Barbara J. Doyle - Former Vice President of Investor Relations
Marcel Regnier - President of Water and Chief Operating Officer of Water
Gavin Van Tonder
Itron, Inc. (ITRI) Water Business Overview June 13, 2012 10:30 AM ET
Barbara J. Doyle
Hello. Good morning, everyone. This is Barbara Doyle, Vice President of Investor Relations at Itron. Welcome to our Itron Water Webcast. With me today are Marcel Regnier, President and Chief Operating Officer of Itron's Global Water Business; Paula Billingham, Itron Vice President, Sales and Marketing Delivery for Water; and Gavin Van Tonder, Itron Vice President of Marketing and Systems for Water.
I'd like to point out that at any time during the call, you can enter questions into the Q&A section of the webcast screen, and we will take as many questions as we can at the end of our prepared remarks. The slides are also able to be advanced by the viewer so you can -- we will tell you the slide, and you can follow along. We will not be advancing the slides for you.
So on Slide 2, I would like to cover our Safe Harbor statement. 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 the comments made during this call and in the Risk Factors section of our Form 10-K, Form 10-Q and other reports and filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statements.
Our presentation includes non-GAAP financial information that we believe enhances the overall understanding of our current and future performance. We have included a reconciliation between GAAP and non-GAAP operating income for the Water segment at the end of the presentation, and you can also find detailed reconciliation for Itron's consolidated results in our quarterly earnings press release available on our website at www.itron.com/investor.
Now please turn to Slide 3. Our goal for today's webcast is to provide investors more insight into our global water business. We will cover what we believe about the water market, what we do at Itron to help our water customers address their challenges and our key financial metrics for our newly formed global Water segment. Following our prepared remarks, we will answer questions sent in by investors, and we expect the call will conclude in under one hour's time.
Now please turn to Slide 4, and I will turn the call over to Marcel Regnier.
Thank you, Barbara, and good morning, everyone. On Slide 4, you can see that IMS confirmed in its latest report published in 2011, Itron is the #1 provider of water metering products. We sold more than 9 million meters in 2011. That is basically one meter every 3.5 seconds. And by far, we are #1 in smart metering modules with 2.5 million units shipped last year, with about 50% of these shipped in North America, 30% in Europe and the rest in other countries like Australia, China, India. We have a large experienced employee base, serving our water customers around the world, and we have a global manufacturing network with significant presence over the 5 continents. We also have global R&D that allows us to design smart water metering platforms to customize to local requirements. This is one of Itron's core advantages.
On Slide 5, you can see Itron's vision. The way our world manage energy and water will shape this century. This is a bold statement, but this is one that we believe in. Our planet's energy and water resource are vitally important to life, and they are currently being strained.
Turning to Slide 6. Water is essential to a sustainable future everywhere and for everything. No plant, no animal, no man can live without water. Water is at the heart of sustainability. To secure the environment, availability and quality standard for water is critical. Social and economic development, for basic human needs, fair and inefficient allocation and use of water is necessary. The United Nations Environment Program has placed water as one of the top millennium development goals, by 2015 to reduce by 50% the number of people worldwide who do not have yet access to safe drinking water. This would be adding 3 billion people to the water supply, 4 billion to sanitation. Our mission at Itron is to help the world's utilities and governments to achieve these essential goals. And this will expand what and how much business Itron will do in this industry.
So please now turn to Slide 8. This slide shows a typical schematic of a water distribution ecosystem. Water distribution is a complex cycle. One do not produce water. It is actually a service. Water is extracted from earth, transported, utilized, polluted, cleaned, dropped back to earth at a different place. Overall, this industry consists of very heavy capital-intensive processes, and many technologies utilized in process control, measurement and others. And it require an intense use of energy and more and more technology and data.
Turning to Slide 9, shows the challenges that governments and water companies worldwide face. Water utilities are almost all facing the same 3 challenges: Improve water and energy conservation, increase operational efficiency and educate consumers about their water consumption and inspire changes in their behavior. And to do so, they run project that will optimize supply in relation to demand, keep water cost affordable, improve access to water and provide consumers with better service. For this, they need actionable data.
So now please turn to Slide 10. You've all certainly heard about non-revenue water or unaccounted for water. This is the #1 problem the industry is facing today. This graphic shows the world consumption of water and the corresponding amount of energy on the daily basis. Huge numbers, 1.15 billion cubic meters per day, 20.800 (sic) [20,800] gigawatt hours at a cost of $1.4 billion a day. But, but 34% of the water distributed through the network is lost, wasted or misused. And this only represents 5.5 million tons of carbon dioxide every day, the equivalent of 400 million cars. There is urgency for reducing water losses, thus avoiding wasted energy, which in turn, will help fight climate change. The water distribution ecosystem needs to become smart, measurement everywhere, monitoring of network, accurate data available to be utilized across all the value chain of utility. And that is what Itron is all about. Itron's know-how is about measuring the use of water and providing actionable data.
Let's turn quickly to Slide 11. Two views from major officers of the industries. Water distribution IT experts are predicting a significant increase in concerting an IT-related investment, especially data analytics. And as you can see, customers support that.
Turning to Slide 12. The graph show that global water demand is consistently increasing. We are referring here to IMS data, which predict a 6% compounded -- compound annual growth rate, which one may think is a rather conservative view. More important is that the growth in smart metering is occurring at about twice the pace of traditional metering. In developing countries, many of these projects around the world are funded by major financing institutions like the World Bank and regional development banks. Smart water projects are considered core infrastructure investments to advance the development of the countries.
Slide 13 shows share of global market demand. According to IMS, Itron [ph] is the leading supplier of water meters, and by far, leads smart metering progression around the world. We grew faster than market average. According to IMS, we delivered 47% of all advanced meters and modules in 2011.
Now let's discuss Itron's solution for water on Slide 14. You may have already seen a very similar slide in our Itron corporate presentation. That is what we do, global end-to-end solutions. Global, as a comprehensive set of meters that meets all requirements, residential, commercial and industrial, network meters, mechanical and static. We are local as well, capable of customizing our solutions for local requirements. End to end, from the meter that secure data source to communication systems, utilizing a variety of technologies to data collection and data management software solutions, analytics, which will provide added value information like leak measurement, flow profile, demand management and others. We also promote standards and internal capability to help utilities in securing diverse sources. That is Itron's solution set for water around the world, in every continent, in more than 130 countries.
So now please turn to Slide 15 and let's discuss Itron's water strategy. Three major elements for our growth: First, we will continue to leverage our current leadership position and grow from there. We will continue to develop our geographic reach, and we will expand our offering. Being at the AWWA in Dallas, we hear quite a buzz on lead-free composite or polymer meters. Let's talk about this for a second. We have global presence. We meet local regulations, and we integrate eco design in our portfolio. That leads us to utilize a number of materials as best fit to requirement and cost optimization. We do have composite or polymer meters. It is a growing demand, but I am not sure copper material will disappear even though commodity costs go up and down. And we may even introduce new material in the future.
Let's go back to the big picture. At Itron, we have a strategy for growth aimed at helping utilities around the globe to meet their challenges: environment protection, operational efficiency and non-revenue water reduction, customer service improvement. That is how Itron will grow.
Now let's turn to different market dynamics for each region on the next several slides. Starting with North America, a large market for Itron. Through the first half of 2012, we have delivered almost 13 million end points cumulatively to North American water utilities. This week, we announced our 600,000th ERT delivered to Aqua America. We can see the key drivers for North America on this slide. The market is growing to fixed network and as such, they are learning that generating data is not enough. Utilities are moving from metering to monitoring. As utilities deploy networks, they want to get more use out of the network than just meter reading. Utilities are now demanding internal data, which is a form of monitoring.
Itron is addressing these market needs with solutions that offer lead detection, internal data for better customer service, operational improvements like meter rightsizing, distribution analysis, theft detection, et cetera. And by the way, those strengths are not only valid in North America.
As just one of the major examples of our successes in North America, the city of Cleveland utilizes Itron's smart water metering solution to provide enhanced and reliable service to its customers. The smart metering project consists of 425,000 100W water earth modules, network infrastructure and accompanying software and is expected to be complete by December 2013. The solution's two-way communication network will enable Cleveland to collect hourly meter data, improving customer service and providing a clear picture into customer usage.
Let's review now EMEA on Slide 18. Let me remind you that the EMEA is 3 geographic regions: Europe, Africa, the Middle East. Itron's share of demand in EMEA is estimated to be about 23%. Itron has a historical strong presence in Europe, where Africa is more of an emerging market with 800 million people, and we are currently growing fast in this region. In the Middle East, we have several significant successes with smart metering such as Qatar and Saudi Arabia. Europe is a more mature market growing towards smart metering and intelligent network, which will integrate more and more measurement data such as leaks, temperature, pressure management and soon, measurement of quality.
And I would like for a second to focus on one number. In Europe, we grew last year by 15% compared 2010, when looked in constant currency, 15%. In Ireland, where metering was not historically mandated and the water losses are around 40%, the government has published a law that calls for metering at every connection. And they are considering to move towards smart metering in order to collect and utilize the data in an efficient way. Itron is fully involved. And as an example, we were participating in a conference set up by the government in April, in which Itron gave a presentation on water conservation and smart metering solutions.
And on Slide 19, a case in Spain. This is just one example of our successes, many other successes in Europe. The El Vendrell seaside area is characterized by seasonal consumption when the large number of tourists multiply by 3, the peak flow consumption during summertime. A better management of the distribution network in anticipation of the water demand was therefore needed in order to meet the high variations in water demand. Aqualia, the customer, decided to implement Itron EverBlu wireless fixed network in this area. After one week, the system made visible a leak of 30,000 liters per hour. Aqualia is now in the process of evaluating the possibility to extend the system to the whole municipality, which would also result in a reduction of 340 tons per year of their carbon footprint.
Now let's discuss on Asia Pacific on Slide 20. APAC is a big region; by far, the most populated and the fastest-growing part of the world. We have a small participation in this region, around 3% share of demand. When taking into account the huge volumes of very low-performing meters still currently distributed in India and China, Itron does not participate in these low-cost markets. We focus on more demanding customers and more profitable segments of the markets, which are an increasing part of the Asian market. We have a strong share of demand in Australia, Indonesia, Vietnam, Thailand, and we are participating with the local authorities in China and India in order to move the market to more reliable meters and solutions, which will secure water conservation and fair availability of water for all people. To that end, we have recently opened factories in Dehradun, India and Suzhou, China. Those 2 factories constitute the core piece of our aggressive growth plan in those 2 major countries.
Let's look at 2 significant examples of those challenges in Australia and India. In Busselton, Australia, the area of Busselton south of Perth, holds a natural underground reservoir containing very pure water. The main danger for this resource is to be contaminated by reverse flow coming from the network. So backflow detection was a critical requirement to protect an exceptional quality of water. Itron's mobile radio solution allows regular and on-demand collection and provides multiple alarms such as backflow and leakages. And Busselton water contribute to the sustainability of water with careful planning for regular maintenance and community education.
Mumbai in India. We have spoken before about Mumbai as a highly feasible water project. This municipality is facing a major challenge, having enough potable water available to feed a fast-growing population 24 hours a day, reducing major leakages and misuse. Itron is providing accurate and robust metering with our EverBlu RF mobile reading solution. And that project has been recently selected by the United Nations HABITAT as part of the world water forum as one reference to improve water distribution in Asia.
Slide 23 covers Latin America. Economically, the region is constituted of 2 major countries, Mexico and Brazil. And as you can see, our share of demand is very high, estimated to be around 34%. Current market drivers are still towards growing the meter demand. However, we see significant trends towards meters capable of low flow. Itron is pushing those initiatives with local authorities. We see also increasing demand for composite meters, especially in Mexico. That requirement is driven by prevention of sets of meters for the copper. Our plan is to aggressively grow in Latin America. And Itron has a significant factory in Brazil, and we are increasing its capacity and efficiency, investing in world-class equipment and automation.
Now let's turn into our financial performance, beginning on Slide 25. First, we begin with where the Water segment fits in the overall Itron company financial profile. In 2011, water was 21% of total Itron revenue. In Q1 of 2012, our last reported quarter, water was a little higher at 23% of total revenues. Water contributed 23% to Itron's non-GAAP operating income in 2011. However, our profit last year was impacted by a special warranty charge for defective diode. That problem is behind us, but water would have been around 27% of total non-GAAP net income adjusted for that warranty charge. In Q1 of '12, water contributed 35% of Itron's total non-GAAP operating income. Water contribution to Itron is increasing. Our goal is to grow water revenues and to grow its profitability.
Now we look at water specifically beginning on Slide 26. This slide shows 2011 revenues by geography. You can see when we earned more than half of our total water revenues in EMEA. Itron has had historical strong presence in Europe. We also have significant revenues in North America, with system and solution only for the time being. We have actually seen faster growth rate in Asia Pacific and Latin America over the last several years, and those regions are growing at a percent of segment's revenue. In 2011, we had revenue growth in the Water segment in each geographic region. We also see the opportunity for additional growth in each of them.
Now please turn to Slide 27 and the trended financial results. This graphic shows revenues, gross margin and non-GAAP operating margin for full year 2010, full year 2011 and the first fiscal quarter of 2012. On the revenue side, water business of Itron is growing. Water revenues grew 8% between '09 and '10 and grew 14% in 2011. Our growth has been driven by the demand of smart metering systems.
The gross margin percent has been impacted over the last 2 years by 2 material events. The cost increase of copper has impacted our profitability by $6 million to $7 million over 2010 and 2011. We see prices slightly down over the last 6 months. And for sure, this is linked with global economic demand. We have launched composite meters that partially balance the cost increase. However, I would remain prudent about future cost of raw materials. And at Itron, we like to keep all options always available.
We also have special warranty costs in 2011 for $13 million, for which we do not see recurring this year. The operating margin decline is mostly the result of the gross margin effect. We show, using the dotted line, the 2011 margin adjusted for the warranty costs. We do continue to expand R&D investment as we see need for more and more complex technologies and solutions. However, we plan to keep R&D at current percentage of revenue as we expand synergies with our global R&D capabilities and sharing from our energy segments, especially in communication and software. And for example, we share technology and we -- what we have developed in the energy segment, like for IEE, our Itron Enterprise Edition package and RF communication.
Now, let's have a look at 2012, one quarter only so far. Q1 revenue was up 5% at constant currency, driven especially by Latin America and Europe regions. In Asia Pacific, I would also confirm we are increasing Itron's penetration in the Taiwanese market through local partnership, and we are pleased to announce that we won a significant piece at the first annual tender in Taiwan. Gross margin improved significantly.
The special warranty event last year was in Q3, so the Q1 improvement is purely operational, with a significant piece from margin recoveries in Latin America and some benefit from our global Itron purchasing initiative that is taking effect in the company. Non-GAAP operating margin increased accordingly in Q1.
Slide 28 and 29 show bookings and backlog trend for water. This is an important part of our review this morning. We want to explain that water backlog and bookings are a different kind of matrix than for the energy business. We start our water revenue at $522 million in 2011 and the beginning 12-month backlog of $120 million, one can say that, obviously, our backlog is short. Let me explain this. First, about 50% of our water backlog is for North America, where we tend to do more project-based business. Our North America backlog includes our contract for Cleveland and many other projects like Madison and Ottawa. All the while, the vast majority of our Water business is book and ship and a number of significant frame contracts. Most of our business in Europe, Asia and Latin America is through frame contract.
At Itron, we do not include frame contract in our backlog. This contract for water can amount to more than $100 million a year. For example, we are the primary supplier of Veolia, Suez Environment and several other utilities and distributors where we have purely annual contracts. However, as they do not give us written commitments on volumes, we do not book them. We also have a high amount of book-and-ship order each quarter from the large number of small municipals, which have been booking from us for a very long time. This is a strong business for Itron as evidenced by our market share. And we're very happy to serve those customers.
So our backlog characteristics are different than energy because we have a high level of frame order and book-and-ship business. But you can see, the water backlog we do have is fairly steady. Our quarterly water book-to-bill rates, with few exceptions, have exceeded 1:1. And bookings were at record level in Q1 of 2012, including a significant contract win with Madison County, Wisconsin. I would also point out that the Q3 2000 backlog increased when we booked Cleveland, a long tail contract that exceeded $50 million.
So now, I will skip to Slide 30. We are now approaching the end of this review, and I would like to let you go after Q&A, of course, with a few takeaways. Slide 30 shows more examples of Itron -- sorry, of how Itron helps utilities to address the water challenges around the world. At Itron, we help authorities and water companies to drive the water distribution systems to become smart. This helps the protection of the resource, the reduction of the non-revenue water, the corresponding reduction of CO2 emissions, the improvement of operational efficiency, the increase of customer service like leak detection, hold accurate metering and timely billing and secure water availability. At Itron, water is a strong passion for our employees in our company. We believe we are helping to solve serious challenging -- challenges facing our planet. And we will summarize on Slide 31.
Water is at the heart of sustainable development. Water distribution is at the top of the world's concerns with those investments giving top priority. Many international financing institutions are providing special programs. Look at Ireland, their plan is a result of the European plan to recover the country's economy. Of course, water is impacted by the economic environment, but water is often the last kind of project you would cut, given social, economic and environmental value of many of these projects.
And there is also a shorter recycle -- replacement cycle for water meters and more and more battery-operated devices. Both of these items help to give Itron's Water business a strong, solid, consistent foundation with global market catalyst that we believe provide opportunity for continued growth potential. And Itron is leading these markets.
We are increasing investments, penetrating all major markets and economies. We are generating solid growth, higher than the average market growth rate, and a global and rationalized manufacturing organization, which will continue to reduce our cost structure with reasonable CapEx addition. We are committed to increase profitability.
So I will leave you with 3 thoughts. Water is a business that meets fundamental human needs, where Itron is the leader with a water business that is solid, that is healthy and which will get bigger and more profitable.
And now we will answer some questions.
Barbara J. Doyle
Thank you, Marcel, and thank you, everyone, for sending in questions. We have quite a few. So maybe I can start by grouping some of them together. And some of our -- we've got several questions on China, so let's address those. So here are some questions. Let's see, let's see, let's see, what is our strategy for China, and can we elaborate on expanding offerings into new or adjacent product lines? So first question, could you comment and provide thoughts on our strategy for China? And then secondly, can we elaborate on the kinds of adjacent areas we would want to expand our offerings to?
Thank you, Barbara. I would give that question to Gavin Van Tonder, our Vice President of Marketing and Systems.
Gavin Van Tonder
So the strategy for China, of course, is to expand on the market share that we already have started to aggressively grow in this region. We have increased our market share a lot over the last 2 years. We are increasing about 100% our revenue every year, and our factory is now profitable after only 2 years in operation. We are focusing on the commercial and industrial marketplace. We are focusing on the AMR marketplace, and we are focusing on the heat marketplace where we are growing aggressively. So our strategy in China is to continue along that vein. We do not plan to focus on the low-cost residential marketplace for China. And sorry, Barbara, can you repeat the second...
Barbara J. Doyle
And the second part of that question was a little bit separate, but it was can we elaborate on our strategy of expanding our offerings into adjacent product areas or product lines?
Gavin Van Tonder
Specifically in China?
Barbara J. Doyle
No, not specifically in China, so areas such as the telemetry.
Gavin Van Tonder
So, of course, with electronic metering, we're definitely looking at other areas where we can develop inside the water space, specifically focusing on our core businesses. So we are looking definitely in the heat cost allocated to the marketplace. We're looking definitely in the heat ultrasonic marketplaces. We're also looking at different centers like we have released a new product, a water mine product, which has a pressure sensor on it and which enables alarms to be synced directly to end consumers or to utilities when there's an issue in the field. And we are definitely focusing on entering more of the market space where we are present today with the new products, and you will see some of these new products coming out in the next few years.
Barbara J. Doyle
Thank you, Gavin. Okay, anything else add to that, Marcel or Paula? Okay. We have a couple other questions focusing on margin. So Marcel, maybe we could start with that. So first question is, what kind of targets do we have for our growth and operating margins for water?
Thank you, Barbara. For gross margin, we are comfortable with the mid-30s margin we have at the moment, and we intend to grow our Water business without impacting our current margin. On the operating margin, we intend to increase, but we'll not give any further guidance on that.
Barbara J. Doyle
Okay. And along that same line, the question is, what kind of restructuring activities do we have going on in the Water segment? And can we give an update of status on the restructuring?
Yes, we have some restructuring activities for water, and we are on track to our plans. In particular, we sold our liquid measurement operation in Greenwood, South Carolina. That sale was effective in May. We are also conducting a significant world-class manufacturing program in Brazil, and we are well on track with it.
Barbara J. Doyle
And then, one other question along that line is, do we see the shift towards more polymer meters as an opportunity to help expand our margins? Is that a margin benefit to Itron?
As I said during my presentation, we see polymer meter as one opportunity to -- thanks to those new technologies to have a better management and balance of cost of copper. However, I remain -- at Itron, we remain prudent about that. Polymer is one solution. At the moment, we see copper down. So let's keep all options available. But we do have polymer meters in Itron. We have developed several of them, and I especially talked about our penetration in Mexico with our polymer-based material [ph].
Barbara J. Doyle
Okay. And one more question on margin, and then I think we can go on to the next topic. The question is, generally, how do our margins compare by geography? And I think I can answer that one to get us started and then -- so our highest margins are certainly in North America. Our lower margins are in Latin America and Asia Pacific currently. So our higher margins are North American and EMEA. Lower margins, we're achieving lower margins in Latin America and Asia Pacific. So question is, do we have opportunities to raise the margins in Asia Pacific and Latin America, or is the price competition really going to keep the margins lower in those geographies?
I think I would answer more by type of products than by geography. When we launched smart metering, Choice Connect, fixed network or EverBlu fixed network, when we provide full end-to-end solutions, including software, we make -- we are able to generate better margins whatever the regions, and that is the strategy of Itron water.
Barbara J. Doyle
Okay. Several more questions here, hang on. Okay, here's the question. How many manual read meters are already installed that have built-in capability to be upgraded to AMR?
Gavin Van Tonder
This is -- there's an easy answer to this question. More than 70% of our global production of, as we said, more than 9 million meters, are AMR-ready already in the field.
Barbara J. Doyle
Very good. Okay, I've got a question on the competitive environment. So maybe this would be another good one for Gavin. The question is, how does the competitive environment differ by geography?
Gavin Van Tonder
The competitive environment differs a lot depending on the geographic region. An example is the North American market where we see Neptune, Master Meter and Badger, but we do not find them outside of North America. The other major manufacturers, Sensus and Elster are present in Europe with Itron. But in general, each major country still has local manufacturers for water meters, especially large countries like Brazil, India and China, China having hundreds of local manufacturers with very low cost products as we have already explained in the slides. Where we see much less competition globally is in the AMR market where Itron has close to 50% global market share.
Barbara J. Doyle
Thank you. Thank you, Gavin. I think we have time for a couple more questions here, and I had a few more come in. Okay, here's a good question. Can you give an update or an overview of the North America outlook?
Sure. Thank you, Barbara. We've not seen a material change in North American business levels this year, but we do expect to grow our water revenues in North America in 2012 and 2013 in the single-digit range. Large projects are still few and far between, but there are some that are in the pipeline. San Diego water tender was released this week, and there may be 1 or 2 more this year released. One of our strengths is really with our truly upgradable Choice Connect solution with our existing customer base and new customers. In the case of budget constraints, as many of our municipal customers are in, our products and solutions allow them to gradually migrate from mobile to networks as their budgets allow to help them with improved costs, operational efficiency, services, balancing supply and demand, managing assets and revenue protection.
Barbara J. Doyle
Very good. Thank you, Paula. So no real significant change in North America this year?
Not at this time.
Barbara J. Doyle
Okay. So maybe we can follow that with a question of just generally on the international outlook, the growth outlook, where do we see -- outside of North America, where do we see our best growth prospects over the next 12 to 24 months?
So this is Marcel again. I would answer in 2 steps. First of all, let's look backwards a little bit, one, 2 years. And as I pointed out, we grew 15% last year in Europe, probably one of our best core structure, thanks to our increased offering in smart metering. And more globally, as we said, we expect growth in every region this year, with the highest growth probably in Asia Pacific and Latin America.
Barbara J. Doyle
Okay. Gavin, I have another question, I think, for you. It's a two-parter. So the first part is, 0 moving part meters such as magnetic meters are getting a lot of attention. Does Itron have a product here? And if so, does the company believe this technology can gain real traction in residential, or will it remain largely a commercial solution?
Gavin Van Tonder
So Itron has been manufacturing ultrasonic meters for the fleet and water markets for more than 10 years already. We have sold very large volumes into the residential markets specifically for water in the Middle East and for heat mostly in Germany and France. If you look on Slide 14, you will actually see on the very bottom right-hand side an example of that meter, a picture of the meter. Yes, the technology is gaining more traction, and the proof of this is the various countries that are starting to focus on developing standards specifically for those meters, and those standards are being developed in Europe and the USA today.
Barbara J. Doyle
Okay. And question number 2, Gavin. Itron lacks a positive displacement meter in the U.S. market. What are the competitive ramifications of this? And does Itron feel it needs to add this product, Paula or Gavin?
Well, according to the Scott Report, Itron continues to be the #1 or #2 supplier of end points in North America. As for the PD meters, we have partners that we can always work with to obtain meters for projects when it's necessary.
Gavin Van Tonder
And I would just like to add, the benefit of not having a positive displacement meter is that we are perceived to be meter agnostic by customers, and they can choose their meter separately from the AMR requirements, enabling them to use more than one meter supplier. Of course, we have to look at this meter market. They're not doing this actively.
Barbara J. Doyle
Thank you very much. Okay, I think we have one other question, maybe for Paula. Regulatory -- or Marcel, I'm sorry. Regulatory issues can certainly impact our markets, so we have a question asking if there are any new regulatory drivers that we see on the horizon.
Yes. I'll try to give a global answer to that question. Our business has been and is significantly impacted by regulations around the world. Most regulations are favorable to us as they work to address non-revenue water allocation of water or energy. One item that is getting more attention in the U.S. is non-revenue water. More states are mandating non-revenue audits to get fundings. That is happening in California already and is gaining steam in other states.
Barbara J. Doyle
Okay. And I think we have one more question here, and maybe it's a good one to end on, Marcel, and if you want to have -- offer any closing comments perhaps after it. So the question is about our Q1 bookings, our Q1 of 2012 bookings in water. We had some very strong bookings, and the question is, was there one -- or a particular driver to that strength, or is it just one quarter, or what kind of commentary would we have on our bookings from Q1? And then, if you want to close the call.
Okay. Thank you, Barbara. First of all, I would like to avoid a misunderstanding. Overall, our bookings are more towards replacement than new connections in the most mature economies like North America and Europe. And there would be more new connections is developing in developing countries. So our business is not very much impacted by the weather or whatever happens on earth. But let's look at our bookings in Q1, which were record bookings for us. Our 5 main bookings included the U.S., France, Spain, Vietnam and Brazil and by the way, 4 of the top 5 were bookings from frame contract. So yes, it was a good quarter, and I am comfortable with our prospects for 2012.
And maybe a closing remark. First of all, I would like to thank you all. It looks like you were quite a large number of people on the phone. Thank you very much for attending that. I would like again to leave you with 3 -- my 3 thoughts. Water is a business that meets fundamental human needs, where Itron is the leading provider of water metering solutions, with a business that is solid, that is healthy and which we get bigger and more profitable. Thank you very much.
Barbara J. Doyle
Thank you, everyone, for joining. We do appreciate your taking the time to learn more about our Water business. It's one area of our business that, I think, may be the least understood. So we appreciate you taking the time. We'll have this webcast on our website, if you'd like to listen to it again. And of course, please feel free to call me if there are any other questions that we can answer for you. Thanks very much.
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