Barbara J. Doyle - Vice President-Investor Relations Philip C. Mezey - President, Chief Executive Officer & Director William Mark Schmitz - Chief Financial Officer & Executive Vice President.

Tyler Charles Frank - Robert W. Baird & Co., Inc. (Private Wealth Management) John Quealy - Canaccord Genuity, Inc. Noah Kaye - Oppenheimer & Co., Inc. Andrew Hughes - Bank of America Merrill Lynch Jeffrey Osborne - Cowen & Co. LLC Andrew M. Weisel - Macquarie Capital (USA), Inc. Sven Eenmaa - Stifel, Nicolaus & Co., Inc..

Good day, everyone, and welcome to the Itron Inc. Q3 2015 Earnings Conference Call. Today's call is being recorded. For opening remarks, I'd like to turn the call over to Barbara Doyle. Please go ahead..

Thank you very much and welcome to Itron's third quarter 2015 earnings conference call. We issued a press release earlier today announcing our results. The press release includes replay information for today's call. We have also prepared presentation slides to accompany our remarks on this call.

The presentation is available through the webcast and through our corporate website under the Investor Relations tab. On the call today, we have Philip Mezey, Itron's President and Chief Executive Officer; and Mark Schmitz, Itron's Executive Vice President and Chief Financial Officer.

Following our prepared remarks, we will open up the call to take questions using the process that the operator described. Before I turn the call over to Philip, please let me remind you of our non-GAAP financial presentation and our Safe Harbor statement.

Our earnings release and financial presentation include non-GAAP financial information that we believe enhances the overall understanding of our current and future performance. Reconciliations of differences between GAAP and non-GAAP financial measures are available in our earnings release and on our Investor Relations website.

We will be making statements during this call that are forward-looking. These statements are based on current expectations and assumptions that are subject to risks and uncertainties.

Actual results could differ materially from these expectations because of factors discussed in today's earnings release and the comments made during this conference call and in the Risk Factor section of our Form 10-K, and other reports and filings with the Securities and Exchange Commission.

We do not undertake any duty to update any forward-looking statements. Now please turn to page four on the presentation and I'll turn the call over to our CEO, Philip Mezey..

Thank you, Barbara. Good afternoon, everyone and thank you for joining us on the call today. Innovation continues to transform the utility industry, embedded computing power has become highly affordable, customers are increasingly expecting dynamic information and services.

Standards base communication networks are displacing proprietary networks driving new efficiencies. For example in smart cities and Internet of Things applications and interoperability in industrial communications is driving new IoT opportunities. These catalysts are driving utility business needs, customer activity and long-term industry growth.

At Itron Utility Week we just held on October, over 1,000 customers and partners convened to share success stories and learn about new solutions. It is an exciting event where we connect Itron's strategies and our research and development to our customer's need to leverage these catalysts in their business models.

As we drive this innovation forward we're also driving operational and business improvements. We're executing a restructuring plan that will deliver $40 million of annual savings in 2017.

I've also chartered Mark Schmitz our CFO and Tom Deitrich our COO to drive additional alignment in our resources and processes for more efficiency, profitability and consistency in everyday business. While there is more work we have to do, we are progressing on that path with underlying improvement in our operational results in the third quarter.

Total revenues of $469 million grew by 4% compared with the third quarter of last year on a currency adjusted basis. Non-GAAP EPS of $0.43 increased from $0.39 last year and adjusted EBITDA margin of 8.9% expanded from 8% last year. The improvement was driven by the Electricity segment.

Our Electricity business performance this year underscores our confidence that our strategy for technology, innovation, growth and cost efficiency will deliver our high single-digit EBITDA margin target in the Electricity business by the end of 2016. We are also progressing in our gas and water businesses.

Performance in both segments improved sequentially from the second quarter. Our North American gas business continues to be strong and our EMEA smart gas volumes are increasing. Smart gas shipments to the Netherlands are ramping up. We shipped 100,000 units in Q3 to Netbeheer which is a record quarterly shipment on that project.

Italian natural gas distributor Linea Distribuzione is finalizing the installation of 17,000 Itron smart gas meters in an important pilot program for which Itron will also provide managed services over the next year. As a leading supplier of gas meter communication technology, Itron has delivered more than 50 million gas endpoints in North America.

We are very excited to be bringing our proven solutions to customers in EMEA. Importantly, we are making progress on our cost reduced smart gas meters in EMEA. Our new meter designed for Italgas is now in the final customer approval phase. We will see visible manufacturing cost and margin benefits in 2016 when the meter is in production.

In addition, we successfully passed GrDF's customer acceptance test on our Gazpar meter. We will ship our first batch of meters in this quarter for field testing, ahead of the mass deployment scheduled to begin in the second half of 2016. In Water we made progress on the Northern American customer warranty replacements.

Through Q3 we've shipped 27% of the total volume of modules to be replaced. We are on schedule for this campaign and we'll ship nearly 60% of the total by the end of this year. I visited our communication module factory in Minnesota last week.

The team is focused and working diligently to complete the warranty replacements as well as deliver customer requirements. Because of this focus our North American Water revenues in Q3 were up 10% year-over-year and there have been no significant shipment delays to our alliance partners.

Let me also update you on Itron's restructuring, which is an important initiative to achieve our mid-teens EBITDA margin target by 2017. We've been moving quickly since completing the Works Council and labor negotiations this summer. We are more than 50% complete with the workforce reductions and expect to be 70% complete by the end of the year.

These reductions will deliver more than $15 million of annualized savings beginning in 2016. We're executing the plan as scheduled and we are on track to be substantially complete by the end of 2016, which will deliver a total of $40 million of annualized savings beginning in 2017. With that, I'll turn the call over to Mark..

Thank you, Philip, and good afternoon. In quarter three our Electricity segment exhibited strong revenue growth coupled with gross margin expansion. Gas showed sequential gross margin expansion although gas continued to be affected by not yet cost-optimized first generation smart meters in some European markets and by manufacturing inefficiencies.

Our reported results would be $0.11 higher than shown were it not for impairment of $4.3 million of deferred tax assets in Brazil. That impairment or valuation allowance was taken in quarter three due to the deteriorating economic outlook in that country.

Slide four in our presentation summarizes consolidated company revenue for the third quarter of 2015, compared with the third quarter of last year. Revenues were $469 million for the quarter compared with $496 million in 2014. Currency exchange rates decreased revenues by $46 million.

On a constant currency basis revenue grew by $19 million or 4%, driven by strong sales performance in the Electricity business. The Electricity segment grew 9% in total and 17% in North America. Gas and Water were each about flat with last year.

As you can see on slide five, non-GAAP earnings per share were $0.43 for the quarter compared with $0.39 last year. Foreign currency negatively impacted non-GAAP EPS by $0.05 year-over-year and an increased tax rate also took away $0.04.

High revenue and gross margin driven by the Electricity segment accounted for a $0.15 increase year-over-year while higher operating expenses decreased earnings by $0.04. We continue to have temporary redundant costs in product development and G&A while in the process of executing our restructuring plans.

Slide six summarizes key financial metrics for the quarter. Gross margin expanded 90 basis points to 31.3%. Recall that last year the gross margin was impacted by costs incurred on a large OpenWay contract in North America.

Non-GAAP operating margin for the quarter at 6.8% compares favorably to a year ago by 120 basis points, while EBITDA at $41.9 million is 6% better than last year. Non-GAAP EPS at $0.43 is $0.04 better than the year ago quarter despite the tax valuation allowance in Brazil we recorded this quarter.

Free cash flow was weak in the quarter at a negative $10 million and a negative $13 million year-to-date. This is accounted for by higher inventories, the timing of the accounts payable disbursements, higher cash taxes and the cash requirements for our restructuring program.

Higher inventories are reflection of higher output levels at our North American factories and product changeovers to new technology products in North America and Europe. We are focused on action plans to bring inventories down in the fourth quarter.

We continue to have ample liquidity ending the quarter with $109 million in cash and availability under our credit facilities of about $240 million. During the quarter we used $12 million to repurchase 382,000 shares of our common stock pursuant to the $50 million repurchase authorization granted by our Board in February of this year.

Year-to-date we have repurchased approximately 1.1 million shares for a total of $38 million. Turning to segment performance beginning with slide seven, Electricity revenue grew by 9% on a constant currency basis year-over-year. Gross margin improved by 490 basis to 27.5%.

Non-GAAP operating margin improved by 710 basis points to 4.7% and we achieved 6% EBITDA margin in the quarter. This reflects improvement in gross margin, reduced operating expenses driven by our restructuring and cost containment programs as well as strong revenue growth.

We continued to be encouraged by Electricity's growth and improvement in it's margins. Moving to slide eight, Water revenues were down by 12% compared with last year and grew 1% in constant currency. North America posted a 10% increase year-over-year.

This was offset by decreased revenues in Latin America, unfavorable economic conditions, and constrained spending in Brazil are impacting sales and we expect this will continue for the remainder of the year. Gross margin was down by 70 basis points largely due to adjustments in warranty reserves and increased costs on professional services contracts.

Non-GAAP operating margin declined by 210 basis points to 12.9% due to increased product development investment combined with flat revenue growth. Now turning to the Gas segment on slide nine. Gas revenues of $137 million were flat with last year in constant currency. Modest growth in EMEA was offset by lower sales in the Asia-Pacific region.

Higher volumes in smart meters in Western Europe more than offset the impact of lower standard meters. Gross margin was 33.6% down 220 basis points year-over-year, but yet improved 200 basis points compared with quarter two and we expect further improvements in the fourth quarter.

Non-GAAP operating margin in the Gas segment decreased 490 basis points due to lower gross profit combined with flat top line growth. There was sequential improvement of 140 basis points over quarter two. Bookings and backlog are shown on slide 10 and slide 11. Bookings were $337 million in the quarter with a book-to-bill ratio of 0.72 to 1.

Backlog continues to be healthy at $1.2 billion and 12-month backlog at $727 million. Recall the pattern of bookings can be very uneven quarter-to-quarter. In quarter four we expect to see a book-to-bill ratio well above 1 to 1 given pending contracts. We remain optimistic about quarter four and are focused on operational improvements.

Our outlook on taxes has not permanently changed. If not for the valuation allowance in Brazil our effective tax rate this quarter would have been in the mid 20s. We are taking steps to normalize and reduce the volatility of our tax rate.

We mentioned last quarter that we're putting in place reductions and freezes on several categories of discretionary spending. These cuts remain in place and in some cases are being intensified in order to better ensure satisfactory results in quarter four and a positive outlook for 2016. With that I'll turn the call back over to Philip..

Thanks Mark. I firmly believe we have the right strategy in place to build upon our leadership in the utility industry. However, we have been underperforming. Our shareholders have told this and we agree. To achieve our inherent potential and deliver value for our customers and our shareholders we are moving faster.

We're making bold decisions and we're taking aggressive actions to improve the consistency in our results. This beings with me any my new leadership team. Mark Schmitz and Tom Deitrich have deep expertise in company transformation and in driving growth. They bring this experience and a fresh perspective to Itron.

Mark and Tom are committed to work with me to set a new standard of performance at Itron. They are committed to a level of precision and discipline in our everyday business that will increase the consistency, predictability and quality of our results.

I've asked Mark to drive new rigor in our key indicator measurements, ensure we deliver the benefits of our G&A shared services model and examine where our processes can be improved to mitigate the volatility in our tax rate.

In addition, Tom will lead our thorough top to bottom assessment of our R&D, manufacturing and supply chain processes to identify other opportunities to unlock our potential. I've also recently made a change in our Gas leadership. I have named Carl Porter as President of the Gas Segment replacing Marcel Regnier.

Carl was a former CEO of a large gas investor owned utility and he currently heads Itron's North America Gas business. He has profitably and consistently grown our North American Gas business to one of our Itron's highest performing groups. He have the track record and ability to drive our global gas business to higher levels of performance.

I want to recognize Marcel's passion for our business and his dedication over 34 years at Itron's, Actaris and Schlumberger. I thank him and wish him the best. We are also focused on growth and delivering compelling innovation to our customers. We now have our software and services organizational plan in place under Bruce Douglas.

This centralized function is committed to improving the predictability of our projects, improving the margin performance of our existing services business and building off of our current business of more than 250 managed services customers in North America alone.

Bruce will also expand our portfolio of analytics-based offerings, leveraging Itron's research capabilities and deep domain expertise. On the Solution side we made an exciting announcement to our customers at Itron Utility Week in October.

We unveiled our OpenWay Riva communications and Distributed Intelligence platform as Itron's next generation solution across electricity, gas and water utilities. Itron Riva is our core technology that enables Distributed Intelligence across a broad range of field devices.

Our standards-based approach at every level of the solution ensures interoperability down to the device level. We believe, Itron OpenWay Riva is beyond anything else in the industry. It's the key innovation to drive growth for Itron in the area of smart cities and the Internet of Things. For example many of our water customers are cities.

OpenWay Riva enables new synergies across water departments and the cities they support. Further, connecting energy and water meters with other sensors on the distribution systems along with new city based applications all under a single platform creates even more value for utilities, cities and citizens.

OpenWay Riva also enables an open ecosystem approach for developers to build new applications for devices that will accelerate innovation and open new possibilities for customer services.

With OpenWay Riva, Itron is leveraging our research and development investment to bring this next generation technology to all three end markets electricity, gas and water, streamlining the cost of developing and maintaining disparate network systems.

Our Software and Solutions group will further leverage this investment as we build additional service-based solutions to deliver outcomes for our large base of 8,000 utility customers as well as addressing new potential opportunities in municipal management, renewable energy monitoring and smart cities.

I am very excited about the future we are helping our customers to create with our open OpenWay Riva innovation. My entire team recognizes the inflection point in front for us and we are taking it. Operator let's open up the call to take some questions..

At this time, we'll take a question from with Tyler Frank with Robert Baird. Please go ahead..

Hi, guys thanks for taking the question.

Can you talk about, what you're seeing in the overall market, you know, obviously people are going to look to the book-to-bill ratio this quarter and the declining backlog but do you expect that to tick up over the next few quarter based on different tender offers that you're seeing in the market currently?.

Yes, Tyler we do. I mean as Mark mentioned that backlog – those bookings are lumpy, we fully expect that the fourth quarter will be a strong bookings quarter for us. There is a tremendous amount of market activity.

In North America great deal of tender activity as well as in Europe, we're into this period here where we have visibility in 2016 in France, in Italy, the Netherlands, and an increasing level of activity in the UK and other markets.

So it's a combination of both bookings activity that we'll see over the next several quarters and forward revenue visibility for deals that we do not see in our backlog because they are book-to-bill..

Great, thanks.

And then in terms of the restructuring, do you see further opportunity in different segments of the business and whether that involves restructuring or just more of an internal focus on efficiencies, is there more opportunity to expand margins through either efficiencies or restructuring?.

Yes. I mean we are looking at that continuously. We went through an analysis process of product by geography, by customer, across our Electricity, Gas, and Water businesses and as you know, this restructuring plan is really aimed at the findings that we got there.

The plan that Tom Deitrich has undertaken, the study that he has undertaken looking at our comprehensive sourcing strategy as well as our R&D process will look for continued opportunities for us to increase efficiency and improve our overall performance..

Great. Thanks guys..

At this time we will take a question from John Quealy with Canaccord Genuity..

Hey, good afternoon everyone.

Can you hear me?.

Yes, John, thanks..

Hey, Philip. So a couple of questions. So for Water, if you add back FX, you're basically in line at 15% margins. Electricity has been working nicely. I understand the cadence on Gen 1 and Gen 2 gas, in terms of getting those gas margins up.

Can you just give us a little bit of a look into – is this a first half 2016 or back half 2016, when the Gas margins rebound a little bit?.

Yeah, we see some steady progress there. It's both, as you pointed out, these meters being certified with the better TMC, but also as we start shipping GrDF and some of these other European contracts that we expect volume improvement..

Q4?.

Yes. With continued improvement actually beginning in Q4 of this year..

I'll just add to that, John, to say that you'll see -- we do feel pretty confident that we'll see some accretion in gross margin in Gas in quarter four and then an important second generation product gets launched in quarter one of next year.

So you should look to see some improvement – I'm not saying great, not huge strides, but steady strides in Gas margins..

Okay, great. In terms of the restructuring and severance. Maybe, Mark, to you, what do we look for at the year end in terms of one time charges, just from a model perspective. I know we've got two or three different sets of numbers flying around here about what's restructuring in the near term versus potentially long term.

Can you just summarize for us, Mark, what we should expect in the Q4 period and then again what the target is for 2016 and 2017?.

No, I can't really talk to that unless you're asking about cash.

You're not asking about cash flow, you're asking about charges, right?.

Yeah, that's right, this is the charge side..

Yeah. No, it wouldn't be appropriate to talk right now about what we foresee in terms of further restructuring charges. Right now there aren't any that we can speak to, but as Philip said a minute ago we're continuing to seek operational efficiencies, improvements in manufacturing supply chain.

Any of those things could at some point result in a further restructuring action, but none that we can speak of at this time..

Okay great, and then just two final ones. Maybe more for Philip on this marketing side. So we've seen some initial rate cases been filed in the summertime about smart, whether it's meter endpoints or DA or DR. Talk about the competitive positioning here. The market has changed substantially since the last round of bigger RFPs four, five years ago.

So can you talk about how the competitive landscape is shifting? And that leads to my second question, off the heels of Elster there is another large meter manufacturer that we understand is in the process of being sold, would you even consider biding on those types of assets? Thanks..

So to the competitive landscape, what we're seeing is a further push to a standards-based network, to being able to leverage the assets that are put out in the field for extended business cases, and that may be across electricity or electricity and gas but also increasingly an awareness that the same network may be shareable with a city.

And so this broad capability of the network offering is becoming increasingly important in an area where, as you've heard in our comments, we feel we have particularly strong position, so we're very pleased with our competitive position in those opportunities.

In terms of considering market consolidation, actually the numbers that were published in the Howard Scott report for North America for last quarter show us increasing market share across electricity, gas and water.

We're pleased with our competitive performance there and really see the strongest opportunity for us in driving up the value chain and really adding more value through a software and services offering rather than necessarily being a market consolidator..

All right, thanks guys..

At this time we'll move to Patrick Jobin with Credit Suisse..

Hi, this is (27:30) on for Patrick Jobin.

Looking at 2016 can you talk if you're looking at growth and that you have given the backlog is that roughly around $1.2 billion right now, and as a follow-up when do you see the RFP activity picking up so that you see more backlog additions for 2016 or 2017?.

I'll take the first response then I think Philip will also want to fill in a couple of blanks. On 2016 we are optimistic. The deal flow is pretty substantial. And I would say that at this point I'll bear in mind we're still working on budgetary activity for 2016.

But I think I can say with some confidence our outlook for 2016 is to see a somewhat higher rate of revenue growth than we've seen in 2015. Now when will you – your question was when will we see bookings pick up? And actually we just talked about that a few minutes ago and I'll just repeat that quarter four looks good from a bookings standpoint.

It will almost definitely be substantially stronger than quarter three. I think I've said in my remarks that we saw well it above a one-to-one ratio and that is true..

And yeah to the last part about when will it be RFP activity sufficient to drive bookings. There is plenty of RFP activity to accelerate bookings and again these large bookings numbers are fairly lumpy based upon regulatory and customer approvals.

But in terms of the question of does market activity support growth in 2016, the answer is absolutely yes..

Thanks. And just living on the EBITDA guidance for high teens by mid 2017, which market or business segments do you think would drive that growth from today? And when and how should we think about the software and managed services, business contributing to your margin structure..

Actually, we see all three segments contributing to the increase in EBITDA performance as we move towards that mid-teens target overall. Probably the most significant driver however would be the Electricity segment, and I say that because just in raw numbers it is the largest weighted, the more heavily weighted of the three segments.

It also has the largest absolute increase as we look forward, and remember that I think we stressed several times, we've said we're looking for high single-digit numbers in that segment and Philip always mentions that that's the floor not the ceiling.

So, think of Electricity as being the biggest driver, but we are expecting improvements in each of the three segments.

In software and services?.

Yeah, to the last part about software and services we expect the software and services number to be accretive to the existing margins of the Electricity, Gas and Water business. So, as that develops it contributes to where we fall on that mid-teen scale that is and accretive to it..

That's helpful and finally a question on tax rate.

How should we think about it for Q4 and next year?.

Okay. First of all, if we had not had the valuation allowance in our Brazilian deferred tax assets, quarter three would have been mid-20s, and we expect to see quarter four in that same mid-20s category. I can't give you guidance on 2016 yet.

I mean, I'll only say in February we will provide that guidance on tax rate as we typically do, but we are looking at methods to reduce this in my view unnecessary volatility that we've had in our effective tax rate..

Thanks for taking my question..

You are welcome..

Thank you..

And Noah Kaye with Oppenheimer & Company has the next question..

Thanks, so just a quick question to start off with, updates to previous guidance for the year, you had given revenue and earnings guidance, just yet didn't see it in this last release, so can you just comment on that please?.

No, we are not updating guidance for the year, for 2015. And I'll just make a couple of comments on that to say with regard to quarter four we are optimistic. You know, bear in mind the quarter three would have been $0.54 per share if we hadn't had the impairment of our deferred tax assets in Brazil. We are carrying good momentum into quarter four.

It's normally our strongest quarter. The Electricity continues to improve. We are expecting sequential improvements both in Electricity and in Gas. Tax rate will be lower and we have discretionary expense controls that are on and getting more strict.

So I might just add that there was between $10 million and $15 million of revenue slippage from quarter three into quarter four, that gives us a little bit of a tailwind too, so we're optimistic..

Okay, terrific. Thanks for the color. Second question, the introduction of the new solar gateway, you basically bringing Riva to solar monitoring, it gives you even more touch points and connectivity points into the home as well as expanded offering with third party solar ownership providers.

Just kind off to pivot off of that, how is Riva expanding the range of let's call it addressable devices in the field and machine-to-machine networking for you.

And what else beside solar and smart cities are you seeing as promising new applications for Riva?.

Great question thank you. So we had announced before an electric offering that is to say a power device. This last announcement is the battery powered side of this, and we see a tremendous range of opportunity in the battery powered world.

The powered world examples there are electrical vehicle charging stations as you pointed out, solar, other distribution automation devices, but there are wide range of other potential applications and distributed monitoring applications.

We've talked about pipeline safety, leak detection, the ability to detect pressure variations, corrosion, all kinds of things that affect distribution networks.

But moving beyond that to new market opportunities we're looking at industrial applications where you haven't – you need an intrinsically safe device with a battery that last in the 15 year range where we have a very strong communications capability.

So what are examples of those? It could be in a city something like parking, but there are a wide range of other potential industrial applications. So we are absolutely looking at how we can take this strong network and endpoint technology to markets beyond our existing utility market..

Great, and I mean with the solar and you've obviously seen significant unit growth here in the U.S. which is benefiting your business.

Could you just kind of give us a snapshot of I don't know what you might call non-metering product type revenues as a percentage of overall revenues today and where you think that may trend to over the next couple of years?.

Yeah. I mean I would say non-metering revenues now are very small although growing, some of the solar businesses that we are currently doing is actually providing a communicating meter that's is of course separately measuring solar output although we are working towards embedding communications directly into the inverter.

And so I think a reasonable goal would be to look at getting that type of non-metering revenue into the range of 10% of the total hardware business..

Excellent. Thank you so much for the color..

Sure..

. At this time we'll move to Andrew Hughes with Bank of America Merrill Lynch..

Great, thanks guys and congrats on really good OpEx control in the quarter.

Following on that can you just talk a little bit about how much that contributes to your confidence in the fourth quarter bottom line guidance remaining unchanged at this point?.

Yeah, I can comment. We're pretty pleased with the stringent expense controls in place. We've probably saved – well I know we've saved about $4 million in combination between travel entertainment and restrictions on hiring.

As we move forward, I mean the travel entertainment alone I think is going to generate $1 million a month for the remainder of the year in savings. We've got a number of other expense controls that are being put in place that might reduce OpEx by a further $2 million. We're looking at everything.

I mean, it's – of course we're in late innings here for 2015, but that's not too late and we're turning over every rock to try to reduce operations expense..

That's great. And Philip, you'd spoken earlier on the call about seeking some margin improvement in the services business.

Can you just give us a flavor of what exactly you're looking at and targeting there to continue to improve margins there?.

Sure. For those of you who've followed us for some time, there have been at one time or another project charges in which we could have done a better job at designing project effort estimates and properly executing projects.

The focus that I am expecting from Bruce Douglas and this dedicated services line is in raising our internal awareness and level of execution in our service delivery business.

In a business that historically has been very focused on the hardware that is provided out in the field, we have many opportunities to tighten up how it is that we deliver these increasingly complex solutions to our customers.

So with Bruce and Tom, and Mark, I would say, all of these areas, we're focusing on properly bidding, capturing, describing and executing these services deals in order to improve our overall margin outcome and improve the predictability of the service delivery business. And we have some very promising opportunities there..

That's great. Then one last one for Mark.

I think you mentioned there is $12 million left on the repurchase authorization, can you just remind us up until when that is valid, up until when the repurchase period might end?.

Actually there is $25 million remaining under that $50 million authorization, and extends up to February of 2016..

Great. Thanks, guys..

You are welcome..

At this time we'll move to Jeffrey Osborne with Cowen & Co..

Great. Just two questions.

One, you might have already addressed these, but the Q4 bookings strength, Philip, is that coming from framework deals like Duke and others that you've already been awarded or are these actually new – kind of new, new contracts? It's always been a bit unclear to me what the true backlog is given you have several things in your back pocket that you've been technically awarded but just don't have a firm delivery date on..

Yes. I mean it's both, Jeff, but the frame deals are only book and ship within the quarter, so the thing that would build the backlog well above 1 to 1 would be the booking of a large contract or multiple large contracts..

Got it.

And just the second question I had is just with the RFP activity accelerating here over the past couple of months and the outlook pretty positive, what are you seeing in terms of the pricing environment both with your partnership with Cisco but also with the expectations of the utility customers themselves, given that there had been a bit of a lull in the market? Is pricing down substantially versus the past cycle or consistent with your expectations, just how do we think about that and especially in relationship to expanding the EBITDA margins of the business on the electric side?.

So, as we talk about that, right, we're sort of gravitating towards a discussion mainly about North America, in which pricing expectations are consistent with what we have seen. Of course we continue to reduce cost and to look for ways to expand our margins, but the North American pricing picture overall has remained stable..

And Europe, just any activity there and any changes, and how does Riva address that?.

So in Europe, how Riva addresses that is that in the comments that we made in the Electricity business review is that there are selected markets that are auction-based in which we may choose not to participate.

Riva gives us a vehicle for competing for those markets that are not just simply low price oriented, but where there are an extended value proposition. We put out a release today that we've qualified for, in Austria for a consortium that's doing interoperability work.

We've mentioned before a pilot we're doing in Salzburg, that's actually a Riva-based pilot where there is great deal of interest in the extended capabilities of the Riva offering.

So in markets that are going to simple power line carrier auction-based sort of a scenario we may choose to participate are not based upon volumes and availability of product, but we really are focusing on the higher value opportunities..

Understand, it makes sense. I appreciate all the detail, Philip, thank you..

Thanks, Jeff..

At this time we'll take a question from Andrew Weisel with Macquarie Capital..

Thank you very much.

First a quick one, when you updated the guidance three months ago for 2015, had you already anticipated the $0.11 drag that you pointed out in the release today or is that incremental?.

No, we had not anticipated the specific $0.11 impact of the Brazilian valuation allowance, no..

Okay.

Next question is, is there any update on the warranty issue that you talked about last quarter, you talked about the insurance claim being filed and you didn't expect any potential insurance recovery by the end of 2015, any update there on your expectations either for likelihood or timing?.

Yeah I can comment on it.

First of all with regard to the charge itself we did make a slight adjustment in the warranty reserve for the water communication module item it was $1.5 million increase and these things happen from time to time, I mean it will go up a little bit it will go down little bit but those estimates gets refined, labor costs, recycling costs, things like that do cause that to move a little bit.

With regard to the insurance claim, what I can say is that we've been in contract with our insurance carrier, it's a well known carrier that we've been in business with for years. They are, the carrier is in the process of completing it's due diligence on the claim.

And as we mentioned a while ago we are on schedule in terms of product replacements so with about 27% of total replacement volume having been shipped through quarter three. So that's about as much as I can say on that at this point..

All right, appreciate the detail. Then my last my question is you mentioned hiring Tom as COO, and hope to find more operational improvements and potential efficiencies beyond the current $4 million targeted from the restructuring programs already underway.

My question is could some of those next efforts or programs come before the end of 2016 when the current one is done.

In other words, could there be overlapping programs or should we think of it as $40 million is the target by the end of 2016 and anything incremental would come thereafter?.

So, first off I would like to point that not all of the improvements and opportunities that Tom is chasing will express themselves in the form of restructuring, so there is a fair amount of discussion here about restructuring charges.

And there are many areas that Tom is looking at that have to do with just ongoing operational improvements and efficiency opportunities. And those have actually already begun. From the day that he hit the ground running the tempo has increased around here and there are an whole series of opportunities for improvement that begin today.

So to an answer to the question are we sort of sequencing these things? The answer is no. A number of improvements are already underway. That being said we announced the Tom is engaged in a very thorough review of sourcing and R&D. We've engaged A.T.

Kearney, an outside consultant to assist us with that and we want to give him the time to really study that and come back with results and we'll be very happy to update you with those on upcoming calls..

Got it, thanks so much..

Welcome..

At this time, we'll take question from Sven Eenmaa with Stifel..

Yeah, thanks for taking my question. I wanted to ask about the 12-month backlog around $727 million here. I assume some of the GrDF and ERDF expected shipments for the tail end of the next year are in that number.

What are your expectations for these businesses or these shipments? Are they expected to be margin accretive to the current margin levels where you are currently or do you see them just the volume and somewhat the earnings driver?.

So to the question of our GrDF-ERDF present in the 12-month backlog the answer is a small portion of them is. As you recall we were awarded a very significant contract with GrDF and booked only about a third of that overall contract with ERDF. We were awarded a significant portion of the first tranche of the three million meters.

The next round of the so called G3 linking meters will go out to bid in the first half of 2016 and we have qualified product and we'll bid on that tender when it is available.

To the question of is – are those volumes overall accretive, we derive as you point out, volume and efficiency and overall benefit from them and we'll through the life of those projects continue to improve the margin profile for both of those offerings..

Ladies and gentlemen we have no further questions at this time..

So in closing Q3 was strong operational progress improvement over Q2 and we see a growing momentum in the businesses as we've discussed heading into the fourth quarter and into 2016 and look forward to updating you on our progress on the next call. Thank you all very much..

Thanks operator we'll conclude now..

You're welcome. And ladies and gentlemen, this does conclude today's conference call. There will be an audio replay of today's conference available this afternoon. You can access the audio replay by dialing 1-888-203-1112 or 1-719-457-0820 with the passcode of 9516999 or go to the company's website www.itron.com..