Itron, Inc. Q1 FY2022 Earnings Call

Thank you, operator. Good morning and welcome to Itron’s First Quarter 2022 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 the call today 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’ll 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 that were presented 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. All company comments estimates or forward-looking statements are made in a good faith attempt to provide appropriate insight to our current and future operating and financial environment. Materials discussed today, May 02, 2022 may materially change and we do not undertake any duty to update any of our forward-looking statements. Now please turn to page four in the presentation. And I'll turn the call over to our CEO Tom Deitrich.

Thank you, Ken. Good morning and thank you for joining us. You will hear first quarter details from Joan coming up shortly, but I would like to provide a brief overview of the quarter. Revenue was $475 million; adjusted EBITDA was $19 million. Non-GAAP earnings per share was $0.11 and free cash flow was $2 million. Turning to slide five, our first quarter bookings were $417 million with an approximate book-to-bill ratio of 0.9. While some quarter-to-quarter lumpiness in bookings is expected, we are still targeting at least a one-to-one book-to-bill ratio for the year. Total backlog remains near record levels at approximately $3.9 billion, excluding approximately $60 million of backlog associated with the sale of our non-communicating mechanical C&I gas business that we completed in the first quarter. Our 12-month backlog continues to grow steadily and is now up to a new record of approximately $1.6 billion, primarily driven by our network solutions and outcome segments. Turning to slide six, I will now provide some operational insights on the first quarter. As I mentioned previously, we closed the sale of our non-communicating mechanical C&I business on February 28. This is another proof point of our strategy execution as we steadily progress our business up the pyramid towards higher valued networks and outcome-centric solutions, and optimize our manufacturing footprint to an asset-light model. Market demand for Itron solutions continues to be very healthy as utilities look to address aging infrastructure and future-proof themselves by preparing for the proliferation of electric vehicles, increasing visibility and control of the grid for distributed generation and renewables, and enhancing grid security, resiliency, and reliability. Itron continues to be a leader in helping our customers through this dynamic environment, as is evident with our distributed intelligence-enabled endpoints, which have grown cumulatively to over 4.2 million units running millions of applications in the field. The distributed intelligence endpoints combined with our suite of grid optimizer solutions provide advanced grid management capabilities that will address significant customer needs but also are important growth vectors for outcomes business. We are extremely pleased with the current market demand for our solutions and we remain steadfast in our strategy. However, as we stated in our last earnings call, we anticipate that semiconductor supply constraints and inflationary pressures will continue to impact our operations well into 2022. In the first quarter, we estimate the supply constraints limited our revenue by over $100 million, with the vast majority of that impacting our network solution segment. As discussed in prior quarters, we have experienced no cancellations or loss of customers. We are actively addressing the temporal challenges of a supply-limited inflationary environment. We continue to drive efforts to overcome supply chain shortages, and improved factory utilization. We are also working on multiple initiatives to mitigate inflationary pressures with ongoing price-cost actions, combined with a disciplined approach to discretionary spending. I am proud of our team's efforts to overcome these operational headwinds that have significantly impacted our current period financials. I will now hand off to Joan to cover our first quarter results in more detail.

Thank you, Tom. As discussed on our last earnings call, our first quarter results continued to be significantly impacted by supply chain shortages and cost pressures. Please turn to slide seven for a summary of consolidated GAAP results. First quarter revenue of $475 million declined 9% versus last year, or 6% in constant currency. The year-over-year decrease was due to supply shortages, which limited our ability to meet customer demand. Gross margin for the quarter was 28.4%, 380 basis points lower than last year, due to higher component costs and manufacturing inefficiencies driven by the supply constraints. GAAP net income of approximately $1 million, or $0.02 per diluted share, compared with $13 million, or $0.30 per diluted share in the prior year. Regarding non-GAAP metrics on slide eight, non-GAAP operating income was $9 million. Adjusted EBITDA was $19 million. Non-GAAP net income for the quarter was $5 million, or $0.11 per diluted share. Looking at revenue by business segment on slide nine, Device Solutions revenue was $140 million, a $24 million or 14% year-over-year decline on a constant currency basis. The decrease was due to component shortages impacting our ability to meet customer demand, as well as exiting certain product lines, including the recently completed sale of our non-communicating mechanical C&I gas business. Network Solutions revenue was $279 million, an $8 million or 3% decrease year-over-year in constant currency. The decline is attributable to component shortages, partially offset by a ramp in new deployments. Revenue in the outcome segment was $57 million, a $1 million or 1% decrease in constant currency versus last year. The decline was due to lower product and software license sales, particularly prepaid services in EMEA. While the decrease was disappointing, our core U.S. market continues to be strong, driven by growth in networks as a service. Lastly, foreign currency changes resulted in $12 million lower revenue versus the prior year. Moving to the non-GAAP year-over-year EPS bridge on slide 10. Our Q1 non-GAAP EPS was $0.11 per diluted share down $0.41 from the prior year. Net operating performance had a negative $0.51 per share impact due to lower gross profit driven by the components shortages and higher input costs. Lower interest expense resulted in a $0.13 increase year-over-year. A higher tax rate had a negative $0.02 impact. Lastly, changes in foreign currency and share count resulted in a $0.01 per share decrease year-over-year. Turning to slides 11 through 13, I'll discuss the Q1 results by business segment compared with the prior year. Device Solutions revenue was $140 million, with gross margin of 16% and operating margin of 8%. Gross margin declined 310 basis points due to manufacturing inefficiencies related to component shortages and inflationary cost pressures. Operating margin decreased 430 basis points due to the fall-through of the lower gross profit. Network Solutions revenue was $279 million, with gross margin of 33%. Gross margin declined 630 basis points from the prior year, primarily due to inflationary cost pressures and manufacturing inefficiencies related to component constraints. Operating margin of 22% decreased 560 basis points due to the fall-through of lower gross profit. This was partially offset by lower operating expenses. Outcomes revenue was $57 million, with gross margin of 39%, an increase of 120 basis points year-over-year. The increase was due to improved operational efficiencies within the segment. Outcomes operating margin was 15%, 310 basis points lower than last year due to higher R&D investment. Turning to slide 14, I'll cover liquidity and debt. Free cash flow was $2 million in the first quarter compared with $39 million in the same period last year. The decrease was primarily due to higher variable compensation payments made this year. Cash and equivalents at the end of the first quarter were $204 million, up over $40 million sequentially, driven by proceeds from the sale of our mechanical C&I gas business. Total debt remained flat at $460 million and net debt was $256 million. Net leverage was 3.1 times at the end of Q1. In summary, while demand for our solutions remained high, the supply challenges and inflationary cost pressures are continuing to affect our financial results. We remain optimistic about our strategy and longer-term financial model. We will continue to monitor the macro environment and manage the areas that are within our control, including discipline discretionary spending and pricing actions to help mitigate the impact of the headwinds. Now I'll turn the call back to Tom.

Thank you, Joan. As Joan mentioned, while we continue to anticipate these conditions persisting at least in the near term, we are constructive on the future due to the collaborative relationships we enjoy with our customers. As providers of essential energy, water, and city services, Itron’s customers form the foundation of modern society. With our customers around the globe, the work we do at Itron shapes the world by helping our customers gain insights and control over the use of essential resources. We take pride in serving utilities and cities around the globe and look forward to advancing our vision of creating a more resourceful world. In that spirit, I'm excited to announce that we will be publishing our 2021 ESG report in a few weeks. We are proud of the ESG progress we made in 2021 and look forward to sharing the details of those efforts, along with the release of our new greenhouse gas reduction targets. This, combined with insights on how Itron solutions help our customers reduce their carbon footprint, is another positive step in our ESG journey. We are committed to helping make the most of energy and water resources that we have today and creating a better tomorrow for our customers, partners, employees, and the communities we serve. Creating a more resourceful world is more than a purpose statement. It is embedded in Itron's DNA. Thank you for joining today. Operator, please open the line for some questions.

Thank you. And our first question comes from Tommy Moll with Stephens.

Good morning, and thanks for taking my questions.

Morning, Tommy.

Good morning, Tom. I wanted to start on the full-year outlook. I don't think I missed it in the slides or release or comments regarding an update to your 2022 guidance. So I figured we just address it head-on here. Can you give us any insight there on the full year or just provide any context around why we don't have an update to that here in the slides today?

Yes, Tommy, I can take that. Historically, we only give guidance in February for the full year and then we update it in the mid-year in August. So we've historically never given interim guidance.

Okay. I guess then just in terms of the operating environment, compared to when we talked a quarter ago, and you hit some of these topics with inflationary cost pressures and supply chain constraints, can you just speak qualitatively to what you see today versus maybe what you saw a quarter ago?

I can jump in on that one, Tommy. When we did our guidance in February, as Joan referenced, at the time, we anticipated that supply constraints would certainly be with us in the first half of the year. Indeed that's exactly what we are seeing. The revenue, as referenced in the prepared remarks, is gated currently by semiconductor availability. During the quarter, we saw lead times on semiconductors increase by just a couple of days, but certainly not a rapid increase like we saw over the prior quarters. It's up a few days during the last quarter, but not significantly, nor has it started to reduce just yet; there’s still a fair amount of instability working its way through the supply chain. Certainly, with things like China lockdowns, it has the ability to create some instability. Indeed, that's kind of what's going on as we look forward. If we look deeper into our supply chain, what we see is, if I go all the way to CMS, we see more days of inventory on hand at the component level than we've had historically, and certainly more than we had during the past year. Those days of inventory are definitely creeping up, which is good, but we're also heavily constrained on just a few parts. So, more inventory, but it's not a full square set to be able to build something and we've got to free up those last golden screws, for lack of a better term, to really release it. That's what we really work through and would monitor that pace of recovery. On the inflation side, the second part of your question, what I would say is, certainly inflation is up, and our pricing actions, while gaining speed and velocity, haven't fully caught up just yet. It takes a little bit of time for those things to roll fully through the backlog and work through the pricing actions that we have underway. But we're encouraged by the outlook in terms of where that can go in offsetting inflationary pressures in the quarters ahead.

Thank you. I appreciate it. And I'll turn it back.

And our next question comes from Noah Kaye with Oppenheimer & Co.

Good morning, thanks for taking the questions. Maybe to start first about how to think about the net impacts of Ukraine, Russia on your operations, particularly in EMEA. I imagine maybe some inflationary cost pressures just because energy prices are going up. Right, but at the same time, that may create some opportunities, given the dependence of some of those European countries and Russian gas to continue to get smarter in terms of how they consume energy. So can you talk a little bit about what you've seen so far? And how the operations and the opportunities are trending?

Again, good morning, Noah. Tom here, I can take that one. Start from the perspective of direct revenue in Russia, Ukraine, and Belarus; it's really quite small. So the top line impact from a revenue perspective in those countries is negligible and not particularly important to talk about. In terms of supply impact, we also have very low direct supply from anywhere in that area. Certainly, there are a lot of raw materials, metals, and gases that are produced in those countries that are third and fourth tier into our supply chain. That's something to watch, but it certainly hasn't created any challenges in terms of supply to this point, but it is an item to monitor for us and the rest of the industry. When it comes to the macro trends and broader impacts, it certainly has the opportunity to create some pressure macroeconomically in Europe, which could potentially slow down Europe. But again, that's something to watch in the quarters ahead. From a more positive perspective, though, it clearly will accelerate energy transition for a lot of Western European countries that would need to work through exactly how they secure energy independence from that kind of situation. The more renewables and different sources of energy that need to be put onto the grid systems absolutely accrue very nicely to our technologies; customers will look for ways to get visibility into the performance of their operations through that and understand exactly how to balance supply and demand. That's where we can play, and those customer conversations are active now.

Yes. I mean, functionally, right. Whether or not we increase renewables in the share of mix or how we transition, the first order priority is just to be smarter about everything. And that’s where your solutions come in. So I was a bit curious to hear about the outcomes a little bit lower product sales, at least year-over-year in EMEA. Do you think that starts to turn around a little bit in the quarters ahead? Do you see more of an outcomes benefit coming from the European market once it sort of finds its footing?

I am very optimistic about what outcomes can do globally, but certainly within Europe, the ability to truly analyze and understand and get visibility into the operations is an important part of what utilities need to do. That's exactly what we can play. The work during this past quarter was really much, much more about some legacy solutions, specifically prepay operations, which were lower based on some of the energy costs and other macroeconomic things you're doing. But that's a legacy solution; growth areas for us include the types of visibility and monitoring that you're talking about, that continue to grow nicely for us. We're eagerly anticipating the ability to continue to scale that in the quarters ahead.

Yes, and just to add one more in and then I'll hop back. You've mentioned a couple of times during the prepared remarks and Q&A, some pricing actions. And we'd love a little bit more detail there. Are you getting incremental pricing on what's in the backlog at this point? Or is it more that you started to take in more aggressive pricing on some business that got booked in 4Q that starts to benefit later on? Or is this all sort of in the open market booking chip business, if you want to call it that?

I think there are three different components there. And the answer to your question is all of the above. Certainly, in terms of new term-space business, those are being priced in at a level that's more reflective of current cost structures in the marketplace for materials. Future contracts are being written in such a way that there's a bit more pricing flexibility or shorter-term pricing horizons in their indexing and things of that sort. In terms of the backlog itself, that is obviously a very active discussion and one that is an area we continue to push on. We've made some progress and we're continuing to work on that. I don't want to lead you to believe that we've repriced all of the backlog; we're continuing to work on it, and some we have and we're working very hard to increase the percentage that we have.

Great. I'll leave it there. Thank you.

Thank you.

And our next question will come from Pavel Molchanov with Raymond James.

Thanks for taking the question. Also, a question about Europe, although not specifically about the war, there are more and more countries in Europe like Italy that were in the initial wave of smart meter rollout, going back before 2010 in many cases, and they're now looking at essentially a replacement cycle. What are you seeing along those lines, and how is Itron positioned to get these replacement opportunities in places where smart meter penetration is already very high?

In terms of, quote, Generation two types of work, those discussions are really just beginning in some countries and not really on the horizon in others, so it tends to be a little bit of a mixed bag in terms of looking across the major Western European economies. Some are still in the first-generation rollout type of things, but in all cases, there is a more active discussion even on a first-gen solution about how to get better value out of it, whether it's the data itself or how to increase the visibility on the distribution side and really control the grid a little bit better than we've seen in the past. I would say we're not wholly dependent on waiting for those Generation two waves to come along. We continue to play pretty selectively; if it's a component-based business for us, if it's more of a network solutions deal, it would be a bit more holistic. But we'll continue to work with the customers on the distribution side, on the smart city activities, to be able to automate some of the streetlight kinds of things across major European cities, which has been really active in the last couple of quarters, and we would anticipate it's likely to continue to be in the quarters ahead.

About M&A, we've talked about this last year shortly after your analyst meeting, but what is the current kind of latest on a pipeline of acquisition opportunities, and your thinking about moving forward with any of those?

We continue to monitor the landscape nicely. Our interest areas are completely similar and unchanged to what I probably have commented on in the past: scalable technologies, really on the outcome side of things is the area we would look for, will balance of course, where the real scalable technology is in the areas that we would want to bet to grow in, based on where valuations in the marketplace for software-based assets will look to be. Obviously, we will be thoughtful about trying to do those things based on what the macroeconomic environment will look like and where the market is likely to go. So an open and ongoing discussion that we will continue to monitor; the areas of focus are unchanged from comments in the past.

Appreciate it.

Thank you.

And we'll hear next from Ben Kallo with Baird.

Hey, good morning, everyone. Thanks for taking my question. Tom, I think in your prepared remarks you talked about the backlog and customers. There's no cancellations. But can you talk about ongoing discussions with customers when they see your backlog in the constraints? And if that comes up in those discussions, if that becomes a thing for your competitors that may not face some of the same things, or maybe they do, but having a competitive advantage? Then I'll have a follow-up.

Sure. Customer discussions relative to that backlog and in place today and the supply constraints, I would characterize them as appropriate in terms of tone and tenor. People are frustrated because they want to carry on with their projects, and we're frustrated too. So we're aligned on what the problem is. No one is throwing up their hands and walking away. We continue to work with that and work with customers on scheduling and how that rollout would really work and making sure that as hardware becomes available, the ability to install it quickly and rent it into a commercial environment is there. I would say that there's clearly pressure in that area that we're placing but also customers are eager to get projects going; no change in their commitment to do projects or material changes in how they're planning to spend their capital or things like that. From a longer-term perspective, I have not seen anyone use any customer conversation really using near-term supply constraints as some kind of reason to hold back on discussions for the future or other activities. In fact, it's almost the opposite kind of effect. All of the trends that were in place pre-pandemic have kind of accelerated where customers are looking to automate business processes and improve resiliency and reliability. The recent war in Ukraine and Russia has tightened cybersecurity considerations for customers, who are eager to do a better job of protecting their assets and their data, which plays nicely into the portfolio of products that we have. So I don't think it has changed things; I haven't seen any given hints or ideas about moving to customers or to competitors where some of the supply constraints that we're grappling with are quite common in the marketplace.

Great. And then just on the cadence of sales, with outcomes as the focus, how, maybe if you could, you could parse out the outcomes business in backlog. But, but I think you have to have networks out there before you have outcome sales. And so could you talk to us about how we should think about that cadence moving forward and just the timing of that, as well? Thank you.

Sure. The ability for customers to put a new network, if you will, and used cases into their territory, those projects tend to run two to five years depending on the size of the territory. Once that network is built, adding incremental applications to it, being able to monetize the data from an outcomes perspective, looking at it from an Itron’s lens, tends to happen, but it will lag the network deployment by let's say, 12 to 18 months. So as new networks go in, there's one-time services that go along with that to get it set up and installed and implemented. Then recurring revenue starts to come on the back of that, and then new use cases will be 12 to 18 months after that. That's kind of what the general flow and cadence would look like. As we're constrained a bit in terms of network deployments at the moment, it definitely has a knock-on effect in terms of the timing. That said, the sales activity to be able to sell in those incremental opportunities is something that customers aren't shying away from in the current environment, and really liked the pace of those kinds of discussions. The speed at which customers have deployed applications to endpoints, I’ve referenced it in some of the prepared remarks. But we've got over 4 million DI capable endpoints in the field, and they're running millions of applications commercially. That number continues to go up, and it’s exciting to see a scaling with the new visibility for the customers and the speed at which they have ideas on new applications and new things they want to do is really a different way for the utilities to think, and it’s really exciting to be a part of.

Yes, thanks. I wanted to start on device solutions. Obviously, at least sequentially speaking, there’s a nice improvement in margins there. Wondering your thoughts around the sustainability of that, and how we should think about the profitability of that business as you move towards your longer-term operating model goals there?

Do you want me to speak up, Tom?

Yes, go ahead, Joan, you start, maybe I'll tag on you.

Yes, so from a standpoint of longer-term margin targets, they remain unchanged from what we discussed back in October, I guess it was kind of the 23% to 24% gross margin. One of the big key levers to do that is to really make sure we're optimizing the portfolio that we have and shedding some product lines that we just don’t think makes sense. That includes the sale of the business to Dresser that was completed at the end of February. So, yes, they did have a good improvement from Q4. Q4 was a little bit abnormally low. This quarter at 15.6%, we would expect that to continue to grow. Certainly, the constraints have an impact. To the extent we have supply constraints and we can't meet demand, there are inefficiencies in the factories and things of that sort, as well, as Tom mentioned our pricing actions haven't quite caught up to some of the inflation. I would expect the device margins to continue to improve over time, and again, long-term targets have not changed.

Okay, got it. And then on outcomes, certainly, I think you alluded in response to another question to R&D being higher, or maybe that's the prepared remarks. But anyway, the, the, I guess the question is, if I look back at 2020 and 2021, there was a pretty consistent escalating cadence in margins through the year. Is that something systemic to the business that we should think about this year, or was that just sort of two data points in an otherwise volatile trend?

Yes, I would say outcomes margins are going to be lumpier than the other segments for two reasons. One is you've got one-time software sales that, given the small scale of the business, can really create some lumpiness from quarter to quarter. Then the overall scale of the business is still kind of subscale. All you need is one or two software sales in one quarter and not in the other quarter, and you're going to get some lumpiness. So I don't think there's a natural rhythm I could point you to that says it always starts low in Q1 and grows every quarter. It's just going to be a little bit lumpy until it's a bigger business.

Morning, thanks for taking the question. You gave us some nice updates on EMEA. Maybe you could dive a bit deeper on what you're seeing in the domestic market. It looks like distribution CapEx projections, at least from the major IOUs, is very healthy over the next couple of years. So whether it's RFP activity or other things you're tracking.

Sure, the U.S. market, which is our largest market, is extremely healthy from a pipeline point of view, as well as backlog, as we commented earlier. But looking at it from a pipeline point of view, a lot of interest in second-generation or two-and-a-half generation AMI kinds of deals are active. A lot of interest in distribution automation, a lot of interest in analytics, things like detecting rooftop solar or EVs or batteries behind the meter to try to understand and make visibility into a much more distributed and diffuse grid. Those are areas that are very active in the U.S. market; network as a service, where you have utilities that are teaming up to use a common asset to be able to further their activities between electricity and water or gas and water, or vice versa. Any combination, depending on how people aren't really thinking about it, those are the areas that we've seen a lot of activity. Add-on capability for streetlights once the network is deployed to do streetlight automation and be able to use that same canopy network is another area that we've seen a lot of traction over the last couple of quarters in terms of customer dialogue, and are really what we're thinking about is as we talked about what a book-to-bill ratio would look like. We have not seen any real impact or contemplation of infrastructure spending in the current activities; everyone knows that's out there. As those rules are written, there are opportunities that help to see how that flows through, but no one's slowing down and waiting while the rules are really being drafted for that activity. There's more opportunity for our technologies, and as that money starts to flow into practice. Sure, the idea around the introduction of small amounts of hydrogen into gas systems. That's an area that I think is more opportunistic in the European market than in the U.S., although there’s plenty of discussion on it. But where customers are really starting to think about it, I think, is in Europe; the next generation of products that we have in the market today. The ones after that come equipped to be able to handle a certain amount of hydrogen mixed in there. That's what customers would choose to do. So we try to get the product line ready to be able to operate it. Those trends are indeed counterbalanced in some ways, where some jurisdictions are thinking about restrictions on gas in new buildings and new construction. That's why we obviously make sure we're ready from the electricity side as more and more things become electrified as well. So we'll play both sides of that one and be prepared depending on what a customer wants to do within their territory.

Hey, good morning, everybody. So a lot has been talked about on the pricing front. I just wanted to get a sense of the cost front in terms of accounting. Is this a LIFO? Were you realizing the higher cost immediately? Or is there some sort of FIFO delay? Can you just walk us through the cost equation in terms of price costs?

Yes, I don't know that there's any big FIFO delay. I mean, basically, our inventory is kind of flattish for the last few quarters. To the extent that there's input cost inflation, which there is, it's really reflected in the margins you're seeing.

Okay, great. And then in terms of capital allocation, just going back to that. I think the quarterly share repurchase was maybe the largest since 2014. And just any sense of how that's reflective of your confidence in the business building sequentially into the back half of this year. And then maybe, is that the playbook kind of in today's environment where private market software deals haven't been necessarily reflective of what's happening in the public market valuations?

Well, from a stock buyback perspective, as you know, our board authorized $100 million over the next 18 months effective in November of 21. So we did complete 25 million of that to date. We’ll continue to look for the right opportunities from a capital allocation standpoint to deploy capital, whether it's through stock buybacks, or as you mentioned, M&A, things of that nature. We obviously are also planning on building some of the working capital as we hope to get on the other side of these supply constraints; we expect inventory to increase so that we can really fulfill the customer demand. So I would say all things are kind of on the table. We currently have authorized an incremental $75 million of stock buybacks.

And that concludes today's question-and-answer.

Thank you. Yes, I'm all set. Thank you very much.

Thank you. And we did have one additional question from Martin Malloy with Johnson Rice.

Good morning.

Morning.

I was intrigued by your press release during the quarter about the project with Emerson. I was wondering if you could just maybe talk more about that, that use of your meters in conjunction with the thermostats, etc., in houses, and if you see a widespread use for your equipment in conjunction with other like Emerson thermostats.

Sure, happy to do so. We have a demand response program and capability that we deploy with our electricity utility partners and have for quite some time. We continue to increase the number of different types of devices that we can work with and control. So different types of smart thermostats, for example. During this past quarter, we worked to make sure that the Emerson thermostat is enabled and pre-integrated to make it a seamless experience from a customer standpoint. We definitely see interest in demand response programs from a lot of different customers. The consumer on the other side really oftentimes has a particular thermostat they want to work with, and we will enable as many as we can to cast that net wider. What we're really after is being able to control larger and larger amounts of load shedding and load control for the utility to help them do supply and demand. We're pleased to have that agreement in place with Emerson and look forward to scaling it in the marketplace.

Great, thank you. That was my only question.

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

Thank you, operator, and thanks, everyone for joining. We truly appreciate your time. We look forward to updating you again in the quarters ahead. Thanks for joining everyone.

There will be audio replay of today’s conference available this afternoon. You can access the audio replay by dialing 1-888-203-1112 or 1719-457-0820 with the passcode of 3063181, or go to the company’s website www.itron.com.