Thanks for joining with us, or sticking with us on day three of our virtual conference. Very pleased to have John Marcolini, Senior Vice President of Networked Solutions, from Itron hopping on with us. I think the networking division has certainly been one that's driven a lot of investor interest, so this is a perfect person to have spending the day or spending the afternoon with us as part of this fireside chat. John, for those that might not be familiar with Itron, do you just mind introducing what you folks are up to in a minute or two, and then we can dig into some technological developments that are going on in the industry, and proceed with the fireside chat?
Yeah, sure thing, Jeff, and thank you very much for having me today. I really appreciate the time and the opportunity to tell our story here. So, yeah, what I would say about Itron is that, you know, we've been in this industry for a very long time, and we've been really innovating the way cities and utilities manage energy and water. You know, we're recognized in the industry as being a key contributor for, you know, solutions that customers are embracing around the globe. And very important to that is really the pivot or the transition that the company's undergone over the last, call it, six years or so.
You know, as you may know, I came to Itron through the Silver Spring acquisition back in 2018, and this was really the moment when we embarked on this transformation of the company, really, you know, pivoting from what I would say was a supplier of electricity, gas, and metering solution to more of an industrial IoT platform company, really aimed at solving some of the more complex challenges that we're seeing our city and utility customers facing today. And as a part of that pivot, you know, we report as three individual segments, so Device Solutions, which is really focused in on building the foundation or the global platforms that we use at kind of the foundation of the pyramid, if you will.
And then Networked Solutions, which is the business unit that I run, you know, we're responsible for really our land and expand strategy. So making sure we can take those endpoints that are developed by our devices team, connect them through our intelligent connectivity, and then go after the global markets to make sure that we can secure our footprint, which then ultimately drives, with this platform, the ability of our third reporting segment, which is the Outcomes team, to drive, you know, the advanced services revenue, the analytics revenue, and really with a heavy focus on grid edge intelligence these days, for sure, with everything that's happening in the world.
You know, today, under management, we have about 100 million communicating endpoints and, you know, all three of the, you know, the segments that I just mentioned really collaborate in bringing those technologies to market. And really, when I look at, you know, kind of where we're positioning ourselves for the future, it's really about how to help our customers bridge what we see as the oncoming growth in demand that's being driven from lots of things that I'm sure we'll get into more detail on today. So Jeff, hopefully that helps give a bit of a sense of who we are and, you know, kind of what the mission is of the company.
Absolutely. No, thanks for the, the detailed introduction there. You know, a common question I get from investors is around the device segment in particular, and in particular, isn't the meter just a commodity? And certainly maybe pre-networked meters and, you know, whether it was AMR or legacy mechanical meters, I'd probably agree with that statement. But as the world's become networked, can you just talk about the difference between the two, that maybe the networking solution or system provides a lot more value and a means to an end, or at least a good place to start with the network is having a meter device, but there's a lot of other things you can do with the network? That really is sort of the theme of the conversation I'm hoping to have with you.
Sure thing, yeah.
Agree with the statement, A, meters are a commodity or not, and then how, how should investors maybe move beyond that hang-up?
Right. Yeah, so what I would tell you is that, you know, we actually really have pivoted away from using the word meter in our terminology, and this is coming for many, many reasons. But ultimately, it's become something much more than a device that manages energy, right? As a part of that 100 million endpoints, you know, we—it's made up of a series of different types of devices and sensors, from smart streetlights to, you know, devices that can measure electricity, gas and water, to distribution automation equipment. And part of the value proposition and part of that pivot that I spoke about, you know, kind of in the opening statement, was making sure that the way we think about the future and the way we think about that thing that...
Sitting on the outside of a home or business, is that it? It's really transformed from being a measurement device to something that resembles more of what I call a smartphone-like device, which has so many more capabilities in it than call it yesterday's electricity meter, to use the word that I don't like to say. But ultimately, you know, today you can pick up your phone, you can make phone calls, and this is the most basic function, right? And the latest generation of endpoints that we're shipping, of course, still have the ability to measure and report energy consumption. But maybe the commoditized piece of that solution is really what I just said, right? It's the measurement and reporting of consumed energy, again, whether it's on the side of a home or on the side of a business.
But like the smartphone, right, there's also a ton more interesting capability that these devices now have. You know, in our latest generations of products, you know, we've integrated new interfaces, you know, things like Wi-Fi, cellular, power line carrier. In addition to all of that, we also have an application environment. So think of, again, the smartphone world, where, you know, maybe back in the late 1990s, your first smartphone could make a phone call, and you could play maybe Tetris or Snake. You know, so think about that application environment and how it's really transformed that industry, you know, call it over the last 10 to 20 years, and this is really where we are today. So-...
So again, one of the most important parts, and I'll point back to, you know, I was from the semiconductor industry, as I know I've mentioned to you before, Jeff. And one of the most interesting and pivotal moments in that world was when you can combine things like an application environment and connectivity. So the first 2G, 3G phones that were made available in the industry, and you take applications and internet connectivity, and all of a sudden now we're using this new platform to, of course, mobile banking, and transportation, and coordinating food delivery, and all of these things that, you know, if I were to go back 15, 20 years ago, we never envisioned using a cell phone for that purpose.
So now, if you fast-forward to today and you think about what's on the side of your home, and soon to be your home as the potential customer of one of our utilities, what's sitting on the side of your home now is much more than an electricity meter, right? It's a sensor that has the ability to communicate through Wi-Fi and other technologies to what we call behind-the-meter devices. So think of smart inverters, and think of EV chargers, and think of even in-home devices that, you know, a consumer may want to use to look at their real-time energy consumption. So it's much more than, you know, call it yesterday's meter. It's really a platform that's gonna allow the utility to solve multiple problems.
Number one, and probably the most important, is to deal with this oncoming demand that's being generated from the electrification of everything, and that's transportation and buildings. And number two, really thinking about the latest buzz is around, you know, how are data centers gonna generate this new demand profile for utilities, and how are they gonna better coordinate this, not so much from the transmission side of things, but really at the edge of the network, which is where all of this change is happening?
So what becomes super important is that, you know, as the utility thinks about their future and they think about this oncoming demand profile, and they think about the oncoming sort of requirements or incoming requirements for their consumers, right, to have more real-time information like we can get on our smartphone, it was absolutely critical for us to introduce a platform that brings all of these capabilities together and creates this sort of grid edge intelligence view for the utility, giving them more fine-grained controls and more capability than they've ever had before. You know, kind of comparing and contrasting the use of a standard or a typical, you know, ADMS or advanced distribution management system, which is controlling, you know, feeders and maybe substations.
Now what we're talking about is being able to introduce fine-grained controls all the way down to every last home, again, giving the utility what they need to fight this battle at the edge, which is where all the new consumers and producers of energy are really starting to show up on the scene.
Makes sense. And just to, to dig in, to flesh that out, I think at DistribuTECH, you guys announced an agreement with both GE Vernova and Schneider on the ADMS side, and then you have your MDMS and your edge data. Is that what's being jammed sort of together in the cloud with Microsoft to create that cohesion that you're talking about?
Yeah, so it's a great point. So yes, we did announce those partnerships back at DistribuTECH. And what's important about that, and, you know, again, being in the utility industry for the last 10 years, you know, I've come to just realize that as, you know, utility has a standard practice for how they're operating their grid and how they're, you know, interfacing with their customers, and they have standard practices and tools and back-office systems to do so. So, the challenge that we're trying to solve with these partnerships is that there's, again, there's a big divide in the number of things that those devices can control today versus the scale of what they're gonna need to control tomorrow.
So the idea is exactly what you said, Jeff, which is that how do you bring those two worlds together in a seamless way that give the utilities the insight and the control and the confidence to operate their grid in a world where electrons aren't just flowing in one direction anymore? You've got all sorts of different consumers and producers, not only coming onto the grid in a static way, but also moving around cities and towns and plugging in wherever they can find an open charger, and these loads are just quite dynamic. So it's, it's bringing this dynamic capability at the edge, which is becoming extremely important, I would say, to bridge the gap that we see coming at us from a supply and demand perspective.
Got it. I definitely wanna dig into some of the challenges that utilities are facing, but maybe just, you know, Silver Spring Networks was called Silver Spring Networks and not Silver Spring 915 MHz mesh, you know, on purpose, and so I'm just-
Right
... curious, or by design. As people are trying to solve this now massive or much bigger problem than what it was more of a metering-centric problem before, how do you go about choosing the right communication protocols and future-proof your network? Maybe in hindsight, if we took some of your legacy customers out, like a CenterPoint for instance, they might say, "Hey, what I chose in 2016 or 2018 maybe is not what I would have chosen today-
Sure
... just because things have evolved." So,
Exactly
... how do you help customers through that journey around transport protocols in particular?
Yeah, absolutely. Great, great question, and I think a lot of it comes back to some of the core tenets that we established, you know, again, back in 2018 when we were, you know, putting the two companies together and looking at, you know, what are, what are the best elements of the platform that Silver Spring have? What are the best elements that Itron have, and how do we put those together in a way that, you know, when we look at the masses of the customers that we jointly have, how can we ensure that we're putting out a platform that solves this whole backward and forward compatibility challenge that utilities are faced with in every business case, right? Again, coming from the semiconductor industry, we operated on Moore's Law, right?
Every 18 months, we were introducing new products, and we had the consumer electronics world that was ready to consume that product as soon as it was available. This world is quite different... So some of the dynamics around how we manage those types of platform decisions are critical because we need to ensure that the platform that we deploy at any one of our customers can stand the test of time. And as you know, right, there are different forces that come into play as it relates to things like, we'll use cellular technology as an example, right? The migration from 2G to 3G to 4G, and now projecting where 5G is going, how does the utility manage that complexity when they know that the business case that they have must stand the test of time for 15 or 20 years?
So in Networked Solutions, you know, it's our job to make sure that we're embracing these new technologies in a way that makes it somewhat transparent to our customers, and we give them options, and making sure that they know, you know, we're out in front, making sure we're future-proofing them. And also, we're taking into consideration what they've deployed in the past. You know, I can use many examples of customers that have embraced our, you know, the technologies back in 2008 and 2009. You know, Florida Power & Light is a great example, and they can embrace the new technology that we're deploying today with distributed intelligence if they want to, because we've ensured that everything we do, you know, as a part of this platform, is backward and forward compatible.
So, the key to all of it, Jeff, is just making sure that we understand the velocity at which our customers operate, and that we take on the challenge of bringing together all of these communication technologies in a way that makes it transparent to our customers.
And we give them the power of choice, meaning that if they want to lean in and deploy a private LTE network across their region, then they decide, "Well, geez, in this particular territory, I'm probably not gonna invest enough in infrastructure to go all the way down to the endpoint, but maybe I can use my private LTE as a takeout point for your access point or your collector." But maybe in other regions and maybe a more dense, you know, urban region or a city, we want to go ahead and leverage this technology all the way down to the last endpoint.
It's our job to ensure that the communication strategy of our customers can be realized through the technology that we develop, and this is something that, you know, again, as the leader of Networked Solutions, we've taken extremely seriously.
Got it. And in terms of the challenges that utilities are facing, I would say, you know, 18 to 24 months ago, it was, "Hey, we have an antiquated grid. EVs are coming. People are going solar, like my own home, so eventually this is gonna be a pain in the ass." But it seems to be sort of six to nine months, the past six to nine months, load growth is the 800-pound gorilla in the room. So I'm not trying to make Itron a play on AI, like NVIDIA was last night-
Yeah.
... but maybe just touch on, as load growth perpetuates over the next decade for a variety of reasons, including AI, what, what does that mean around the urgency of the problem relative to maybe utility thinking, again, 18, 24 months ago?
That's right. Yeah, no, it's interesting. We had a couple calls earlier, where this topic came up, and it was really... You know, if I go back two to three years ago, sitting at DistribuTECH and having this conversation with our customers, you know, what they were most concerned about, right? And it was exactly the points you mentioned, right? The electrification of everything, including transportation and buildings. It was the growth of EV, and just the lack of visibility they had as to, you know, which one of their consumers was, you know, sitting on what side of the distribution transformer, and did their neighbors also have EVs, and how are they gonna get visibility to this?
You know, to the conversation today, and you know, maybe NVIDIA really helped the conversation along with their earnings yesterday on the importance of data center growth, and how is the utility gonna handle that? You know, I mean, all of this sort of combines into what we call kind of these three dynamic forces that are facing our industry, and really it starts with the aging infrastructure. So no matter what's going on around and what those producers and consumers of energy are at the edge of the network, that network and that grid is aging, and there are definitely areas of the infrastructure that need to be overhauled. But what comes with that is not something that you can quickly turn on a dime and go ahead and deploy.
That's a large infrastructure program that takes time, and, you know, you're dealing with, you know, cross-state borders, and you're dealing with regulation. There's a lot that goes into solving this, call it, from the top down or from the transmission line down into the distribution grid. The second is environmental, right? We were, you know, talking just earlier about the storms that rolled through in my area last night, and we lost- we didn't lose power, thankfully, but, you know, neighbors around us did. And so just the frequency and the severity of storms and what's happening in Texas and the Southeastern United States so far this spring is just having a massive impact on the quality of the service that our customers are able to provide to their consumers.
And then finally, is the social side of things, right? And we, we've touched on this already, which is the expectation that everything I wanna do is real time. I have insights right now. When I place an order through Uber Eats, I know my driver's name, I know when they're picking up the food, I know approximately where they are in their journey, and when that food is gonna arrive at my home, and it's all real-time information. So when you combine all of these factors together, and then you layer in, you know, from a regulatory perspective, the traditional models that utilities embrace, it creates quite a challenge here in the near term and in the midterm to solve this big gap.
So, this demand growth and everything that we're hearing about is really gonna come in a way that, you know, maybe utilities don't have time to roll out new infrastructure. So why that's important for us is that we think we bring to market some interesting tools and ways for our utility customers to kinda eat this elephant one bite at a time, and that is all around increasing visibility and control, you know, at the edge of the grid, and allowing the utility to better and more strategically deploy that capital... you know, while they may have these large infrastructure programs in place, they're gonna need more tools and more visibility and more control with the solutions they have today in order to bridge what I think we all see is this load growth that's coming out of here. Engaging consumers, right?
Understanding, you know, and some of the things that we talked about during our investor day back in Q1 was bringing visibility to the utility, where they can even use our technology to determine which homes are sitting underneath which distribution transformers in real time. And those endpoints can collaborate with each other to actually understand the aggregate load on the transformer so that we know, or the utility can know, "Well, boy, that transformer's operating at 150% of its design spec, so we might need to take action and proactively prevent a major outage from happening." So it's really all of this combined into one, with the undertone and the underlying sort of unspoken, in some cases, rule that we have to make this affordable for the consumer, right?
Every ounce of capital that has to get pushed back into the rate case is gonna drive energy to be unaffordable. So it's how do you use non-wires alternatives to help this energy transition stay affordable for all consumers, you know, around the planet? I think that's the way I would clarify or classify the challenges that I know my customers are talking to me about today.
And, maybe one quick follow-up on that. I think data from Wood Mackenzie, if I'm getting it right, suggests that non-wires alternatives are about a tenth the price of wires. Is that... Do you have talking points on that?
You know, I think there's a lot of different views on that and how to quantify it. You know, again, I would probably hesitate to put one number on it, 'cause I think it probably does vary based on utility, based on state-
Yeah
... based on global, you know, global impacts. But, but ultimately, we do see it as a way, and it's, and it's not even just about the, the non-wire alternative cost elements. It, it's the time to deployment, right? It's the it's return on that investment, and how quickly can it actually have an impact on, on what's happening around the utility? So I think overall it's, it's gonna be a meaningful part of the decision-making and a meaningful part of the, of the rate cases that are coming here in the future, as that initial wave, right, of those customers that made decisions back in 2007 or 2008 are now starting to get to the place where their business case has been realized. They're now looking at their future and the asset's life that, that, you know, on, on what's been fielded.
Now the opportunity is to present the non-wires alternative story to their regulator as a way for them to keep this energy transition affordable.
That actually leads perfectly into my next question. So a common investor pushback I get about being positive on Itron is that, "Hey, Jeff, it's been a great story, well-positioned, market share gainer, but, you know, hey, 75% to 80% of America is deployed." You know, it sounds like what you're saying is that some of these early customers for Silver Spring back in the day, PG&E, Florida Power & Light, SMUD, CenterPoint, et cetera, they got that return. Maybe they need to upgrade. So can you just touch on that, yeah, maybe we are at 80% of the way through this journey, but there were people that deployed back in the ARRA funding days, where people got $hundreds of millions of free money to accelerate deployments back in the day, you know, maybe those grids get upgraded?
Or is it too early to be thinking about upgrades of, sort of AMI wave one in the deregulated markets of Texas and California in particular?
Yeah, sure. No, it's great points, and I was sort of alluding to that earlier in the conversation, is that, you know, first and foremost, you know, Itron's a global company. So yes, you know, for my business, of course, the North American market is very impactful for us, and we're making sure that, you know, we've got our paths to stay, you know, stay on the growth path that we've communicated, you know, again, during our Investor Day. But as a global company, of course, we're focused on not only the North American market, but also, you know, markets internationally, where we can grow our footprint and do so responsibly, right?
To make sure that we're able to continue the growth path that we've communicated, or continue on the growth path that we've communicated. You know, 'cause the challenges that are facing you know, utilities here in the U.S. are not unique in any sense of the nature or any sense of the word. You know, we've got a large install base of customers in Australia, and one of their biggest challenges today is the penetration of residential solar, right? They've sort of lost control, a little bit, of power quality at the edge because of the penetration of solar. And so how our technology can solve problems from a platform perspective, right?
Going back to what I said from 2018, and how we built this platform to attack our global markets and do so in a very kind of standardized or unified way. You know, being able to introduce the same technology that we're introducing to a North American customer, being able to introduce that to an Australian customer or, you know, Singapore Power, who is another captive customer of ours, you know, in other regions, is a very important part of our growth strategy. But to your point, you know, it's important to just make sure that we stay relevant with all those customers that made that first decision, right, to invest in our technology. And one of those core tenets that I talked about was really around the backward and forward compatibility of the technology.
So when you, when you start one of these large projects, right, there's always, you know, there's always a large IT investment that goes into making sure the back office software applications can all work with your business systems, and that you define the new business processes for, you know, how you're gonna leverage this, this new immense amount of data that's coming your way. And then, of course, you have the field deployment and the endpoint deployments. And, you know, what's so important when you think about how to recapture those customers is that you need to ensure that they just have a seamless way to continue to move forward with your technology. So a lot of where we've invested, again, in, in Networked Solutions to be, you know, again, speaking about my, my business in particular, is, is that we needed to have seamless-...
You know, easy ways for customers to transition as they come to maturity. So a lot of what we focus on is how do we ensure that for what we would call a brownfield customer can benefit from all the investments that we've made over the last six years, and even some areas where, you know, we've made, you know, acquisitions. So SELC as a smart photocell supplier, making sure that that platform can seamlessly be deployed on any one of our, you know, our legacy networks that are running, you know, the Gen4 protocol or Gen5 protocol.
So it's all about really making sure that we have a path forward for every one of these really important customers that made decisions early on, and I think that presents a great opportunity, not only just for the endpoint refresh, but for the ability to continue to sell them new value in, you know, gas or water underneath their canopies, like we announced with CPS Energy and San Antonio Water, or being able to leverage the Commonwealth Edison canopy for, you know, other applications that can fit underneath the high-value canopy in Chicago. There's many different ways for us to continue to add value for our customers, and so this presents the great opportunity that's in front of us, which again, I'm super, super excited about.
Yeah, absolutely. At your Analyst Day, you had Con Ed speak, and they
That's right
... referenced the, methane detection system that, probably has saved a few-
That's right.
lives.
To that point, Jeff, I mean, we realized early on that we weren't gonna be able to, you know, develop every new application or every new use case ourselves. So one of the important parts of this Industrial IoT Platform is that it's open for third parties to come in and innovate, and that innovation, you know, at the device level, like what you just mentioned on the natural gas detector, which we did, you know, in collaboration with a partner, or even from a distributed intelligence perspective, right? Having partners that can develop applications that actually run on our DI endpoints. So it's not just about what technology and innovation can Itron drive, it's about what is the platform that we're delivering to the industry that allows for this collaboration to happen.
We even have utility customers who are interested in developing their own applications. And again, this is an environment where the velocity of change is increasing, so having a platform that can evolve with those changes, you know, that's happening once, not every 20 years, but once a week, once a month, once a quarter. Being able to innovate at that velocity is something that the utility industry is definitely gonna need, you know, based on all the challenges that we've been discussing.
Maybe in the last three minutes, I could squeeze in two questions here. One is, the rule of thumb, I think, on how frequently these endpoints should be reporting back has changed to be much more frequent than they were before. So I'm curious, how do you help enable people to do that, better with maybe older meters that are sort of pre-DI,
Sure.
and then, you know, what is sort of the journey for the 90 million meters that are managed but not DI? I think it's 10 million, give or take, that are DI, mostly TECO and Xcel, if my memory's right, maybe a few others in there as well. But what happens with those other 90 million meters to enable those customers to extract more value from the system?
Yeah, absolutely. So I'll try to make these very succinct answers. So first and foremost, your initial question, first movers on advanced metering platforms were or we had they had goals to read their endpoints every four to six hours, right? Fast-forward four to six hours, which is kind of funny to say today, fast-forward to when I joined Silver Spring in 2015, when Con Edison went to market, their requirement was every one of their, I think at the time it was 4.2 or 4.5 million electricity customers, they want to read them every 15 minutes. Every endpoint, every 15 minutes, whether you're four stories deep in the bowels of Manhattan or sitting on the side of a home in the Bronx, every 15 minutes, every meter had to be read. Look at what happened in Australia.
They went to a five-minute settlement, so now there's this constant push for more velocity, being able to read these endpoints more frequently. So from our perspective, this plays perfectly into the way we've designed our platform, in that it becomes extremely scalable, not just from a back office perspective, but from a network infrastructure perspective. You need to read more frequently, we've got plenty of bandwidth and plenty of throughput to support those needs, and we're watching and seeing these RFPs that are coming from customers all kind of following suit with what, you know, with what's happened at Con Edison or what's happening in Australia, and that they want to read these assets more frequently. We're able to take...
In the case of the Australia example, these were customers who were early movers, and they had platforms that had been in the field for, for, you know, call it seven to 10 years, and we were still able to go ahead and meet that requirement because of the way we robustly build design, and build and design our networks. And then to your second point, is really about how do we bring those customers forward, right?
We are able to introduce our newest technology with technology that has been maturing in the field and can drive value propositions in that hybrid environment, and this is the discussion that we have pretty much every day with our customer base, because they wanna understand what their path is forward to a grid edge intelligence world, and how do we seamlessly bring them to a place where now they're realizing even additional value than what they had planned on with those initial assets? So it's our job, again, as Networked Solutions , that Device Solutions, then as Outcomes, right, at Itron as a whole, to bring those customers forward, and we think we've got a pretty compelling story to tell those customers who who made that investment 10, 15 years ago.
Perfect. As long as that sells more networking cards and software along the way, I think we'll be in good shape. But,
Yeah, absolutely.
Well, thanks for geeking out on technology trends in the utility world with me, John. I enjoyed the conversation, and thanks again for taking time out of your busy day.
Yeah, thank you for having me, Jeff. Really appreciate the time, and thanks for all that are listening in.
Thanks so much.