Itron, Inc.
Q4 2016 Earnings Call Transcript

Published: 1 Mar 2017

[Operator:]

Good day, everyone, and welcome to the Itron, Inc. Year End and Fourth Quarter 2016 Earnings Conference Call. Today's call is being recorded. For opening remarks, I'd like to turn the call over to Barbara Doyle. Please go ahead.

[Barbara J. Doyle:]

Thank you, Ashley, and good afternoon to everyone on the call. This is Itron's fourth quarter 2016 earnings conference call. We issued a press release earlier today with our results. The press release includes replay information about today's call. We also have prepared the presentation slides to accompany our remarks on the call and the slides are 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 Mark Schmitz, Itron's Executive Vice President and Chief Financial Officer. Following our prepared remarks, we will open up the call to take questions using the process the operator will describe. 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 on 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 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.

[Philip C. Mezey:]

Thank you. Barbara. And welcome to everyone on the call. In 2016, we intensified our alignment around the pillars of predictability, profitability and growth. The operational, organizational and cultural changes we have made across the company have built upon the success of earlier initiatives that began in 2014. I'm confident about Itron's position to achieve the opportunities ahead of us in a world with an active grid of network devices of all types. And I'm pleased with the progress this team has made in 2016. Our fourth quarter results capped off the year of strong business execution and financial performance. Fourth quarter revenues were $496 million, an increase of 1% over fourth quarter of 2015 on a constant currency basis, with exceptional growth in the Electricity segment. On a full year basis, total company revenues grew by nearly 9%. Non-GAAP earnings per share were $0.68 in the quarter, up from $0.45 in the fourth quarter of last year. And adjusted EBITDA increased to $54 million or 11% of revenues. That's up 7% from Q4 of 2015, as we continue to implement our growth and margin improvement plans to achieve our mid-teens EBITDA target. Our results in the fourth quarter and full year 2016 reflected a solid uptick in deliveries of our smart solutions and a beneficial mix of higher margin products, services and software. Our results were also supported by increased rigor and predictability across our company. Examples of the improvement the team implemented in 2016 are on slide 5. Some of the items on slide 5 demonstrate the themes of collaboration and consistency. We unified incentive plans across the company to ensure we're all aligned in achieving our targets. We consolidated our sales pipeline management and our operational planning to improve coordination across functional areas. And we instituted a rigorous corporate-wide cadence for operational and financial management with intense focus on commitment and accountability to each other, to our customers and to our shareholders. Basically, this is about consistently doing what we say we will do. Other items are more transformational with benefits that will develop over the next 12 to 18 months and beyond. In this category, I'd include building our R&D centers of excellence for an increasingly technology-oriented space. Itron's Idea Labs, accelerating our cloud-based solutions for Riva, and refinements in our go-to-market strategy focused on use cases and the outcomes that deliver value for our customers. This category includes continued discipline in product portfolio management and driving segment and geographic profitability measures. We also consolidated more administrative functions into our Global Business Services center in Ireland, now including Itron – North American payroll, payables and receivables. These changes are driving consistency, enhanced controls and G&A efficiencies. Overall, we had a 9% reduction in G&A head count compared with 2015. As a part of our operational strategy, we intensified our focus on quality and supply chain. We refined processes and added experienced resources to the team, reporting to new Senior Vice President roles on the COO staff. Our holistic quality approach extends deeper into new technologies in our full end-to-end supply chain. We believe strongly in a regional supply chain strategy. As a global supplier of goods including large and heavy products, we're more competitive and responsive by building products closer to where our customers are. In the United States, Itron is one of the few major suppliers to U.S. utilities with manufacturing in the U.S. This improves our customer service and makes us less exposed to potential changes in U.S. tariff policy. We are, however, continuing to drive scale and advantages from our supply chain in the U.S. and globally. We've enhanced our corporate development process and team to concentrate on new opportunities. Our focus over the last 24 months on improving operational execution, predictability, and profitability is paying off. We are confident in our ability to achieve our mid-teens EBITDA goal and are in a strong position to invest organically and inorganically to augment our growth. These actions across our business have directly resulted in better performance in 2016. And this operational rigor will continue going forward as a part of our DNA. Now, let me cover backlog on slide 6 before I turn the call over to Mark. Our year end backlog increased by 5% over year end 2015 to $1.7 billion. This figure excludes more than $325 million of business we have announced and have not yet booked. Notable business that we booked in the fourth quarter included $2.1 million OpenWay meters with Duke Energy to support rollout in North Carolinas and Indiana. As we've discussed, Duke is utilizing Itron's OpenWay smart grid technology to modernize its grid, increase service reliability and improve the customer experience for its $7.4 million customers. And we are delighted to have been selected as their partner on this strategic project. A significant contract with (07

[William Mark Schmitz:]

Thank you, Philip. Itron delivered solid operating results from quarter four of 2016, with revenue of $496 million and gross margin up year-over-year by 90 basis points to 31.6%. Standout growth was once again seen in the Electricity segment with quarter four constant currency revenue up by 15%. Non-GAAP EBITDA was up year-over-year by 400 basis points to 10.9%, reflecting growth and favorable mix in the Electricity segment, improved performance in the Water segment, and nonrecurrence of extraordinary expenses related to a legal settlement in the year ago quarter. All together, results for quarter four and for the year as a whole are indicative of much tighter operating performance at Itron. And we are pleased with the results in each of our three segments. Our book-to-bill of 1.3

[Philip C. Mezey:]

Thank you, Mark. In 2016, we delivered strong business results with our focus on predictability, profitability and growth. We grew revenues by 9%, increased adjusted EBITDA to 11% of revenues, and achieved or exceeded our numbers each quarter. We have leading positions in our businesses in North America and on a global basis, based on independent third-party projection. We are aligned across the company to drive new levels of scale and effectiveness in our operations and corporate processes. And the high-caliber team we built at Itron is really beginning to hit its stride. We were very pleased with our results in 2016, and we plan to continue this trajectory in 2017, and generate double digit earnings growth. We will also continue to pursue growth opportunities centered around our OpenWay Riva solution. While we're reserved about our 2017 revenue growth based on our outlook here at the beginning of the year, we anticipate a healthy multi-year global growth cycle driven by utilities investments in smart grid infrastructure and smart cities. Today, we are one of the most trusted global providers of data and meter to cash revenue cycle software for utilities. We have a powerful unified IoT platform built on open standard, ubiquitous, secure and complete communications coverage, and edge intelligence to support smart utility systems and smart cities. We will use our technology and data domain expertise to address even greater economic benefits of optimizing the distribution of electricity, gas and water and for new smart city applications. Our focus is on delivering these new use cases and outcome-based services on our OpenWay Riva platform, expanding our presence in this higher growth segment. And what really excites us is Itron's unique ability to integrate value across sensing, measurement, communications and data analysis, as a full solution provider for customers. With our technology and expertise, I'm confident that we can extend the leadership we built in the utility industry and smart cities to a broader opportunity around the Internet of Things. Operator, now let's open up the call and take some questions.

[Operator:]

Thank you. And we'll take our first question from Chip Moore with Canaccord. Please go ahead.

[Chip Moore:]

Thanks. I was wondering if we could maybe follow up on some of the comments on investments. Clearly, leverage less than one times, several quarters of efficiency being demonstrated here. Can you talk maybe broad strokes what's your thinking in terms of getting closer on M&A, whether it's hardware, software, utility, non-utility, et cetera?

[William Mark Schmitz:]

Yeah. Thanks. Thanks for the question, Chip. So, I guess we're fortunate, first of all, to have the low leverage ratio and the wherewithal to invest both organically and potentially inorganically. We consider a full range of capital deployment options here and the options involving growth – investment in growth of the business are always more accretive than return of funds to shareholders, but we want to consider – want to be in a position to consider all of those options. And, fortunately, the board has backed that up with a vote of confidence with the authorization of $50 million of – of up to $50 million of share repurchases over the next year. So, beyond that, I don't think I'd want to comment on any specific opportunities at this time other than to say that we are alert to opportunities and expect to be investing going forward.

[Chip Moore:]

Sure. That's fair. And maybe as a follow-up, you could talk a little bit about future operational efficiencies that maybe haven't been announced. You take a bit of a pause here in 2017 given that you've come so far and done such a great job. Or how should we be thinking about that?

[Philip C. Mezey:]

I mean, Chip, I – no, we are not taking a pause. Actually, we are continuing to accelerate. As we talked about, we are really globalizing our sales and operations planning, doing a better job of consolidating our supply chain on a regional basis, looking at areas where we can use the size and leverage potentially of contract manufacturing where it is that we are doing internal manufacturing, ways to continue to simplify the business and make it more efficient. So, I would say that the pace has picked up significantly in 2016, and we see that continuing on strongly in 2017 and beyond.

[Chip Moore:]

Excellent. Thanks.

[Operator:]

And we'll take our next question from Sean Hannan with Needham & Company. Please go ahead.

[Sean K. F. Hannan:]

Yeah. Good evening. Can you hear me?

[Philip C. Mezey:]

Yes, Sean.

[Sean K. F. Hannan:]

Okay. All right. Great. Thanks so much for taking my question. Nice job. Lot of questions here. First, just to make sure I have some of the math right. It seems to me, based on the currency commentary provided, that you are expecting kind of – at least kind of a 5.5% revenue drop from Europe due to currency this year. Is that an appropriate way of thinking about it? Is it factored into your top line guidance?

[William Mark Schmitz:]

Not sure of that 5.5%. And I can – we can maybe do the math this way and say that we have an average currency rate of $1.11 in the euro in 2016. We're expecting that it's going to be somewhere in the 105, 106 (27

[Sean K. F. Hannan:]

Yeah.

[William Mark Schmitz:]

You might – as a shorthand, you might – the way we think about it, given our mix of revenues, is every $0.01 off the euro is worth about $8 million. And, obviously, that is a shorthand analysis because not all currencies move in tandem, and they often move in different directions. So, it's a very broad estimate. I mean, overall, we're looking at 2017 as a year when Electricity could show some further growth, tough compare because they had outstanding growth in 2016. Gas is going to be tough with record volumes in 2016 in North America. It's going to be tough to show much growth in Gas. And Water, Water we have challenge because Water – normally, the geographic diversification of our Water business gives us an advantage. In the current scenario, it's converse because Water's exposure to North America is less proportionately, and it's had some weak core markets in EMEA and in Latin America. So, that's basically, I guess, that's the color commentary around why we're pretty conservative in our growth forecast in 2017.

[Sean K. F. Hannan:]

Okay. So, that actually helped provide a lot of color on a lot of thoughts as well. It seems like that backed up some of the commentary you had around for us to not have material expectations on mix. It sounds like mix is going to be a little bit less favorable this year, but not necessarily problematic.

[Philip C. Mezey:]

Correct. And, I mean, Sean, and as much as we've said, slightly improving gross margin and, I mean, so it's about – we are more than offsetting any mix issues with operational improvements and, of course... (29

[Philip C. Mezey:]

...double digit earnings improvement over overall operational benefit.

[Sean K. F. Hannan:]

Perfect. Okay. And another question here, in terms of the costs that are being incurred around the accounting rule change, I'm assuming what you're talking about is this accounting standards rev rec (29

[William Mark Schmitz:]

Well, it's a very complex subject. I mean, I guess, first of all, I've got to say that we are absolutely dedicated to putting necessary focus on this to make sure it is – it is managed and implemented properly so that we have no issues from a compliance standpoint with the implementation of a new standard which goes into effect on January 2018. I would say, the – any concerns over having a significant cost impact, nothing near as large as we experienced in 2016.

[Sean K. F. Hannan:]

Okay.

[William Mark Schmitz:]

I put it – I wanted to mention it because it's something that's got to be of importance to investors, to know that we're implementing the standard, we're going to at right, we're going to do it successfully. But I didn't really want to draw too much attention to the costs. We've got to suck those up, absorb them, offset them. Are they going to pressure – put some pressure on us? Yes, they will. But it's not going to be a big number like you saw for the restatement issues that we suffered in 2016.

[Sean K. F. Hannan:]

Okay. Great. So, it's for our comfort, we'll fix those sticks, will be a drag (31

[William Mark Schmitz:]

Yes, sir. It will.

[Sean K. F. Hannan:]

Okay. And then, last question, and I'll jump back in the queue here. So, in terms of Riva – thanks for the color in terms of where you are for 10 programs right now that have been won. Can you provide a little bit of color around the backlog that – I'm sorry, not the backlog – the bid activity, RFP activity? Anymore viewpoints around that, how that might be accelerating for you? That would be very helpful. Thanks so much. Thanks for the time.

[Philip C. Mezey:]

Yeah, Sean. You're very welcome. I would say that the bid activity level is very active. So, the general color commentary there, North America very, very active, and that's the Electricity sector going very strong, good activity in Gas and in Water. We are working on replenishing the large contracts that we completed in the prior year that led to a little bit of our reported decline in the fourth quarter and have the opportunity to do that. Nice activity in Europe. Obviously, we spoke about the ramp in France. We still continue to have active shipments in Italy. The UK is starting to come online in 2017 and 2018. And Germany is beginning to wake up, which I think will be more of 2018, 2019 sort of a phenomenon, but we see healthy level of activity in Europe. And then, as we've discussed on the calls before, we really are selective about opportunities in rest of world focusing on high value areas, Australia and New Zealand, and targeted opportunities, Thailand and other places, where we see the added value opportunity of pursuing business there. We got some nice Gas and Water business in Asia Pacific as well. So, but we characterize the overall level of business activity as very healthy.

[Sean K. F. Hannan:]

Wonderful. Thanks so much, folks.

[Operator:]

And we'll take our next question from Tyler Frank with Robert W. Baird. Please go ahead.

[Tyler Charles Frank:]

Hi, guys. Thanks for taking the question. I think the people might point at the back half weighted nature of 2017 as a potential question mark. Can you discuss what your visibility is like throughout the year and how confident you are in your current target? And then what does the 2017 guide imply as far as the cost savings from your announced restructuring? Where are you in that process and what should we expect for this year as well as for next year?

[Philip C. Mezey:]

I'll speak to the overall backlog and surety, and have Mark speak to the savings in restructuring activity. So, as we commented, we're very pleased with the 1.3

[William Mark Schmitz:]

And then to comment on the savings from restructuring other activities in 2017. What we can say is that there is a little bit of cost savings yet to come in 2017 versus 2016 from a 2014 program, call it somewhere around $5 million to $10 million. And there is a little bit of savings related to the 2016 program, not very much, it's – say it's something in the area of perhaps $5 million. What is of greater significance is a broad spectrum of operational savings that are being executed across the business in supply chain, in procurement, in manufacturing efficiencies, and so on. That is of greater significance to us in 2017 than the restructuring programs per se, and those savings that we have baked into our guidance are significant.

[Tyler Charles Frank:]

Great. Thank you.

[Operator:]

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

[Noah Kaye:]

Okay. Thank you very much. Good afternoon. Just want to clarify a couple of things first. So, the $325 million or more in projects that were announced but not yet booked as of year end, maybe I just didn't catch it on the call, but are those referring to projects that you had wins after the year ended or projects where you got the award but they've gotten – they've not gotten regulatory approval yet? Just to make it – clear that up first.

[Philip C. Mezey:]

Thanks. Actually, both of those are the case. We discussed Public Service in New Mexico as an example specifically because that award was relatively late and it is in the process of obtaining regulatory approval at this point. The other significant announcement that we had made that has not yet obtained regulatory approval is National Grid Massachusetts, in which the selection was announced, but the approval is not complete, and therefore we do not place it into backlog. So, those are the two largest examples.

[Noah Kaye:]

So, one could argue that this under-represents the backlog. If I could ask, what – because you've put a lot of focus on the improvement in adjusted EBITDA margins, how should we kind of be thinking about the midpoint of the guidance, the rate – adjusted EBITDA margin range for 2017?

[William Mark Schmitz:]

We didn't – we're not providing guidance specifically on EBITDA, but I think you can assume that we're going to see continued improvement in our EBITDA margins as we move from 2016 to 2017. So, let me leave it at there. We're not at our mid-teens target yet, but we're getting closer.

[Noah Kaye:]

Right. And then, given the guide, the growth and earning and the color around cost savings, I think we can certainly see that just trying to quantify it, but I totally understand. Maybe one last one from me. I think it was kind of apparent at DistribuTECH that there just continues to be a lot of interest in new offering on the software and analytic side, maybe if you could just sort of give us an update on where you are with developing that partner ecosystem and whether you kind of continue to have expectations for closer to the double digit growth in software, that analytic that we've been talking about for some time.

[Philip C. Mezey:]

Yeah. Noah, thanks. I mean, I would reiterate the statement I made on prior calls, which is that we absolutely aspire, and by the way, this is not our final state, but I think an achievable one to get to $500 million in software and services and to have that segment not only grow faster than the sort of the historical hardware business, but also at a higher level of profitability. We're doing that through an increase that we saw in 2016, increasing focus on managed services and analytic outcomes. We've commented before that we've increased the number of managed services customers significantly in 2016, going from 300 to 375 or a few – a bit more than that. And through doing that, we have the opportunity to provide an extended range of analytic solutions. A number of the opportunities that I discussed on recent wins involve solutions outcomes that we're providing – when I talked about Itron Total Solutions. We're managing not only the data collection, but also even analyzing the data and moving beyond the revenue cycle. So, we see a range of organic opportunities there. You have seen and did see a DistribuTECH wide partner ecosystem, with whom we are working to extend offerings there, and then again are looking for opportunities, both organically and inorganically, to continue our growth in that area. There's a tremendous opportunity for us there.

[Noah Kaye:]

Thank you very much. Appreciate it.

[William Mark Schmitz:]

Welcome.

[Philip C. Mezey:]

Thank you.

[Operator:]

We'll take our next question from Joseph Osha with JMP Group. Please go ahead.

[Joseph Osha:]

Hello there. Following up a little bit on what Noah was just talking about, and the ecosystem. We saw a lot of, at DistribuTECH, other non-meter IoT devices hanging out on wires and so forth. And I'm just wondering if you can talk a little bit about what your thoughts about the non-meter device strategy for Itron might be in the coming year or two.

[Philip C. Mezey:]

Sure. We have, as an example, in Water, a acoustic leak sensor, leak sensor that we provide in addition to a metering solution on the Water side, in which we're listening for leaks in pipes and giving the ability to triangulate on very significant amounts of water loss. So, there are sensing solutions such as those that we are directly providing. In the Gas space, cathodic protection, pressure sensing, methane sensing, kinds of solutions where we may be the provider of the sensor or a partner may provide that sensor, but we would provide integrated communications for that solution. We are demonstrating the Itron Riva communications embedded in streetlight charging stations, solar inverters. There are a wide range of opportunities there. I mentioned smart city opportunities. These are generally the use of large-scale networks for these types of extended canopies and extended sensing devices. So, Itron intends to both provide some of its own extended sensors in the case of the leak sensor and partner with others to embed communications. We're making that very easy to do with a Itron Riva partner community website and developer's kits.

[Joseph Osha:]

So, thank you. To follow up on that second point then. This is not an Itron device only strategy as one of the operators – as the operator of one of the largest canopies out there, you're willing to tie up with third parties were we are...

[Philip C. Mezey:]

It's – I wouldn't – willing, willing is not the way I would characterize this. The reason that we made a very conscious effort to strongly partner with Cisco is we believe that the Internet of Things is going to be powered by the world's largest networking company and others in the networking space who are embracing open standards. And so, we actively embrace the notion of multi-tenant open systems because we believe that this is going to promote more value for our customers and ultimately more value for us, by changing the competitive paradigm. And we have really worked diligently with our Riva offering to offer a truly open and standard space system.

[Joseph Osha:]

Okay. And before I go away then, is there one particular development on that front that's already been talked about or something that you can point towards in 2017 that might be a good example of that strategy? And then, I'll go away, sorry about that.

[Philip C. Mezey:]

No, that's fine. I've – well, I mean, the first is to get integrated electricity, gas and water networks to extend those networks I mentioned on the gas and the water side, leak sensing and other telemetry devices on gas, so we – again, pressure cathodic, methane sensing on the Electric side. We've demonstrated street lights charging and solar. So – but we're exploring a wide range of other embedded devices.

[Joseph Osha:]

Thank you very much.

[William Mark Schmitz:]

You're welcome.

[Operator:]

And we do have a follow-up question from Sean Hannan with Needham & Company. Please go ahead.

[Sean K. F. Hannan:]

Yeah. Thanks for taking a follow-up here. Just wanted to see if I could circle back on some operational tasks that you folks have had, as well as strategic. Can you share a little bit about what might be a year-on-year headwind that factored into guidance, if anything at all, in terms of exited products or market, any perspective around that?

[Philip C. Mezey:]

Sean, what I would say is that we are being selective in the revenue that we're taking. I mean, as you see, double digit earnings growth is – I mean, it's a great question, that we are targeting the opportunities that we are pursuing with higher profitability in mind. So, it's not just a – necessarily a headwind faced from past actions that we've taken, this is a – becoming a standard part of our operating model that we are being selective and very disciplined about revenue opportunities that we're looking at. Now, that being said, the way that we're approaching that is by relentless cost reduction and operational efficiency to give us the broadest opportunity to bid on business that we possibly can. But there is attention there, and the order of unpredictability, profitability and growth is listed in that sequence on purpose because we are focusing on profitability, which is not to say growth is not also very important. We are absolutely looking at those opportunities, and, I think, have quite a lot of 9% growth last year and a number of significant competitive wins and opportunities here to drive a significant additional growth, but growth with a good focus on profitability and continuing to focus on that mid-teens EBITDA target and beyond.

[Sean K. F. Hannan:]

Okay. Sure. That's helpful, Philip. And I certainly didn't mean it in a negative way. It was perhaps more of trying to understand if there have been any incremental decisions to do some additional trimming this year. It doesn't sound like there's anything material that we necessarily should be thinking about. Instead, it's just a matter of A, we have our strategy and we're pursuing it with discipline.

[William Mark Schmitz:]

Sean, I'll just add that you'll remember that a couple of years ago, we mentioned specifically that we were exiting $40 million to $50 million of basic metering business in the Electricity segment.

[Sean K. F. Hannan:]

Right.

[William Mark Schmitz:]

There's not another announcement like that coming here, but as Philip says, the ongoing strategy of the business is to focus on the higher margin smart metering and network and solutions businesses. So, there is sort of a tale to that, that strategy that we rolled out a couple of years ago.

[Sean K. F. Hannan:]

Sure. And I appreciate that. I guess, what this also perhaps signals is a lot of these measures that you've had to take while they're behind, there aren't other cues that are dropping and you folks are moving forward pretty well here. One follow-on question then. In terms of the internal systems upgrade and changes in terms of ERP associated with that and really being a little bit more incremental in SG&A, where do we stand with those implementations and what factored into your guidance this year versus the prior year?

[William Mark Schmitz:]

Well, you're right on. I'm glad you raised that question because we feel good about it that the implementation of our Oracle ERP system is largely behind us. We still have Asia Pacific to do, and that will be implemented in 2017, but there isn't a whole lot of cost associated with that, it's nothing like we've experienced in prior years. And the implementation of our Global Business Services business, which is located in Cork, Ireland, we've now got the automation, a good part of the automation, not all, but a good part of the automation now is implemented. So, it's now hit its stride and it's contributing positive results in business. So, if this is what we said would happen a couple of years ago, then it would take some time to get new systems implemented, the automation underpinning them to embed the processes, and while that's not all completely done, it's – you're certainly seeing the benefits of it now.

[Sean K. F. Hannan:]

That's all wonderful. Thank you so much for all the color today, folks.

[Barbara J. Doyle:]

Thanks, Sean.

[William Mark Schmitz:]

Thank you.

[Philip C. Mezey:]

Thanks, Sean.

[Operator:]

And it appears there are no further questions. I'd like to turn the call back to Philip Mezey for any additional or closing remark.

[Philip C. Mezey:]

Thank you. I had the opportunity to say couple of times already how pleased we are about 2016. I would point out that 2017 with double digit earnings growth, we continue on in this operational improvement side, but are not neglecting growth in any way, shape or form. We have tremendous backlog opportunity, a high degree of deal activity, strong product that we're bringing to market in order to drive future growth and continue to develop our software and services offering. We are energized and excited about our opportunity in 2017, and look forward to giving you an update here in the next quarter. Thanks very much, everyone.

[Operator:]

And that does conclude today's conference. 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 8093200, or go to the company's website, www.itron.com. We thank you all for your participation, and you may now disconnect.