Manuel Sánchez - Chairman and CEO
Bárbara Zubiría - Chief Financial Reporting Officer and Head of IR
John Quealy - Canaccord Adams
Zack Shafran - Waddell & Reed
Ben Schuman - Pacific Crest Securities
Telvent Git S.A. (TLVT) Q2 2009 Earnings Call August 28, 2009 9:00 AM ET
I'd like to welcome you all to the Telvent second quarter 2009 Earnings Call.
Before proceeding, I would like to provide a brief Safe Harbor statement. This presentation contains forward-looking statements and information relating to Telvent that are based on the beliefs of it's management, as well as assumptions made and information currently available to Telvent.
Such statements reflect the current use of Telvent with respect to future events and are subject to risks, uncertainties, and assumptions. Many factors could cause the actual results, performance or achievements of Telvent to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, including among others, changes in general economics, political, governmental and business conditions globally and in the countries in which Telvent does business, changes in interest rates, changes in inflation rates, changes in prices, changes in business strategy, and various other factors.
Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or targeted. Telvent does not intend and does not assume any obligations to update these forward-looking statements.
I would also like to remind participants that today's call is being webcast live on the Internet and a replay of this call will be available online at the Telvent corporate website, www.telvent.com.
Joining us for today's call is Manuel Sánchez, Chairman and Chief Executive Officer; and Bárbara Zubiría, Chief Financial Reporting Officer and Head of Investor Relations. I would now like to turn the call over to Mr. Sánchez. Please go ahead sir.
Thank you very much and good afternoon to everyone and welcome to our second quarter 2009, earnings conference call. As reported in the numbers that we filed last night in the second quarter, we would able to continue delivering positive results despite [abortive] conditions and economic uncertainty in the market.
In quick summary, our business record top line growth. We have expanded our operating margins. We have increased our net income. We have continued with our research and development plans, and we continue to develop our strategy of strengthening our value proposition by offering our customer, systems, services, and information.
All in all, result what we had anticipated in previous calls. Results for the period were strong. Non-GAAP revenues increased by 28% to €363 million, and we have reached an EBITDA fees of more than €52 million for the first half of 2009, which is 126% of wealth that one registered in the same period of last year.
Net income for the first half of the year was also half by 74%, and we closed the first semester with more than €20 million in bottom line. We have become more efficient and profitable allowing us to further expand our margin. In terms of bookings, we record another strong quarter despite the challenging environment, which shows increasing confidence of our customers on us. Important contracts were awarded to us in both US, Brazil, China and Spain, and we are experiencing a wonderful recognition of our solutions particularly others market suite by our customers.
Our backlog continue to build and we are now almost reaching the figure of €900 million. During the quarter, our business continue to perform well showing the strength and resilience of our segment, Energy, Transportation, Agriculture, and Environment. Telvent's people commitment lead by Telvent's Office Management team, have done an outstanding job in a very challenging quarter. We (inaudible) I guess that the best I can tell you today is that we still remain confident that we will reach our guidance for 2009.
This slide shows our different segments and geographic diversification, at the end of our second quarter. Highlighting the fact that we are inline with our expected goal of being a well diversified company to seize up coming opportunities in the different regions of the world, and along diverse our business.
We managed to grow organically in our Energy, Environment and Global Services segment. We believe that now we have more diversified revenue distribution with Energy our stronger segment so far accounting for 29% of our revenue in the quarter, while Transportation reached 26% of our total revenues despite the challenging environment, and the growing Environment segment strengthening by DTNs consolidation grew to 8% of our total revenues for the semester.
Agriculture, where we have a little position in North America has now reached 11% of our revenues at the close of the semester, and Global Services now accounts for 25% of our revenues showing a very positive performance. In terms of geographic diversification, Europe accounting for over 44% of our revenues, North America our second largest market represents 35% of our revenues. Interesting to remark, that North Americana with Latin America now represent almost half of our total revenues. Latin America along represent 10 to 12% of our revenue in the first half of the year, the remaining 8% came from Asia Pacific and Middle East regions, where we continue to see opportunities too.
Talking now about energy, I would like to highlight the follows. Number one, revenues grow 30% in H1 of 2009. Number two steady organic growth boosted by stronger performers of our business in Latin America and North America, number three, significant margin expansions. Four, a strong bookings performance in H1 like Progress Energy, [Central Energy], regulate regard CPTM, which is a Sao Paulo [Smart Grid] company, PEMEX, and so many customers.
Largest marketing opportunities identified in pipeline. We are experiencing a great momentum. It's remarkable however, that despite our success in this area, not a single US dollar has been just released from the Federal stimulus package. Finally, a very solid backlog position of more than €200 million at the end of June.
Regarding our market initiatives, I will like to also share with you some important points. As you probably are aware by now, we have been selected by Fortum, the largest utility in Finland to deploy a very complex system, which will be the base of their power grid of the future.
I will share some information over that probably in a couple of minutes. Also now let me tell you that we have seen a very positive response from the market to Telvent's Smart Grid solutions offering, which is based in our advanced distribution management system, which includes aggressive functionalities, all needed to manage the growing complexity of our more open, more intelligent, more digital, more by directional, more efficient and more reliable power grid.
We have significant Smart Grid proposals with key customers and indeed many largest Smart Grid proposal related to stimulus plan. Given the relevance of the Fortum's Project, the Smart Grid contract that we announced a couple of quarters ago, I want to spend more time to talk about now about this project.
The project will revolutionize the operations of Fortum's power grid and the relation with its customers. Fortum a multi-utility company, which is possibly the second lowest CO2 emission per kilowatt generated in Europe, with revenue of $7 billion and operating operations in Poland, Russia, Sweden, Norway and of course in Finland.
According to Finnish new regulation, 80% of all metering points will have to be only measured by 2013. The project is valued at more than €120 million. Under this contract we will deploy during the first three years a complete Smart Metering systems to manage the electrical consumption of 550,000 homes in Finland allowing Fortum to compile, analyze, process and discriminate all in real time information to mange its power grid in a more efficient cost effective and better way.
Once the system is implemented, Fortum's residential customers will have access at all time to information on their power consumption, which will allow them to mange their energy use in a more responsible and efficient way.
The Smart Grid system that we are providing to Fortum, will allow it's customer to have a variety of feature exceeding legal requirement such as automated consumptions reporting via internet, possibility to access real time meter reading and connection to future smart home systems via the local wireless interface.
In the future, Fortum will be able to integrate power generation for new renewable energy sources including domestics one, so as implement a demand response program. Thanks to the open architect of our Smart Metering platform, the timing a key components of our Smart Grid switch, which would interface with the rest of operational and business applications of Fortum. I also want to mention that I am very pleased to see how successful our partnership with Echelon has worked for this project. I am sure that more successes are to come.
The implementation phase of the project is planned to last for three years, and it's valued at approximately €100 million. After that a six years operation and maintenance phase will start for a total amount of €20 million.
Fortum and Telvent's contract also includes several options for future development and upgrade. As you can easily imagine, we are really excited about this opportunity, and we believe that it will be stepping stone in the consumption of energy in the future, and also shows the great momentum we are experiencing in the Smart Grid field.
Now, talking about the Transportation. As a result of the delays in the awarding of some projects in the US and Brazil and the lower contribution of the project in Saudi Arabia, our revenues declined slightly to €96 million during the first half of the year.
The Transportation segment now represents 26% of our total revenues. However, we managed to improve our gross margin, in line with our strategy, and now it stands at 27.2%, up from 25.3% in the first half of 2008.
Our bookings performance during the second quarter was good in Spain, which also was a first region, revenues contribution during the first half of the year. Despite the challenging current environment, our clients put on hold decisions waiting to see more clarity in the budgeting process.
The stimulus package for economic recovery in the US has recently designated a $1.5 billion to technology for transportation under the TIGER Program, which will call for applications, which need to be submitted before September 15. With all of that we think that it represent a positive mid-term outlook in the Transportation business in North America.
Additional synergies is added from the weather forecast and service of DTN will broaden the Transportation Solutions and boost our product offering to many DOTs. We also have a very strong backlog, amounting to €310 million, which will allow us to sustain modest growth for the rest of the year.
The next slide briefly highlights the performance of our order segment. Environment grew significantly, [as present] by DTN's weather information service. Revenues amounted to €29.9 million in the first half of the year, and our gross margin also increased from 28% to 38%. We have a very good performance across all regions in particular in the Middle East and Africa, regions in North America with out the contribution from DTN, our organic growth was about 7%.
Agriculture, our niche segment which now represents 11% of our total revenues brings our recurring revenue base due to its subscription base model. We continue to maintain subscription retention rates above 90% in our Agriculture segment, which proves the resilience of our business segment. To illustrate that success of the business, we had over 40 million bushels of grain transported through our trading portal among 21,000 users. Our top customers include Bunge, FC Stone, John Deere, Con Agra and Cargill along with the majority of the top corn and soybean producers in the US.
Global Services accounted for 25% of our total revenues. Global Services revenues at the close of June totaled €91 million. Our gross margin also improved from 27.7% to 29.5%, and we continue to benefit from the large base of recurring our long term services contract with our customers. We expect additional growth coming from the full integrations of Matchmind.
In terms of our geographic outlook, I want to emphasize that our business in North America has continued to expand consistently. North America is now the second largest region in terms of revenues contribution. We see great opportunities coming from the electric business and we see resilience in oil and gas, agriculture and transportation.
Europe our main market continued providing good business opportunities for Telvent, especially in the electric market. In Spain, we see our traffic activity performance to continue benefiting from our leadership position in order to remain flat or with modest growth for this year.
I think previous quarter, we continue our expansion programs to niche Countries in Continent focusing on both the Nordic and Eastern Europe. We expect Latin America to increasingly become more, an additional source of growth with the promising opportunities specifically Mexico and Brazil, where we have identified strong pipeline of businesses mainly in the energy and transportation sector.
In line with our, stronger yield further diversifying our geographical footprint, security the basis for our future growth, we are consolidating our position in China, and finding niche opportunities in the Middle East and Africa, where we will continue to push.
Now let me talk a little bit on our projects regarding the DTN integration. I can honestly say, I'm extremely satisfied with the progress of integration and that we have done significant progress during these six months of this year in all the areas of the company. We have fully integrated our financial report in less than 90 days, and the implementation of internal financial control is 100% complete.
Now some of the senior management of DTN are engaged in management position at Telvent. That work as you can imagine an important component of integration process already signed. In corporation DTN has strengthened our position in the Energy and Environment segment in North America. Refined fuels and oil and gas has shown higher than expected business synergy and in addition DTN's weather forecast has contributed to enhance our offerings of electric and traffic study.
Agriculture has performed as anticipated, maintaining high retention rate in the subscription base even in this really challenging year. We expect the DTN acquisition to be accretive this year on a non-GAAP basis as we anticipate. Operating cash flow remains positively solid too. Finally and most important, the DTN acquisition has expanded our business model resulting in significant global growth opportunities by introducing a new information delivery mode. I will now turn the call over to Barbara who will discuss our financial figure in more detail.
Thank you Manuel, and good morning or good afternoon to those of you joining the call. I will now go a little more into detail on the numbers for the second quarter and first semester of 2009. As Manuel has already highlighted, we are proud to be able to share with you another strong quarter for Telvent and we feel this is even more notable considering the current environment. During the first half of 2009, we have added top line growth and margin expansion, which has translated all the way down to a strong net income and EPS growth.
Non-GAAP revenues during the first half of 2009 amounted to €363.1 million, a 27.7% increase from those of 2008. The contribution of DTN has been a key factor in this growth, but excluding DTN's contribution, revenue growth was at 4.3%.
As usual, revenues are coming mostly from existing customers maintaining a recurrence at over 80%. We are also very happy to report that we keep delivering the margin expansion that we have promised. We said DTN would improve our operating profile and we can show that in the numbers we provide to you today.
Our non-GAAP gross margin improved by over 1000 basis points to 36.6% in the first half of 2009 from 25.5% in the same period of last year. EBITDA margin improved by 626 basis points to 14.4% and our non-GAAP operating margin improved by 565 basis points to 12.4% during the same period.
The bottom-line, non-GAAP net income rose by 74% in the first quarter of 2009 to €20.5 million, allowing us to achieve non-GAAP diluted EPS of €0.60 per share from €0.40 obtained in the same period of 2008, a significant increase and more so considering the additional number of shares outstanding during this period. Finally, our bookings backlog and strong pipeline continue to allow us to look at the rest of the year with confidence.
With the earlier Fortum's Smart Grid contract announcement, our backlog grow to over €1 billion, and our booking to over €500 million year-to-date. We believe this is achievable, thanks to our diversification.
Because, as Manuel has mentioned although we expect Transportation to have a tough year, we are seeing great momentum in other areas and that is allowing our bookings and backlog to continue to grow. In the following slides, I just want to stop for a second to share with you some remarkable achievements. If you notice, revenues for the first half of this year are levels achieved during the entire year of 2005.
While gross margin and EBITDA have reached levels in this first half of 2009, almost equivalent to the full year 2007, meaning we are doubling in revenues in four years while we have doubled our margins in only two years.
Let's now turn to the next slide, where you can also see that our bookings keep growing year-over-year allowing us to grow our backlog, which is what provides us the revenue visibility going forward as I will share with you in a minute.
We have closed the quarter with a €164.2 million in bookings and assimilated booking at June 30th of €392 million, an increase of almost 20% from those recorded in the first six months of last year.
If you consider this Smart Grid contract announced this morning, which adds another €120 million for the year-to-date figure, we have over 500 million in bookings already for the year without including July and August new bookings.
At Manuel maneuvers, we are seeing a strong momentum in our energy business both in electric and oil and gas, as is reflected by some of the significant projects signed, which I'll share with you on this slide. The growth in booking in terms translates into continuous growth in backlog as you can see in the following slide.
Backlog is one of our financial strength as it allows us to have very strong revenue visibility going forward. Backlog has grown 22% when compared to the same period of last year and has now add €889 million. Again, if we take into consideration the significant Smart Grid contract announcement from this morning backlog would already exceed €1 billion.
Nonetheless, taking backlog at June 30th, our expectations is that almost 40% of this backlog will be revenues of the remainder of 2009, approximately 45% of this backlog will turn to revenues in the year 2010, and meaning over 15% of backlog as of June 30th 2009 will convert to revenues in 2011 and future years. So what does this mean in terms of visibility for the remainder of the year?
I will show you in the following slides. What this means is that with the revenues achieved during the first six months of 2009, plus the portion of backlog at June 30th that we expect to covert to revenues in the remaining quarters of the year, we have approximately 85% of our expected full year revenues secure, which only leaves 15% subject to new bookings, part of which will come from a current contract such as operations and maintenance-type contracts that are expected to be renewed by year-end.
We still believe that under current circumstances, this is a privilege and uncommon situation and for that reason we remain confident. Another indicator that allows for our long-term revenue visibility is our pipeline, which we share with you in the following slides. Our pipeline at June 30th is around €3.6 billion and is highly diversified by segment and region leaving very low dependency on a particular area. As you can see, energy and transportation remains our strongest segment in terms of pipeline. In Europe, North America and Latin America represents over 75% of our pipeline, while we remain opportunistic in other areas. This shall allow for continued diversified growth.
So let's now see how we are from a balance sheet perspective. Turning to the next slide, you see that we ended the quarter with the net debt position $217.2 million, a net change of €8.6 million since year end.
Cash provided by operating activities was €25.7 million, a significant increase from this same time last year. We also used €23.3 million in investing activities and had a net change of approximately €2.5 million from the impact of translating our non-euro net debt to euro for reporting purposes.
In the following slide, we see details of our operating and investing activities. Operating activity have generated cap of €25.7 million during the first half of 2009. You can find the detail in the table on this slide. It is very important to note here, the improvement in cash flow generation from this same period of last year, where we had used cash of €18 million in the period. As we promised, we are focusing our efforts on cash flow management this year and that together with the improvement resulting from DTN is showing in this number.
Investing activities on the other hand have consumed cash of €23.3 million. Our CapEx investments for the period amounted to €8.9 million, while we spent €13 million for payments on acquisitions, mostly for the purchase of the remaining minority interest in that line. To finance this purchase, we have increased our corporate loans by €20 million during the period as can be seen in the next slide.
This slide shows the debt amortization schedule for 2009 through 2013, including the new tranches A1 and B1 of the corporate loans. This debt there is interest of the three months year over rates plus a spread of 2.5 for 2009 and starting in 2010, the cost will be determined by our pricing grade ranging from year over plus 175 to year over plus 275 depending on the leverage. You can see the payment schedule on this corporate loan is very well spread out in 2013.
The other major debt we currently have is a non-recurring debt of approximately $211 million held at DTN, which bears interest on LIBOR plus side and has a larger bonus payments due in 2013.
So to conclude, I would like to go back and remind you of the guidance we provided to you for the full year 2009. If you recall, we estimate revenues to be between €826 million and €850 million, which implies revenue growth between 18% and 21% and organic revenue growth between and 4% and 7%. Our growth margins are estimated to be in the range of 32% to 34%. Our expectations for EBITDA as a percentage of revenues are in the range of 13.5% to 14.5%, and our pro forma operating margin is expected to be in the range of 11.5% to 12%.
Finally remember, we said our expectation was to close the year with our pro forma earnings per share ranging from €1.54 per share to €1.58 per share. After seeing the results achieved during this first half of the year, we feel confident that we can achieve the guidance provided.
I would like to thank you all for joining us today on this call. This finalizes the presentation for today and we are now ready to take your questions. Operator, we are ready to take questions.
(Operator instructions). Your first question comes from John Quealy.
John Quealy - Canaccord Adams
Congratulations on the quarter and the Fortum news. A couple of housekeeping questions before we get into Smart Grid. Barbara you mentioned growth in the first half of the year, 4.3% organically. If we go back and look at Q1, it looks like Q1 organic growth was about 3.8% organically. So, does that mean that organic growth in Q2 actually picked up to about 4.95%, is that math right?
Not exactly. The number you are mentioning for the first quarter includes foreign exchange effect. The number I mentioned of 4.3 is purely taking the revenues and subtracting DTN. If we also take into consideration a slightly negative impact from foreign exchange, the backlog is 3%.
John Quealy - Canaccord Adams
All right, that's helpful. Then looking on the operating expenses, especially sales and marketing and R&D, it looks like those numbers in local currency were actually flat to down. How should we expect those numbers to go moving forward?
I would expect similar percentages as a percentage of sales moving forward, and more than anything, maintaining the levels of EBITDA margins that we have achieved through the first semester of the year, which is in line with the guidance that we've provided.
John Quealy - Canaccord Adams
Then last, as a homework question. Transportation, can you give us a little bit more detail about where you're seeing the weakness, overseas, US, and the type of project; is it highway, is it rail, anything that can help us. Thanks.
Where we have seen a impact in transportation is the delay from our customers making the decision to proceed with a project. Just to give you a number, right now -- I mean, at this moment, we have presented during the year about 75 proposals in the US, okay? Today we have about 58 deals pending on the decision from the customer. So basically our concern comes from the fact that our customers are taking more time than normal conditions to make the decisions to proceed with the projects.
We know that they are waiting to see some of their budgeting are starting from the different local government, before they move on with the projects. In international markets, we have up to now in the year presented 55 proposals in the traffic space and 46 are still pending on a resolution.
So it's a general trend where we're seeing, where transportation customers are taking longer than expected or than other used to make a decision. Fortunately, Spain bookings are performing better than expected and mainly make here because of the strong position that we have in the market where we have a market share of over 35%.
So we've been able to maintain the level of backlog that we have in levels of 300 million. So it's giving out confidence that we are going to be flat for this year in transportation that we are looking forward to see the resolution of many of the things that are right now already presented and that will be decided hopefully from here to the year end.
We think that one of the positive things that could also help to move faster the decision in the US market is this TIGER Program, TIGER is terms for Transportation Investment Generating Economic Recovery. That is the new program that was released by the Federal government back in May, June, where basically this is a program to finance the implementation of technology in the Transportation System, in the traffic infrastructure and they called four applications by September 15.
So according to the plan, the DOTs and the municipality supplying for that money, they will have basically six months to award the projects that they get financed by the Federal government. So, we know that a lot of our customers are applying for those grants in order to launch the projects that they have been waiting for financing for the first six months of this year. So, I mean there's nothing clear. It's not for sure that at least it looks like positive outlook is the TIGER Program for the US market.
John Quealy - Canaccord Adams
Now moving to Smart Grid on Fortum, can you talk about timing and margin expectations, is this going to start up in 2010? Is the operating margin profile going to be consistent with that sort of 11.5% to 12% pro forma number you just gave and then lastly with this new win, how many utilities have deployed Titanium?
Well, for this year, I will say that we don't expect a large contribution from this contract, okay. This project has been awarded by the Board of Directors of Fortum's yesterday and I expect that we will have the kick off meeting for sometime during September. So, we are not expecting a large contribution of this presentation in '09, ramping up in 2010 and really the most important impact is going to happen in 2011 and 2012.
In the middle of 2012 the system will and have to be up and running and from that moment we will have six years of operation and maintenance contract with the customer. So, basically the first three years will account for about €100 million and then the remaining six years will account for €20 million. For us I mean, the good part of this is that there are three options already identified in the contract that Fortum can execute if they want, and I think it will do a good job. They will probably will execute that because those options are to expand the system into new areas of operations of Fortum.
These contract is only for the operations of Fortum in Finland but as I mentioned before Fortum's also have operations in Sweden and Norway in the Pan-Norwegian area. I mean that it's also very important for us because it's going to be the implementation of the Titanium at the heart of the applications of Fortum, which is going to be interfacing with most of the applications they have so. We will open the opportunity, the possibility for further implementation of Smart Grid applications of Telvent.
These Titanium, it's the same application that the same program, the same that we implemented for Vattenfall. It's a new release, it's more updated, and it's including new functionality but basically is same architecture that we deployed for Vattenfall in Sweden. Regarding the operating margin, we expect that this project, we will be in line with the operating margins that and that we are anticipating for the rest of the company.
John Quealy - Canaccord Adams
Okay. Just to be clear, so the operating margin in line with the corporate margins, is that right?
John Quealy - Canaccord Adams
Okay. Then lastly when you look out across Europe and internationally in the US, you gave us an indication of transportation bids and things like this. What the level of activity for Smart Grid that you are involved with in terms of bidding or at least that you know of both North America and rest of World.
I will say John amazing at this time it's been amazing. I think that the number of proposals that we are working and opportunities that we are working with our customers in different stages and in some cases mean very advanced in other cases are preparing other proposals working in the engineering, helping them to prepare for the application of stimulus in the US, but I would say probably in the US easily more than 45 opportunities. We are working all the European utilities both in West and East Europe. We are working opportunities in Russia, we are working opportunities in China.
For the Smart Grid, we are working opportunities in Brazil, we have started also some discussions in Mexico, so I mean probably some people are thing that as Smart Grid is happening all in the US, but that's not the case. I mean, Smart Grid is happening worldwide, all utilities are realizing that energy revolution is coming and that core of that energy revolution is going to be the Smart Grid, the power grid, so more and more utilities are getting the award that they need to enter into the modernization of the control systems and management system of those power grid they don't want to, we're ready for challenge that is coming.
I can tell you in a different segment, we are working with the customer that is developing, it's an oil and gas customer, it's developing a pilot project for combined gas and electric station you know to full (inaudible) with gas and also with electricity. So I mean I think that that revolution is getting closer to the market throughout under utilities worldwide are realizing that.
In summary, John I can tell you that we are having a lot of work with the proposals and the relation with our customers regarding this market has been a very hard time right now.
(Operator Instructions). Your next question comes from Zach Shafran.
Zack Shafran - Waddell & Reed
Two questions, please. One, Manuel, obviously there seems to me a lot of activity going on globally in AMI and AMR, but I'm just wondering in the past 60 days or so, if you might just talk more generally beyond just bid activity have you seen a change in the rate of growth in backlog? Then secondly, honing it on the US for the moment, given your comment in particular about stimulus or other moneys from the US government, how are you handling planning for if and when and how those moneys become available to customers and potential customers.
Well, I mean I am not sure that I understand the first part of your question. I mean the backlog of the company for the last two months, you mean all these are related to Smart Grid or in general?
Zack Shafran - Waddell & Reed
More general question actually.
Well in general, I'll say that it's great. I mean the backlog is growing and but we felt any order, yes with that Fortum backlog is going over €1 billion for the first time in our history. So, I think that even that we can operate in the number for July or August but the trends obviously is very positive and the bookings in the energy and the bookings in environment, the booking in Agriculture, in the Global Services. I mean in normal segments are very solid. So, we haven't seen any change of trend in what we're seeing for the first six months.
So, still for July and August I will say that we feel confident as we were feeling before. As I mentioned before, our only area of concern is the transportation because it's taking longer to convert from pipeline to backlog, but still there is a large number of opportunities. Your second question was, excuse me Zack.
Zack Shafran - Waddell & Reed
I am just trying to understand how you're dealing with the potential US government provided stimulus moneys.
I mean basically, the answer is short. We are not dealing with the U.S. government. I mean our customers are dealing with the Federal authorities. I mean we are not applying for any grant. We are not applying for any US money. Our electric utilities, and DOTs, and municipalities are applying for different projects, for Smart Grid or for intelligent transportation, and we are working with our customers so that they can prepare and present their applications with information that they require.
In some cases after they get a grant, in some cases we know that this is going to be a straightforward process, so we will start working immediately with our customers. In some cases, we know that some customers after getting the grant, they will start our bidding process.
So, it's going to be, I mean, these momentum of growth activity regarding the proposals working out, it's not going to end once the Federal authorities release their grant distribution that it will continue because as I said a lot of customers will start the process of awarding and distributing those projects.
So, in summary, we are not dealing directly with the US government. We are not applying for any money. We are not involved in any direct relation with the authorities in terms of applications. Of course, I mean, we are dealing with them in explaining and then increasing the visibility of the company. That the money has been awarded to our customers, and we are dealing directly with our customers.
(Operator instructions). Your next question comes from Ben Schuman.
Ben Schuman - Pacific Crest Securities
Just a quick follow-up on the US Smart Grid opportunities. Are your customers that are submitting grant proposals looking at using similar technologies to what you guys have deployed in Europe or are you thinking about adapting more to what has already been deployed in the U.S. technology wise.
Well, I mean, the technology we have deployed in Europe is the same technology we've deployed in US. I mean, we have more than 250 US customers, and so we're working with a large number of US utilities. I mean, we don't have like European technology or US technology, we have a Smart Grid technology and we apply both to US, European, Chinese, Brazilian, or Mexican customers, you know.
(Operator Instructions) There appears to be no further questions.
Okay. As a final remark just let me tell you the company continue to be absolutely energized and excited about the opportunities, also working and dealing with the charge that we have in this tough year, but we feel confident that we are going to be able to achieve the guidance that we provide and the things that that we have been anticipating to you in previous calls or in the meetings that we have had the opportunity to have with you. Thank you very much for your attendance and for your time to this call.
Ladies and gentlemen, that concludes today's Telvent's second quarter 2009 earning conference call. You may now disconnect.
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