Itron Inc (ITRI) 2019 Q3 法說會逐字稿

Good day, everyone, and welcome to the Itron, Inc. Quarter 3 2019 Earnings Conference Call. Today's conference is being recorded. For opening remarks, I would like to turn the call over to Ken Gianella. Please go ahead, sir.

Thank you, operator. Good afternoon, and welcome to Itron's Third Quarter 2019 Earnings Conference Call. We issued a press release earlier today announcing our results. The press release includes replay information about today's call. A presentation to accompany our remarks on this call is also available through the webcast and on our corporate website under the Investor Relations tab.

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

Before I turn the call over to Tom, 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 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, in the comments made during this conference call, 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, Tom Deitrich.

Thank you, Ken. Good afternoon, and thank you for joining us. Our third quarter performance was solid. In summary, our key financial results include revenue of $624 million, adjusted EBITDA of $74 million, non-GAAP earnings per share of $1.04, and free cash flow of $32 million. These results were primarily driven by continued strong demand in our Networked Solutions segment. I would now like to provide some insight on our bookings performance for the quarter. Our total backlog at the end of the quarter was on par with the prior year at $3.1 billion, and our 12-month backlog remained at $1.4 billion. Our bookings within the quarter were $609 million, and we remain on track to achieve a full year book-to-bill ratio of approximately 1:1.

In the third quarter, we announced the signing of a significant contract with Xcel Energy. This agreement creates a new level of strategic collaboration with Xcel to deploy industry-leading smart technology across their territories.

This project will give their customers more insight into energy consumption while enhancing grid reliability and operational responsiveness for Xcel. This contract is a clear demonstration of key elements of our strategy. The network deployment will be based on our Gen X technology, combined with our Riva distributed intelligence enabled devices, which are enhanced with outcomes-oriented applications, giving the utility the ability to deploy multiple applications for years to come. Examples of applications that will be available on the Itron app store include the ability to generate and communicate real-time consumer energy consumption information, monitor the energy efficiency of individual appliances inside the home or discern electrical locations of clusters of electric vehicles or other operational issues, such as high impedance or FET, all to improve grid effectiveness.

Xcel Energy is a perfect example of how our focus on increased customer success drives growth in our business. As we expand our footprint of connected devices, we strive to be a thought leader and to create new innovations to support utilities and cities today and into the future. A few weeks ago, we hosted over 1,300 customers, partners and suppliers at our industry-leading Itron Utility Week on Marco Island, Florida. The theme of the event was the power of community, which expands our view of resourcefulness and our opportunities to aid individual consumers, global communities of utilities and cities.

At the conference, we released our latest research on industry disaster preparedness. This is a serious and timely topic as many communities in the United States and around the globe struggled to recover from natural and human-caused disasters, including Hurricanes Harvey, Irma, Maria, Florence and Dorian as well as catastrophic wildfires in the western part of the United States. The severity and frequency of disasters is not easing. The research shows that since 1970, the annual number of disasters worldwide has more than quadrupled to approximately 400 per year. Leveraging the technology we offer today, we can, in collaboration with our community of customers and partners, address real problems by providing solutions and applications that allows them to achieve their desired outcomes. By enabling our customers to monitor and manage the communities they serve more environmentally soundly and efficiently, we are expanding resourcefulness and thus, our value.

At the end of Itron Utility Week, we were energized and excited about the possibilities that our partnership with utilities and cities can bring to the communities we serve today and into the future.

I will now hand off to Joan to discuss the full Q3 results.

Thank you, Tom. We were pleased with our performance in the third quarter. A summary of consolidated GAAP results is shown on Slide 6 and non-GAAP results are shown on Slide 7. Revenue of $624 million increased 5% versus last year, driven by growth in the Networked Solutions segment. Q3 gross margin was 31.5%, 160 basis points lower than last year primarily due to higher warranty costs and variable compensation, partially offset by benefits from restructuring. The gross margin percentage was higher than we expected in Q3, as some higher-margin products shifted into the quarter from Q4.

Moving to earnings per share. GAAP net income was $17 million or $0.42 per diluted share compared with net income of $20 million or $0.50 per share in the prior year. Regarding non-GAAP metrics, non-GAAP operating income was $66 million. Adjusted EBITDA was $74 million or 11.9% of revenue. Non-GAAP net income for the quarter was $41 million or $1.04 per diluted share compared with $45 million or $1.13 per share in 2018.

Turning to the third quarter year-over-year revenue bridge on Slide 8. Total company revenue grew 5% or 7% on a constant currency basis. In constant currency, all 3 segments achieved some revenue growth. Our overall growth was driven by the strong demand in our Networked Solutions segment. To give more color on the revenue for each of the segments, Device Solutions revenue decreased 3% as reported, but increased 1% in constant currency. This reflects lower electric smart spec demand in EMEA, offset by increased water shipments globally.

Networked Solutions revenue increased 11% as reported and 12% in constant currency as we continue to grow our footprint of connected devices, particularly in North America. Outcomes revenue was down 1% as reported, but increased 1% in constant currency. Continued strength in North America managed services offset a decline in prepay shipments in EMEA.

Moving to the non-GAAP year-over-year EPS bridge on Slide 9. Our Q3 non-GAAP EPS was $1.04 per diluted share compared with $1.13 in the prior year.

Net operating performance had a negative $0.11 impact versus the prior year. This was primarily due to higher variable compensation and warranty costs partially offset by the fall-through from higher revenue and benefits from restructuring. Lower interest expense added $0.03 per share and a lower effective tax rate added $0.01 per share versus 2018.

Lastly, foreign exchange changes resulted in an EPS reduction of $0.02 versus last year. Each quarter, we review our full year estimate of profitability by jurisdiction to derive an estimated annual effective tax rate. Based on our current projections, we are estimating a full year non-GAAP tax rate of approximately 27%. This is lower than our original estimate of 31%. Therefore, we trued up the year-to-date tax rate in Q3, which yielded an 18% effective tax rate for the quarter. The revised full year tax estimate of 27% will increase our estimated 2019 non-GAAP earnings per share by approximately $0.18 per share.

Turning to Slides 10 through 12, I will now discuss the Q3 results by business segment compared with the prior year. Device Solutions revenue was $213 million with gross margin of 19% and operating margin of 13%. We continued to see a decline in smart spec electric meter deployments, particularly in France and the U.K., but this was offset by growth in global water shipments. The gross and operating margins are down year-on-year due to unfavorable product mix and higher warranty costs. Improving Device Solutions profitability by optimizing the product and country portfolio is a key focus area for us.

Networked Solutions revenue was $356 million with gross margin of 38%. We are pleased with this segment's revenue performance with a second consecutive quarter of double-digit growth.

Gross margin decreased 350 basis points year-on-year on a tough compare due to the unusually favorable product mix last year as well as higher warranty costs. Operating margin was 30%, 270 basis points below last year due to the fall-through of lower gross margin.

Outcomes revenue was $55 million with gross margin of 37%. Gross margin increased 470 basis points year-over-year as we continue to optimize this segment to achieve scale efficiencies. The operating margin was 20%, significantly higher than last year, driven by the margin improvement and lower expenses. We are very pleased with the year-over-year profitability improvement in our Outcomes segment but need more top line growth to achieve scale.

Turning to Slide 13. Free cash flow was $32 million in the third quarter, $5 million lower than last year primarily due to the timing of both working capital and capital expenditures.

Cash and equivalents at the end of the third quarter were $141 million. Total debt declined to $970 million after we paid down $28 million in the quarter, $20 million of which was ahead of schedule. This reduced our net leverage ratio to 3.1x. We recently announced that we restructured our bank debt agreements, resulting in increased strategic flexibility, improved terms and lower financing costs. We remain focused on delevering and reducing our net debt-to-EBITDA ratio to approximately 2x by the end of 2020.

In summary, we were pleased with our Q3 financial performance. Revenue was in line with our expectations, while gross margin was higher than we expected. As we mentioned on our last call, we continue to expect Q4 revenue to be lower than Q3 due to projects delivered ahead of schedule in the first half of this year. For the full year, we are maintaining our previous 2019 revenue guidance. The updated tax rate assumption increases the previous non-GAAP EPS guidance range by approximately $0.18.

Now I'll turn the call back to Tom.

Thank you, Joan. As Joan mentioned, we are focused on maintaining our momentum into Q4 and beyond. As I reflect on the progress we have made in my first 90 days, I am mindful of our near-term operational commitments and will continue to empower our team to accelerate value creation for all stakeholders. I'm encouraged by the enthusiastic reception from our customers and the alignment of their need and our strategy. This alignment creates opportunities to drive value growth in network applications and business outcomes. We still have much to do and the determination to drive it.

Thank you for joining our call.

Operator, please open the line for some questions.

(Operator Instructions) And we'll hear first from Chip Moore with Canaccord Genuity.

Congrats on Xcel. Tom, wondering maybe if you can expand a little bit on the pipeline of those larger strategic opportunities you're seeing, how those discussions are going, particularly on the rate case side if some of these outcomes are being factored into these rate cases.

Great. Thank you, Chip. What I would say is that strong pipeline of activities in North America.

We definitely see a large interest on the part of the customers for something more than your -- the base AMI case, a lot of interest in how they can engage more with their consumers, a lot of interest in resiliency and reliability increases and how they might be able to use those same assets to do the same. That was some of the key decision criteria, we believe, that was underlying the win at Xcel, and many other customer discussions that are ongoing now center around those same central themes.

When it comes to the regulatory side of things, we definitely see favorable movements on the part of regulators to make it easier for our utility customers to invest in these types of scenarios. So things like allowing software-as-a-service to be capitalized and built into the rate case is definitely moving. It is done on a state-by-state basis, so it takes a while for it to roll through each one of the states. But it is happening, and we definitely see favorable tailwinds for our business and, we think, for that resiliency and robustness in the web -- in the grid itself as a result.

That's great. And Joan, I think in terms of the margin outperformance on the quarter, I think you called out maybe some movement from Q4 to Q3. Can you expand on that? And I think we talked about sort of approaching 32% exiting the year. So any puts and takes there in terms of those dynamics?

Yes. As I did mention, we had some higher-margin products that we would have expected in Q4 that ended up booking in Q3. Overall for the quarter, that was worth about 1 point of gross margin, so think about 1 point shifting from Q4 to Q3.

Okay. Great. And so safe to assume we may be down a little bit sequentially. Is that the right way to think about it?

Well, yes, again, relative to our original guidance, we knew Q4 was going to be a down revenue quarter, had originally thought 32% was about the right exit rate, but we definitely had a shift of not revenue as much, but gross margin mix into the quarter. So about 1 point is the size of the shift.

We'll take our next question from Pavel Molchanov with Raymond James & Associates.

Hearing no response, we'll go to our next caller, Ben Kallo with R.W. Baird.

You guys have me here?

Yes, we can hear you, Ben.

We hear you.

Great. So Joan, just I want to walk through, and Tom, the guidance, please. Just for the quarter, how much was -- just housekeeping here. How much was from the tax impact, lower tax rate? And then it looks like you're raising the guidance by $0.18 because of the tax. But by my math, it looks like that you -- there was a bigger beat this quarter than that. And so I'm just trying to put all those pieces together with the EPS guidance.

Yes, good question, Ben. And just in general, we don't typically try to update guidance every quarter, but I think it's a good question and a fair question given the size of the beat. So if you step back and look at how much we beat -- let me just keep with consensus for the moment -- it was about a $0.38 beat. About half of that or $0.19 was due to the tax drop. So the remainder was operational. If you take the 1 point of gross margin comment that I made earlier, that says more than half of the remaining $0.19 was kind of a pull-in and doesn't flow through. The remainder, I would expect to kind of flow through. So you're correct. The $3.18 would have just been for the tax improvement. And on top of that would be kind of the residual $0.07 to $0.08, let's say.

Got it. And then maybe to Tom, just as we look ahead and kind of think about -- I think your EBITDA margin is around 12% for the quarter. But as we look forward in some of the bigger projects with better -- I'd assume better margin mix, we used to have kind of a mid-teen EBITDA margin anchor out there. Is that kind of how we should think about it going into '20? Or is that more of a '21 type of time frame? And what are the puts and takes there?

Yes. I mean I would -- let me take a stab at this. If you go back to what we did on Investor Day, and we showed kind of 2021 estimates, we were in the EBITDA range of 13% to 15%. So I would say nothing has changed from those assumptions. So given that that's '21, it's not a scenario I would paint for 2020 right now. Obviously, we'll give guidance in February, but I would think about that 13% to 15% in the 2021 time frame. There's also a slide in Investor Day that said, well, what else is there to do? And it kind of gave an indicator of how far are we in various initiatives, whether it be supply chain optimization, manufacturing footprint, OpEx leverage, revenue mix, kind of natural mix of the business. So we certainly think there's an opportunity to go above the mid-teens. But at this point, the 13% to 15% in '21 is what I would anchor on.

Great. And then maybe one more. Tom, you talked about the domestic opportunities. We've heard from some of your competitors about some international big projects out there. Could you just update us there and maybe across the different end markets internationally on the opportunities?

Happy to do so. So I hit the Americas in the earlier answer with Chip, so I'll skip that one and focus this response more along EMEA and APAC.

In EMEA, I would say that we see a fair amount of interest, specifically in smart city types of applications. Our turns business in EMEA held up quite okay in Q3. That was Joan's comment on water specifically, offset some of the declines that we saw in the bigger projects, the smart spec side of things. We do see ongoing activity in the U.K. We do see ongoing activity in Germany starting to happen over the next couple of quarters.

France is definitely coming towards the end of their rollout across the entire country on the electricity side of things. That's how I would characterize the European side of things. It tends to be a bit more of the turns-oriented business for us, and that held up okay through Q3.

For APAC, I would say a good mix of the traditional utility side of things. The AMI, DA types of applications and smart city types of applications as well look to be quite okay. We are -- in terms of opportunities to look at, we tend to be a bit more selective in terms of countries that we will pursue those opportunities on. And that strategy will continue forward from how we have operated the business in the past.

And we'll take our next question from Noah Kaye with Oppenheimer & Company.

Maybe just one more crack on the housekeeping side at understanding the fourth quarter thoughts there. I mean you didn't change your full year revenue guidance. So if you come in at the midpoint of the revenue range, you get that 31% gross margin and you pencil out the full year at a 27% tax rate. It sounds like, I mean the EBITDA margins have to be 9% or sub that in the fourth quarter, or else you're going to -- you would operationally beat the -- maybe even the high end of your guidance here. Am I thinking about that right, that the EBITDA should be in that sort of 9% or lower range? Or is it going to be a bit higher than that? And I think more importantly, can you help us understand if there's any kind of onetime or elevated expenses in the fourth quarter or anything you would call out there that would maybe be stripped out to imply a higher EBITDA run rate going forward?

Yes. No, I don't -- 9% sounds a little low. I would go back to the comments I just made in response to Ben's question, which is if you take the previous guidance at $0.18 on both ends of the range strictly due to the tax, and then add another kind of $0.07 to $0.08 on for sort of operational flow-through from Q3, and then recall our discussions last quarter, our Q4 revenue is definitely going to be lower than Q3, I think you'd get to a set of numbers that I think is going to be a little higher than what you just described.

Yes. So I guess my read on this, though, is that operationally, you're executing better than at least we, the Street, has expected, and well done there. So on Xcel, I guess, this was the first instance, at least to our knowledge, of getting real kind of revenue synergies out of the merger with Silver Spring. To put a finer point on an earlier question, how broad is the opportunity to sell kind of the meters into the existing Gen X network that you have? How should we think about that as kind of a revenue synergy potential going forward?

Good question. I can take that one, Noah. We -- earlier this year, we launched 2 new products. One was an Itron-based electricity meter that was enabled on the Gen X network. That is, indeed, something that can be deployed on ongoing -- with ongoing customers, and some of that is starting to ramp now and into next year. We also have a module, which is on the battery-operated side. So think more water and gas, where, again, it's the Itron ERT, if you will, that traditional battery-operated device that also plugs into a Gen X network. That's starting to ramp as we get into the back half of this year and into next year. Those are targeted towards our ongoing business on the Gen X side of things. Xcel really was a brand-new piece of gear, which is what is enabling the distributed intelligence, that notion of downloadable applications which started out on the traditional Itron Riva side, which also comes through now in the future on the Gen X part of the network as well as the technologies really start to converge.

And there's a bit of a blurring there, it all becomes one basic network overlay.

So those products on the traditional side as well as the converged product portfolio for 2020 and beyond is what makes up an enormous opportunity for us to get revenue synergies out of the acquisition that we had done.

Very good. And maybe one last follow-up question on the Xcel award. As I understand, this deployment covers several states. At last check, some of those are still pending regulatory approval by the state PUCs. I would assume that you haven't booked the awards yet that have not been given regulatory approval. So can you maybe just help us think about, is there a significant chunk of this award that still has to be added to backlog? And if so is that assumed to be this year? Or is it potentially a tailwind for 2020 bookings?

So to your water question, you are correct. Unless we have regulatory backlog, we do not put it in our bookings number. And so I would say, certainly, there was a piece of Xcel that was in the bookings number for this quarter, but not the majority of it.

Correct.

And it will probably be 2020, I would assume.

It will depend on when the individual states and territories file. So you ought to think that in the quarterly bookings, it's a little less than 1/3 of the total deal value was in our book-to-bill ratio calculation for what you see now, meaning in backlog at the end of Q3. The rest of it is yet to come. And it will depend on when they do their individual filings at the state level as to when it would roll through. But it is yet to come in terms of some of the other territories.

We'll take our next question from Joseph Osha with JMP Securities.

I've got one -- actually sort of 1.5 financial questions and then one sort of more geeky question. On the financial side, Joan, I think I heard you say debt-to-EBITDA at 2% by the end of 2020. I know you've been talking about less than 2% by 2021. But am I hearing maybe that this delevering process is going a little faster than expected?

Yes. So we had -- at Investor Day, we actually said under 2% in '21. So I think I'd probably say basically the same thing, we'll get to about 2% by the end of 2020. I would say it is going a little faster. So we've prepaid almost -- at least 2 of the quarters this year, maybe even 3. So we're prepaying as we have the cash flow. And so we're a little bit ahead of our schedule.

Okay. And on that vein, I'm actually looking at this slide from your deck here from the Analyst Meeting Day, you talked about free cash at 6% to 8% of revenue, you're at 5% right now. And still, clearly, some operating leverage coming into 2020. So again, it kind of seems to me like analysts ought to be thinking that 6% to 8% free cash flow yield number -- or that free cash flow as a percentage of revenue number, maybe that's a -- realistically shows up in 2020?

Well, again, I don't have any updated numbers from Investor Day. So that was the best estimates we had at the time. We'll give 2020 guidance in February. It's somewhat dependent on getting through the cash outflows associated with the restructuring. That's why we put the '21 numbers out there because there will still be a sizable amount of cash in 2020 and some probably in '21. So 6% to 8%, I think, is the best number for now, and we'll update it as we get closer.

Okay. And then completely shifting gears. Looking at what's happening out here as well as in Florida and resilience. Tom, it seems like one of the areas where there's potential for a lot of deployments are these line sensors. I'm wondering if you can comment on how that's going and how that fits into your product strategy.

Good question. We definitely see a lot of interest in -- for line sensors or full-tilt sensors, and that applies, to a certain extent, equally well on Left Coast or Right Coast. If you're worried about wildfires or you're worried about hurricanes, both of those technologies have real application to help you see deeper into the grid itself as to what's going on. So we see interest on the part of our customers for outage messages, almost like a last gasp type of message for line sensors or full-tilt sensors; for transformer mapping types of applications that you can see which houses are connected to which transformers, so if you did have to turn out the lights, you know whose lights are going out in that type of scenario; as well as an overall DA, distribution automation kind of application to help with outage management and insight into the grid itself. So a fruitful area for us. We have some good technology that we think we can really apply to help our customers quite a bit. It's an area where we continue to be bullish on.

Just quickly as a follow-up there. Would you ever invest in one of the hardware solutions? Or would you rather just let the tilt and the sensor guys fight it out and just be the company plugging them into your radio canopy? And that's it for me. Sorry for all the questions.

No worries. Good question. I would say, it depends very much on the volumes that are associated with these things, there's parts of those solutions that I talked about earlier that we do ourselves, and some that we rely on our partners to be able to do and provide a seamless solution to the customer. So I think it's a mixed bag, and that would be a continued part of our strategy is leverage the best technology to provide the most cost-effective and reliable solution.

We'll take our next question from Robert McCarthy with Stephens, Inc.

Can you hear me?

We can.

Yes, we can hear you, Rob.

Great. So I guess, the first question on the financial side is -- and you may have spoken to this, and if you have, I do apologize. A lot of numbers thrown out. But you did recently mention that you refinanced your credit agreement to lower cost that extend kind of through 2024. What is your updated expectation for interest expense for modeling purposes for this year and next?

Yes, we have not actually provided that. It's pretty immaterial in Q4. When we give the 2020 guidance in February, end of February, we'll give you the assumptions around interest on that call. But it's very immaterial, for sure.

All right. And then maybe just a couple of broader questions then. I guess obviously what's going on in California is kind of top of mind from a headline perspective, but are we going to see anything over the next year or so in terms of a change in political will or change in rate cases, the methodology, a change in anywhere that would seem to suggest that this will incentivize more grid hardening and grid automation investment? Or do you expect even some kind of federal intervention given the crisis we're seeing?

Great question. There's certainly a fair amount of politics that still wrapped up in all of this. The discussions that we have with our customers is increasingly turning towards what are the technical solutions that are available, and we're hopeful that, that translates through the entire chain into the regulators and into the politics itself.

I definitely see a fair amount of interest in these technologies. I see movement on a state-by-state level at the regulator side of things to invest in grid hardening there. It's very, very state dependent. So some locations are much more willing to invest ahead of the curve than are others. And you actually see that when a disaster hits, how quickly individual utilities and locations can recover from those types of events. It is very dependent on the amount of preparation and investment that they had done upfront. So I'm hoping that everyone takes notice to that, and that's only a catalyst for continuing to improve the level of service that we provide to the consumer.

I guess finally, could you just amplify your comments around the progress on some of the restructuring actions and footprint and facility reduction actions and how you feel about it? And do you feel like there's more to do? And qualitatively or otherwise, how you're thinking about that?

Yes, I'd be happy to do that. So if you go back, we have now talked about a 2016 plan for a couple of years now. That was primarily focused on a U.S. restructuring and manufacturing footprint, about $40 million of savings. We are essentially done with that. There might be just a tiny bit of cash outflow still coming in 2020, but the savings are essentially already done. And so we'll stop talking about that one.

The second big piece was the Silver Spring synergies, which we announced at $50 million.

We will be essentially done with that this year, which is well ahead of schedule. So we had $25 million done through last year. We'll be minimum $45 million of the $50 million done through the end of 2020. So maybe a little bit spill over into next year, but essentially done.

The remaining plan is the 2018 restructuring plan. This is really around restructuring some of the footprint in Europe, and that one is really just in the beginning stages. It takes a lot longer to get through the normal approval process. And so we probably will have about 60% of the savings realized by the end of this year, and the remainder will take over the course of both '20 and '21 to achieve. So in total, there's quite a bit of year-over-year improvement from restructuring. My estimate for the full year is about $45 million, 80% of which is already in the numbers through Q3. So if you think about how that works, it's much more front-end loaded. Of the amount that we expect for the year, the roughly $45 million, it's maybe 45% COGS, 55% OpEx. So that gives you a little bit of color.

And we'll take our last question from Pavel Molchanov with Raymond James & Associates.

Another one for you on the wildfire crisis. One of the dimensions of this that we've seen is how a relatively small event can have a cascading effect on the grid, affecting millions and millions of people, which, of course, shows kind of the advantages of a more distributed structure. I'm curious, what's Itron's solution from the standpoint of decentralizing and creating a more distributed grid in places like California?

Right. Good question. So the technologies that we would bring to bear would certainly be around the ability to understand what is where on your grid, so a monitoring kind of environment. We definitely have capabilities for distribution automation to do switching in cases of an outage to reroute power, or to monitor assets that are inside of there. Understanding local storage, so batteries, for example, or understanding the case of solar on top of a roof somewhere to be able to monitor and manage that association. We have distributed intelligence, so you could do that at the consumer level or you can do it at the micro grid level and understand how the energy is flowing through the system itself.

And I think the last one that's worth mentioning is sort of a DR, a demand response, energy efficiency kind of program where you can, again, do some load switching or at least help out with understanding load switching to best optimize the use of energy and the grid itself. So all of those things combined are different tools that belong in the toolbox to manage the type of complexity in the grid and also best match supply and demand so that you've got better utilization of your generation assets as well. So all of those are techniques that we would have that are extremely interesting to customers that are faced with those challenges.

Okay, that's helpful. I also want to go back to an announcement you made back on September 24 about a global reseller agreement with TerraGo in terms of street lights. It feels like we have not heard many smart street lighting announcements, whether from Itron or anybody else for that matter, over the past 12 to 18 months. And I'm curious if you're seeing any acceleration or any additional opportunities in that kind of slice of the value chain.

Also a good question. We have a number of, I'll say, smaller deals that are in the books today and that they continue to go forward. We see increase in our business in the street light segment, albeit small today, but -- in terms of total size, but it's growing about 20% year-over-year. So good growth that we see. Plenty of interest out there for increased deals themselves that we would look at. And the interesting part about this is it's also global in nature. So interest in North America, certainly in Europe, Scandinavia is interesting to take a look at, and various countries in Asia as well. So good growth for us that we would have.

In general, those deal sizes tend to be a little bit smaller than some of the really big ones that we talk about in this call, and I think that's probably why you would notice less talk about it on our side. Not because it isn't interesting, it's just smaller in nature from some of the AMI deals that take headlines in these calls.

And that concludes today's question-and-answer session. I'd like to turn the call back over to Tom Deitrich for any additional or closing remarks.

Thank you all for joining the call. As we started out, we think we had a solid quarter. We're pleased with the progress, very focused on maintaining the momentum that we've seen through the beginning of the year through fourth quarter and into 2020. We look forward to updating you after our fourth quarter on the full year results. Thank you all.

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 4489487 or go to the company's website, www.itron.com. This concludes today's conference call. Thank you for your participation. You may now disconnect your phone lines.