Itron, Inc.
Q2 2008 Earnings Call Transcript

Published: 31 Jul 2008

[Operator:]

Good day everyone and welcome to the Itron, Inc. second quarter 2008 earnings conference call. Today’s call is being recorded. For opening remarks and introductions, I would like to turn the call over to Deloris Duquette. Please go ahead.

[Deloris Duquette:]

Good afternoon everyone and thank you for joining us today. On the call today, we have LeRoy Nosbaum, our Chairman and CEO; Malcolm Unsworth, our President and COO; Steven Helmbrecht, our Chief Financial Officer; and Philip Mezey, Chief Operating Officer for Itron North America. The earnings release that we issued today includes an outlook for revenue, earnings, and adjusted EBITDA for 2008. We will also talk about other issues on today’s call that could be forward-looking in nature. The outlook and other forward-looking information we are providing is based on what we know today in a subject to a number of risks and uncertainties. I encouraged you to read the forward-looking disclosure in our press release which alerts you to a number of factors that can cause a difference between our expectations and our actual results. You should also refer to our 2007 Form 10-K and other related SEC filings for more complete disclosures of specific risks and uncertainties related to our business. We do not assume any obligation to update or revise forward-looking statements, although we may do so from time to time. Our earnings release includes non-GAAP financial information that we believe enhances your overall understanding of our current and future performance. Schedules reconciling GAAP to non-GAAP financial information are included with our press release and are also available on Itron’s external web site. As we have done in previous quarters, supplemental information is posted on our web site under the Investor’s Section that includes some of the pertinent points that each officer will discuss today. Steven will start the call today with the discussion about our financial results, then Philip and Malcolm will each give operational updates for their respective businesses, after which LeRoy will wrap up with our prepared remarks with (inaudible). We will finish with the question and answer period. Now, I would like to turn the call over to Steven Helmbrecht, Itron’s CFO.

[Steven Helmbrecht:]

Thank you, Deloris. Philip and Malcolm will discuss the performance of the operating segments, so I will focus on the overall financial results for the quarter, including corporate expenses and items below the operating income line including interest expense and taxes. I will also talk about the equity offering we did in May and discuss our ongoing focus on generating cash flow to further reduce debt and interest expense, and I will comment on our financial outlook for the remainder of the year. Keep in mind, when I talk about our results for the second quarter of this year compared to last year, that we completed the acquisition of Actaris metering systems on April 18, 2007. So, second quarter 2007 results don’t include two to three weeks of Actaris activity. We have strong financial results with record second quarter revenue of $514 million, 28% higher than 2007 second quarter revenue of $402 million and above our guidance range of $470 million to $490 million. Itron North America second quarter revenue was $165 million and Actaris second quarter revenue was $349 million, both better than expected. Philip and Malcolm will explain the operational drivers for these strong results in more detail. Corporate unallocated expenses in the quarter were $9.8 million, about $2 million higher than the second quarter of 2007, primarily due to increased compensation expenses and Actaris-related acquisition expenses for tax consulting and Sarbanes-Oxley implementation. Non-GAAP operating margin was 13% for the quarter which is similar to the second quarter of 2007 and about 1 percentage point higher than the first quarter of 2008 driven by the higher revenue, increased gross margins and lower operating expenses as a percentage of revenue. Our non-GAAP tax rate for the quarter of 26.2% was slightly better than our expectations. However, I would like to remind everyone that our rate can and will fluctuate. The rate can involve fluctuate – the rate can change depending on tax credits and by the mix of revenue by country, some with higher rates and others with lower. Non-GAAP net income for the quarter was $36 million with EPS of $1.02 per share. This was significantly higher than we expected due to the increased revenue during the quarter at better than expected operating margins combined with the lower tax rate. Non-GAAP net income for the first six months was $63 million or $1.85 per share. Non-GAAP net income for the quarter included other expenses of approximately $2 million for an impact of $0.04 per share related primarily to foreign exchange losses on trade and intercompany receivables and payables. While we expect to see some level of quarterly gains and losses from changes and foreign exchange rates, we are evaluating additional hedging transactions to reduce the financial impact of these changes. Our diluted share count included 1.7 million shares related to our convertible notes as our average stock price during the quarter was approximately $96 per share. You will notice that we have continued to classify our convertible notes as short term. This is due to the fact that our stock price exceeded 120% of the strike price for 20 days before the end of the quarter, making the notes eligible for conversion. As mentioned last quarter, we do not expect the notes will be converted as they are trading at a premium in the market. We had adjusted EBITDA for the quarter of $79 million which equates to an EBITDA margin of 15.5%. For the first half of the year, our adjusted EBITDA was an excess of $151 million. We had a very good quarter from a cash flow perspective with continued focus on reducing our trade working capital. Cash flow from operations was $64 million, one of the highest levels ever. Our CapEx was $16 million or about 3% of revenue, on track with our forecast, which resulted in free cash flow for the quarter of $48 million. For the first six months, we generated $91 million in free cash flow which is more than double our free cash flow for the first six months of 2007. In May, we completed a very successful equity offering of 3.4 million shares raising $311 million in net proceeds. There were two key objectives of the offering; one, reduce our debt balance and strengthen our balance sheet; and two, reduce interest expense and lower the cost of our bank debt. Now that we have reduced our debt to EBITDA ratio below 4.5 times, we achieved an automatic 25 basis point reduction in our interest rate on the $806 million in remaining bank debt or plus 175 basis points. We used about $265 million of the proceeds of the offering to pay down debt. We repaid the remaining balance on our pound sterling denominated bank debt about $77 million. We made a $185 million repayment on our U.S. dollar denominated bank debt and we repurchased about $4.4 million of our $125 million in senior subordinated notes, leaving $42 million of unused net proceeds from the equity offering, which is primarily why you see increased cash on the balance sheet. Our cash balance was $153 million as of June 30. We will continue to evaluate our strategy for cash going forward, including the appropriate level of cash to maintain on our balance sheet. In addition to the $265 million in debt payments from the equity offering, we made an additional $38 million of scheduled payments and optional prepayments on our bank debt for over $300 million in debt payments during the quarter. Our debt to EBITDA ratio decline from 5.3 times at March 31 to 4.2 times at June 30. And our interest coverage ratio increased from 2.7 times to 3.6 times. In the 14 months since we closed the Actaris acquisition, we have repaid a total of $426 million in bank debt and we will continue to use free cash flow to reduce debt with a focus on the U.S. dollar bank debt and the senior subordinated notes. During the quarter, we entered into an interest rate swap to fix the rate on $200 million in bank debt. So at June 30, we had $1.27 billion in total debt at a blended interest rate of 5.1%. Much of it is now effectively fixed rate. We have 86% fixed rate debt and 14% floating, and we have achieved a very balance ratio with 63% of the debt classified as senior secured debt and 37% subordinated. From a currency perspective, 66% of our debt is U.S. dollar debt and 34% is Euro debt. We are comfortable with the Euro debt in our capital structure as the interest expense accessed the hedge to Actaris’ Euro-denominated operating income. While we are in the subject of currency rates, I remind you that the appreciating Euro has benefited us in the form of higher Actaris revenue, about 50% of which is denominated in Euros. Obviously, the higher Euro-dollar exchange rate affects Actaris’ cost of sales and operating expenses as well, which has an offsetting impact on operating income and EBITDA. With those activities in mind, I will talk about our outlook for the remainder of 2008. For the full-year 2008, we expect revenues to be between $1.91 billion and $1.95 billion, an increase of $20 million to $30 million over first quarter guidance. Non-GAAP diluted EPS, which excludes expenses related to amortization of intangibles and debt fees, is expected to be between $3.35 and $3.50, which is higher than $3.25 to $3.45 we indicated on our first quarter call. Adjusted EBITDA is expected to be in excess of $285 million. For the third quarter, we expect revenues to be between $465 million and $480 million. There are several items worth pointing out when thinking about our expectations for the year. Our expectations for Actaris are based on an average foreign exchange rate of $1.50 per Euro for the second half of the year. We expect our non-GAAP effective tax rate for the year to be about 26.5%, which is lower than a 28% rate we talked about last quarter and we expect our outstanding shares for the year to be approximately 35 million. In summary, we are very pleased with our financial results for the quarter. With that, I would like to turn the call over to Philip Mezey, COO for Itron North America.

[Philip Mezey:]

Thank you, Steven. Good afternoon everyone. I thought I would briefly talk about North America’s financial results and then spend a bit more time on more recent developments. We had a great second quarter. Revenue grew 16% over the second quarter last year and 11% over the first half of the year which has actually exceeded our expectations. Our revenue of $165 million was higher than we expected and was primarily driven by two factors. First, we have slightly better than expected booking ships business; and second, we had customers requesting shipment of products in the second quarter that we originally expected would ship in the second half of the year. We shipped 1.3 million electric meters during the quarter, 13% more than we shipped in the second quarter of last year. Over 60% of those meters had Itron AMR embedded in them compared to 40% in the second quarter last year. Margins of 40% were in line with expectations but when compared to last year, they are lower due to fewer C&I meter shipments in the quarter, the effect of shipments some of our first version AMI units and the cost associated with that, and increased service costs related to the anticipated need for field service personnel associated with the large contracts that we have just signed. As we have talked about on previous calls, we believe it was prudent to go and get the AMI implementation expertise in-house so that we can hit the ground running on these deployments. Operating expenses were similar to the second quarter of last year, although there was a shift to increased R&D and marketing expenses that was offset by lower G&A and amortization of intangibles expense. Operating margins on a non-GAAP basis were 15.9% for the quarter, which were similar to the second quarter last year. Bookings for the quarter were $122 million or about 0.8 to 1 book-to-bill ratio. We did not book any additional revenue for our contract with Southern California Edison. Also, keep in mind that these numbers do not reflect bookings for the AMI contracts that we have just announced as they were signed in the third quarter. At the end of June, we had $470 million of revenue related to SCE that has not been contracted for, but has not been reflected in our bookings or backlog. We made great progress on the AMI contract front during the quarter, which culminated in the announcements over the past two weeks. We are excited about all of our agreements. It is very nice to have won these deals as it shows the industry is really moving forward. Let me touch briefly on the status of the four agreements that have been publicly announced. Southern California Edison has installed additional quantities of OpenWay meters in order to test integration and the other components of their SmartConnect program. They have submitted their business case to the commission and are awaiting final approval which should be in the third quarter. SCE expects to install some additional meters in the first quarter of 2009 and deployment should begin in earnest in the second quarter. CenterPoint Energy submitted their revised AMI deployment plans to the commission in April. CenterPoint is still in negotiations with the commission over the broader rollout and have asked for a 60-day extension to work out details. The smaller initial roll out of 125,000 units is in a separate filing that should be decided in mid-August. The commission and CenterPoint remain very positive about moving forward and Itron is confident of favorable outcomes on both filings. DTE Energy is in the process of finalizing their initial phase deployment plans. We expect that they will install between 10,000 and 30,000 Smart Meters in the next 12 months for testing and analysis. As long as the initial phase goes as planned, which means the system is working as intended and the expected benefits are substantiated, they plan to begin their full deployment of the system. We expect the timing of that would be in the last half of 2009. And last, but certainly not the least, our contract announced today with San Diego Gas and Electric. San Diego is particularly exciting for us because it is a turnkey contract. We have our OpenWay system, electric meters, gas endpoints and communication, and our Meter Data Management system, Itron Enterprise Edition, and we are responsible for installing the system. We look forward to working with San Diego on their project which has been approved by the commission and is funded. However, the commission will need to approve the contract as part of the process. San Diego is in the process of installing 5,000 meters and gas modules to their initial testing phase over the next couple of months and then after commission approval of the contract they plan to begin full system deployment in February of 2009 and have the deployment completed by mid 2011. I would say that is not bad work for a quarter, although, I certainly don’t let my sales team off that easily. If we move beyond these high profile customers, I can share with you that AMI activity remains strong. And I would also point out that we continue to sell AMR systems and ship AMR meters and modules everyday. Our contract with Northwest Natural Gas, where we were chosen as the vendor to expand their mobile AMR system in Portland, is just one example of that level of activity. So while AMI remains a very exciting potential for us and for the industry; AMR systems continue to generate revenue for us each and every month as well as all of the other products and services that we offer. We continue to be a leader and trusted supplier to the energy and water industries for a variety of solutions. Before I handed it over to Malcolm, I would like say a few words about our expectations in North America for the rest of the year. I opened today by stating we had a great quarter, and we did, which helps to ensure that the year is on track. When we look at revenue increases, the majority were driven by customers accelerating their orders, not necessarily by orders that we did not expect. We are reluctant to increase revenue guidance more than we have for the year at this time. Based on the level of activity out there, we may have upside in the year. But at this point, we think it would be more prudent to keep expectations for the year in check and then monitor the status over the next quarter before committing to any revenue increases from expectations in North America. So, we will now turn our focus to execution of these important contracts and we'll update you in the coming quarters on the strength of our core business and the exciting opportunities we have with expanding our AMI business. And with that, I will turn it over to Malcolm.

[Malcolm Unsworth:]

Thank you, Philip, and good afternoon everyone. I’m going to start today with the review of Actaris’ financial results, and as I have in previous quarters, give you some information of Actaris’ results and the effect that foreign currency is having on them. And then I wanted to spend sometime talking about the activity that is taking place outside of North America, which continues to be very interesting. After that, I thought I would finish up with a status update on how things are going with my new position in terms of identifying opportunities between the two operating segments. So let’s start with our results. Revenue was $349 million for the quarter. This was the highest revenue quarter in Actaris’ history. Revenue during the quarter was about $17 million higher than our internal expectations. About $14 million of the increase was due to the stronger Euro in the quarter and about $3 million was due to increased sales. Each business unit contributed to revenue growth. The electric business unit was strong and accounted for 39% of the quarter’s revenue while gas and water accounted for 32% and 29%, respectively. Gross margins of 32% were higher than normal for the second quarter in a row. We had an increased proportion of gas meter shipped and commercial and industrial electricity meters shipped during the quarter. And we also had lower indirect cost of sales. Both of these currencies had a nice effect on results of this quarter. We do not expect that margins will be as high the remainder of the year, but expect they will be closer to 30%. Operating expenses of $85 million for the quarter were 24% of revenue. Expenses were higher than expected by about $3 million because of the stronger Euro. It is hard to compare operating expenses to the second quarter of last year because there was an in-process R&D charge of $36 million, but as the percentage of revenue they are in line. The stronger Euro increased Actaris’ non-GAAP operating income about $1.1 million more than expected, which had an EPS effect of about $0.03. Total meter shipments for the second quarter were $5.2 million versus $4.3 million in the second quarter of last year, which is a 24% increase. Although keep in mind that we did not own Actaris for the full quarter in 2007, and we are missing about two to three weeks of shipments and the associated financial impact. Actaris non-GAAP operating income was $51 million for the quarter compared to non-GAAP operating income of $40 million for the second quarter of 2007. Bookings for the quarter with $310 million are a 0.9

[LeRoy Nosbaum:]

Thank you, Malcolm. Good afternoon everyone. Thanks for your interest in Itron and being on the call. With the good reports from Steve Philip and Malcolm, I will keep my comments quite short. What I would like to do is simply point out a few takeaways from this record second quarter earnings release. Let me start with AMI, great orders in the last couple of weeks for Itron’s OpenWay. We have been working very hard at DTE in San Diego, so these wins in particular are gratifying. These two contracts point out what we have been saying for some time. Progress may go slower than hoped for, but these things do finally get done and there is real potential in AMI. As Philip said, there are other potential projects on which we are engaged. Utilities are actively looking at AMI and Itron’s OpenWay. There are some ways to see what happens with early contracts in California and elsewhere others will move forward more quickly. Last week, I attended the summer meeting of the National Association of Regulatory Commissioners whereas on two panels, one on AMI and one on energy efficiency, my most significant takeaway from that conference was the strong level of support for AMI. There are questions to answer regarding how to treat low and fixed income consumers. There will always be issues regarding how to divide the burden of big projects between ratepayers and shareholders. There was, however, an overwhelming sentiment to move forward with AMI and actually get these systems installed. So let’s talk about deployment of systems. When shipments on contracts with Southern California Edison, CenterPoint DTE, and San Diego begin in earnest in 2009, Itron will see a significant acceleration of revenue as projects ramp up. While the exact timing of that acceleration is still somewhat uncertain, it will be significant by the end of the year, if not by the beginning of the second half. Accordingly, we think it’s reasonable to begin to think about INA’s 2009 revenue growth in the mid-to-low teens range. Certainly, we will have a ramp as we move through the first half of 2009. So I just want to remind everyone that growth does not immediately appear on January 1. As the gross margins for INA in 2009, we need to be some careful exactly how deliveries, revenue recognition, and various product versions will affect gross margins still in flux. Earlier product versions have poor margins. So at this point, we would not be surprised if overall margins for INA next year had some modest downward pressure, particularly, in the fist half of the year. Let’s move on to Actaris. Great performance so far this year, ahead of target, lots of activity on all fronts. We are particularly pleased with the win on EDF pilot project which Malcolm talked about. In and out of itself, EDF will be a fantastic project. But more significantly, this large roll out coupled with other forward momentum, signifies great prospects for AMI in Europe in the years to come. As you heard from Steve, our financial performance continues to be very good. Earnings above forecast. We continue to pay down debt ahead of schedule. We are in great financial shape. Let me close with the word of conservatism. Itron had a great first half, some of that was business that customers took earlier than we had forecast for both INA and Actaris. For Actaris and INA, demand was a bit better overall than we had expected. So how are we thinking about the second half? First, reassured. We have a good first half on which to build and achieve our 2008 business plan but we are being some prudent. As well recall that in the U.S., our meter factory shuts down for two weeks in July. And in Europe, most of Actaris is shutdown for the month of August. These will have some effect on the third quarter as they always do. For the rest of the year, we have raised guidance a bit; $25 million or to mid-point on revenue, $0.10 on the bottom and $0.05 on the top of the range for non-GAAP EPS. Now is not the time to be too optimistic nor is the time for pessimism about the rest of 2008. We think it is time to look at the rest of the year in both a realistic and prudent manner. We look for revenue in Q3 between $465 million and $480 million. In EPS, somewhat more heavily weighted to Q4 than to Q3. Do not come off this call thinking we are nervous about the rest of this year or next year. We are not. There are, however, a lot of moving parts. The transition to AMI from AMR electrically, with deployment schedules that are still a bit fluid, an economic climate in the world and in the U.S. what all of us would call questionable territory. However, 2008 is shaping up to be a very, very nice year for Itron both in terms of contract announcements and in terms of our own financial performance. With that, let’s open up for questions.

[Operator:]

(Operator instructions) And we will take our first question from Stuart Bush with RBC Capital Markets.

[Stuart Bush:]

Yes, hi guys. Great quarter.

[LeRoy Nosbaum:]

Thanks, Stuart.

[Stuart Bush:]

LeRoy, I wanted to see if you could just expand a little on the discussion you mentioned at that conference. Outside of California’s mandates, what is your forecast of how the Public Utility Commissions will balance, they will likely need to raise consumer's electricity rates from higher coal and nat gas prices and their willingness to approve these CapEx pass-throughs for AMI projects?

[LeRoy Nosbaum:]

Yes, Stuart, that’s a great question. Frankly, it was one of much discussion through the days of the conference that I attended because they clearly have an issue. They know that they’re going to be pressed to raise rates because of just pass-throughs as you’ve mentioned. But frankly, they also view that AMI and all that comes with it, is one of the available tools to give to consumers to actually lower not the rate, but lower potentially the amount of electricity your natural gas are consuming, but as well get off the system peak so thereby reducing the bill they have to pay at the end of the month. The other important thing they look at relative to AMI is the new level of consumer information that is continuously available because of in-home networks and displays that allow that consumer to have an idea everyday of the month how much money they have spent and how much they are going to spend if they keep on doing what they have been doing. So, it is really quite interesting. I made the sort of bold statement that we are out of time as opposed to running out of time and a couple of commissioners picked up on that as they talked about installing AMI systems and the need for them and actually used my phrase, “we are already out of time.” So I was quite encouraged.

[Stuart Bush:]

Okay, great. My next question is about, your comments about how AMI margins could pressure as you ramp the business next year. But as you scale, do you expect the margins to trend back to the low 40s that you achieved in the legacy AMR business and what type of scale or time frame do you think it will take to get there?

[LeRoy Nosbaum:]

The first part of the question, absolutely, I mean the low 40s, 40-odd percent range is certainly where our minds are wrapped around and where we are targeting. The issue on that is there is a phase in of various product releases and exactly when the phase in occurs is one time frame. The next issue you have to deal with is when the customers are actually going to take that, because we have it available doesn’t mean that the customer has fully approved that particular product version and so as I said, that still is somewhat fluid. It really is, Stuart. So, I can’t answer that question definitively at this time because there is too many moving parts but we would expect, as we move through the first half and then get into the second half margins continually look better, not only because of versions, but also because of volumes and as you guys know volumes do wonderful things in factories and through the second half of last year, volumes will start making an appreciable difference.

[Stuart Bush:]

Okay, great. And then I have a last question for Philip. I just wanted to know if you could clarify, why we saw such a pull forward in the AMR meter and module business in North America. Was there some overriding factor that drove several customers to accelerate orders or what's sort of the underlying driver that is going on there?

[Philip Mezey:]

Stuart, we have seen that kind of acceleration before on some of these larger projects, where the project is moving along smoothly, the customer is getting benefits and actually sees an advantage in just rolling out somewhat more rapidly. So, I would say that really is a market success we’re having on some of our larger deployments that we have demand from them.

[Stuart Bush:]

Okay. And then just one real quick one if I can, I noticed that you didn’t publicize the contract amount for the whole San Diego project, Denver. Are you going to be able to do that at some point or why were you not able to do that as you did with Southern California Edison?

[Deloris Duquette:]

Yes, I think we generally don’t put the amount in the contracts anymore, but if you think about it in the $260 million range, you are going to be close.

[Stuart Bush:]

Okay, great. Well, thanks. Great quarter, guys.

[Deloris Duquette:]

Thanks.

[Operator:]

And we will move to Steve Sanders with Stephens, Inc.

[Steve Sanders:]

Good afternoon.

[Philip Mezey:]

Hi, Steve.

[Steve Sanders:]

Congratulations on the San Diego deal in the quarter and Detroit as well. I guess, first question on OpenWay may be for Phillip, if you could just kind of bring us up to date on where you are in terms of the feature set and the design relative to what you are expecting in terms of volumes on some of these announced projects?

[Philip Mezey:]

So, in terms of overall development progress, things are going along well, plus or minus a couple of weeks here on rolling out the features that we have discussed in the public and committed to our customers. So, I’m very, very pleased with the level of development activity and the work that we are doing with our customers in order to approve these products out in the field. We are focusing just now on releasing what we are calling version 1.5, so a substantial upgrade of the version 1.0 meters that we had deployed initially at CenterPoint, that initial 10,000 and then we will be releasing a 2.0 release here in the next several months. So, good progress and very close and open work with our contracted customers on the features that are in the pipeline and matching those versions and getting them certified. Again, the fluidity that we already mentioned has something to do with how many of these version 1.5 meters we’re going to be shipping and installing in relation to the 2.0 meters that are also on the rise as well.

[Steve Sanders:]

Okay. All right. That is helpful. Sorry about that. And then, Malcolm, I think you talked about some acceleration on the gas side in the quarter and on the C&I side, can you just provide some additional color on that 2Q versus 1Q where shipments, particularly in gas, were up pretty significantly?

[Malcolm Unsworth:]

Yes, we had some orders that we could ship earlier from Q3 into Q2. We shipped those sooner on C&I meters. And on gas, it was just an increase in demand for gas meters. It could be – theoretically, it could be end-of-year spending for some of these customers because their year does not always end in December. So that was one of the things. So, it was an anomaly that we were quite surprised but it was good.

[Steve Sanders:]

Okay. And then, on the water side, I think you had some good things in the first quarter associated with Germany but really the volumes are relatively flat Q to Q. So, can you dig in there a little bit more for us and may be talk generally – I think you have indicated in the past that you see the water AMR/AMI side as an increasingly attractive opportunity for you, so really two questions. One, water strength 2Q versus a tough 1Q comp and your current AMR/AMI thinking there.

[Malcolm Unsworth:]

Just to answer your question on the first half strength of water, it is water and heat and there is a requirement which has a five-year replacement time frame in Germany. So, effective basically the first week of January, we have a huge amount of shipments out of the water group for primarily for Germany. Obviously, that does not happen in the second quarter but we are finding that one of the strongest areas for AMR in Actaris is water. We are finding that we have got lots of justification that customers are going to our AMR solutions and we are seeing strength in that. So, it is penetrating throughout Europe and throughout the rest of the world for AMR for water.

[Steve Sanders:]

Okay. And then, a follow up on the EDF side, you have given us a lot of detail on the project. Ultimately, will it be three meter companies and two data companies or how should we think about that?

[Malcolm Unsworth:]

Well, the consortium as you know consists of Atos and then interoperability is something that EDF are very strong about. Obviously, if there are three meter providers us which is – you know the other two – (inaudible) will split it three ways, but you never know with EDF. I mean, they could introduce another meter provider. But the commerce provider, we have to have interoperability with the communications. So, if one supplier goes down, the other one can take its place. So interoperability is very important within the EDF project.

[Steve Sanders:]

Okay. And final question for Steve. 3Q, just margin trends, I know you talked about Actaris – a tough comp, 32% on the gross line. But, generally, should we think about 3Q pro forma operating margins as closer to 1Q than 2Q? Are you still making some pretty significant investments in front of the AMI projects on the OpEx line? Just whatever color you can provide there?

[Steven Helmbrecht:]

Sure. We would see close margins on a combined basis in the 33% or 33.5% overall. In terms of Q1, it is going to look more – Q3 is going to look more like Q1 as well with operations. Continuing to invest in R&D. A couple of teams are consistent here still. The increased R&D spending which we have planned on doing and then, we are continuing the transition in Sarbanes-Oxley in the year of implementation in some areas where we are seeing some additional corporate spending this year in order to finalize those types of projects as well. We would expect to see some of that continue in Q3.

[Steve Sanders:]

Okay. Thank you.

[Operator:]

Next we will take John Quealy with Canaccord Adams

[John Quealy:]

Hi. Congratulations. Can you hear me all right?

[Philip Mezey:]

Hey, John. Good.

[John Quealy:]

Just one housekeeping. First, on the operating expenses that are delayed, are we going to see more product development, sales and marketing, or how is that mix going to go forward in the back half of the year?

[Deloris Duquette:]

It’s mostly going to be R&D, John. Actaris was not able to ramp R&D to the extent that they thought they would, but we still expect they will toward the end of the year. Percentage wise, I don’t think that it changes dramatically but that would be the area that you increase.

[John Quealy:]

Okay. And future debt payments in terms of optional prepayments, Steve, what’s your thought on the back half of the year in terms of future debt payments?

[Steven Helmbrecht:]

Sure, we expect for the year operating cash flow to be somewhere between $200 million to $220 million. We could trend a littler higher on CapEx in the second half of the year as we ramp up some equipment related to the AMI rollout, so we would expect free cash flow somewhere in the $140 million to $150 million and I think it would be reasonable to expect that most of the free cash flow, incremental free cash flow would be used to delever. It could be delever and as I mentioned, we will focus on the U.S. dollar debt primarily. We will also continue to prepay Euro debt.

[Deloris Duquette:]

Yes, John, and just because you may not have the numbers in front of you, free cash flow year-to-date was $91 million, so it would be that delta between the projected that we reduced to pay down the next level of debt.

[John Quealy:]

Okay. Another 50, 60. Just more qualitative questions now. On the competitive side, lot of charter about both San Diego and Detroit for a while now, those look like they are fairly well in expectations. What’s your thoughts about competitiveness from Itron’s perspective on several other big deals that are in various stages of progression, does the turnkey status of San Diego change that at all, just your thoughts about the latest bidding opportunities.

[Steven Helmbrecht:]

Well, John. I will start this. LeRoy and Philip may have a follow comment. I don’t know that winning San Diego changes anything except for the fact that some utilities will look at that win and perhaps be bolstered by the fact that Itron has now won four serious contracts, so some fairly bright people that looked at our product OpenWay and I have judged it to be the right directional move. There are a number of contracts out there or projects, if you will, that we are pursuing hardly – pursuing quite aggressively. We intend to be successful. We will see how they layout. One point I would make, this environment is very, very competitive. We are going head to head with a bunch of good companies that have great products as well as we do and so none of this is easy and it continues to be both price competitive and feature function competitive and we do see some segmentation of the market where high feature-rich products like OpenWay are successful and then in some areas, utilities frankly don’t want as much feature and that is a bit of a harder situation for us because we have a very feature-rich product, so it’s a interesting market. Philip, any other thoughts beyond that?

[Philip Mezey:]

No. John, what have I done for you lately?

[John Quealy:]

Yes, exactly. The last two questions, in terms of deployment, we have seen a lot of variability and push outs on deployment. How comfortable are you that the Q2 timeframe for So Cal, just from a logistical standpoint and maybe political standpoint, is a good timeframe. Can you just comment on what your interpretation of utilities and regulators are right now?

[Steven Helmbrecht:]

John, I can. I mean, I think we are seeing this much more clearly now. As we are getting closer, the pressure is increasing for these projects to move forward and to start generating results. Regulators are impatient to see progress as well, so I think because we are moving closer through the selection process, you are going to see this deployments proceed as per the published schedules for the most part.

[John Quealy:]

Okay, and my last question for Malcolm. I understand the mixed issues the first half of this year benefiting Actaris. Now that you have had the company fully integrated for a year at least on paper, can you give us an update in terms of supply chain efficiencies, additional margin opportunities as a combined entity, where we are in terms of innings to that, are we halfway through getting some of the synergies or not?

[Malcolm Unsworth:]

Well, obviously we have got the focus together and we have negotiated specific contracts with electronic suppliers and some battery suppliers for some of our other areas, and obviously, when you start doing negotiations, they don’t take effect immediately. So we have seen some of that. Is it going to come a little bit more in the second half? We’re always trying to negotiate better deals. So I see, what we reflected on the guidance going forward does include some of those.

[John Quealy:]

Yes.

[Deloris Duquette:]

And the only other thing that I would add John, I mean, certainly we are subject as is everyone else to some rising commodity costs. What we’ve been able to do to a large degree is to take some of those savings that Malcolm’s group has been able to identify and mitigate a lot of those effects.

[John Quealy:]

Great, thanks. Congratulations again.

[Malcolm Unsworth:]

Thanks.

[Operator:]

And we’ll take Sanjay Shrestha with Lazard Capital Markets.

[Sanjay Shrestha:]

Great. All of my questions have been answered guys. Congratulations on a great quarter.

[Deloris Duquette:]

Great.

[Malcolm Unsworth:]

Thank you.

[Operator:]

(Operator instructions) And we move on to Michael Horwitz with the Stanford Group.

[Michael Horwitz:]

Hi everyone. So, there was some word out today that Silver Spring got awarded a contract from PG&E albeit the meter part of it wasn’t announced and they are a recent partner of yours. Is there any commentary on where you might stand with PG&E or any timelines that you might expect around PG&E? Also given the fact that, I think, next week in San Francisco, there is a meeting about the Smart Meters – the PG&E’s Smart Meter here in San Francisco next week. So, anything to comment around that?

[Philip Mezey:]

I mean, Michael, we’re pleased for Silver Spring and the announcement and I think that it’s now pretty clear about why it is we were so interested in putting out that press release and working with Silver Spring on qualifying the meter under their network. And no, as PG&E has not made public any information about their meter suppliers, I think we’ll stay with that.

[Michael Horwitz with:]

All right, fair. And then with regard – just to clarify on some comments around CenterPoint. There has been commentary regarding what Stuart was asking earlier, especially in Texas and there is some hearing scheduled, but I believe you said that you filed for extensions. Can you just clarify how that‘s working with CenterPoint and the PUC down there and the extensions that you filed?

[Philip Mezey:]

So let’s be clear. We did not file an extension. CenterPoint continues in discussions with the regulator for a 60-day period, productive back and forth in order to move this thing forward. So I would just say that – I reiterate that CenterPoint and we feel optimistic about progress in that process and see the project moving forward.

[Michael Horwitz with:]

Okay.

[LeRoy Nosbaum:]

Yes Michael, this is LeRoy. A point of clarification, there is actually two issues in front of the Texas Public Utility Commission; one is a full rollout issue and that is what Phillip just described, the other one is a smaller 125,000-point rollout that is on a quicker time scale. That one, if it remains on schedule should get decided by mid-August. That is the current scheduling at least.

[Michael Horwitz with:]

That’s great thanks for clearing that up. And then the last thing, back to this timeline question. Each utility it seems has their own timeline in the way that they’re going to roll it out. Detroit's appears to be longer than the San Diego announcement today. Are there any specific reasons that we can point to understand why that is or is that just the DNA of those particular utilities and the way that they’re going to roll things out? And then maybe as a follow-up, are there any issues that you've found in one 1.0 or what you believe 1.5 might solve that any of these utilities have come to witness now and so that's why they’ve chosen the various deployment cycles?

[LeRoy Nosbaum:]

Michael, I’ll start with the rollout stuff and let Phil talk to the versions. The rollout stuff is largely – I like your expression, a DNA issue. How do utilities going to fund it? To some extend, it depends on their service territory, it depends on what they have committed to in front of the Public Utility Commission. Their own internal capitalization issues can drive a whole bunch of this. In other words, when do they have funding available and how are they going to fund the various projects. So, it is pretty much an individual utility by individual utility thing. What I can tell you is my sense is that from an approval body perspective, i.e., the commissions, they are pushing for quicker, and so I like that state to play right now. Philip, why don’t you comment on version stuff?

[Philip Mezey:]

Sure, there are two dynamics there. The first is I think I mentioned we are very forthright with our customers and do present forward road maps. There are no surprises in the versions and features that are being made available with the versions. We are working very closely with these customers, so they are planned. That being said, we are learning as we are going along and I think it is a strength of ours that we are able to learn from our field deployments and strengthen the products. There are two areas I would point out in particular where I think we have done a terrific job of reacting to some challenges and they are around security and around dramatically increasing the bandwidth of the network that we are deploying and so I would say that we are reacting quickly and coming up with some really terrific functionality.

[Michael Horwitz:]

Great. Well, congratulations, nice quarter.

[Philip Mezey:]

Thank you.

[Operator:]

Now, we will move to Paul Coster with J.P. Morgan Chase, Inc.

[Paul Coster:]

Thank you. I just wanted to follow up on the last question, it sounds like at the moment it is an iterative process with these full big contracts anyway as regards the technology. Do you anticipate as you proceed through the pilot phases that eventually there will be a really hard look down on the technical specifications as you go into mass deployment?

[Philip Mezey:]

Paul, yes, I would. I think that the product is stabilizing very quickly and I think that the delta between releases will decrease. That being said, this is an area in which there is tremendous amount of activity and discussion going on about new products, plug-in electric hybrid vehicles, self generation, and all kinds of things where we see opportunity for continued investment and future growth over a long period of time. So, we really plan to continue on this very typical product life cycle.

[Steven Helmbrecht:]

Paul, let me add a comment there. One of the features and one of the fundamentals in the beginning of OpenWay was extensibility. So, what we have done eventually every one of these customers is opened up a broad range of possibilities that as we go through these processes, both pilots and subsequent iterations of installations, and ideas that customers and we generate, we can quickly make product alterations and provide, as Philip has talked, these new product functions and features without turning the whole project upside down.

[Paul Coster:]

I guess what I’m trying to get to is that the risk is actually a good risk. It is a potential project, (inaudible) functional scope creep. Well I guess I’m trying to figure out do we have the risk of sort of PG&E situation where they launch into and then there is a sort of disruptive technology coming up behind?

[Philip Mezey:]

I see Paul. Yes, what’s different – I mean, and I think very exciting about OpenWay, I suppose there are other providers that may have this as well, is that it’s not just a hardware platform. I mean, this downloadable firmware means that the device can be improved as it is out in the field. So, we are able to deliver additional functionality and even after deployment is well underway. So, no, I do not see a start/stop here as we are able to enrich the functionality of the overall platform.

[Paul Coster:]

That’s good and the other question I had is, as we get to each phase of these various programs, I’m sure the criteria is different by utility, but what kind of criteria are they using to determine whether to proceed to the next phase, is it business criteria, behavior of consumers, technical criteria, if you can just give us some color there.

[Philip Mezey:]

Sure. I mean, there are initial technical criteria pertaining to read rates and the general performance of the system and those are general and common throughout the deployments. But, as you mentioned, there are business criterion, some of these pilots as well, in which they are essentially testing up business case of the ability of the system to do things like detect outages and trigger certain types of events that will allow for operational savings within the utility and so those types of trials are built in as well.

[Deloris Duquette:]

And I guess I’d like to add that this is mostly at the first phase of any of these projects. I mean, I don’t want people to get the impression that there is milestones throughout this three-to four-year period where they will continue to evaluate. A lot of this is because it’s newer technology, it’s newer for customers, and they’re looking for that background in order to justify taking that to the commission for their finalized project.

[Paul Coster:]

All right. And then, lastly, each phase is requiring a commitment from you, a fairly sizable one in some cases. Are there any penalties on the utilities if they do not process or change their mind partway through the program?

[Steven Helmbrecht:]

Well, by far the largest penalty is that they choose not to proceed with us. There are in selected cases various business issues that have been negotiated in the contract but, again, those pale on comparison to the visibility of an unsuccessful project.

[Paul Coster:]

Yes, got it. Thanks.

[Operator:]

Next we will take Carter Shoop with Deutsche Bank

[Carter Shoop:]

Good afternoon. Wanted to ask a question about the pipeline for AMI deals. Over the past couple of quarters, you have mentioned that there is about 20 or more medium and large-size utilities that you are currently talking to for the AMI business. Can you discuss how many, if any of those could potentially ramp the volume in 2009 that have not currently been announced?

[LeRoy Nosbaum:]

Carter, this is LeRoy. We are not prepared to go there at this point. Let me just say that the activity on AMI in general continues to be very strong. Many utilities are talking to us and our competitors obviously about potential projects. And to give you an estimate of how many of those are going to start ramping up in 2009, we are just not prepared to go there. Some based on our inability to predict the ones we know about really, really well and the exact timing of those, so I know it is frustrating not to be able to pin down that. But, finally, if you will – we are just too new in this process, I think, as an industry to do it.

[Carter Shoop:]

Yes. Can you maybe comment on what the largest change was in regards to the new meter going from the OpenWay 1.5 from – to the 1.5 from the 1.0 and if that has anything to do with the CenterPoint contract essentially being delayed.

[Steven Helmbrecht:]

No, it is not. This is a standard manufacturing life cycle on which we were taking in externally and purchased disconnect switch in the original products with all together too many components in it and we go through a cycle of building application-specific integrated circuits, reducing the overall component counts, we have shifted to a built-in house switch. I mean, we are just generally making the product faster, better, and cheaper.

[Carter Shoop:]

Would you be willing to comment about the kind of ASP decline that you are seeing from this new meter form factor, are we talking about 10% or 20% decline in the meter cost?

[Deloris Duquette:]

There is no ASP decline, Carter. This is part of what we talked about as far as the cost reductions that any product goes through in its life cycle and we have been quite forthcoming about the process that in the beginning, our products are less cost effective and we do exactly what Philip has been describing, which is to come out with newer versions that are less cost. That does not affect the selling price necessarily, it is an internal cost.

[Steven Helmbrecht:]

And as to the specifics of that, Carter, we would never talk about that on a call like this. This is far too public a communication process.

[Carter Shoop:]

No, that is understandable. Last question for you. When we look at the base Itron North America business, looks like bookings were done roughly 35% year over year, obviously we are going to see the traditional AMR business start to come off as the AMI business ramps in the out years. How do you think about the pace of decline in the AMR business out the next several years? I assume that 35% decline in orders is a little bit aggressive but any way to help us think about that.

[Deloris Duquette:]

We have been pretty public about the fact that our orders in any given quarter bump around. If you look at us traditionally, they also have. So to make something of a quarter over quarter, year over year decline, I think is reading too much into it. I mean, we just announced close to $1 billion worth of business. I do not think a 0.8 book-to-bill at this point in time should be a concern for anyone. We have talked about the fact that AMI will cannibalize AMR going forward on electric basis, but we do not have any projections as to how much that would be at this point.

[Carter Shoop:]

Fair enough. Thank you.

[Operator:]

Next we will take Jason Feldman with UBS.

[Jason Feldman:]

Good afternoon. I was hoping you might be able to comment a little bit. You have substantially reduced leverage following the equity offering. Any change in your outlook for acquisitions? Are there any areas you are looking at, maybe more actively with more flexibility on the balance sheet?

[Steven Helmbrecht:]

Yes, Jason. At this point, no, so, let me sort of to qualify that. I mean, we have said fairly frequently that until middish next year, we’re going to concentrate far more on paying down debt than actively seeking acquisitions notwithstanding, maybe a tuck-in thing here or there that will be smallish. I would say to you, we have some areas in mind that we continue to monitor and watch but we are not actively looking at anything. But your question is well placed because as our leverage gets better and better, then we begin to think about where might we deploy some capital to extend what we do in the utility space, both technologically and geographically and there are a number of good areas to think about, probably as I said nothing too seriously until middish next year.

[Jason Feldman:]

Okay. In following up there with an earlier question regarding the competitive environment, I’m sure it’s a lot easier to walk into some of these negotiations with four big contracts under your belt in terms of the credibility that that gives you with respect to your AMI offering. It does look like in the U.S. market, there are a couple of new entrants in the U.S. market who are getting least an order here or there, a couple of bigger companies over in Europe, Alcatel Lucent, Schneider Electric kind of talking about entering the smart metering market. Any major change in the competitive dynamics?

[Steven Helmbrecht:]

Well, I don’t know that the competitive dynamics have changed much beyond some of the things you just said. First of all, there have been a couple of small companies in the United States, smallish. Silver Spring is a great example and some of these small companies have been awarded pilots and we will see where it goes beyond that and I’m not trying to mean the greater words they have gotten. In some cases, they have been awarded pilots by companies who like to engage with smallish companies. In other cases, we have hardly competed and we were not successful. It does not surprise. I don’t think anybody who has been in this industry for a long time that some of the big electrical equipment manufacturers, I mentioned a couple in Europe, Schneider being one of them, are looking at this market and saying this thing looks like it’s really, really big because it is potentially really, really big and ought we be in it, and it’s exactly how they go about doing that remains to be seen. But their interest certainly is not a great surprise and there is probably a small handful of those kinds of guys around the world. We will see how that plays out. The dynamic in the market itself has not particularly changed, I don’t think, in the last nine to twelve months.

[Jason Feldman:]

And then last thing, we have at least amassed some information from some of the pilots and trials they have gone on, a lot of the discussion I think seems to focus on whether the system is actually working technically. Do you have any data or views on whether in these trials they have been able to measure the degree of customer acceptance of whether customers, given certain incentives, are actually going to change their behavior in a consistent manner? Has there been any kind of feedback on that?

[Steven Helmbrecht:]

Jason, I would say so far there has still not been a deployment of significant size to be able to do more than make, what I will call, projections off a very sketchy data. And so, one of the things that we utilities will watch closely, I think as we move through 2009 is, now that we have got hundred of thousands rather than thousands of customers engaged with the stuff, what are they doing, how are they reacting. In general, I will refer to my time with commissioners last week; they are very encouraged that consumers are in fact going to react favorably to these kinds of programs.

[Jason Feldman:]

Okay. Thank you very much for your time.

[Steven Helmbrecht:]

Thank you.

[Operator:]

We will move to Ajit Pai with Thomas Weisel Partners.

[Ajit Pai:]

Yes. Good afternoon.

[Deloris Duquette:]

Hi, Ajit.

[Ajit Pai:]

Just want to understand the set of margin structure of the new AMI contracts you have announced here, you have announced a significant number of them so you have some sort of, if you can provide some color on the broad terms, nothing very specific on a particular contract, but I think the margin structure you had indicated during your Analyst Day was how much a project could be internally provided with internal equipment and services, and some of it being outsourced, you have given us good color there. But what we left to get is that as the volumes ramp, the pricing for these contracts over three years or four years, is it a flat pricing that you’ve already fixed the total contract amount over the next three to four years? As volumes ramp, do the prices come down that you’re providing your customers or how do we understand the leverage over there and also the pilots that you’re agreed to do right now, are you breakeven on those pilots on the operating income line?

[Deloris Duquette:]

In general, the contracts that we’ve signed, especially the high level four contracts that we’ve signed, they are already fixed-priced contracts. So there are no decelerators in there as you are alluding to going forward. So that’s why we talked about that, for Itron, in the beginning, we would have a little bit depressed margins on that equipment, but over time we expect them to return to more normal levels. We don’t discuss pilots on an individual basis in general.

[Philip Mezey:]

Yes, although, if what you're referring to are some of these initial rollouts that are taking place in the four major contracts that we’ve announced, those are under the general contract terms and are not under different financial conditions.

[Ajit Pai:]

Okay, so the financial terms in the top line are very similar just at the – because of the lack of ramping, the profitability is still unknown at least for the initial phase. Is that fair?

[Deloris Duquette:]

Yes.

[Ajit Pai:]

But the cost of meter, the cost of the deployment, the cost of services to your customers for the smaller pilot deployments is the same as for the overall contract?

[Deloris Duquette:]

They’re part of it.

[Ajit Pai:]

Okay. Okay, thank you so much.

[Operator:]

Next we have Patrick Forkin with Tejas Securities.

[Patrick Forkin:]

Good afternoon and congratulations on the great quarter and all the recent project wins. Malcolm, just as a couple of question on ERDF. Your portion of that initial project, the 100,000 endpoints and the related data collectors on the PLC platform, is that an existing Actaris product or is that a new product?

[Malcolm Unsworth:]

We have shipped similar products to it but we have – it’s a new platform. It is a new platform for this product and we have a period of time to get that completed and then installed, I have to say, over the next couple of years. So we’ve done a lot of modeling with that. We’ve actually done some prototypes and a little bit more than prototypes to work that stage. So it’s a fairly new product with technology that already exists. Okay?

[Patrick Forkin:]

Yes, that’s good. So the other 200,000 endpoints in that project. Are they on a PLC platform with different providers?

[Malcolm Unsworth:]

Yes, they have to be interoperable and that’s what EDF insisted about.

[Patrick Forkin:]

Okay, so when the whole $35 million endpoint project is done, it is basically on a PLC platform.

[Malcolm Unsworth:]

That is correct. Yes.

[Patrick Forkin:]

Okay, good. And on the PLC platform, earlier in your status update, you were talking about new product development and bringing Actaris and Itron North America together. Do you guys have any plans on the PLC side in North America?

[Malcolm Unsworth:]

We’re always looking at that. We’re always looking at what the alternatives are. And one technology may be good in another location or it may not be good in the U.S. So, it depends on the speed of the date that this is going through the system.

[Deloris Duquette:]

And cost of today, if we do have a PLC requirement for any system that we've put out there, we do have a partner that we have today that provides PLC technology. So, it’s not like we can’t provide that today. It is just that we work with a different company to resell that.

[Patrick Forkin:]

Okay, very good, thank you.

[Deloris Duquette:]

Operator, we’re about 15 minutes over our time. We thought – is there very many other questions or?

[Operator:]

We have two other questions.

[Deloris Duquette:]

We’ll take those two and then I think that will be it.

[Operator:]

Okay. We move to Cregg Watner with Elm Ridge Capital Management.

[Cregg Watner:]

Thanks for taking the call. I’m just trying to understand the guidance a little bit. You guys beat by $0.20 this quarter and you’re taking up the full year by $0.10. When the tax rate is going down and you are getting some accretions from the equity offering, what specifically has changed to the negative?

[Deloris Duquette:]

I guess I wouldn’t say anything has changed for negative. I mean, we certainly did take up guidance. We aren’t taking anything down yet. It's up both on the revenue end as well as the EPS end. Remember, we also issued more shares during in the quarter, so that certainly had a dilutive impact on the EPS for the year that we’ve been able to not only make up but go beyond that. I think that both Philip and Malcolm stated that things were occurring earlier in the year than we expected but we are still having a very strong healthy year.

[Cregg Watner:]

So, expenses are going to be high then?

[Deloris Duquette:]

No. I think everything is in line with what we talked about.

[Cregg Watner:]

Okay. I’m just trying to reconcile the $0.20 beat this quarter with the $0.10 full-year raise.

[Deloris Duquette:]

And remember, we have more shares outstanding at this point in time going forward.

[Cregg Watner:]

Right. But that was paid down too. Okay, one of the questions, was there any FX impact or an exchange impact on your bookings and backlog that you could break out?

[Deloris Duquette:]

Well, there’s always is because of the Euro but that's adjusted, the bookings come in at the rate that they are dominated in when they come in, but we don’t quantify that.

[Cregg Watner:]

And did you adjust the backlog level up as well?

[Deloris Duquette:]

No, I don’t know. Probably, but it’s immaterial.

[Cregg Watner:]

Okay. Thank you.

[Operator:]

We will move to Hasan Dosa with Luminous Management

[Hasan Dosa:]

Hi guys. Thanks for taking the call. Most of my questions have been answered, just wanted to clarify one item on the competitive environment, would you guys mind kind of giving us a little more color as to the nature of the competition? Meaning, as you see more of a competitive environment, do you see it being, the competition, based on price, functionality, product differences? Like what is the nature of the competition?

[Philip Mezey:]

The competition tends to come down to the following places

[Hasan Dosa:]

Have you guys seen any new entrants coming in to the U.S. market, like who would you qualify as new competitors who you had not seen before in the RFPs in the U.S. market?

[Philip Mezey:]

Not in the last year and we have not seen people, may be more specific to your question, we have not seen people from outside the U.S. come to the U.S. and compete at all effectively in the AMI market or AMR for that matter.

[Hasan Dosa:]

Okay. Thank you.

[Philip Mezey:]

Sure.

[Deloris Duquette:]

Sure.

[Philip Mezey:]

Operator, let me make a few comments and then we will close for the day. Just a few more thoughts as we come to the end of a great call. Thanks for all the good questions. I would like to point out first of all that in over the course of the last quarter, we have shipped $514 million of product and services of which there was very little AMI and in the rush to talk about AMI on this call and in the market in general, I think oftentimes people overlooked the fact that we do have this huge engine of business around the world. Actaris record quarter, Itron North America almost the best quarter we’ve ever had. We generated in the quarter $64 million in net cash out of operations while spending over $30 million in research and development to ensure a strong future not only for Itron but for our investors. I don’t’ think anybody in this business says that or can say it. We are prepared for today and we are preparing for tomorrow while generating extraordinary cash in the business. We have now booked AMI contracts worth over $1.4 billion and that’s not the end of it. But I think as we think about Itron today and we think about Itron particularly in 2009, we are building a book of business in AMI that is really going to project us into some very nice growth rates, some very nice cash flow and some very nice returns for our shareholders. So, I would close by saying, from this seat at least our prospects look pretty good. Thanks for joining us.

[Deloris Duquette:]

Thanks.

[Operator:]

That concludes today’s call. We thank everyone you for your participation. There will be an audio replay of today’s conference available this afternoon. You can access the audio replay by dialing 888-203-1112 or 719-457-0820, with a passcode of 5261462 or go to the company’s web site www.itron.com. Thank you for your participation.