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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 September 30, 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 October 30, 2020, there were outstanding 40,396,909 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 September 30,Nine Months Ended September 30,
In thousands, except per share data2020201920202019
Revenues
Product revenues$470,658 $552,897 $1,437,780 $1,663,794 
Service revenues69,526 71,577 210,413 210,293 
Total revenues540,184 624,474 1,648,193 1,874,087 
Cost of revenues
Product cost of revenues358,297 389,778 1,072,271 1,176,913 
Service cost of revenues38,636 38,292 122,588 122,293 
Total cost of revenues396,933 428,070 1,194,859 1,299,206 
Gross profit143,251 196,404 453,334 574,881 
Operating expenses
Sales, general and administrative64,982 83,666 215,018 264,640 
Research and development46,224 50,612 148,999 150,551 
Amortization of intangible assets11,183 16,095 33,488 48,185 
Restructuring44,462 6,592 41,531 7,685 
Loss on sale of business380  57,295  
Total operating expenses167,231 156,965 496,331 471,061 
Operating income (loss)(23,980)39,439 (42,997)103,820 
Other income (expense)
Interest income354 517 2,165 1,379 
Interest expense(10,810)(12,868)(33,771)(39,899)
Other income (expense), net(2,607)(2,759)(3,414)(6,463)
Total other income (expense)(13,063)(15,110)(35,020)(44,983)
Income (loss) before income taxes(37,043)24,329 (78,017)58,837 
Income tax benefit (provision)11,985 (6,152)(366)(20,692)
Net income (loss)(25,058)18,177 (78,383)38,145 
Net income attributable to noncontrolling interests299 1,330 1,092 3,759 
Net income (loss) attributable to Itron, Inc.$(25,357)$16,847 $(79,475)$34,386 
Net income (loss) per common share - Basic$(0.63)$0.43 $(1.98)$0.87 
Net income (loss) per common share - Diluted$(0.63)$0.42 $(1.98)$0.86 
Weighted average common shares outstanding - Basic40,337 39,478 40,199 39,508 
Weighted average common shares outstanding - Diluted40,337 39,903 40,199 39,884 
The accompanying notes are an integral part of these consolidated financial statements.
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ITRON, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)

Three Months Ended September 30,Nine Months Ended September 30,
In thousands2020201920202019
Net income (loss)$(25,058)$18,177 $(78,383)$38,145 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments
13,988 (16,345)(147)(13,544)
Foreign currency translation adjustment reclassified to net income on sale of business
(14)2,443 52,074 2,443 
Net unrealized gain (loss) on derivative instruments, designated as cash flow hedges
(1)695 (2,157)(804)
Pension benefit obligation adjustment
(159)502 889 1,156 
Total other comprehensive income (loss), net of tax13,814 (12,705)50,659 (10,749)
Total comprehensive income (loss), net of tax(11,244)5,472 (27,724)27,396 
Comprehensive income attributable to noncontrolling interests, net of tax
299 1,330 1,092 3,759 
Comprehensive income (loss) attributable to Itron, Inc.$(11,543)$4,142 $(28,816)$23,637 
The accompanying notes are an integral part of these consolidated financial statements.
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ITRON, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
In thousandsSeptember 30, 2020December 31, 2019
ASSETS
Current assets
Cash and cash equivalents$586,167 $149,904 
Accounts receivable, net386,920 472,925 
Inventories205,178 227,896 
Other current assets173,906 146,526 
Total current assets1,352,171 997,251 
Property, plant, and equipment, net205,930 233,228 
Deferred tax assets, net72,305 63,899 
Other long-term assets47,929 44,686 
Operating lease right-of-use assets, net78,190 79,773 
Intangible assets, net144,888 185,097 
Goodwill1,114,511 1,103,907 
Total assets$3,015,924 $2,707,841 
LIABILITIES AND EQUITY
Current liabilities
Accounts payable$232,236 $328,128 
Other current liabilities76,509 63,785 
Wages and benefits payable91,225 119,220 
Taxes payable15,482 22,193 
Current portion of debt21,406  
Current portion of warranty32,118 38,509 
Unearned revenue117,729 99,556 
Total current liabilities586,705 671,391 
Long-term debt, net1,313,459 932,482 
Long-term warranty10,969 14,732 
Pension benefit obligation103,273 98,712 
Deferred tax liabilities, net1,854 1,809 
Operating lease liabilities68,847 68,919 
Other long-term obligations133,552 118,981 
Total liabilities2,218,659 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, 40,356 and 39,941 shares issued and outstanding
1,381,774 1,357,600 
Accumulated other comprehensive loss, net(154,013)(204,672)
Accumulated deficit(455,865)(376,390)
Total Itron, Inc. shareholders' equity771,896 776,538 
Noncontrolling interests25,369 24,277 
Total equity797,265 800,815 
Total liabilities and equity$3,015,924 $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)
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 
Net income (loss)(62,802)(62,802)315 (62,487)
Other comprehensive income (loss), net of tax62,056 62,056 62,056 
Net stock issues and repurchases58 706 706 706 
Stock-based compensation expense7,099 7,099 7,099 
Balances at June 30, 202040,234 1,376,134 (167,827)(430,508)777,799 25,070 802,869 
Net income (loss)(25,357)(25,357)299 (25,058)
Other comprehensive income (loss), net of tax13,814 13,814 13,814 
Net stock issues and repurchases122 583 583 583 
Stock-based compensation expense5,057 5,057 5,057 
Balances at September 30, 202040,356 $1,381,774 $(154,013)$(455,865)$771,896 $25,369 $797,265 

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 
Net income19,446 19,446 671 20,117 
Other comprehensive income (loss), net of tax3,736 3,736 3,736 
Net stock issues and repurchases66 1,481 1,481 1,481 
Stock-based compensation expense6,420 6,420 6,420 
Stock repurchased(364)(17,186)(17,186)(17,186)
Balances at June 30, 201939,395 1,325,508 (194,349)(407,857)723,302 23,297 746,599 
Net Income16,847 16,847 1,330 18,177 
Other comprehensive income (loss), net of tax(12,705)(12,705)(12,705)
Net stock issues and repurchases138 2,722 2,722 2,722 
Stock-based compensation expense7,123 7,123 7,123 
Balances at September 30, 201939,533 $1,335,353 $(207,054)$(391,010)$737,289 $24,627 $761,916 
The accompanying notes are an integral part of these consolidated financial statements.
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ITRON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30,
In thousands20202019
Operating activities
Net income (loss)$(78,383)$38,145 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization72,306 85,691 
Non-cash operating lease expense15,252 13,847 
Stock-based compensation20,638 21,064 
Amortization of prepaid debt fees3,029 3,686 
Deferred taxes, net(9,439)4,990 
Loss on sale of business57,295  
Restructuring, non-cash6,518 (2,147)
Other adjustments, net3,856 (6,121)
Changes in operating assets and liabilities
Accounts receivable82,087 (39,385)
Inventories8,978 (15,762)
Other current assets(12,862)(10,494)
Other long-term assets(2,547)7,945 
Accounts payable, other current liabilities, and taxes payable(82,775)(4,063)
Wages and benefits payable(28,446)30,220 
Unearned revenue15,098 6,746 
Warranty(10,894)(5,506)
Other operating, net10,860 (756)
Net cash provided by operating activities70,571 128,100 
Investing activities
Net payments related to the sale of business(748) 
Acquisitions of property, plant, and equipment(36,297)(44,570)
Other investing, net3,573 9,977 
Net cash used in investing activities(33,472)(34,593)
Financing activities
Proceeds from borrowings400,000 50,000 
Payments on debt (100,313)
Issuance of common stock5,059 7,117 
Repurchase of common stock (25,000)
Prepaid debt fees(184)(175)
Other financing, net(2,285)(5,221)
Net cash provided by (used in) financing activities402,590 (73,592)
Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash(3,426)(543)
Increase in cash, cash equivalents, and restricted cash436,263 19,372 
Cash, cash equivalents, and restricted cash at beginning of period149,904 122,328 
Cash, cash equivalents, and restricted cash at end of period$586,167 $141,700 
Supplemental disclosure of cash flow information:
Cash paid (received) during the period for:
Income taxes, net$(349)$8,842 
Interest34,327 39,523 
The accompanying notes are an integral part of these consolidated financial statements.
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ITRON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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 and the Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2020 and 2019, Consolidated Statements of Equity for the three months ended September 30, 2020 and 2019, June 30, 2020 and 2019, and March 31, 2020 and 2019, the Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019, and the Consolidated Balance Sheets as of September 30, 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 and nine months ended September 30, 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 our management. We expect that certain of our customers’ projects and deployments may shift to 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 further 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 thousandsSeptember 30, 2020December 31, 2019September 30, 2019
Cash and cash equivalents$586,167 $149,904 $140,938 
Current restricted cash included in other current assets   
Long-term restricted cash  762 
Total cash, cash equivalents, and restricted cash$586,167 $149,904 $141,700 

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 September 30,Nine Months Ended September 30,
In thousands, except per share data2020201920202019
Net income (loss) available to common shareholders$(25,357)$16,847 $(79,475)$34,386 
Weighted average common shares outstanding - Basic40,337 39,478 40,199 39,508 
Dilutive effect of stock-based awards 425  376 
Weighted average common shares outstanding - Diluted40,337 39,903 40,199 39,884 
Net income (loss) per common share - Basic$(0.63)$0.43 $(1.98)$0.87 
Net income (loss) per common share - Diluted$(0.63)$0.42 $(1.98)$0.86 

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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 0.8 million stock-based awards were excluded from the calculation of diluted EPS for the three and nine months ended September 30, 2020 because they were anti-dilutive. Approximately 0.2 million and 0.4 million stock-based awards were excluded from the calculation of diluted EPS for the three and nine months ended September 30, 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 thousandsSeptember 30, 2020December 31, 2019
Trade receivables (net of allowance of $1,846 and $3,064)
$314,183 $415,887 
Unbilled receivables72,737 57,038 
Total accounts receivable, net$386,920 $472,925 

Allowance for doubtful accounts activityThree Months Ended September 30,Nine Months Ended September 30,
In thousands2020201920202019
Beginning balance$2,102 $4,360 $3,064 $6,331 
Provision for (release of) doubtful accounts, net(21)(1)318 (1,739)
Accounts written-off(278)(468)(1,489)(740)
Effect of change in exchange rates43 (105)(47)(66)
Ending balance$1,846 $3,786 $1,846 $3,786 

Inventories
In thousandsSeptember 30, 2020December 31, 2019
Raw materials$124,662 $120,861 
Work in process9,016 11,105 
Finished goods71,500 95,930 
Total inventories$205,178 $227,896 

Property, plant, and equipment, net
In thousandsSeptember 30, 2020December 31, 2019
Machinery and equipment$306,367 $323,003 
Computers and software113,639 109,924 
Buildings, furniture, and improvements151,795 149,471 
Land13,771 14,988 
Construction in progress, including purchased equipment33,661 54,490 
Total cost619,233 651,876 
Accumulated depreciation(413,303)(418,648)
Property, plant, and equipment, net$205,930 $233,228 

Depreciation expenseThree Months Ended September 30,Nine Months Ended September 30,
In thousands2020201920202019
Depreciation expense$12,893 $12,528 $38,818 $37,506 

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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:
September 30, 2020December 31, 2019
In thousandsGrossAccumulated
(Amortization) Accretion
NetGrossAccumulated
(Amortization) Accretion
Net
Intangible Assets
Core-developed technology$509,222 $(476,689)$32,533 $507,669 $(458,109)$49,560 
Customer contracts and relationships372,539 (264,075)108,464 381,288 (251,509)129,779 
Trademarks and trade names77,864 (74,485)3,379 78,837 (73,732)5,105 
Other12,023 (11,511)512 12,020 (11,367)653 
Total intangible assets
$971,648 $(826,760)$144,888 $979,814 $(794,717)$185,097 
Intangible Liabilities
Customer contracts and relationships$(23,900)$19,472 $(4,428)$(23,900)$13,450 $(10,450)