Ladies and gentlemen, thank you very much for standing by, and welcome to the Itron, Inc. Second Quarter 2010 Earnings Conference Call. [Operator Instructions] For opening remarks and introductions, I'd like to turn the call over to Ranny Dwiggins, Vice President, Investor Relations. Please go ahead.

Good afternoon, everyone, and thank you for joining us. On the call today, we have Malcolm Unsworth, our President and CEO; and Steve Helmbrecht, our Chief Financial Officer. Steve will begin by giving us a financial overview of the quarter, and then Malcolm will provide a business update. After that, we'll take your questions. Our earnings release includes non-GAAP financial information that we believe enhances your overall understanding of our current and future performance. We also have a supplemental slide deck that is intended to augment our prepared remarks as well as provide a reconciliation of differences between GAAP and non-GAAP financial measures that we will talk about today. You can find this supplemental information on our corporate website under the Investor Relations tab. We will be making statements during this call that are forward-looking. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially from these expectations because of factors discussed in today's earnings release and the comments made during this conference call and in the Risk Factor section of our Form 10-K, 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 statement. And with that, I'd like to turn the call over to Steve Helmbrecht, Itron's CFO.

Thank you, Ranny, and good afternoon. We had an excellent quarter. Let me give you a quick financial snapshot. Record quarterly and six-month revenue of $569 million and $1.1 billion; quarterly and six-month non-GAAP diluted earnings per share of $0.98 and $1.99; quarterly and six-month adjusted EBITDA of $84 million and $150 million; quarterly and six-month bookings of $806 million and $1.3 billion; record 12-month backlog of $1 billion and total backlog of $1.7 billion. Our North America business is growing rapidly. Our International business is stable, and the impact of foreign exchange fluctuations has been modest. Our financial position keeps getting better with increased liquidity and improved credit ratios. Back to Q2 financial performance, Itron's revenue of $569 million was up $155 million or 38% from Q2 2009 and up 14% sequentially from Q1 2010. Our revenue growth was driven primarily by record revenue of $303 million in Itron North America, an increase of 112% from the second quarter of 2009. OpenWay led the way. We shipped approximately 1.2 million OpenWay units during the quarter with OpenWay revenue contributing approximately 47% of total Itron North America revenue. International revenue was $266 million, down about 2% from the second quarter of 2009. Revenue grew about 0.5% on a constant dollar basis. Gross margin for the quarter was 31% down from 32.2% in the second quarter of 2009. Itron North America gross margin was 34%, up sequentially from 32.9% in the first quarter. The sequential improvement in Itron North America gross margin was driven by higher volumes. Itron International gross margin was 27.5% for the quarter, down from 30.7% in the second quarter of 2009. The decrease in margin was due almost entirely to increased warranty expense of about $9.7 million. The warranty accruals of $9.7 million impacted Itron International gross…

Thank you, Steve, and good afternoon, everyone. If there's one call message today, here it is. This was Itron's best quarter ever with record revenue, a backlog at record levels and near record earnings. Our success was due to OpenWay project implementation which are on track, very strong performance in our Gas and Water businesses in North America and steady international activity with the continued high level of interest in smart metering. Overall, we had an improved outlook for 2010. Now let's jump in deeper. First, a couple of comments on our OpenWay contracts. We recently surpassed the 3 million endpoint shipment milestone of OpenWay units. Installations continue to ramp. Our execution and deployment on these contracts is going well and continues to be a top priority. Southern California Edison recently celebrated the installation of their 1 million SmartConnect meter. And as you know, our OpenWay solution is the foundation. We're on schedule with our next release of OpenWay CENTRON SmartMeter, and we booked the contracts with Detroit Edison joining the quarter which made a very nice contribution to our backlog. Second, I want to talk about our strong performance in our Gas and Water businesses in North America. The demand for our new gas ChoiceConnect smart metering solution is very strong, contributing nicely to our revenue growth for the quarter. Units for our gas ChoiceConnect system grew by more than 40% over the first quarter. We also released a new water smart metering solution using similar technology as gas. And our customers are really excited about these new offerings. They include the ability to migrate from mobile AMR [automated meter reading] to a fully functional two-way smart metering solution with many added benefits for gas and water utilities. We're seeing a convergence of AMR and AMI [advanced metering infrastructure]…

[Operator Instructions] I'll take our first question from Stuart Bush with RBC Capital Markets.

I was hoping you could give us some additional color on what your efforts to augment, increase your competitiveness in the Smart Grid market might be. Is the focus R&D, some target acquisitions? If you can you just put some framework about how that strategy might evolve.

Absolutely, Stuart. One of the things that we have been doing for quite some time is developing our Smart Grid solutions for OpenWay. And I promised over the past several meetings that we've had with investors that we will be having a second generation of smart OpenWay meter that will be released in the second half of 2010. But we're here in the second half now, and I'm glad to say that we have the meters, the smart meters, in the hands of our customers. And they're doing testing. This is the platform for our next generation of complete open interoperability of IP. This is the platform we're going to use. It has higher speed, it's got high memory capability, and it's the platform for IP. And obviously, as we've sought there before, it has an ASIC which reduces the number of components and in turn improves the quality. So there's significant amounts of effort that we've been doing in increasing our footprint in the Smart Grid. And I'd take that a little bit further and go to smart gas solutions. We have launched our gas AMI solution in the second quarter and also launched our water AMI solutions. And they use the same architecture, and it's called ChoiceConnect. So there are some significant opportunities that we've got to augment our opportunities in North America. And in addition, Stuart, we're also looking at partnering with -- we have many number of partners and alliances. So that's just the North American side. Internationally, as I said before, we're focusing on many of the developing countries and as I said regarding our AMI solutions, both in France and Spain and the U.K., I mentioned all of those, that's what we're going to do to increase our level.

And can you give any commentary on the pricing momentum in the quarter? It looks like North America was stronger overall. Was that because of mix, or are you seeing some improvement in the market on price taking?

We face competition all the time, Stuart. And obviously, we have a different mix of products today. We got a higher price for our OpenWay solution, and we got a higher price for our gas products. And so we're seeing a higher price in there. A higher price gives us more gross profit to work with, and that's what we're seeing. But there's always competition. Remember, we booked $1.3 billion for the first six months of this year, and that was all competitively better.

And moving on, we'll now take a question from Steve Sanders with Stephens Inc.

Just maybe a follow-up on the warranty issue in Sweden. Is this something that could potentially be an issue in other regions, or do you think it's confined to the architecture in Sweden and the situation there?

This is Steve. We do think it's confined, that the meters were confined to that area. And the issue itself is really confined to that region in particular.

Malcolm, you expressed some of your frustration about a few of the deals that have been awarded recently. First, in North America, can you give us a sense of how many large projects are still out there? And draw the line wherever you want, $75 million, $100 million, but how many large projects are still out there or active in the RFP [Reguests for Proposals] stage and could be awarded over the next six to 12 months? And then the second part is on the International side. Just comment, generally, about your share. And based on some of the things you're seeing internationally, are we getting pretty close to a point that we should look for the International business to grow in constant currency? Or is it a little early for that?

Well, let me just answer your first question first of all. When it comes to RFPs in the U.S., we're actively working on many proposals. There's a significant number of proposals that we're working on, both across all water, gas and electric. So yes, we are actively participating. Can I give you a number? Off the top of my head, it is large. That's all I'm going to say. Now let me give you something about International. Our International market shares, it's spread between Europe, South America and Asia. The European markets shares that we have are very good. I'm not going to go into all of this, I think we have the detail on our last investor presentation. But we have very good market shares. What we're finding is that the utilities that are moving forward with some of that AMI and smart metering projects are seeking our help in looking and working with them in developing solutions for their Smart Grid applications. So we see that that's going to continue to grow. There's no question that will grow across the globe. We're seeing the same in South America and, obviously, with Europe it's based on legislation, and we feel that's going to take off as we talked about many times with the number of pilots that we have. And in South America, it's similar. It's not quite by legislation, but it's similar. And it's primarily similar there because of the, what we call, non-technical losses. They have a significant amount of theft that goes on in South America, in particular in Brazil. So we're uniquely positioned to take full advantage of that because we've done similar projects in South Africa and also in the U.K. when it comes to smart payment systems. So we're well positioned to take advantage of that complete international growth that we see over the next few years.

And moving on, we'll take a question now from Sanjay Shrestha with Lazard.

First up on this Baltimore Gas and Electric issue, have you guys seen that sort impacts some of the other utilities that have received the funding under AR and having gone back on drawing board potentially delaying some of the other AMI projects? Or can you comment on that a little bit as to..

Absolutely. We see this as something that we've had experience with before. We've got a long history of working with regulators around the world, both obviously here in the U.S. And, obviously, these things take time. We help our utilities with business cases, we put our forward with them. And obviously, one of the things with Baltimore now is going to be about the consumer. And so we're providing solutions to help utilities put more information into the hands of the consumer. So is this going to be a trend? I'm not really certain. I have a good idea with regards to the issues associated with it. But I think what they're looking for, what the commissioners are looking for, is to give more information to the consumer at a reasonable cost to the consumer. If you take a look at Texas, they negotiated with the three IOUs in Texas, and they've got 15-minute interval data going to each one of the people who signed up for it. And they manage to negotiate a clear definition about what they need to do and what they need to do moving forward. So it's mixed, Sanjay. There's 50 public service commissions in the United States and many regulatory bodies throughout the world, so it's a mixed opinion.

Malcolm, you talked about sort of some disappointments here and then working on technology having the ability to do that. You guys have always sort of had a huge traction in North America, at least, on the electric metering and the AMI side. But does it mean -- sounds to me like you guys are getting even a bit more aggressive and we should expect to hear a lot more about your win also on the natural gas on the waterside complementing what looks like a pretty fantastic growth opportunity for next several years to come.

Obviously, Sanjay, with the recent announcement that's gone on with ESCO about serving California gas, we're obviously disappointed in that. But think about what the situation is there. We provide a Meter Data Management system to the utility, and it's also a 2.4 million gas points that we're staying connected with Southern California gas. So yes, that's a disappointment. If you start looking at some of the electric utilities and some of the other opportunities, if you take a look at what we've done this year and this quarter, about 25% of our global revenue comes from products that were designed in the last three years. They didn't exist three years ago. So technology changes. We have been moving constantly. Where on a, I don't know what, generation of our electric central meter and the generation of our gas products. We're always changing technology to advance it for the future. And that's what we do. We're innovative, we make sure that we're moving ahead, and we stick into what the utility and what the customers want. So yes, maybe there's a short-term issue or a short-term situation. But remember, this is a long-term play that we're in. We're in it for the long call. It is a marathon.

And once again, we'll take a question now from Elaine Kwei with Jefferies & Company.

Outside of OpenWay, could you talk a little bit about how much of the strain you saw came from AMR versus conventional metering in both the North America and International?

Yes. What we're finding now and if you take a look at the global offerings -- and I said earlier, if you look at the technology that we've developed, and in particular North America, you said outside of OpenWay, we have traditionally had an AMR solution in the past. Most of our install base is AMR. I talked about the convergence of going from AMR to AMI. And so what we're finding now is if you take a look at the announcement that we made today with New Mexico Gas, there were 345,000 gas meters or gas modules. Those gas modules are all two-way communicating modules. So there's a convergence of AMR to AMI. And all of the products that we're now selling -- no, that's not true -- many of the products that we're now selling in North America and many overseas are two-way communicating devices. And they're going from AMR and, automatically now, having AMI embedded.

And could you talk a little bit more about the prepaid market that you're seeing and how large that could potentially be and who some of the other competitors would be in that area?

Prepayment metering is something that has mostly been in developing countries. We have 5.5 million, we manage 5.5 million prepayment meters in South Africa. By the installation of putting what they call smart payment solutions in there, they saved, the utilities saved 40% of their non-technical losses. So they reduced this huge business case to drive for prepayment or smart payment. If you look at what they do in the U.K., it's significant what they do in the U.K. because we've got a smart key that goes in there. Now if you look at the other areas of the world, we have got a significant spend in places like Indonesia, also in, as I said, South Africa. And now we're pushing that solution to some of the developing countries in South America. So we have a significant broad debt of innovation for smart payment systems, and in particular the one in Azerbaijan uses the innovation of a smart, like an ATM credit card. You're going by your product, you're going by your gas. At an ATM machine, you load it into your debit card, you take the debit card to your meter and you download the credits into the meter. And then, once you run out of credits, it basically -- you have to go and top it off. It is called the topple. This is really starting to be big in some of these developing countries because the utilities, these many countries, they don't have homes that are streets addresses but they have electricity. So yes, Elaine, it is a big market for us.

And moving on, we'll take our next question from Paul Coster with JPMorgan. Paul Coster - JP Morgan Chase & Co: Can you hazard a guess what penetration level we now stand at in North America and Europe for the gas and electric in terms of the smart meters and where do you think we ultimately will get when we get to the 100% penetration, Malcolm?

I've spent this with you quite a few times, Paul, that there are 2.6 billion meters throughout the world. We've said this before. There are so many -- 1.7 billion, I think the number is for electric and 1.2 billion and for gas and for water. Maybe all of the automation is in North America. And we have a very significant market share. So as you think about how many millions and billions of meters there are to be positioned for smart metering. Now what's that sort of timeframe? Well, in Europe it's dictated by 10 years. Between now and 2020, they have to do -- there's about 510 million water, gas and electric meters. Now water is not mandated, but it's becoming very scarce in certain areas, and the AMR technology is being used now as I indicated with a couple of technologies or contracts that we've won in the U.K. So I see this over a period of time. Third-party companies as showed on our investor conference that we had with, I think the company is IMS, the compounded annual growth rate of some of these opportunities outside North America is 50% over the next five years. Moving up my numbers, if you take China out, I think it's in the neighborhood of 35%. So Paul, it's huge. The opportunities are enormous. Paul Coster - JP Morgan Chase & Co: A couple of investors have expressed to me concerns that your backlogs is going to peak soon. And it really feels like there's still a lot of growth to be had in the backlog, a lot in North America. But then Europe should kick in 2011, 2012. Do you concur that Europe's sort of a year or so out in terms of the ramp? And are there any specific catalysts for when Europe gets going?

Yes, there are catalysts. And I'll just talk about Europe, first of all. If you take look at the announcement that I put in my prepared remarks, GDRF (sic) [GDF] are moving forward. That's Gaz de France. They -- we just got a pilot with those guys for 5,000. They have to put in, I think the number is 11 million gas meters and replace them all by about the same time in 2020. If you look at Spain without Iberdrola account, that's about 10 million points that are going to be deployed over a period of time. If you look at the UK, there's 47 million, and the 16 million water meters that are unmetered. So yes, I think that, that backlog outside of North America is going to start growing, and as you said earlier, will the backlog peak in the U.S.? Well, think about the amount of revenue and the amount of bookings that we've had. There are more that are not OpenWay, they are other products, they are still significant. We booked almost $1 billion in the first six months without the Detroit Edison order, so we're significant, Paul.

And moving now, we have a question now from Michael Horwitz with Baird. Michael Horwitz - Robert W. Baird & Co. Incorporated: A couple of questions about Detroit Edison, and much of these is in public filings but just to clarify with you on your call -- as a reminder, when did you actually win the contract? And then now you're able to put it in the backlog and as I understand in some of my reading and please correct me if I'm wrong, there are really two tranches. So there will be an initial deployment up to about 600,000 units and then you'll need to go back to the commission to approve the final deployment. And so are you able to book all of that now or am I reading that wrong?

Maybe there's a lot of requirements that we have when we go into booking large contracts. So I'm just going to give this to Steve. Maybe you can answer that, Steve?

We received the notice to proceed from Detroit Edison during the quarter. We're very excited about their decision to proceed now with the project and the receipt of funding and budgetary approval. The contract and original discussion was about a year ago. And of course, it wasn't booked before this quarter for that reason. So we've received that notice to proceed. They do have a budgetary process they'll be going through over time. But we booked that in the quarter for the amount that's in the contract and are very excited about working with them as they roll out the OpenWay project going forward. And the bookings methodology is very consistent with what we've done and what we do with our other large bookings.

Michael, you did say the first 600,000 for the next two years, that is correct, and then the balance is after that. Michael Horwitz - Robert W. Baird & Co. Incorporated: Is there is a re-approval or at least a net or conversation that you will have with the commission before the subsequent deployment? Is that correct?

I can't comment for Detroit Edison, actually.

Moving on, we'll take a question now from Carter Shoop with Deutsche Bank.

One story that we haven't heard a whole lot about is the bookings over the past four quarters in North America, excluding AMI. You had a positive book-to-bill there for five quarters in a row. And the first question is, how sustainable is that strength in the non-AMI business or non-OpenWay business? And then other clarification, can you tell me if the New Mexico Gas was booked in the second quarter?

New Mexico Gas was booked in the second quarter. Yes, it was booked in the second quarter, I believe. And maybe we'll get back to you on that one but I do believe it's booked in the second quarter. The non-AMI business, that's a big conversation by a lot of you. We have now launched our ChoiceConnect solution, or as I said on my prepared remarks, for water and for gas and we're seeing significant interest in those opportunities. We did launch this at DistribuTECH for gas and we've also launched it at AWWA for water. There are customers showing significant interest, and obviously, will that sustain? Yes, I do believe there are significant opportunities there. If you look at the installed base of what we've got and you take that off and you say, "How many are available for new opportunities for water and gas?" It is still a huge number.

This is Steve, I just want to confirm that Mexico Gas was booked in the second quarter.

In regards to margin performance on the operating line there for North America, that was very strong. Can you let us know if there's any one-time item that positively benefited your North America business in 2Q or should we assume that these types of margins are sustainable going forward?

This is Steve. No, there were not any unique one-time items. And as I mentioned in my prepared remarks, we're seeing the benefit on the gross margin line from increased volumes. We're seeing the benefit in the operating margin line from our management of sales and marketing, R&D and G&A. But I do want to emphasize Malcolm's point that we're continuing to invest heavily in R&D. We continue to do so but that's reflected in those numbers as well.

So the margin continues, and we've got, I think, we believe a 34% margin in North America. That is without the next generation of OpenWay meters.

And moving on, we'll take a question now from Craig Irwin with Wedbush Securities.

I wanted to continue along the seam of gross margins for Itron North America. Obviously, you've seen some pretty nice improvement there. Everybody was expecting headwinds over the last couple of years as you ramped up your AMI shipment, but obviously the gross margins there improved quite nicely over the last couple of quarters. I was hoping you might be able to give us a little more color on the relative contribution of recovering volumes within the core Itron products in North America versus the improvement in AMI profitability to the overall gross margin improvement that we've seen over the last couple of quarters.

I'm not really certain of your question regarding recovering margins. We did have some lower margins and now they are getting significantly better. And with regard to the new products, the new products that we've always had on the legacy side, we have -- as I said earlier to Elaine, we have migrated those over to AMI. There's a difference between a one-way communicating meter and/or device and a two-way communicating device, because you got more components on a two-way communicating device. But we're seeing that we've done a significant job in R&D to make sure that we can keep the costs down. So from a standpoint of our gas and water solutions, we are seeing continued improvements all the time. When it comes to product mix, we also have different solutions. Different solutions mean with different products, you get higher selling prices like we've got with OpenWay. With a larger product mix with OpenWay, we've got the next generation coming out. Those are all opportunities for margin improvement, higher selling price and better margins going forward.

Can you quantify for us or maybe give us some directional color on the potential for gross margin improvement from your next generation OpenWay product? And this sounds like it's a pretty attractive opportunity from a financial performance standpoint.

That's fairly competitive information and I don't really give that out. I've said it all before, what we do is we take components off a -- we've got it on our register board, we take the components off there and put it on to silicon, on an application-specific integration circuit. That takes components off, it improves the cost or decreases the cost and improves the quality levels. So as far as how much is that, I haven't really given that number. I just know that it is a -- it takes a significant number of components and consolidates that into silicon.

And moving on, we'll take a question from Sean Hannan with Needham & Company. Sean Hannan - Needham & Company, LLC: Malcolm, you had touched on your comment a little bit earlier in one of your responses to questions, and you got at how some of the regulators view the economics of some of these deployments. And so what I was hoping what we could do is if we could step back and if I can get your perspective around what do you view pricing, at some point potentially likely to become or used a little bit more as a weapon in terms of winning RFPs, given the scrutiny that some of the utilities may get from the regulators in your AMI plants whether deserved or not, on the economics of these deployments in the U.S.?

Just remember that if you look at the projects that have been approved by commissions, approximately 50% of the cost of one of these implementations is hardware and solutions. The other 50% is what they get for implementation with system integrators and also with consolidation and putting it all together. So we're only responsible for basically half of the total cost of the business case that goes forward to the Public Service Commission. So there's room across all of these breadth of the IBMs of the world, the older guys, Accenture and all the guys that helped put this together to benefit the utility and the consumer. But it's the total cost of these installations, it's not just us. And we are competitively positioned. As I've said before, we developed new products, we're the market leader in everything we do and we've got a significant amount of R&D. If there's pricing pressure, we have the room in there to do things and to help the key utilities of proving it to their Public Service Commission and we've always been competitive. Sean Hannan - Needham & Company, LLC: In looking at the RFP process, are there any changes that you're seeing in terms of preferences on the technology merits of all the different AMI offerings out there in the industry, whether the focus is on the merits of durability, feature-rich functionality or an established track record? And instead of commenting whether that all of these are factors, is there perhaps a way if you could provide a little color around what tends to be dominating as a tipping point for utility decisions today, or how might some of these be changing, if at all?

One thing that we do believe in, we, first of all developed a solution, which we called our electric solution OpenWay. We called it OpenWay because it's open. It's an open standard. We are now developing our next generation, which is basically, as I said earlier, the platform for the hardware is basically done and always done, and is in the hands of our customers. And the next generation is going to be interoperable, what we call interoperable native IP, which means that it's similar to what we did before only now, it's completely interoperable IP rather than proprietary IP. So we're getting ourselves settled for the Smart Grid. The Smart Grid of the future will make sure that all of these devices that are in the field are completely and totally interoperable. So that's what we believe is driving the future and we're very well prepared for it.

And moving on, we'll take a question now from John Quealy with Canaccord.

One on the cash flow, $90 million in first half, free cash. Steve, I think you were hesitant in previous calls to talk about what that number could be. Can you talk about what we should be looking for in the next couple of quarters here with this visibility?

We should look for our continued focus on working capital, in managing it. We use our high-quality customers. You have seen some build up in inventory and receivables commensurate with top line but overall working capital metrics have improved. We don't expect to see anything significant on the CapEx line. In fact, it was about 2% of revenue in the second quarter, I've said it's 3% generally over the course of the year, there could be some movement in and out. We don't see other significant factors that would really move the free cash flow. And in fact, our free cash flow yield overall is highly correlated to our earnings growth as well. We're going to continue on focus on driving that. So I won't give a specific number for the second half but we'll say that we're going to continue to focus on very strong cash generation and using that to pay down debt.

When you're talking about enhancing the competitive position, I know you talked to a little bit about internal sort of product development to the new ASIC and things like. Can you talk about where you think your competitive position was deficient with some of these wins? And then also can you talk about the potential for M&A now that, that balance sheet is really going to the cash side pretty quickly?

For competitive position, if you think about where we are across -- and I'm assuming, John, you're really meaning North America and you're really talking about electric. Or are you talking electric and gas? Because I'll give you both answers. Competitively positioned, we're always looking at opportunities to reduce costs. I don't believe costs and projects that we've got for R&D improving the functionality is an issue for Itron. So this is what we do for a living. The competitive position though, with regarding to functionality, this is something that we do believe that this is going to drive the industry over the next few years. It's a long-term marathon as we've said before and you've got to have the right competitive position and the right functionality within your whole solution. And that's why we also have partners and alliances that we utilize. We don't believe we can do it all. So we partner with other companies and it enhances our competitive position.

And John, the second part of the question was M&A. You've seen obviously, historically it's selected acquisitions has been part of our strategic plan, generally funded by organic growth or funded out to the fact by organic growth and cash flow. In the near term, we're continuing to focus on strengthening the balance sheet, reducing debt. That remains our priority. We will continue to consider tuck-in and opportunistic acquisitions where appropriate going forward.

And moving now, we have a question from Colin Rusch with ThinkEquity.

This is Brandon Milara [ph] for Colin Rusch. I was actually wondering for North America, if you guys might be able to talk a little bit about just what you're seeing in terms of the municipal market. On one side, just how much of the market or how much of your market potential will you see coming from municipal utilities? And then also just what you might be seeing in terms of the condition of the municipal market right now?

If you remember with municipal markets, many of the municipal markets have got two solutions. We have two solutions to offer. They're mostly public power, of this public power market and municipality market. We've got a breadth of products particularly in the water and electric space. We just announced one today regarding a solution that we had for a municipality and a city for water and for electric. And there are many of those in the United States. So we have this broad portfolio of products. And we have them all with the complete solution which is what utilities are looking for, for an end-to-end offering, both from installations and all the way to meter data management systems. So we offer all of that. So municipality markets are a very important piece of our business. We take it very seriously, we have a sales force across all of the United States both selling through distribution and selling to direct sales force. So we see this as very important and we got all the product breadth of our solutions and our offerings to address that market.

I know that you were speaking about making OpenWay a part of the Smart Grid and everything like that as time is going on. But as far as -- have you seen any kind of increase in requests for kind of distribution automation-specific kind of product?

DA has always been part of our offering. We're up for that and have solution that we managed DA. Today, the DA is part of our solution. We communicate to these DA devices and we've got all of the various hardware and software solutions embedded in our complete suite of offerings. So yes, we see DA as a big part of this whole Smart Grid scenario.

We'll take a question from Benjamin Schuman with Pacific Crest Securities.

Looking at your guidance for revenue growth, assuming the midpoint of 25%, that would imply a sequential downtick in revenue in Q3 and Q4. Is that indicative of some lumpy shipments on the AMI side with the 1.2 million this quarter or what's driving that potential downtick?

This is Steve. We provided a range in the mid-20% and believe that to be reasonable. Obviously, that is a range. There's a lot of the year left to go. We're in the ramping process right now with the projects. We're very pleased with how we've done in the second quarter. So there can be some variation overall but that said, we're not seeing an overall slowdown in the business.

Multi-tier networking is something that you guys talked about maybe back a year ago at your analyst day down in South Carolina. Is that something that you're seeing a lot in RFPs and competitive wins and stuff right now?

We do partner with a number of mid-tier network companies and that's part of our strategy today.

[Operator Instructions] And we'll take a question from Steve Milunovich with Merrill Lynch.

Share count, 41.5 million was in the guidance. Is that a year-end number or is that what you expect to be average shares for the year?

Average shares for the year.

That assumes a fairly decent pickup, I guess, from where you are in the first half?

Well, some of that just takes into account some activity that went on last year that gets them fully reflected over the course of this year, over time in the share count.

Could you repeat what you said about DTE? How much was that in orders and in backlog this quarter?

The booking itself is $339 million of the total bookings and the other $470 million relates to non-OpenWay projects globally.

And moving on, we'll now take a question from Jeff Osborne with Stifel, Nicolaus. Jeff Osborne - Stifel, Nicolaus & Co., Inc.: One around the new ASIC, I was wondering if you felt more confident that the install base or existing three customers would you likely to uptick that in 2011 or if there was more of a design for new customers moving forward?

It's both. Jeff Osborne - Stifel, Nicolaus & Co., Inc.: I never heard the term proprietary IP before. So how does one manage a proprietary IP and a native IP network in the same architecture? Do you have to have a software patch or download to the existing install base, can you just walk me through that?

One of the things that we've managed to do is we brought in some experts and we have four major IP experts and that have looked to our solution and they are very happy with what we're proposing.

And moving on, we'll take a question from Michael Coleman with Sterne Agee. Michael Coleman - Sterne Agee & Leach Inc.: I wanted to go back to the base orders. Non-AMI business, so if we back out the contract and you look at your orders, they're fairly stable quarter to quarter, but North America is up 10% sequentially. My question is, in terms of that base business at least in North America, is there a seasonal pattern to that as well as Europe? So how do we think about base orders on a seasonal basis in the back half of the year?

This is Steve. We view last seasonal as lumpy. And that somebody's orders can come in and out. We have just a mix of business that can come in at different times in North America. I would describe it as just based on order flow. There can be some fluctuation but it's less seasonal. Although there can be some year-end spending. You do see in utility capital budgets in the fourth quarter, overall. And in international, we've talked about this in the past, there can be a bit of seasonality in our businesses and in particular in the Gas business where we do see some of first quarter's spending, the way utilities are driven some in Europe. But again overall, we don't see major seasonality within the international utility base either. Michael Coleman - Sterne Agee & Leach Inc.: On the New Mexico gas contract, since it's in the backlog and obviously been working on it for a while. But you're going to complete that in three quarters. And while it's less than half a million unit, is that one of the benefits as you look at this ChoiceConnect offering in terms of the time that it takes to actually deploy as a feature. And could that actually accelerate, making this base business much, much -- just enhance that base business?

These projects don't happen in five minutes. Let's make that very clear. Once the gas company decides they're going to go with the solutions or the water company, they want to go with them very quickly. Because they want to benefit from all the savings that they will generate. In our particular case now, they're going from a mobile application with this solution, install it and then use the features of this afterwards for all the features of two-way communication. Deployed very quickly, install it on a gas meter, do it by what we call by route, end up getting the savings initially from that particular route and then overlaying it later with the network, if they so choose. So what we're really saying is that this is a very good opportunity to get these in the ground very quickly and we're all ready to go, all ready to do it. The product's finished. It's two-way communication and it's completely backward compatible with AMR.

[Operator Instructions] We'll take a follow-up from Steve Sanders with Stephens.

On the next generation system with the new ASIC, it sounds like that it's being tested by some of your customers now. Do you have a better sense now of that testing process and period when they may actually accept those products? And then kind of a related question, are your customers doing or I'm sure you are doing significant testing of this remote firmware upgrade capability and if so how is that going?

All that I can say of our customers is I wish they were all the same speed the way they do the testing. So not faster than others. They are all very thorough but some take longer than others. So they're all working at that pace. With regard to remote firmware, we have already done this. We have downloaded a significant number and upgraded the firmware all the way down to a meter and changing the meter firmware and also through the communication that we have. So we've already done two-way communication firmware downloads. The Next Generation that we have will just speed that up as well. And next to this, the version that we have now is faster and the next version is even faster.

Everybody's obviously aware of the big utilities around the country and this is more about North America than anything else. Historically you guys have done a great job on the electric meter side with the middle market. But in an AMI project, that's much more complicated sale. So I'm curious are you making significant incremental sales and marketing investments to reach the middle market on the AMI side? Did the existing channels take care of that, how should we think about that?

We've actually reorganized our sales organization in North America, focusing on the public power markets and all the municipalities. So we have taken steps, Steve, to address this market because we understand it is a lot different than selling the meter sale. So yes, we have reorganized our sales and marketing group.

Moving on, we'll take a question from Paul Coster with JPMorgan. Paul Coster - JP Morgan Chase & Co: In Europe, the small meter solutions we lost with power line based we believe. What does that do to the average selling price per meter? And then Malcolm, I may have misunderstood what you said about Southern California Gas. You still got a piece of that business. Can you just elaborate because I think it's a bit unclear from your opening statement.

First of all, let me address the PLC market in Europe. As you know, they have been using power line carrier communications. Probably in EDRF (sic) [ERDF] for the past -- I'm not certain, maybe its the past 15 years, and that solution has been working very well. The average selling price of those products, when you add more functionality, you increase the selling price. There's no question. The product that we have today is different than the power line carrier solution that we've had in the past when it's just communicating energy. So there is a difference between the two, functionality usually means a higher selling price. Paul Coster - JP Morgan Chase & Co: So how does it compare to North American average selling price per meter? Is it higher or lower, or the same?

Well the average selling price in North America for a full-blown AMI offering with communication into the home, as we've said, is an average of about $100. It's not that high over there. It's not that. If you go to Southern California Gas -- and let's elaborate more on that, we provide Southern California Gas bid, selected our meter data management system. And we also are connected with them because we are a gas meter provider and they will be in the filing replacing 2.4 million gas meters and they will take that ESCO communicating device and attach it to the gas meter, to new meters. We do have a very large market share with one of a couple of other manufacturers of gas meters. We have a factory in Kentucky and we are participating in that business. And we will expect to get a share of the 2.4 million gas meters other say in Southern California gas. I hope that answers your question, Paul.

And our final question will come from Michael Horwitz with Baird. Michael Horwitz - Robert W. Baird & Co. Incorporated: With regards to gas -- gas is obviously a good business and a good business for a couple of the other competitors as well and in many instances affecting their margin. One thing I struggle with going forward with AMI and any opportunity there is the business case for gas AMI. It's a lot easier to be told to -- the PUCs around electric, can you just kind of give me your thoughts there?

Our business case for AMI, if you take a look at an AMR case business first of all, the business case has been mostly for operation efficiency. When it comes to AMI, I agree with you. It is on gas, it is not so easy to give you all the benefits that the consumer's going to have. However, if you take a look at the operational improvements now with an AMI solution, it gives you all of the information based delivered a two-way communication gives you for electric. And we have developed a new product called a safety valve or a shut-off valve that attaches to our meter, that is embedded in our meter. And also uses our ChoiceConnect solution to do two-way communications to shut the gas off. If you smell gas or in the Northeast, many of these gas meters are indoors, so as an opportunity, people have a problem with payment or they smell gas. They can actually shut off the gas without having to visit the home and do it automatically. So we've improved the business case opportunities for gas AMI. And in addition, we've also got the telecommunications that we've done with other devices around the AMI gas distribution system.

Thank you everyone for joining us today and as always, if you have any questions or if you need any further information, feel free to give me a call, or Marni Pilcher. Thank you.

Thank you very much, ladies and gentlemen. That does conclude today's conference. There will be an audio replay of today's conference available this afternoon. You can access the audio replay by dialing 1(888) 203-1112 or (719)457-0820 with a passcode of 6492029, or go to the company's website www.itron.com. Thank you very much and have a good day.