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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission file number 000-22418
ITRON, INC.
(Exact name of registrant as specified in its charter)
Washington 91-1011792
(State of Incorporation) (I.R.S. Employer Identification Number)
2111 N Molter Road, Liberty Lake, Washington 99019
(509) 924-9900
(Address and telephone number of registrant's principal executive offices) 

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, no par valueITRINASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
As of April 30, 2020, there were outstanding 40,204,114 shares of the registrant's common stock, no par value, which is the only class of common stock of the registrant.



Table of Contents
Itron, Inc.
Table of Contents
 
 Page
Item 1A: Risk Factors
Item 6: Exhibits



Table of Contents
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements (Unaudited)
ITRON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended March 31,
In thousands, except per share data20202019
Revenues
Product revenues$528,137  $544,850  
Service revenues70,278  69,726  
Total revenues598,415  614,576  
Cost of revenues
Product cost of revenues384,681  386,102  
Service cost of revenues42,168  41,211  
Total cost of revenues426,849  427,313  
Gross profit171,566  187,263  
Operating expenses
Sales, general and administrative80,498  92,715  
Research and development53,781  50,490  
Amortization of intangible assets11,165  15,973  
Restructuring(248) 7,262  
Total operating expenses145,196  166,440  
Operating income26,370  20,823  
Other income (expense)
Interest income553  328  
Interest expense(11,277) (13,535) 
Other income (expense), net1,066  (1,644) 
Total other income (expense)(9,658) (14,851) 
Income before income taxes16,712  5,972  
Income tax provision(7,550) (6,121) 
Net income (loss)9,162  (149) 
Net income attributable to noncontrolling interests478  1,758  
Net income (loss) attributable to Itron, Inc.$8,684  $(1,907) 
Net income (loss) per common share - Basic$0.22  $(0.05) 
Net income (loss) per common share - Diluted$0.21  $(0.05) 
Weighted average common shares outstanding - Basic40,043  39,658  
Weighted average common shares outstanding - Diluted40,474  39,658  
The accompanying notes are an integral part of these consolidated financial statements.
1

Table of Contents
ITRON, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)

Three Months Ended March 31,
In thousands20202019
Net income (loss)$9,162  $(149) 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments
(25,445) (2,386) 
Net unrealized gain (loss) on derivative instruments, designated as cash flow hedges
(767) 135  
Pension benefit obligation adjustment
1,001  471  
Total other comprehensive income (loss), net of tax(25,211) (1,780) 
Total comprehensive income (loss), net of tax(16,049) (1,929) 
Comprehensive income attributable to noncontrolling interests, net of tax
478  1,758  
Comprehensive income (loss) attributable to Itron, Inc.$(16,527) $(3,687) 
The accompanying notes are an integral part of these consolidated financial statements.
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ITRON, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
In thousandsMarch 31, 2020December 31, 2019
ASSETS
Current assets
Cash and cash equivalents$554,520  $149,904  
Accounts receivable, net463,613  472,925  
Inventories221,850  227,896  
Other current assets147,743  146,526  
Total current assets1,387,726  997,251  
Property, plant, and equipment, net225,925  233,228  
Deferred tax assets, net62,064  63,899  
Other long-term assets48,282  44,686  
Operating lease right-of-use assets, net76,612  79,773  
Intangible assets, net170,810  185,097  
Goodwill1,100,328  1,103,907  
Total assets$3,071,747  $2,707,841  
LIABILITIES AND EQUITY
Current liabilities
Accounts payable$326,433  $328,128  
Other current liabilities64,639  63,785  
Wages and benefits payable97,950  119,220  
Taxes payable16,713  22,193  
Current portion of debt6,719    
Current portion of warranty36,409  38,509  
Unearned revenue118,231  99,556  
Total current liabilities667,094  671,391  
Long-term debt, net1,326,556  932,482  
Long-term warranty12,310  14,732  
Pension benefit obligation97,523  98,712  
Deferred tax liabilities, net1,774  1,809  
Operating lease liabilities66,287  68,919  
Other long-term obligations104,708  118,981  
Total liabilities2,276,252  1,907,026  
Equity
Preferred stock, no par value, 10,000 shares authorized, no shares issued or outstanding
    
Common stock, no par value, 75,000 shares authorized, 40,176 and 39,941 shares issued and outstanding
1,368,329  1,357,600  
Accumulated other comprehensive loss, net(229,883) (204,672) 
Accumulated deficit(367,706) (376,390) 
Total Itron, Inc. shareholders' equity770,740  776,538  
Noncontrolling interests24,755  24,277  
Total equity795,495  800,815  
Total liabilities and equity$3,071,747  $2,707,841  
The accompanying notes are an integral part of these consolidated financial statements.
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ITRON, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
Common StockAccumulated Other Comprehensive LossAccumulated DeficitTotal Itron, Inc. Shareholders' EquityNoncontrolling InterestsTotal Equity
In thousandsSharesAmount
Balances at January 1, 202039,941  $1,357,600  $(204,672) $(376,390) $776,538  $24,277  $800,815  
Net income8,684  8,684  478  9,162  
Other comprehensive income (loss), net of tax(25,211) (25,211) (25,211) 
Distributions to noncontrolling interests    
Net stock issues and repurchases235  2,247  2,247  2,247  
Stock-based compensation expense8,482  8,482  8,482  
Balances at March 31, 202040,176  $1,368,329  $(229,883) $(367,706) $770,740  $24,755  $795,495  

Common StockAccumulated Other Comprehensive LossAccumulated DeficitTotal Itron, Inc. Shareholders' EquityNoncontrolling InterestsTotal Equity
In thousandsSharesAmount
Balances at January 1, 201939,498  $1,334,364  $(196,305) $(425,396) $712,663  $21,385  $734,048  
Net income (loss)(1,907) (1,907) 1,758  (149) 
Other comprehensive income (loss), net of tax(1,780) (1,780) (1,780) 
Distributions to noncontrolling interests(517) (517) 
Net stock issues and repurchases360  1,195  1,195  1,195  
Stock-based compensation expense7,048  7,048  7,048  
Stock repurchased(165) (7,814) (7,814) (7,814) 
Balances at March 31, 201939,693  $1,334,793  $(198,085) $(427,303) $709,405  $22,626  $732,031  
The accompanying notes are an integral part of these consolidated financial statements.

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ITRON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31,
In thousands20202019
Operating activities
Net income (loss)$9,162  $(149) 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization24,031  28,427  
Non-cash operating lease expense5,496  4,910  
Stock-based compensation8,482  7,205  
Amortization of prepaid debt fees1,007  1,200  
Deferred taxes, net4,062  (430) 
Restructuring, non-cash(955) 96  
Other adjustments, net(874) 44  
Changes in operating assets and liabilities, net of acquisitions
Accounts receivable1,185  (37,977) 
Inventories(543) (1,659) 
Other current assets(4,526) (11,030) 
Other long-term assets(6,501) 334  
Accounts payable, other current liabilities, and taxes payable135  12,312  
Wages and benefits payable(19,977) 8,465  
Unearned revenue17,395  8,235  
Warranty(4,250) (2,569) 
Other operating, net(14,435) 7,510  
Net cash provided by operating activities18,894  24,924  
Investing activities
Acquisitions of property, plant, and equipment(12,602) (11,415) 
Other investing, net3,345  299  
Net cash used in investing activities(9,257) (11,116) 
Financing activities
Proceeds from borrowings400,000  30,000  
Payments on debt  (44,063) 
Issuance of common stock2,911  1,758  
Repurchase of common stock(664) (8,534) 
Prepaid debt fees(175) (175) 
Other financing, net(335) (2,229) 
Net cash provided by (used in) financing activities401,737  (23,243) 
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash(6,758) 72  
Increase (decrease) in cash, cash equivalents, and restricted cash404,616  (9,363) 
Cash, cash equivalents, and restricted cash at beginning of period149,904  122,328  
Cash, cash equivalents, and restricted cash at end of period$554,520  $112,965  
Supplemental disclosure of cash flow information:
Cash paid (received) during the period for:
Income taxes, net$(5,370) $3,241  
Interest14,804  16,628  
The accompanying notes are an integral part of these consolidated financial statements.
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ITRON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(UNAUDITED)
In this Quarterly Report on Form 10-Q, the terms "we," "us," "our," "Itron," and the "Company" refer to Itron, Inc. and its subsidiaries.

Note 1:    Summary of Significant Accounting Policies

Financial Statement Preparation
The consolidated financial statements presented in this Quarterly Report on Form 10-Q are unaudited and reflect entries necessary for the fair presentation of the Consolidated Statements of Operations, the Consolidated Statements of Comprehensive Income (Loss), Consolidated Statements of Equity and Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019, and the Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019, of Itron, Inc. and its subsidiaries. All entries required for the fair presentation of the financial statements are of a normal recurring nature, except as disclosed. The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results expected for the full year or for any other period.

Certain information and notes normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been partially or completely omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC) regarding interim results. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto for the fiscal year ended December 31, 2019 filed with the SEC in our Annual Report on Form 10-K on February 27, 2020 (2019 Annual Report). There have been no significant changes in financial statement preparation or significant accounting policies since December 31, 2019.

Risks and Uncertainties
The COVID-19 pandemic has had global economic impacts including disrupting global supply chains and creating market volatility. The extent of the recent pandemic and its ongoing impact on our operations is volatile, but is being monitored closely by management. We expect that certain of our customers’ projects and deployments may shift to later in 2020 or possibly 2021. At this time, we have not identified any significant decrease in long-term customer demand for our products and services. Nonetheless, a prolonged pandemic could adversely impact the efficiency and effectiveness of our organization, further impact our global supply chain network, result in delays or decreases in customer collections, reduce demand for our products and services, and inhibit our sales efforts, any of which could materially impact our revenues, results of operations, cash flows and financial condition.

Restricted Cash and Cash Equivalents
Cash and cash equivalents that are contractually restricted from operating use are classified as restricted cash and cash equivalents.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Consolidated Statements of Cash Flows:
In thousandsMarch 31, 2020December 31, 2019March 31, 2019
Cash and cash equivalents$554,520  $149,904  $110,828  
Current restricted cash included in other current assets    51  
Long-term restricted cash    2,086  
Total cash, cash equivalents, and restricted cash$554,520  $149,904  $112,965  

Accounts Receivable, net
Accounts receivable are recognized for invoices issued to customers in accordance with our contractual arrangements. Interest and late payment fees are minimal. Unbilled receivables are recognized when revenues are recognized upon product shipment or service delivery and invoicing occurs at a later date. We recognize an allowance for doubtful accounts representing our estimate of the expected losses in accounts receivable at the date of the balance sheet based on our historical experience of bad debts, our specific review of outstanding receivables, and our review of current and expected economic conditions. Accounts receivable are written-off against the allowance when we believe an account, or a portion thereof, is no longer collectible.

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Recently Adopted Accounting Standards

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Subsequent to 2016-13 the FASB also issued codification improvements and transition relief in ASU 2019-04, ASU 2019-05, ASU 2019-11, ASU 2020-02, and ASU 2020-03, hereafter collectively referred to as Accounting Standards Codification (ASC) 326. ASC 326 replaces the incurred loss impairment methodology in previous GAAP with a methodology based on expected credit losses, which results in losses being recognized earlier. The estimate of expected credit losses uses a broader range of reasonable and supportable information. We adopted ASC 326 on January 1, 2020, and the impacts on our consolidated financial position, results of operations, and cash flows, were immaterial.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which amended the disclosure requirements under ASC 820. This update clarifies and unifies the disclosure of Level 3 fair value instruments. We adopted this standard on January 1, 2020, and it did not materially impact our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans, which amends the disclosure requirements under ASC 715-20. This update clarifies annual disclosures for Defined Benefit Plans. We adopted this standard on January 1, 2020, and it did not materially impact our consolidated financial statements.

Recent Accounting Standards Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which modifies certain provisions of ASC 740, in an effort to reduce the complexity of accounting for income taxes. ASU 2019-12 is effective for us beginning with our interim financial reports for the first quarter of 2021. We are currently evaluating the effects and do not believe this standard will have a material impact on our consolidated financial position, results of operations, or cash flows.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform. ASU 2020-04 applies to contracts that reference LIBOR or another reference rate expected to be terminated because of reference rate reform. An entity may elect certain optional expedients for hedging relationships that exist as of December 31, 2022, and maintain those optional expedients through the end of the hedging relationship. ASU 2020-04 can be adopted as of March 12, 2020. We do not currently have any contracts that have been changed to a new reference rate, but we will continue to evaluate our contracts and the effects of this standard on our consolidated financial position, results of operations, and cash flows prior to adoption.

Note 2:    Earnings Per Share

The following table sets forth the computation of basic and diluted earnings (loss) per share (EPS):
Three Months Ended March 31,
In thousands, except per share data20202019
Net income (loss) available to common shareholders$8,684  $(1,907) 
Weighted average common shares outstanding - Basic40,043  39,658  
Dilutive effect of stock-based awards431    
Weighted average common shares outstanding - Diluted40,474  39,658  
Net income (loss) per common share - Basic$0.22  $(0.05) 
Net income (loss) per common share - Diluted$0.21  $(0.05) 

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Stock-based Awards
For stock-based awards, the dilutive effect is calculated using the treasury stock method. Under this method, the dilutive effect is computed as if the awards were exercised at the beginning of the period (or at time of issuance, if later) and assumes the related proceeds were used to repurchase our common stock at the average market price during the period. Related proceeds include the amount the employee must pay upon exercise and the future compensation cost associated with the stock award. Approximately 0.3 million and 1.0 million stock-based awards were excluded from the calculation of diluted EPS for the three months ended March 31, 2020 and 2019 because they were anti-dilutive. These stock-based awards could be dilutive in future periods.

Note 3:    Certain Balance Sheet Components

A summary of accounts receivable from contracts with customers is as follows:
Accounts receivable, net
In thousandsMarch 31, 2020December 31, 2019
Trade receivables (net of allowance of $3,046 and $3,064)
$398,025  $415,887  
Unbilled receivables65,588  57,038  
Total accounts receivable, net$463,613  $472,925  

Allowance for doubtful accounts activityThree Months Ended March 31,
In thousands20202019
Beginning balance$3,064  $6,331  
Provision for (release of) doubtful accounts, net510  (2,103) 
Accounts written-off(415) (192) 
Effect of change in exchange rates(113) 10  
Ending balance$3,046  $4,046  

Inventories
In thousandsMarch 31, 2020December 31, 2019
Raw materials$133,285  $120,861  
Work in process10,473  11,105  
Finished goods78,092  95,930  
Total inventories$221,850  $227,896  

Property, plant, and equipment, net
In thousandsMarch 31, 2020December 31, 2019
Machinery and equipment$311,771  $323,003  
Computers and software111,501  109,924  
Buildings, furniture, and improvements150,847  149,471  
Land14,538  14,988  
Construction in progress, including purchased equipment45,596  54,490  
Total cost634,253  651,876  
Accumulated depreciation(408,328) (418,648) 
Property, plant, and equipment, net$225,925  $233,228  

Depreciation expenseThree Months Ended March 31,
In thousands20202019
Depreciation expense$12,866  $12,384  

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Note 4:    Intangible Assets and Liabilities

The gross carrying amount and accumulated amortization (accretion) of our intangible assets and liabilities, other than goodwill, were as follows:
March 31, 2020December 31, 2019
In thousandsGrossAccumulated
(Amortization) Accretion
NetGrossAccumulated
(Amortization) Accretion
Net
Intangible Assets
Core-developed technology$501,124  $(457,310) $43,814  $507,669  $(458,109) $49,560  
Customer contracts and relationships372,983  (251,122) 121,861  381,288  (251,509) 129,779  
Trademarks and trade names77,613  (73,083) 4,530  78,837  (73,732) 5,105  
Other12,019  (11,414) 605  12,020  (11,367) 653  
Total intangible assets
$963,739  $(792,929) $170,810  $979,814  $(794,717) $185,097  
Intangible Liabilities
Customer contracts and relationships$(23,900) $15,458  $(8,442) $(23,900) $13,450  $(10,450) 

A summary of intangible assets and liabilities activity is as follows:
Three Months Ended March 31,
In thousands20202019
Beginning balance, intangible assets, gross$979,814  $981,160  
Effect of change in exchange rates(16,075) 2,359  
Ending balance, intangible assets, gross$963,739  $983,519  
Beginning balance, intangible liabilities, gross$(23,900) $(23,900) 
Effect of change in exchange rates    
Ending balance, intangible liabilities, gross$(23,900) $(23,900) 

On January 5, 2018, we completed our acquisition of Silver Spring Networks, Inc. (SSNI) and acquired intangible assets including in-process research and development (IPR&D), which were completed during 2019 and are now included within core-developed technology. Assumed intangible liabilities reflect the present value of the projected cash outflows for an existing contract where remaining costs are expected to exceed projected revenues.

Estimated future annual amortization (accretion) is as follows:
Year Ending December 31,AmortizationAccretionEstimated Annual Amortization, net
In thousands
2020 (amount remaining at March 31, 2020)$39,618  $(6,020) $33,598  
202137,572  (1,963) 35,609  
202227,212  (459) 26,753  
202319,674    19,674  
202415,523    15,523  
Thereafter31,211    31,211  
Total intangible assets subject to amortization (accretion)$170,810  $(8,442) $162,368  


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Note 5:    Goodwill

The following table reflects changes in the carrying amount of goodwill for the three months ended March 31, 2020:
In thousandsDevice SolutionsNetworked SolutionsOutcomesTotal Company
Goodwill balance at January 1, 2020$54,930  $908,088  $140,889  $1,103,907  
Effect of chan