Itron Inc (ITRI) 2017 Q2 法說會逐字稿

Good day, everyone, and welcome to the Itron Inc. Q2 2017 Earnings Conference Call. Today's call is being recorded. (Operator Instructions) For opening remarks, I would like to turn the call over to Barbara Doyle. Please go ahead.

Thank you, Melissa, and welcome to everybody. Welcome, everyone, to Itron's Second Quarter 2017 Earnings Conference Call.

We issued a press release earlier today announcing our results. The press release includes replay information about today's call. We also have prepared presentation slides to accompany our remarks on this call. The presentation is available through the webcast and through our corporate website under the Investor Relations tab.

On the call today, we have Philip Mezey, Itron's President and Chief Executive Officer; and Joan Hooper, Itron's Senior Vice President and Chief Financial Officer. Following our prepared remarks, we will open up the call to take questions using the process that Melissa described.

Before I turn the call over to Philip, please let me remind you of our non-GAAP financial presentation and our safe harbor statement. Our earnings release and financial presentation include non-GAAP financial information that we believe enhances the overall understanding of our current and future performance. Reconciliations of differences between GAAP and non-GAAP financial measures are available in our earnings release and on our Investor Relations website.

We will be making statements during this call that are forward-looking. These statements are based on our current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially from these expectations because of factors discussed in today's earnings release and the comments made during this conference call and in the Risk Factors section of our Form 10-K and other reports and filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statements.

Now please turn to Page 4 in the presentation, and I'll turn the call over to our CEO, Philip Mezey.

Thanks, Barbara.

I'll begin by publicly welcoming Joan Hooper to Itron. Joan joined us as CFO on June 5, and she has already made a positive impact on the company. I would also like to thank Rob Farrow, who acted as Interim CFO during our first quarter. Rob did an outstanding job in the role, and he continues at Itron in the critical leadership position as Corporate Treasurer and Vice President of Strategic Planning. You'll hear from Joan on the call here in a few minutes following my review of our second quarter business highlights.

We have made substantial progress towards our objectives of predictability, profitability and growth summarized on Slide 4. Second quarter non-GAAP earnings per share were $0.71 on revenues of $503 million. This was our eighth consecutive quarter of year-over-year increases in non-GAAP earnings per share. And we are raising our 2017 guidance today, reflecting strong execution across our business.

We continue our focus on higher value solutions for customers, which can be measured in part by a 30% increase in smart devices delivered compared with the first half of 2015. This favorable mix of business, in addition to operational efficiencies and greater day-to-day business discipline, drives higher and more predictable earnings.

Adjusted EBITDA in the quarter was 11.9% of revenues, and we are on track to achieve our target of mid-teens EBITDA exiting 2018.

While total revenues were down from last year by less than 1% at constant currency rates, momentum in our Electricity business continued. Electricity revenues increased 9% compared with the last year in constant currency, including $5 million of distributed energy management business following the Comverge acquisition in June. The Comverge transaction was certainly a highlight in the quarter. Demand response in energy management solutions fit very well within Itron, sitting directly adjacent to data collection and data management. Combining these solutions under the Itron brand simplifies customer sales, service and deployment and expands our portfolio of outcome-based services.

I'm pleased with the quick mobilization and the pace of integration activities since the transaction closed. There is a great mesh between the companies' cultures, and the teams are actively collaborating. Customer feedback has been positive, and the pipeline of the business is strong. The combination adds new growth opportunities in Electricity as well as accretive margin uplift once we complete the integration.

Looking ahead, the edge intelligence at OpenWay Riva will dramatically transform distributed energy management. We're also designing other outcome-based services on the Riva platform and engaging with the developer community through Itronriva.com and Itron Idea Labs. Itron's organic R&D projects, partnering with third-party developers and selective M&A, demonstrates our strategy to deliver even more value to our customers and to increase the contribution of outcome-based services as a part of our business.

Now let's turn to bookings and backlog on Slide 5. Our total backlog at the end of the second quarter was $1.6 billion, and 12-month backlog was $860 million, increasing 21% and 25% year-on-year, respectively. Both metrics also increased sequentially. The addition of distributed energy management contracts acquired with Comverge helped drive the backlog increase in the quarter. There is also more than $325 million of business we have been awarded that is not yet reflected in our backlog.

Bookings in the second quarter were $416 million, up 19% year-over-year. In Electricity, we booked $60 million in the quarter with Enedis in France for a contract option that they activated to buy additional G3 volumes from Itron. In early July, Enedis announced a significant project milestone of 5 million Linky installations, of which 2.3 million were supplied by Itron. I would also note that Electricity backlog now exceeds $1 billion, the highest level since 2011.

In the Water segment, we had many diverse medium-sized bookings with customers around the world. The book-to-bill ratio in Latin America was 1.45:1, reflecting an uptick in that region. There is a solid pipeline of Water business over the next 12 months, including large projects in the Americas, Europe and the Middle East, which will support our return to top line growth in the Water business.

Gas bookings also reflected many diverse customer contracts in the quarter. And today, we are delighted to announce that Itron's OpenWay Riva solution has been selected by Vectren to help modernize its energy grid for its 250,000 electricity and gas customers in Southwestern Indiana. Note that this award is over and above the $325 million of unbooked backlog referenced on the slide.

Overall, customer interest in Itron's OpenWay Riva IoT solution continues to be strong across each of our segments. Vectren marks our 18th OpenWay Riva customer, and the list continues to grow. I would also highlight that the majority of our Riva contracts include an Itron Total Outcomes managed services component. Value-added services are becoming an integral part of our customer solutions. In total, we have more than 26 million endpoints under Itron managed services worldwide.

Now let me turn the call over to Joan to review our financials and our guidance.

Thank you, Philip.

I want to take a moment to introduce myself and let you know how excited I am to join Itron as CFO. I was attracted to Itron's purposeful mission, technological innovation, customer-centric culture and industry-leading position. I also see tremendous upside and look forward to helping advance the initiatives underway to deliver predictable results, achieve greater profitability and drive long-term growth. During my initial time with Itron, key focus areas have been partnering with operations to drive profitable business growth and evaluating financial processes to identify opportunities for improved efficiency and effectiveness.

Now moving on to second quarter results. Consolidated GAAP results are shown on Slide 6, and non-GAAP results are shown on Slide 7. Itron delivered strong results in the second quarter of 2017 with improved gross and operating margin on revenue of $503 million. Revenue reflects growth in the Electricity segment, offset by lower revenue in the Gas and Water segment.

Gross margins improved 230 basis points year-over-year to 35.4% driven by favorable product mix as well as an $8 million insurance recovery in the Water segment, which is related to warranty costs incurred for a product replacement announced in 2015. Excluding the insurance recovery, gross margin improved 70 basis points year-over-year.

As Philip mentioned, we closed the acquisition of Comverge on June 1, 2017. Results reflect 1 month of ownership in the quarter, with Comverge adding just under $5 million of distributed energy management revenue to our Electricity segment. The addition of Comverge reduced GAAP net income by $2 million due to acquisition-related expenses and amortization of intangible assets. It had an immaterial effect on non-GAAP net income.

Other highlights in the second quarter include GAAP operating margin, which increased 40 basis points compared to last year, and non-GAAP operating margin, which increased 250 basis points. GAAP net income was $14 million or $0.36 per diluted share. Second quarter GAAP net income includes approximately $5 million of restructuring charges, which are part of the program we announced in the third quarter of last year.

The restructuring projects remain on track. We recently reached a significant milestone in the program and received final approval by all European Works Councils, allowing us to book the planned severance-related costs in the second quarter. We have now recognized the majority of employee-related costs associated with the plan. There's a sense of urgency and focus on executing these programs to optimize our operations. We continue to anticipate annualized savings of $40 million, which will be fully achieved by 2019.

Non-GAAP net income and diluted EPS increased 11% and 9%, respectively to $28 million or $0.71 per share. EBITDA as a percentage of revenue increased by 180 basis points to almost 12%.

Looking at the year-over-year revenue bridge on Slide 8. Electricity second quarter constant currency revenue growth of approximately $20 million reflects continued strength in our North America smart business, the addition of Comverge as well as growth in the Asia Pacific region. The year-over-year decline in gas revenue was largely due to lower meter volumes in North America and Europe, partially offset by record communication module shipments in North America.

Lower year-over-year Water revenue reflects decreased product revenues in North America and EMEA and the timing of new tenders and customer orders. The decrease was partially offset by higher sales in Latin America. This is the third consecutive quarter of growth in Latin America driven by an increase in residential projects.

Looking at the year-over-year non-GAAP EPS bridge on Slide 9. Higher gross profit increased non-GAAP EPS by $0.17 versus last year. This includes the $8 million insurance recovery I just mentioned. The remainder reflects favorable product mix, with all gross margin -- with gross margin percent improving in all 3 of our business segments.

Reduced operating expenses contributed $0.04 year-over-year improvement, driven by lower professional service fees and reduced headcount in G&A. These were partially offset by higher other expense primarily due to foreign exchange losses and a higher non-GAAP effective tax rate of 40% versus 34% in the prior year, which had a negative $0.08 per share impact on EPS. The higher tax rate is due to the timing and mix of taxable income by jurisdiction. We expect the tax rate to decline in the second half of 2017. And on a full year basis, we still expect a non-GAAP tax rate of 35%.

Itron generated operating cash flow of $30 million in the quarter versus $17 million last year. The increase is due to improved business results and higher accounts payable. Inventory increased $18 million year-over-year for anticipated shipments and in advance of supply chain transition.

Cash and equivalents at the end of the second quarter totaled $128 million, down $60 million from the end of last quarter due to the $100 million acquisition of Comverge, which we financed with cash on hand and by drawing on the revolving credit facility.

Total debt at the end of the quarter was $325 million, while net leverage remains at 1.1x EBITDA, providing us with ample strategic flexibility to fund our long-term growth.

Slides 10 through 12 show results by business segment. Itron's Electricity business delivered another strong quarter with revenue of $250 million and gross margin of 31.4%, up 100 basis points due to continued growth in North America's smart connected devices, which increased 15% year-over-year.

Gas gross margins improved year-over-year despite a revenue decline. The margin improvement reflects favorable product mix and record communication module shipments in North America. The margin improvement in Water segment includes the $8 million planned insurance recovery as well as the benefits from favorable product mix. Excluding the insurance recovery, Water gross margin improved 110 basis points year-over-year.

Now let me share our updated guidance for the remainder of the year shown on Slide 13. We have raised and narrowed the range for both revenue and non-GAAP EPS. We are expecting revenue of $2,030,000,000 to $2,060,000,000, and non-GAAP EPS of $2.95 to $3.15. This guidance includes the impact of the Comverge acquisition, which will add approximately $35 million in revenue and have an immaterial effect on EPS in 2017. The revised guidance also assumes a euro to U.S. dollar foreign currency exchange rate of $1.1 for the second of the year. Our estimates for the annual effective tax rate of 35% and the average diluted share count of 39.5 million shares has not changed from previous guidance.

In summary, our second quarter was strong and demonstrates our ability to deliver predictable and improving results. We're seeing the benefits of our operational efficiency initiatives, and as our guidance indicates, we expect increasing profitability in the second half of 2017.

With that, I'll turn the call back to Philip.

Thank you, Joan.

This is an exciting time in our industry, with smart projects continuing around the world and with the technology refresh cycle in North America ahead of us. To meet this opportunity, Itron is laser-focused on innovation to enable a robust, active grid and to help utilities and municipalities deliver improved customer service and lower their operating costs. This is also an energizing time inside our company. We're committing substantial R&D resources to new technologies, our OpenWay Riva IoT platform and new outcome-based services.

We are putting our cash to work to acquire new outcome-based solutions, such as distributed energy management. And we are producing more consistent results, and our core operating profitability continues to improve.

Our 2016 restructuring projects are on schedule and, our supply chain projects to better tap into our suppliers and partners expertise are gaining traction. These activities will reduce our costs and increase our manufacturing flexibility.

I'll summarize our comments by saying that we feel good about the momentum in our business. We also know that we are still in early innings. There is opportunity to deliver even more value to our customers and to expand our revenue growth, and programs like our supply chain optimization are already under way that will drive additional upside in our profitability.

Operator, now let's open up the call and take some questions.

(Operator Instructions) And our first question will come from Sean Hannan with Needham & Company.

One thing to bring up, unless I'm wrong, I believe last year, Philip, you had given us not guidance but at least some qualitative color for how to think about as we get into that back end of the year, the momentum carrying into the next year. Is there a way to get a little bit more insight from that vantage point? Because clearly, you folks are doing very well here in '17, and you have some actually nice momentum behind it.

Yes, Sean, sure. Thanks. What I would point to is, again, this over 20% year-over-year increase in both the total backlog and the 12-month backlog as well as this reference to $350 million worth of business awarded not yet present in backlog that clearly shows that there is plenty of opportunity in the current backlog to continue on a growth path here as well as these awards actually moving into backlog. This announcement of Vectren moving into backlog as well. The Electricity backlog, alone, being at over $1 billion, again, the highest level since 2011, to demonstrate that momentum in the market. So that, along with the guidance, which clearly implies a strengthening of our Gas and Water business in the second half of the year, we think positions us very well.

Okay. And that's very helpful. And so to follow on that last part of the comment, as you consider the momentum within Gas and Water or at least the turn in the improvement, of the 2, which would you feel that you have greater confidence in as well as the magnitude of opportunities in order to provide some strengthening within the results? And then if you could just drill down into some of the whys and what's behind those.

Sure, Sean. I'm not going to pick which one of my kids I love best. So there -- so let me say there are opportunities in both. As you heard, we're at record module shipment here in the second quarter. So module shipments in North America in the Gas segment are going extremely well. We've told you before we've been selective about the business that we've focused on internationally in order to ensure that our profitability remains high, and we have opportunities there to build profitable revenue through the second half of the year and into 2018.

On the Water side, although results in the first half of the year haven't been everything we wanted, with the release of our Riva product, we now have these 17 customers we referenced on the Riva platform. This really gives us the opportunity to accelerate growth in the Water space, which has been somewhat retarded by some large contracts in North America and Europe, which we expect that will be corrected here in the upcoming quarters. That, on top of this recovery in Latin America, where we pointed out this higher than average bookings number, gives us again a solid basis for why it is that we see growth opportunity in both of those businesses.

Our next question will come from Tyler Frank with Robert Baird.

Nice quarter. Can you just discuss backlog? Was anything from Comverge added into that backlog from this most recent update? And then as we look out, can you discuss the major markets, both Latin America, Europe and the U.S., just for any upcoming tenders or any large projects that are on your radar that we should be looking out for as well?

Yes, Tyler. So on the -- first question about the addition to the backlog from Comverge. On the slide that we provided on the -- on our overall backlog, there's a footnote there in which we added $44 million and $113 million in 12 months in total backlog from the Comverge acquisition, so it was a nice acquisition there. And again, that backlog is higher-margin recurring revenue business, demonstrating this move up the pyramid. So very desirable business, and we're optimistic about our ability to accelerate growth by taking that offering through the Itron's sales channel, so we've got continued opportunity there.

In terms of color on other markets, I mean -- so the Latin America point was really specific to this recovery in the Water business, where the Latin American market is a very significant opportunity for us. We've been somewhat guarded in the other market segments there although there are opportunities for us. We're very pleased in Europe about this Enedis milestone, the 5 million Linky meter. And as you see, we provided almost 50% of those. We're under contract to provide currently, up to 6 million meters under this current tranche that'll be deploying over the next couple of years. We expect the next procurement, quite a sizeable procurement, for the remaining out years to be let by the end of the year, so there's good ongoing business there.

We are shipping into the U.K. market, although there are some delays in adoption rates in that market. But we have certified product, and there are nice opportunities for us in that U.K. market. We continue to see a level of procurement activity in the German market, the largest of the European markets attractive to us. Eastern Europe has some opportunities for us, particularly in our Gas business that we find attractive. The Middle East in Water in particular, of course, water is a precious commodity there. And that market is attracted to the latest and greatest technology, so we've got some really nice opportunities there.

Asia Pacific, we made a reference, too, both interestingly, a software opportunity there that we're very pleased with that has given us some strength in that market and then continued strong shipments on a long-standing contract in Indonesia that's underpinned that business. So it's a nice balanced portfolio. We're pleased with the aggregate performance of the business lines and have the opportunity to really strengthen here in the second half.

And as a quick follow-up, can you discuss the software business? Any sort of momentum that you're seeing there. And potentially, are there any metrics you can share with us in terms of how that business has been growing?

Yes. I mean that's a -- it's something that, of course, we're going to focus on more heavily in 2018. We hear you asking for that. I would say the one new metric that we provided on this call was that we have 26 million end points that are under Itron managed services at this point. And that increasingly, with these now 17 Riva customers, that the vast majority of those are actually opting for an Itron Total Outcomes or managed service offerings. So we see growth opportunity there in this managed services space.

Again, that's both attractive business for us but, an on-ramp to both collecting the data and then increasingly providing analytics or outcome-based services. The acquisition of Comverge, we've said has added in the second half up to $35 million worth of revenue in this attractive outcome-based and managed service environment. In addition to significant investments we're making to promote our software into the cloud and in order to accelerate growth to get us towards this $500 million software and services target that I've talked about before.

Our next question will come from Joseph Osha with JMP Securities.

I wanted to return to water for a minute. Obviously, you've got the product refresh, and something's happening in LatAm. I'm still struggling a little bit to understand when the business might start to see sequential revenue growth again. Is that imminent? Or are we going to sort of rebuild the backlog and be waiting on the revenue for a bit? And I have a follow-up.

Yes. Okay. Sure, Joe. Yes, we expect the second half to be stronger than the first half and to be a return to health in top line growth. So yes, that is a near-term accomplishment. And again, supported by now the active deployment of Riva as an integrated electricity, gas and water product platform, extending beyond that even to smart cities and other devices. So we've got technology in the marketplace as well as some timing-related issues and this LatAm tailwind that we're pleased about.

Okay. And then on Comverge, any sense as to when that becomes completely neutral? If we do a little math, it's a little dilutive now. Do you have a time frame on when that is bottom-line neutral?

Yes. Oh, sorry. Well, the only negative impact, they're really acquisition-related expenses in 2017. So taking -- putting those aside, it's actually neutral in 2017, and we fully expect it to be accretive in 2018, and of course, we'll provide updated guidance as a part of our fourth quarter call to indicate the contribution at that point.

Okay. So that -- sorry, that $2 million was just one time then?

Yes.

Next, we'll take a question from Thomas Boyes with Cowen and Company.

I believe in the last quarter, you had said that volume shipments of Riva would be in the second half of this year. Are you still on track to hit that mark? And are these 17-or-so customers on the platform more of an '18 event? Or is that inclusive in that number?

So yes, we expect volume shipments in the second half of this year. The products are certified, available in the market place and shipping. And of those 17, a significant number, 10 of those actually do have shipment volume in 2017. However, as is characteristic in our projects, there is an initial ramping period. And so the benefits, we would expect to accelerate in 2018.

Got it. And then just one more from me. Have there been any notable wins for Riva in nonmetering-centric applications, specifically -- just addressing streetlights or charging stations or something you've mentioned before?

No. We have not had a significant win. It's basically pilot-related activity on streetlights and charging stations and not a significant stand-alone procurement. Most of the discussions and activity we have are extensions -- discussions about extensions of an integrated network.

Our next question will come from Sophie Karp with Guggenheim Securities.

Couple of questions here. Can you give us some sense on Vectren, when those will be -- what's the timing of that CapEx spend on their end? And when will you see that contract actually flowing through your backlog and revenue?

So as we've said, we've announced the selection and are actively negotiating the contract. Expect that to be completed here in the second half of this year, and would expect that volume to be a part of the -- our 2018 revenue picture, so not a significant contribution. And that's typical for us that there is a selection and contracting process and initial ramp-up and qualification phase prior to volume shipments, so we would expect that in 2018.

Got it. And then maybe a little -- can you give us a little more color on the opportunity in Europe now that Landis+ Gyr is public. And do you pay more attention to that? How do you see yourself competitively positioned versus that player and others in Europe from a technology standpoint and just in general?

Well, Landis has been a strong and well-qualified participant in the market. Going public, we don't see us particularly changing that. We saw the transition of Landis into Toshiba. It did not changed the competitive dynamic in the marketplace and fully expect to see them present in the European market. And we very much welcome the interest in the metering sector that was demonstrated in their IPO but we, at this point, do not see a change in the competitive dynamic in the market.

Our next question will come from Noah Kaye with Oppenheimer.

This is Luis Amadeo for Noah. Can you update us on the U.K. smart meter rollout. They're working towards the 2020 target, but the process building and maintaining the infrastructure doesn't appear to have been smooth so far. As the program transitions to SMETS 2, do you feel that your higher -- the higher technical demands plus some of the stumbles by other will help you or could boost your position in there?

So addressing the overall timing of the market, Luis, it's -- yes, as you know, the U.K. is somewhat dragged out, and I would attribute that somewhat to the complexity of their deregulation scheme. There are a lot of moving pieces in how all -- everything has to be -- come together. And it's just from a systems integration point of view, and that's taken some time. So volumes have been a bit lower than for all players than it was originally anticipated. We expect that the full rollout will take substantially beyond the year 2020.

And I would say, given that we've been watching this market for a long time and participating in it for a long time, that we have a very realistic and healthy view of it in terms of our overall planning. You mentioned this transition from the so-called SMETS 1 to SMETS 2, we do have a product in both categories, and see an, yes, an opportunity for really once we start gearing up here for quality and volume of a nice opportunity for us. I'm not sure I want to comment on kind of the position of competitors in that market, but we have historically been a strong supplier in the U.K. market.

That's very helpful. And if I can ask another one. In terms of the Comverge integration, has there been any surprises so far? And I know you talked quite a bit about the integration. But in terms of cross-selling opportunities, what do you think are -- when do you think those opportunities start to materialize?

Yes. I mean, in terms of surprises, I would say that we were presently surprised that when we did customer outreach to -- and called to explain the acquisition, that the feedback was overwhelmingly positive and indicated that we had really kind of hit the mark in terms of combining 2 companies, a logical offering in which having a single supplier for that offering made sense to our customers. So we were very pleased with that response. Our sales team has been chomping at the bit to get distributed energy management into their sales bag and are actively discussing it with our installed base during the second half, and we would expect that in 2018 that you'll -- that we'll start talking about additional activity that really is the benefit of the combination. But we're very, very pleased with the acquisition as a whole and the progress on the integration.

(Operator Instructions) And we do have another question in the queue, comes from John Quealy with Canaccord.

And I'm sorry I missed some of the commentary at the beginning of the call. Philip, in the water market, especially in Europe, I think there is a focus on some large jobs. But did you talk about -- and even in the U.S. -- but did you talk about by customer? Obviously, there's a couple of big customers in Europe based on the dynamics of that market versus a very heterogeneous market here in the U.S. for utility buyers. But I'm interested if you talked anything about the buying cadence from some of the big water players in Europe.

We -- John, we did not. And what I would say is the commentary that we've given is, is that there are some timing-related contract issues, which indicate that they are sizable contracts, that they have a -- they're at the level that they have an impact upon the total results. And the fact that we -- that the model certainly implies an improvement in the performance of the Water business line in the second half indicates that we expect that some of these timing-related issues are going to be somewhat resolved in the second half of this year.

Got you. Okay. And then a broader question around the guidance in terms of the lower end versus the top end. Obviously, the lower end gets raised a little bit more than the top end, if you would. Is that more in line with the conservative approach that you folks have deployed the last, I guess, 2-plus years now or what are some of the puts and takes on bottom and top end of guidance on the EPS side?

Yes. I don't have the historical context here, but I would say the guidance range reflects what we see as possibilities in the business. So from a downside perspective, there's things that could push out and from an upside perspective, there's projects that can pull in. So we feel comfortable with the range that we provided. And there is a pretty good increase from first half to second half, John so. Yes, if you look at the ramp, it's about an 8% or 9% first half to second half growth in revenue and over 35% in non-GAAP EPS.

Okay. And I was remiss, Joan, welcome to Itron here. And the last question I have just in terms of, I would say, organizational review, especially around the costs footprint. I know in the past year, there's been discussions of further plans, whether it's a part of the BOM, whether it's part of the footprint, domestic and international. Broad strokes, when should we expect you guys to talk about sort of next stages, if at all, of cost outs around the platform?

You're welcome, John. So the significant one we've talked about is, of course, the 2016 restructuring plan which we expect to have annualized savings here beginning at the end of '18 but fully realized in 2019. In terms of the supply chain, I prefer for us to think about this as a continuous improvement process and not simply as a milestone, a significant milestone we're going to hit.

When we talk about the goal of getting to mid-30s gross margin and mid-teens EBITDA margin, it just requires significant ongoing quarter-to-quarter activity that we believe that the results that we achieve in Q2 are demonstrating a progression, strongly taking us in that direction, and that we have many levers to pull here in terms of centralized sales planning and operations. So better optimization of the assets that we have, centralized improved procurement, this comment that I made about partnering -- more effectively partnering with outside parties in order to get more value both externally and internally in addition to rotating towards higher margin-based products and services. That all of these activities are really ongoing, and we will continue to update our investors and analysts on progress along the way. But it's really great to have solid plans that are under way and are already showing benefits.

And that does conclude our question-and-answer session at this time. I would like to turn the call back over Philip Mezey for any additional or closing remarks.

Great. Thank you, everyone. Listen, this is just a solid quarter again in which we -- this focus on predictability, improved profitably, and very importantly, growth and accelerating growth in the second half of this year, which is what resulted in the raise of our guidance. Again, very pleased about the acquisition and integration of Comverge and the positioning of Itron in the distributed energy management taking us in the direction of these outcome-based services.

Thanks, everyone, and talk to you all soon.

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 or 1 (719) 457-0820 with the passcode of 3937267 or go to the company's website, www.itron.com.

That does conclude our conference for today. Thank you for your participation. You may now disconnect.