ability to not only back the technology with a good track record, but to have the financial strength to say -- to back the types of commitments our customers are looking for. So, we aren't seeing a sudden change, but we simply are looking forward in future growth, particularly in international markets, where we would expect that to be more of a requirement than domestically.

And I think you mentioned there's $50 million in performance bonds as of today. Do you know what that was last quarter?

I think it was about flat.

Great. Thank you.

Thanks, Carter.

Moving on to Mark Rogers with Gagnon Securities.

Thank you for taking the question. First one is on incremental bookings in the quarter. Ex-SDG&E, looks like it was down year-over-year. I was wondering if you could talk about that. And then, the catalyst to push this up going forward.

It certainly was done year-over-year and that's one of the things that we've been talking about that the core business, if you will, is seeing a slow down. And so, we obviously are booking less business, yes.

Okay. And then, the -- I believe earlier there was a comment on $200 million of the backlog is from international, 1.3 is from North America. And last quarter the backlog balance was $1.3 billion. So, is North America essentially frozen right now with respect to backlog?

It's the one that's gone up in all fairness, because we booked that San Diego contract.

Yes, that went up significantly.

Okay, so North America's backlog is actually up. So, international backlog has come down.

It's similar, yes.

Okay. And then, lastly, this is more of a philosophical question. Previously smart grid went smart meters, so utilities seem to go to you guys first in determining how to roll out their smart grid projects. And now with standards and communication protocols coming into question, I see more utilities contacting system integrators first and then meter vendors second. Do you feel that this is the case and that's the reason for a lot of these utilities staying on the fence as you said?

And then, if you could are there any systems integrators out there that you feel most comfortable working with?

So, to the premise that they're contacting systems integrators first, there has been variability in the market in terms of the roll of systems integrators and deals. I don't see a dramatic change there actually. The norm for us is as that an RFP is put out that is a multi-part RFP, requesting meters, communications software, project management, and system integration services, is the most popular format that we have seen.

There certainly have been cases in which the integrator has been engaged initially and is advised on how the project is to proceed, and even some bids that are bid to an integrator who in turn puts together a consortium in order to make the final bid.

I agree that as we move towards smart grid, a broader implementation that involves integrating many systems that the role of systems integrators is potentially increasing there. And for the past several years we have put a great deal of effort into our partner program and keeping systems integrators educated. We have done quite a lot of work.

We're working with Capgemini down in San Diego Gas and Electric, with IBM at CenterPoint. And have developed a number of other relationships and bid with a number of other integrators, both in North America and internationally as well.

Okay, great. Thank you very much.

And we have a question from Jeff Bronchick with RCB Investment Management.

Good afternoon, everybody. I want to beat the dead horse at the backlog again. And I've got a couple of related questions. Could you just specifically go over SCE, CenterPoint, Detroit, and San Diego specifically of where exactly you are in the actual installation process?

Secondly, I'm just wondering out loud how do you have comfort in the backlog implementation schedule currently when your initial comments from Malcolm were your customers are utterly in flux and you're pulling guidance and really quote don't know when it's going to happen.

And then lastly, what drives putting, for example, what decision is required to put San Diego actually into the backlog from quote/unquote a conceptual project?

I'm going to let Philip answer the question on our AMI projects. This is Malcolm. But one of the things that we've talked about is the -- we have a solid AMI backlog. What we talked about in the call was the other business that we have, which will -- which is moving back and forward. Which moves and is uncertain. So, that's the area of uncertainty that we have, just to clarify that. So, Philip, maybe you want to talk about the projects that we've got with the AMI projects.

Sure. So, the two projects that began their formal full rollouts in the first quarter were San Diego Gas and Electric, and CenterPoint. Both projects had gone through extensive field proof exercises, regulatory approval, internal testing cycles, and so forth.

The decision to actually book the San Diego Gas and Electric contract in the first quarter was related to how the contract was constructed. We hit a major milestone and therefore booked the project.

Southern California Edison is going to begin a sizeable deployment coming up here in a couple of months. And will proceed directly from that rollout and actually ramp up consistently from there.

And Detroit Edison is currently in a 10,000 proof moving to a 30,000 proof that will then -- if everything remains on schedule, move to rolling out full deployment beginning next year.

And I can just walk you really quickly through why we put something in backlog. Our general purpose is that it has to have passed whatever milestone is attached to that contract.

So, for example, with the Southern California Edison contract, their milestone was that it had to have been approved by the California Public Utility Commission. Once that was approved, we put it into backlog. With CenterPoint Energy, it needed to be approved by the Texas Utility Commission, so at that point in time upon approval, we put it into backlog.

San Diego actually had a two-part process. They had to have the contract approved by the California Public Utility Commission, but as well they had to have acceptance of the first phase of their testing. And both of those things have passed, and that's why we put it into backlog.

And just on another question someone asked, in regarding competitive issues and what's driving this metering world or the -- sort of the systems integration world? Did you bid on the Miami project that GE was very happy to PR all over the place? And has, for example, the CenterPoint contract changed or actually GE, the contract was divided and GE ended up getting meters?

So, two comments. There was, to our understanding, no separate bid for the Miami project. We did bid on the Florida Power and Light project many years ago. And there have been no -- I mean there's been no new activity there. That was an interesting media announcement, but not a new externally bid project.

At CenterPoint, the -- GE is not supplying meters. The GE announcement was simply that they are providing the so-called back haul on the project. They are using a WiMAX radio system to bring data back from our meters and our OpenWay system across the GE system.

And is your relationship with IBM strictly a project-by-project? Or do you have a more formal -- they pitch you sort of arrangement with their services organization?

We certainly do endeavor for the latter.

Great, thank you very much.

Thank you.

This question comes from Elaine Kwei with Piper Jaffray.

Hi, thanks for taking my question. First, can you give us an update of how utilities are currently viewing the position between investing in AMR versus AMI? Just sort of specifically, what types of considerations go into that cost benefit analysis and where the stimulus funding will affect that calculation?

Philip, can you --? It varies by country obviously, but it -- just in North America. Philip, why don't you just get that? It seems to be in just North America.

So, the -- of course, the fundamental difference is AMR is a technology primarily targeted at operational savings associated with removing meter readers, improving meter accuracy, and reading accuracy, and timeliness. So, there's -- it's a cost savings based business case.

An AMI business case contains all of the components of an AMR business case, but typically also additional components about improved reliability, demand response, possibly energy efficiency. Just a wide range of other value propositions.

As the media and the marketplace focus more on AMI and on smart grid, there is a prudency question against AMR of how long that technology will remain viable into the future. So, we see more of the marketplace tilting toward AMI. However, AMI is significantly more expensive to implement and I would comment that terrific utilities like Mid-American Pacific Corp last year completed a large mobile AMR deployment based upon the very sound economics of a mobile system.

On the gas and the water side, we continue to see a large amount -- continue to see a large amount of AMR based activity, although there are some significant large -- six network projects that are also considered to be AMI in nature.

Okay, great. And my next question is what do you think utilities need to see in order to get comfortable with the cyber security issue? And how is Itron able to provide that comfort? Is it through third party verification or such as Certicom? And what type of capabilities would you have internally to implement and demonstrate security?

Great question. And it's some of all of those things. So, first of all, we are using security technology that has been in use in the financial, defense, and aerospace industries, so we are not inventing new things. And therefore we talk about relationships with Certicom and Industrial Defender because these are proven technologies used in other industries.

We are currently engaged with third parties as our customers have commissioned third party intrusion analysis work to be done. So, there's confidence building there as well. And we have reference-able field deployments of our security architecture being placed out in the field and functioning very well.

Okay, terrific. And just lastly, I understand that you certainly have some natural hedging there where you have manufacturing located in the local market. Would you be able to give any color on the percentage of exposure you have that's of revenues that are not naturally hedged? And what type of hedging activities would you be taking to address the volatility in foreign exchange?

Well, first of all, we do engage in some hedging activities as it relates to inter company balances in some areas. But the area I was most focused on is revenue itself. And again, we believe that having a multi-local strategy the way in which we're distributed around the world, is hedging in some sense economically because there are different cycles worldwide.

Regarding hedging specifically revenue, that is not something we focus on doing today. In fact, we believe that that is more speculative to try to bet on the future direction and engage in hedging contracts on that basis. And so, we are exposed, clearly as you can see from the results to -- on a net basis, to the significant change in the dollar rate to other currencies we do business in.

What we wanted to emphasize as well is that from a currency perspective the largest are the Euro, the pound, and the real. And while we do business in another dozen or more currencies, that starts to go down quite significantly. However, a lot of, we believe, future growth will come from emerging markets. And we will certainly look at other operational strategies and other ways to hedge that going forward. And certainly work we're doing internally in the future.

Okay, great. Thank you.

Thank you, Elaine.

Next question comes from Sanjay Shrestha with Lazard Capital Markets.

Thank you. Couple of quick questions, guys. Just wanted to follow up on this, sort of the performance bond and changing the credit agreement and increasing sort of the LC capabilities. Isn't that because you guys are anticipating even larger projects to materialize down the road during '09 and '10? Or is it because that now the requirements for the performance bond have actually gone up, given sort of the difficult credit environment we're in?

The former. It is in the future. We -- the agreement, or the amendment itself provides for the potential to increase our revolver in the future. So, we're not paying anything for that today, for the $75 million. We have no additional fees other than those incurred to amend the agreement overall. But that was driven primarily by the other aspects of the amendment.

So, it simply allows us in the future, should we decide or need to increase the revolver in the future and have that in place without the need to go out and seek additional agreements or amendments from our lender base. So, we're very pleased with that and it's exactly the former. It's -- if it's needed in the future, it's -- I hope we have that situation where we are providing our financial strengths to back our commitment to new technology growth in international markets where they require the company to back that. In fact, we think that'll give us a competitive advantage.

Got it. So, a kind of a follow-up on that then, guys. So, you could just talk about sort of the (inaudible) performance for the international business on a constant currency and kind of down single-digit for Itron North America. And so, that's clearly not a reflection of slowdown in EMI, right? It's really more of your core meter business. One, I think.

And two, that does not take into consideration anything incremental at all happening from the stimulus side, correct?

Correct.

That is correct, yes.

Okay. Now, tying that with your sort of the backlog trend that you guys have, is it then fair to say that '09 is what it is, but you're looking at probably a pretty significant growth in 2000 --?

If you take a look at the historical backlog that we have, that we've provided in the handout and the charts on the web, we're not -- we're sitting at $1.5 billion as we say.

Yes.

And that is over a period of time. But we do see significant kind of growth numbers in 2010 and 2011. And we're pushing continuously to try and get new contracts of course. So, we're not just sitting back on that $1.5 billion and that's one of the things Steve talked about with this performance bond. We are going and looking at all of these AMI contracts with the quantities that Marcel talked about earlier, we've positioned ourselves for the future. And so, definitely I see our 2010 and 2011 numbers increasing.

Got it. One last question, guys. So when you talk about sort of utility budget changing frequently, I imagine that's really for the smaller-size project, not really the larger AMI, because I can imagine that's a long-term capital decision-making process?

Sanjay, that's exactly right. Yes, it is the smaller deals. Yep.

OK, OK, great. Thanks, guys.

Steve Sanders, Stephens, Inc.

Hello, just a couple of follow-ups. Maybe first, Philip, if the stimulus funding does turn out to be significantly skewed towards smaller projects or smaller awards, how do you capitalize on that, as it seems like your historical strength is more focused on the large IOUs?

Steve, I would say that's largely a matter of where we tend to focus our comments. One of the strengths of our business is that it is broad and deep, and we do participate in the co-op and the muni market, across electric, gas, and water, and therefore have the opportunity and do see, by the way, stimulus opportunity on the water side, where there is a whole separate stimulus process administered by the EPA that's in place that has the potential to drive business for us there. So, we do have a number of technologies and you know, in the broad-based market to benefit from that spending.

OK, and on the power line carriers, Pacific side, I know you've done some partnerships, but where are you on having a product in North America that's really an Itron product rather than a hybrid or a partnership product?

This is Malcolm. We have a power line carrier technology that we're using today at [Eaudia]. We've been developing it for some time, and that's one of the reasons that we've been picked as the supplier for those 35 million points.

We're taking that technology and we're developing it in North America and we have a power line carrier solution that if it talks, and it will talk, C1222, so it will talk common language, common standards in North America, and we are working on that solution to be an adjunct to our OpenWay product. So, you can -- we will have the ability to do OpenWay next technology and then in the outlying areas, or whatever our customers choose, we will have a PLC power line carrier. And I'm not giving you the exact date, but that's one of the reasons why we're maintaining and being very careful at what we do with our R&D plans.

OK, but you would -- is it fair to say you would have that product ready in time to capitalize on some of the stimulus funding for the smaller utility projects if, in fact, they decided they wanted to go power line carrier? You could be competitive in those deals over the next year? Is that fair?

I'm not certain it would be a year.

OK.

Philip, I think you may want to just answer that a little bit more crisply?

Yes, Steve, I would say that in those co-op and muni deals, at that level, we would not likely bid a full advanced -- I mean, a full smart metering implementation, using that very new technology.

But it is available in the not-too-distant future, based on what we're doing together --

OK, and then one for Philip, and then another one for Malcolm, if I can.

Philip, on the North American side, can you talk a little bit about the gas and water market specifically? I mean, obviously we understand all the reasons for the pressure on the electric side, but when you look at the market growth, clearly it's still fairly strong on the gas and water side. What are you seeing, specifically, in your businesses there?

So, on the gas side, the discussion as of the beginning of the year has now expanded to both meters and I would say meters and regulators, in the business that we picked in Owington, Kentucky, as well as the AMR business. That gas meter and regulator business has been directly affected by housing starts, with, so I think the economy is definitely at work there. The AMR business, gas AMR business, is holding in there relatively flat.

And on the water side, I will say a bright spot, of where we see some nice improvement and continued strength, so very pleased about that.

OK, and then Malcolm, I think you talked in the past about moving toward being more of a turnkey provider internationally, similar to what Itron has done in North America for a while. Can you just give us an update on your thoughts there, and talk a little bit about the kind of incremental investments you might need to make to be more of a turnkey provider internationally?

Marcel, do you want -- I mean, I can take it, but do you want to (inaudible).

Yeah, Marcel speaking. I think the answer is yes, we definitely -- we are definitely all ready to manage and implement turnkey solution, and to some extent, we already did that, to take an example, in pre-payment. We did turnkey solutions and we are managing directly customer data.

As far as investment is concerned, I think we would do the necessary investment in order to implement those projects, and of course, we are learning from the strong experience of North America.

(Operator Instructions) Alex Kurtz, with Merriman Curhan Ford.

Thanks for taking the question. As far as your -- the programs and the cost-cutting, how many quarters do you think you guys can implement that? Is that something that we can start seeing improvements in the June quarter, or implementing OpEx controls will take a couple of quarters to start to see that on the bottom line?

It's Malcolm. I'm going to say that we have continually [given] cost reductions. We're always looking at changing designs, we're always looking at joining together our purchasing strategies, and we've put cost containments in place and cost reductions in place and targets for our OpEx group and our non sort of direct material, and direct labor, kind of projects.

So, will we see much in Q2? We'll see a little bit. Yes, we will. Will we see a lot more in Q3 and Q4? Yes, we will.

And just on the cannibalization that you're seeing between AMR and AMI in North America, or -- in terms of deferment that some of the utilities are doing right now, I mean, is that something that could bleed over into the international markets, as they start to adopt AMI and they look at their AMR program and say, "Well, let's put those on hold." Like, does this spill over into 2010, as sort of AMI gets implemented in a more broader way across the world?

So let me just explain a little bit about what's happening in the rest of the world, outside of North America.

AMR actually has really been a stronghold throughout the rest of the world, in North America. That's where most of the automation has come from with AMR. And the rest of the world, very, very little AMR is actually taking place. What we're actually seeing is that they're skipping the AMR technology, so they're going directly from manual meter reading, which could be, you know, once every two months in some countries, once a year in many, and going directly to AMI. So we're not seeing any transition from AMR into AMI outside of North America. We're seeing it strong -- we go from manual meter reading to AMI, and not -- and skipping the AMR piece.

OK, and just on the question earlier, there was about what would it take in North America to give you guys a little bit more confidence about providing guidance in the next couple of quarters? Could you just repeat that, and sort of give a little more color around is it improvements in stability in foreign exchange, improvements in utilities and sort of their outlook? What are the kind of items that you're looking for?

When we see stabilization.

Yeah.

And a lot more color around what utilities are really doing.

So right now, there's just no visibility with some of your major customers?

It's not that there's no visibility, Alex. That's probably too strong of a word. What has been interesting is that their behavior patterns, which have been quite predictable in the past, don't seem to be any more. So I would think that, you know, if we returned to that time, when they're more predictable, we obviously would feel more comfortable, as well as if foreign exchange rates stabilized somewhat more, we obviously would feel more comfortable.

OK, understand. Thanks, Deloris. And just last question, what should we think about as far as the interest expense moving forward on a quarterly basis? With the March quarter, I know you guys changed the cap structure around a little bit. Should we expect something similar to that, as far as interest expense and net interest expense?

Yeah, we gave you the components. I'll just repeat them -- they were in Steve's prepared script, but our blended rate is now 5.9%, so that'll be the real interest expense. If you look at that APB 14-1 effect, it's going to run about $3 million a quarter, about $10 million a year, ballpark figure. $2.5 million a quarter.

That's the non-cash component.

That's the non-cash, right?

Yes, so take that 5.9% and then you'd have to add the APB 14 effect, if you choose to, although we strip it out for non-GAAP.

And that expense, that non-cash expense, will continue through about mid-2011.

Okay, thank you very much.

John Quealy, Canaccord Adams.

Just two quick follow-ups. First, probably more for Marcel, in terms of direct material costs, obviously, you've seen aluminum, copper, and resins, new bronzes, is coming down. Can you comment on -- have you started to see any benefits in the direct materials line for the international business?

Good question, John. Thank you. When you talk about raw material cost, we need to keep in mind that we would be comparing Q1 of last year versus Q1 of this year, and then the situation is quite different. We remember that in last year, we were still, at that time of the year, looking at increasing raw material, and suddenly, went down at the end of '08 versus those big increases. So actually we are more altogether flat, for example, in aluminum, versus last year. Lower, no doubt.

In copper, clearly we are gaining some savings from an average cost of all copper alloys between this year and last year. So in the water line, the answer is yes.

Okay, thank you. And then my last one -- we're starting to see some rumblings out of Japan in terms of moving forward to smart grid, or automated metering, et cetera. I know Itron in the past has had a good hand-held market share there. Can you comment on what do you think about timeframes and possibility for Itron technology to be deployed there in the coming years?

You know, we have a very strong presence, as you said, John, with hand-held devices. We use those all over Japan, and so we've got quite good connections there. We developed a water meter, a water AMR device there, using the frequency that they have in Japan. It's been under test for some time.

On the electric side, yes, the only way we would really get anywhere on the electric is if we did some kind of joint partnering with a large utility or a large meter manufacturer. But we do have presence. We do have presence in Japan, and if it's rumbling to take off, we're certainly are very interested in talking to those guys, and we do have presence there. So we're interested. It's not something that we do with smart meters today, but it's something we certainly would look to for the future.

Thanks.

Daren Conti, Wachovia.

Just wanted to touch base quickly on -- the [Ioday] forecasts for flat to down signal digit revenue guidance -- what does that imply, I guess, for the non-AMI business, or what kind of cannibalization does that imply?

We're not going to quantify that, because we're not giving guidance.

Okay. Well, I guess if we're just trying to get a run rate for that business, and I know you're having pressure on the housing starts and the meter replacement, but if we kind of look in a little better, more, I guess, normalized economy, how should we think about that run rate? I guess first off, what's the breakdown between meter replacement, new housing starts, or just new AMR projects?

Well, I guess what you could think of is that our revenue in North America in 2008, by and large, did not include any AMI. Therefore, all of that would be what we're discussing in terms of being affected by the recession, customer behavior, et cetera.

Okay. So that $650 million number for '08 --?

628 it was last year, that's right.

Okay. I mean have we seen those two big AMR projects? I mean, will they continue to kind of affect the next couple of quarters, or are they largely --

I'm not sure what AMR (inaudible) --

Well, I think we've commented on the fact that there were several large AMR projects in 2008 that concluded in 2008 that are impacting our current results. And yes, they will continue to impact our results in the core business. What we fully expect is that as these AMI projects start to ramp up, as they actually began in the first quarter, and will continue on through the second quarter and the remainder of the year, that that revenue will replace the revenue that essentially was consumed on those AMR projects in 2008.

Okay, so you basically have a gradual ramp down of that core, non-AMI revenue, as the AMI projects ramp up? Is that --?

In all fairness, Darin, that's one of the things is, we don't have a gradual ramp down and a ramp up. We are being affected by things, customer behavior, order placement, et cetera --

Right --

And that's one of the reasons that we are not, you know, sort of talking about some growth rates or specific numbers going forward.

Okay. Well, let me just ask it in a different way. If I'm kind of looking at the core number, is it -- how much of the revenue number there, non-AMI, is new AMR, or is it --?

We don't give that information out.

-- versus meter replacement, new housing starts, because I mean, are you always going to have a little bit of growth rate, due to new housing starts and meter replacement, or is the bulk of that, you have to have new AMR orders?

We don't break our revenue down like that, in all fairness, so it's a very hard question to comment on.

Okay.

And that does conclude the question and answer session.

Great, if you have any follow-on questions, as always, feel free to call and thank you for joining us today.

Thank you. There will be an audio replay of today's conference available this afternoon. You can access the audio replay by dialing 1-888-203-1112. Again, that is 1-888-203-1112, or 1-719-457-0820, with the passcode of 6466939, or go to the Company's website at www.Itron.com.

(Operator Instructions)