Itron, Inc. (ITRI) Earnings Call Transcript & Summary

Good morning, everybody, or good afternoon, depending on where you are. My name is Pavel Molchanov, energy analyst at Raymond James, and welcome to today's webinar with management from Itron, ticker ITRI. With us on this call is the CFO, Joan Hooper; and Ken Gianella, VP of Investor Relations. So we'll start off by having a series of questions from my end to Joan and Ken. And then we will open it up to Q&A from all of you dialing in. As a reminder, we are using Zoom for the Q&A. So if you would like to ask a question, please use the Q&A function in your Zoom screen. Type in your question and I will be glad to ask it on your behalf in the latter half of this call. So to start off, I'm actually not going to open with a COVID-related question, as tempting as it may be. I want to look at really big picture first. So right now, approximately 70% of the electric meters in North America, and I think it's a similar percentage in Europe are smart meters or automated meters. Do you think it's realistic at any point in the foreseeable future for those numbers to get to 100% penetration?

I can take that one. This is Tom speaking. I think that it will continue to creep up from the levels that we see today. I don't know that I would care to hazard a guess if it ever reaches 100% or not. But certainly, there's upward bias from where we are today. The benefits of having better data coming from the meter has so many benefits for the grid as well as the consumer. It makes that the whole process run much, much better. We see customers initially starting out with the notion of, hey, we can save some money on just the basic meter to cash process, just having the meters read but once you have that basic framework in place, the ability to understand resiliency and reliability and improve it in the grid, understanding how you might be able to help the consumer reduce energy consumption or at least better understand what they are doing with the energy that they consume, it has tremendous downstream benefits. I also wouldn't over index on the notion of growth in first-time deployments of smart meters. We definitely see strong momentum to have additional applications loaded into existing deployments and upgrades to those deployments, which is a material part of our business today and a trend that is alive and well. So for us, we see new greenfield deployments as well as incremental upgrades and system changeover generationally within the installed base of smart meters.

So in that context, can you talk about what differentiates those geographies or specific utility markets where smart meters are 100% penetrated, like California or Italy versus those where the adoption curve is just getting off the ground, for example, New York state or Germany?

Make sure I understand the nature of your question. If it's about the things that can be done with the system or the buying patterns just tell me which angle you are looking at?

Yes. Yes. So the -- I guess what I'm looking at is why have some markets reached 100% smart meter adoption as early as a decade ago, I think in the case of Italy, for example, whereas major economies like Germany or New York state are just barely scratching the surface of their adoption curve. Is that a question of regulatory mandates? Or is there something in the kind of private sector decision-making by individual utility customers that have created these very vast gaps in who's an early mover and who is lagging behind?

I understand. So I think both factors that you outlined there, I think, are at play and the easiest way for me to describe it as mileage varies. It depends very much on the situation at play within the regulatory market of interest or the country government of interest. Various geographies, if I bring it at that level, have been more aggressive about adopting new technology, and they have made the cases in different ways. So I think it very much is a factor of both the regulatory environment and the local government or private sector utility owners in terms of how aggressive they want it to be down this path. Most of the utilities tend to be monopolies, obviously, in their territory, hence, the regulated market that they operate in. This gives them the opportunity to watch and learn what their peers are actually doing. So when one utility makes a move and others see that it has been successful in terms of a project, it reduces the risk. So it's a risk tolerance kind of discussion as they watch and learn from each other. It's a regulatory market question in some particular cases. And it's the business case and the priority that has been placed on it against the other needs that a local society or a jurisdiction may have. Those are the main factors that drives the disparity that you note.

And as we watch headlines from, for example, the European Green Deal at the EU level or conversations in China, in India and to some degree, in Washington, about decarbonization, energy transition, right? It's just a matter of degree, how advanced these conversations are? Do you think there is an awareness on the part of policymakers that modernizing the electric grid is part and parcel of enabling that energy transition? Or is it still seen as kind of a bit of an appendage, perhaps to the things like supporting renewable power, electric vehicles and all of the drivers on the supply side of the equation?

Yes. I would say that most of the advanced economies tend to note that it is an essential part of that process. The grid itself bears tremendous -- it's the gift that keeps on giving when you invest in it. There are lots of competing priorities, which expresses itself in different ways. Sometimes that cybersecurity is top of mind. Other times, you get a little bit of nationalism that comes to mind. There are different levels of appetite around the severity of climate change and the integration of renewables into the system overall. But the trend is steady. It moves in the right direction from our business standpoint and creates tremendous opportunity. We tend to play in a world where we can make it much easier for various diverse sources of energy and help the utility cope with that as renewables are coming on to the grid, we can help them gain insight into where there are EVs plugged into the grid so that they can proactively make adjustments to be prepared for it, the same for rooftop solar or local storage. All of these factors are at play, and it is absolutely a tailwind for our business and creates tremendous opportunities that we can do more to support our utility customers enable those new technologies into their system in a more seamless way.

Maybe talking to the emerging market opportunity, and I'll kind of give you a bit of a lead in by referencing a press release that you guys issued just yesterday as a matter of fact, about a new partnership in Latin America to distribute smart meters. Maybe talk a little bit about that opportunity specifically, but more broadly than that, setting China to the site since I know that that's a bit of a special case for regulatory reasons. What is the opportunity for a company like Itron in places like India, Brazil, Mexico, Caribbean?

Sure. So I'll start off to recap the announcement that we made yesterday and then broaden out the scope to cover the larger question that you asked. So in the announcement that we made yesterday, we formed an agreement with a new entity called Accell. They will be taking over our factories in the Latin American region, and they're also a distributor for us for products that we bring into the region. So things like our street light solution or our network and outcomes business are largely produced globally and shipped into markets around the world. This deal works really well for us as Accell is a specialist in the Latin American market. It's a market that has its own dynamics. So they are very well aware of how it works and have a local presence in the market. It moves to an asset-light model for us. So we have better working capital as the factories that are in those markets are run by the -- by that local partner, and we are operating at a bit more of an arm's length transaction from a model and a transactional point of view. So it's a really strong deal for us, and it is a win-win, I think, as it moves us forward on our longer-term strategy to focus more and more on the networks and the outcome side of the business. Coming to the larger question that you asked, emerging markets. We see tremendous opportunity to do some investment in the foundation of the grid or the water system. And that bears fruit as it makes it easier for the economy to advance, and it creates a virtuous cycle inside of the country, and that's from the government's point of view. For us, we can help with the technologies that we bring to bear. So a multipurpose network like we provide is absolutely the key. You build the network once and then you could automate your electricity, gas and water meters using the same network backbone, of course, but you could also automate street lights and add additional applications on top of it in a pay as you go and an add-on incremental fashion. So that the base of our offering with a multipurpose network allows incremental investment to add new applications is a recipe that works well in an emerging market.

One of the services that Silver Spring Networks, which, of course, you guys acquired 2.5 years ago, I remember had -- which was very differentiated, was power theft detection, the idea that you can use a software solution to detect instances of theft without physically having a truck driving around, looking for power lines that that seem to be mishandled. And as I recall, Silver Spring at the time was selling that principally into the Latin American market, where, I think, something like 1/10 of every kilowatt has historically been stolen. Number one, is this continuing to be a meaningful opportunity in the Latin American context? And do you see this as potentially an interesting selling point outside the region in Asia, for example, as well?

Sure. The nature of the offering that we have today is part of our revenue assurance package. So indeed, it is analytics that you can look at data and understand where there is potential theft as other -- as well as other revenue fallout that the utility may see. So that is part of an analytics package. In our generation of technology that is rolling out now that has downloadable applications, we also have a theft detection application that can be downloaded into a meter, and you can use that to understand if there are theft activities going on in a regionalized area. The opportunity for a theft detection application is indeed true in some of the emerging markets that you talked about in Latin America or Asia or other places it's also quite common when there are different laws on either side of the border. So you might have some enterprising folks that want to have various hobby activities in their garage and end up using more electricity than others, which, again, give us an opportunity to understand usage patterns where you might see hotspots, where you might see theft. And where you see other types of cases that you can use the same basic application and technology to root out those types of problems that may exist within an area.

Let me ask about software more generally. Last summer, almost exactly a year ago when you were hosting the Analyst Day, you highlighted the outcomes segment of Itron and specifically the software solutions within that segment as a big growth driver and it's probably fair to say you might take a slightly different perspective that the trajectory has not been as rapid perhaps in the last 12 months. Utilities are slow adopters of new technology. I think everybody generally understands that. What is your kind of understanding of what will drive utilities to become more meaningful adopters of software beyond simply having a smart meter, but actually doing interesting things with the data in terms of analytics, in kind of going to that second step, again, that seems to have been slightly lagging behind.

Right. It definitely is an area that we have keen interest in -- continue to invest in and grow our portfolio. And it is a real growth vector for us. During the last 12 months, as you note, it has been less robust than we had desired, but there's a timing question there rather than any fundamental shift in our interest or expectations around the market. Utilities, as we mentioned earlier, as you get just a basic AMI meter to cash system, up and running. You now have this rich set of data that you can begin to mine and understand and do things with it. There is grid side applications that you can find out where you have pipes leaking or where you have theft to our earlier discussion, where you might have reliability challenges where there might be too many EVs on the same transformer, so you might want to upsize it. You can start to use it for balancing supply and demand with a demand response profile. All of these applications are out and about. It takes a little bit of time for the utility to truly understand where they want to invest and where they want to go and how to use that data. It's a new area for many utilities to get used to operating with it. They want to make sure that they have the basics right that getting a system up, stable and operating well with the back-office infrastructure within their own operation, takes some time for it to work through. And the last point that I would make is it has to do a little bit with the regulatory model. If a regulatory model is allowing capitalization of Software-as-a-Service and other more progressive performance-based rate setting, it's a good step forward in terms of adoption rates that we should see. The regulatory market is making steady progress in this direction. It is, I'll say, a slow and steady process in the right direction. But the first word that I used there slow is indeed the case as there's only a couple of places where SaaS can be capitalized today. So it's a little bit counter to the traditional regulatory model in terms of how it works. And this will change over time. We'll work with regulatory commissions as well as our customers to make steady progress in this direction. This is what will really cause additional growth rates in the outcomes business as we look forward in time.

Perfect. So before we look at some COVID-related issues, just a reminder for everybody, if you would like to have a question asked, please use the Q&A function in Zoom, and we will certainly get to it in just a few minutes. So all right. The inevitable COVID-related conversation. So we can approach this from the supply side and from the demand side and maybe talk about demand first. Again, I think people generally understand utilities are not particularly sensitive to kind of the economy, they're not very cyclical businesses. But obviously, if people are told to sit at home or there are difficulties in social distancing. That might make physical deployment of power grid technology more difficult. To what extent now that we are 100-plus days into this thing, do you think utility customers have adapted to working in the new normal as far as physically deploying smart meters or other kinds of equipment that may or may not involve going inside of a residential setting or a commercial building and managing the social distancing around that?

Right. The -- you're right. When the COVID pandemic started to race across the globe, we saw utilities largely pause on their ongoing projects for meter deployment, and they didn't want their employees out and about, which is quite natural and a good instinct from my standpoint, where utilities are today is moving back towards more normal, I would say that it hasn't fully normalized yet but they're starting to do deployments. Again, they are picking and choosing those deployments. So if they have an opportunity to do something that would be inside of a home versus -- or a basement versus doing something that would be outdoors. They're definitely prioritizing outdoors as they're working hard to maintain that social distancing. The internal and back-office operations quite often are still in a work from home kind of environment, but they've adapted nicely to be able to do customer care and many of the things that they need to do. Now that's all at a very high level. You can find a bit of a spread between, I'll say, larger investor-owned utilities and smaller municipalities or cities or co-ops, things of that sort. The bigger organizations tended to be a bit more mature in terms of their processes, and they've been faster to be able to develop plans to restart deployments. Some of the smaller locations are still working on sorting those plans and haven't really gotten a solid start on it yet. So you get a bit of a spread within the macro trend of general improvement. But it takes a bit of time for the machinery to start to move again. We're cautiously optimistic that it is starting to move, but I would say we're nowhere back to a full rate that we had seen pre-COVID in terms of deployment.

Okay. One question on the economic sensitivity. And specifically, one facet of the utility landscape, which is munis, municipal utilities, obviously national governments can print money, local governments cannot, if munis are tied to a local budget that is facing tax revenue shortfalls and other complications in this recessionary climate, is that a risk from the standpoint of being able to fund various grid modernization initiatives that they had already budgeted or maybe not budgeted but were hoping to implement in the future?

Yes. I can start, and then Tom can add on. I think your point is very well taken. So if you look across the spectrum of large utilities versus municipalities, certainly, the budget constraints are more pronounced for municipalities. And obviously, they're in situations where their customers may not be able to pay the bills and they're having to give relief. And so the funding mechanisms are going to get much, much harder for municipalities versus the larger utilities. So we are starting to see that as well. So I think the slowdown in the recovery will probably be much slower for water and even electric municipalities. Tom, is there anything to add?

I think that Joan hit the high points very well there. The larger utilities tend to operate on, I would say, a long-term basis, they sort out how they want to fund a project, and it's a 3- to 5-year kind of time horizon for how their projects roll out. So you get reasonably good visibility there in terms of what will happen. You can have fits and starts and pauses in there if pandemic like this were to hit, but you've got better visibility. In terms of starting new projects that means a new capital to be allocated, a new regulatory process and then now you start to look at it with a slightly different lens, I would say, if your tax base has dried up and your customers can't pay you as a -- at the consumer level, it probably puts a crimp on some limitations on city budgets. So we think that the time to recover there is a little bit longer than it will be in a larger utility space.

And if you recall, Pavel, on our last call, we announced our relationship with KeyBank to help fund essentially fund some of those smaller utilities and municipalities. So I think there's an opportunity for them to get funding through a different source.

In that context, in fact, on the last earnings call at the beginning of May, you draw a distinction between kind of larger customers and smaller customers, and I think you touched on this a minute ago. And I think you said paraphrasing larger customers accepting deliveries but deferring new projects; smaller customers, suspending deliveries and also deferring new projects. Is that still an accurate statement, 6 weeks on and obviously, most lockdowns have been lifted?

Well, again, it certainly was accurate at the time. And what you see now is, in some places, the deployment has restarted where it had been suspended. So they're starting to get the, I'll say, the trucks rolling and various installations done. That's not perfectly accurate across the board, but we definitely see steady movement as more and more are starting to deploy. In terms of deferrals and things of that sort, we've seen a couple of regulatory cases being pushed out. We've seen a couple of cases where regulatory approvals have happened. So it's a bit of a mixed bag there. And you've got to look at it on a case-by-case basis. So the regulatory market has not frozen up because we have seen some approvals and willingness to press forward on any project that had been running, though, there's absolutely an eagerness to get back to it as quickly and as safely as possible.

Okay. Let me turn to the in-house manufacturing dimension of the pandemic. You guys had the, I suppose, deadlock to have 4 plants in France, 1 in Italy. These are 2 of the strictest lockdowns that anybody in the world had experienced during latter half of March and then April and a little bit into May. Just a kind of quick kind of yes or no. Are all of your manufacturing sites at this point back up and running?

Yes.

Okay. Good. And those plants that have been in covered by these kind of very strict social distancing regulations. Have you had to make structural changes in terms of the workflow, the shape of manufacturing lines or other technical changes to make it a safer working environment for your employees?

So we started working on our plans around the virus at the end of January. So we feel pretty blessed to have gotten a good running start at it. And have been able to deploy the necessary changes in terms of line layouts and distancing and masks and extra cleanings and temperature checks coming in and out of the factories, the ability to give people flexibility if they aren't feeling well or someone in their house isn't feeling well, have them stay home. Things of that nature. So all of that had been in process or in place by the time we did our earnings call most recently. But coming more to the root of your matter. We did lose a couple of weeks of production time during that time period. Everything is back up and running on the schedule that we had talked about in our previous earnings call. So back and running today, all of the lines are capable of running at the rates that we need to support the business. We don't have any limitations because of physical space. And while we do that, we can also keep folks either appropriately distanced or separated by plexiglass wearing masks, things of that sort. That is to best optimize safety while we're supporting our customers in that respect. So that's not a limitation. It is something that we were able to work through during the time period.

Okay. Just kind of a final reminder for everybody dialed in, if you would like to ask a question, please use the Q&A function in Zoom, and we will certainly get to it. Another manufacturing-related question I wanted to ask. So if we go back to the early phase of the pandemic, February, maybe first 2 weeks of March with China as the epicenter. There was clearly fear across the technology sector that component shortages would emerge and become very meaningful. And then, of course, China recovered the fastest from the pandemic, just as the rest of the world began to go into crisis mode. As things stand today, what is the state of the supply chain vis-à-vis transistors, capacitors, any of the commodity components that Itron purchases?

There are occasional hotspots of a particular component or two, but nothing systemic. The supply chain has continued to make good and steady progress over the last weeks and months to return. So I wouldn't say back to a full normal kind of situation as you still have some chop in the supply chain here and there. But in terms of how bad it could have been, I think that the overall -- the resiliency in the supply chain has been demonstrated to be reasonably good. So some chop left out there, but overall, returning to a much more normalized state on a steady basis. Yes. And that's -- exactly. Joan's point is that's beyond China. You -- we saw lockdowns that were severe in Malaysia for some of the electronics components, some in Northern Mexico. So it sort of traveled across the globe, but it's starting to renormalize everywhere, but good progress on the part of the supply chain.

And any of your manufacturing sites that are if we just set aside regulatory restrictions, are there any places where you have had kind of labor or personnel shortages, people afraid to come back to work, something we've seen elsewhere in a manufacturing setting, just fear of being in an environment where social distancing may be more difficult to implement than in at home, for example?

I would say that if I look broadly from our factories to some of our manufacturing partners and into the component suppliers, there have been some cases perhaps where 1 employee at a site had tested positive, and then you would see a spike in absenteeism for a little while. Until it was understood that what was going on inside of the plant. But those were, again, very localized and sort of hotspot kind of things. We have been fortunate to this point that we've not had anything systemic or sustained within our facilities and our extended supply chain overall so that we have not been caught short on that front. Again, localized hotspots here and there, but nothing systemic.

Okay. Let me ask a few more kind of higher level questions, so putting COVID back on the back burner. Silver Spring, the biggest M&A deal in the company's history, 2.5 years ago. Obviously, you have not done any M&A since then. We're in, needless to say, a pretty extreme recession right now. There are surely some distressed middle market business situations. Would you look at a distressed M&A opportunity if something attractive were to arise? Or would that be just off the table, given that you're in deleveraging mode?

I would say, first and foremost, we want to make sure that we've got the right liquidity to run the company, given the level of uncertainty that we've got right now, I would say that liquidity is job one. And this too will pass. We certainly expect it to that we'll continue to make progress over the months to come unless there's some new outbreak or things like that sort across the industry, things should continue to move forward. Given that, we'll start thinking about capital allocation, where we do have deleveraging ideas that we've talked about previously, and those still stand. Certainly, it's not beyond the shadow of a doubt that we could think about looking at distressed assets. So I would say that right now, the thing that we should keep in mind is preserving liquidity is job one. And after that, it's making sure we see exactly what the shape of the recovery looks like. That will determine our program from there.

Okay. We have a question from one of the listeners. And the question is, should we expect another Accell type deal in other locations? Or was this a unique opportunity?

Well, I would say that it's far from a unique opportunity in terms of the technology itself, that having a notion of downloadable applications into the meters so that the buying decision of the utility is not built around the notion of buying a static technology capability, but having something that grows and changes with the needs of the business going forward. That's something that we've had keen interest on. There's a few more deals that have been awarded that we have not yet started to talk about publicly. Once we achieve the full agreement and regulatory approval that would start to become more public. Those types of buying patterns are alive and well and are something that we think has tremendous potential to help the customers and help the industry. That said, Accell is obviously a very large agreement and a tremendous partner of ours as they can help us completely change the landscape of the utility industry in a very dramatic way just because of size and scale and the level of commitment and partnership between us.

Okay. A question on the competitive landscape. In the world of smart meters, there is setting China aside, kind of a bit of an oligopoly you guys, Landis+Gyr, Honeywell and Hubbel, maybe you have a few names to add to that list. But in software, there are seemingly countless startups, private venture-backed companies that are -- that have some kind of data analytics solution for utility customers. How do companies that do not manufacture hardware compete with the likes of Itron or other integrated players, given that a lot of utilities prefer to do business with, for lack of a better word, a one-stop shop?

Well, I think it is tough is the really short answer. It -- you might have a very interesting niche solution. But as you pointed out, the utility doesn't need a niche solution. They need something that is fully incorporated into their domain. And that means talking to many other systems and operations and processes within the utility. So it makes it difficult to understand from a utility buying perspective, how that integrates with their overall operation. So the way we generally work with utilities is to make it very clear as to how our technologies can be integrated into their operational and IT systems, and that makes it easier for them to sign-on and work with us. As a smaller company, they probably don't have that same luxury. That certainly creates opportunities for us to partner with them, to make sure that things are pre-integrated, and you see that as we develop our ecosystem. So when we work with load disaggregation companies to make sure that it's pre-integrated with our solution, it certainly is an area that allows a bigger amount of domain expertise to bring -- to be brought to the utility in a one-stop shop. So that's how it tends to work more often than not. But as a start-up in the utility space, it's tough because of the time to work through an individual project that's oftentimes incongruent with the cash burn needs of a smaller company.

Good. And I'll conclude with 2 policy-related questions. So first one, without asking you to make any election predictions, as a general premise. In the next Congress and potentially next U.S. administration, are there facets of policy at the federal level that would be supportive of the general trend of grid infrastructure modernization? So for example, right now, we're seeing talk in, I mean, stimulus conversations about maybe extending the solar tax credit, adding some battery subsidies, but nothing seems very directly related to the grid itself. If you were to put out a wish list for our friends in Washington, what would be on that list?

I think that grid modernization and adding intelligence to the grid, integration of renewals, incentives to make the regulatory model easier to accept new technologies, any infrastructure stimulus package that would be brought to bear should also include, certainly, roads and bridges and ports, as you would expect, but include the electricity grid and water systems as part of that same infrastructure package. Those are the types of things that we have been discussing with policymakers and making sure that those are considered. In a more tactical sense, another area that we think is important and indeed is part of some of the COVID recovery stimulus plans that have been put forward is liquidity, certainly for some of those smaller markets to smaller utility markets to make sure that they can work through this pandemic, even though they are doing the right thing for their consumers and not switching off services, but making liquidity available in a material sense. Those are from larger, more long term to some of the strategic -- more tactical things that are going on in policymaking today. And those aren't theoretical things that I'm discussing. Those are real discussions that happen between us and policymakers and our peers in the industry with those same policymakers.

Okay. And following up on that, to do a bit of a deep dive into one very technical but nonetheless, important aspect of federal potentially state-level policy as well vis-à-vis the grid, which is cybersecurity. Going back to Silver Spring, one of their solutions, as I recall, was a cybersecurity protection solution for utilities and people like Admiral Rogers at the NSA have talked about the urgent kind of critical need of protecting the grid from both state and nonstate hackers. What is Itron's capabilities vis-à-vis cyber protection for utility customers?

We take cybersecurity extremely seriously with our own corporate data, with our customers' data and in the products that we develop. So I think end-to-end security with network and application level security is part of the network product offering that we take to utilities today from an anti-tamper all the way to the software components themselves. So the interest in improving the cybersecurity or just general physical security of the grid itself is something that we believe strongly in and policy moves in that direction are something that we're pleased to see. The recent executive order on this matter is something that we will participate in clarifying and make sure that we are part of that discussion. That is something that's going on today and something that we welcome very much.

Okay. And we have 2 final kind of last-minute questions that just came in from a listener. So I will ask them both, and then we will wrap it up. The first one is, what would it take for you to reinstate annual guidance?

I think it's what Tom talked about earlier, which is visibility to how the recovery is going, no second wave, et cetera. At this point, I think things are progressing in the quarter as we expected then when we talked on the May call. And if it continues that way, I would imagine we'll be in a position to update our annual guidance as we normally do in August.

Okay. And the final question is in relation to gross margin, what are the puts and takes? And I guess, building a little bit on that, quarter-to-quarter, as we see gross margin can go from pre-COVID from high 20s to the mid-30s. So it's bounced around. What are the drivers behind it? Is it more revenue mix? Or is it more kind of cost of goods type issues?

I'll start and then Tom can jump in. I would say it's different by segment. And really, the challenges in terms of how you improve it are different by segment. So for our device business, which has our lowest margins, we are sitting on still a heavy manufacturing footprint in a high cost region, meaning Europe. So it is a challenge to get those costs out quickly. And in fact, yet this year, we'll shut a French factory that we announced shutting down 2.5 years ago. So it takes that long to shed those assets. Certainly in COVID or even without COVID, but if there's supply disruptions, you could be in a situation where the factory is underutilized, and therefore, that creates pressure on the margins in any given quarter. So that's kind of the nature of the device business, reengineering the products through value engineering is not something that's done overnight. And then there's the geographic and customer mix of business. So certain customers in certain geographies are more profitable than others, and we have a lot of heritage or legacy customers. In the case of Networked Solutions, the margins are certainly a lot higher than devices. They do move quarter-to-quarter. It tends to be a customer or project specific. So we could be in the midst of ramping up a project versus initiating a project. Certain margins are going to be higher with 1 customer or another. So it's really a mix issue. And I would say in outcomes there's some mix in there in terms of -- if it's a heavy software quarter, the margins are going to tend to be a little higher, but the biggest lever for outcomes to get sustainable margin improvement is really growing the top line. Any comment you want to? No?

You covered it well.

All right, perfect. Right. So we are getting close to the top of the hour and in an effort to be respectful of everybody's time, let me again thank Tom, Joan and Ken from Itron. Thank you very much for taking the time. Thanks to all of you dialing in. And if you have any follow-up questions, please give us a call in the Raymond James Energy Group. Have a great rest of the day and a safe weekend. Bye bye.

Thanks.