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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, 2023
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 No.)
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

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 filer☒Accelerated filer
☐
Non-accelerated filer
☐
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, 2023, there were outstanding 45,492,770 shares of the registrant's common stock, no par value, which is the only class of common stock of the registrant.


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


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 data2023202220232022
Revenues
Product revenues$480,355 $347,791 $1,361,482 $1,107,499 
Service revenues80,417 73,069 234,978 220,574 
Total revenues560,772 420,860 1,596,460 1,328,073 
Cost of revenues
Product cost of revenues332,035 258,541 951,666 818,639 
Service cost of revenues41,534 42,257 127,276 128,043 
Total cost of revenues373,569 300,798 1,078,942 946,682 
Gross profit187,203 120,062 517,518 381,391 
Operating expenses
Sales, general and administrative76,576 63,446 231,176 212,724 
Research and development51,644 43,820 154,769 138,471 
Amortization of intangible assets4,663 6,413 14,433 19,451 
Restructuring(615)(1,272)36,868 (11,097)
Loss on sale of business45 767 675 3,182 
Goodwill impairment— — — 38,480 
Total operating expenses132,313 113,174 437,921 401,211 
Operating income (loss)54,890 6,888 79,597 (19,820)
Other income (expense)
Interest income2,642 801 5,968 1,367 
Interest expense(2,445)(1,679)(6,479)(4,931)
Other income (expense), net646 (1,065)(1,162)(3,140)
Total other income (expense)843 (1,943)(1,673)(6,704)
Income (loss) before income taxes55,733 4,945 77,924 (26,524)
Income tax provision(15,388)(473)(24,513)(4,973)
Net income (loss)40,345 4,472 53,411 (31,497)
Net income attributable to noncontrolling interests173 355 874 447 
Net income (loss) attributable to Itron, Inc.$40,172 $4,117 $52,537 $(31,944)
Net income (loss) per common share - Basic$0.88 $0.09 $1.16 $(0.71)
Net income (loss) per common share - Diluted$0.87 $0.09 $1.15 $(0.71)
Weighted average common shares outstanding - Basic45,462 45,139 45,393 45,075 
Weighted average common shares outstanding - Diluted45,950 45,330 45,768 45,075 
The accompanying notes are an integral part of these consolidated financial statements.
1
ITRON, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
Three Months Ended September 30,Nine Months Ended September 30,
In thousands2023202220232022
Net income (loss)$40,345 $4,472 $53,411 $(31,497)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments
(15,009)(28,197)(5,844)(55,716)
Foreign currency translation adjustment reclassified to net income (loss) on sale of business— 1,885 — 57,321 
Pension benefit obligation adjustment
(109)196 (322)4,672 
Total other comprehensive income (loss), net of tax(15,118)(26,116)(6,166)6,277 
Total comprehensive income (loss), net of tax25,227 (21,644)47,245 (25,220)
Comprehensive income (loss) attributable to noncontrolling interests, net of tax173 355 874 447 
Comprehensive income (loss) attributable to Itron, Inc.$25,054 $(21,999)$46,371 $(25,667)
The accompanying notes are an integral part of these consolidated financial statements.
2
ITRON, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
In thousandsSeptember 30, 2023December 31, 2022
ASSETS
Current assets
Cash and cash equivalents$254,771 $202,007 
Accounts receivable, net318,104 280,435 
Inventories276,099 228,701 
Other current assets160,768 118,441 
Total current assets1,009,742 829,584 
Property, plant, and equipment, net129,714 140,123 
Deferred tax assets, net209,153 211,982 
Other long-term assets35,348 39,901 
Operating lease right-of-use assets, net41,285 52,826 
Intangible assets, net50,408 64,941 
Goodwill1,035,761 1,038,721 
Total assets$2,511,411 $2,378,078 
LIABILITIES AND EQUITY
Current liabilities
Accounts payable$224,308 $237,178 
Other current liabilities54,508 42,869 
Wages and benefits payable106,941 89,431 
Taxes payable17,407 15,324 
Current portion of warranty16,221 18,203 
Unearned revenue136,539 95,567 
Total current liabilities555,924 498,572 
Long-term debt, net454,247 452,526 
Long-term warranty7,262 7,495 
Pension benefit obligation58,079 57,839 
Deferred tax liabilities, net823 833 
Operating lease liabilities33,024 44,370 
Other long-term obligations144,322 124,887 
Total liabilities1,253,681 1,186,522 
Equity
Preferred stock, no par value, 10,000 shares authorized, no shares issued or outstanding
— — 
Common stock, no par value, 75,000 shares authorized, 45,474 and 45,186 shares issued and outstanding
1,811,365 1,788,479 
Accumulated other comprehensive loss, net(100,840)(94,674)
Accumulated deficit(472,795)(525,332)
Total Itron, Inc. shareholders' equity1,237,730 1,168,473 
Noncontrolling interests20,000 23,083 
Total equity1,257,730 1,191,556 
Total liabilities and equity$2,511,411 $2,378,078 
The accompanying notes are an integral part of these consolidated financial statements.
3
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, 202345,186 $1,788,479 $(94,674)$(525,332)$1,168,473 $23,083 $1,191,556 
Net loss(11,836)(11,836)(201)(12,037)
Other comprehensive income (loss), net of tax7,119 7,119 7,119 
Distributions to noncontrolling interests(21)(21)
Net stock issued and repurchased219 607 607 607 
Stock-based compensation expense6,919 6,919 6,919 
Balances at March 31, 202345,4051,796,005 (87,555)(537,168)1,171,282 22,861 1,194,143 
Net income24,201 24,201 902 25,103 
Other comprehensive income (loss), net of tax1,833 1,833 1,833 
Net stock issued and repurchased43 1,033 1,033 1,033 
Stock-based compensation expense6,775 6,775 6,775 
Balances at June 30, 202345,448 1,803,813 (85,722)(512,967)1,205,124 23,763 1,228,887 
Net income40,172 40,172 173 40,345 
Other comprehensive income (loss), net of tax(15,118)(15,118)(15,118)
Distributions to noncontrolling interests(3,936)(3,936)
Net stock issued and repurchased26 715 715 715 
Stock-based compensation expense6,837 6,837 6,837 
Balances at September 30, 202345,474 $1,811,365 $(100,840)$(472,795)$1,237,730 $20,000 $1,257,730 

Common StockAccumulated Other Comprehensive LossAccumulated DeficitTotal Itron, Inc. Shareholders' EquityNoncontrolling InterestsTotal Equity
In thousandsSharesAmount
Balances at January 1, 202245,152 $1,779,775 $(148,098)$(515,600)$1,116,077 $26,682 $1,142,759 
Net income (loss)906 906 (10)896 
Other comprehensive income (loss), net of tax52,815 52,815 52,815 
Net stock issued and repurchased165 784 784 784 
Stock-based compensation expense6,127 6,127 6,127 
Stock repurchased program(280)(16,629)(16,629)(16,629)
Balances at March 31, 202245,0371,770,057 (95,283)(514,694)1,160,080 26,672 1,186,752 
Net income (loss)(36,967)(36,967)102 (36,865)
Other comprehensive income (loss), net of tax(20,422)(20,422)(20,422)
Distributions to noncontrolling interests(3,784)(3,784)
Net stock issued and repurchased33 1,014 1,014 1,014 
Stock-based compensation expense6,405 6,405 6,405 
Balances at June 30, 202245,070 1,777,476 (115,705)(551,661)1,110,110 22,990 1,133,100 
Net income4,117 4,117 355 4,472 
Other comprehensive income (loss), net of tax(26,116)(26,116)(26,116)
Net stock issued and repurchased84 833 833 833 
Stock-based compensation expense4,884 4,884 4,884 
Balances at September 30, 202245,154 $1,783,193 $(141,821)$(547,544)$1,093,828 $23,345 $1,117,173 
The accompanying notes are an integral part of these consolidated financial statements.
4
ITRON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30,
In thousands20232022
Operating activities
Net income (loss)$53,411 $(31,497)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization of intangible assets42,013 50,612 
Non-cash operating lease expense12,197 12,250 
Stock-based compensation20,531 17,416 
Amortization of prepaid debt fees2,761 2,610 
Deferred taxes, net1,938 (6,428)
Loss on sale of business675 3,182 
Goodwill impairment— 38,480 
Restructuring, non-cash910 (879)
Other adjustments, net(318)2,148 
Changes in operating assets and liabilities, net of acquisition and sale of business:
Accounts receivable(37,832)12,270 
Inventories(48,280)(48,377)
Other current assets(43,240)(15,907)
Other long-term assets3,392 (7,897)
Accounts payable, other current liabilities, and taxes payable220 55,032 
Wages and benefits payable17,361 (30,877)
Unearned revenue38,619 32,151 
Warranty(2,177)(5,031)
Restructuring23,966 (34,410)
Other operating, net(9,071)(7,318)
Net cash provided by operating activities77,076 37,530 
Investing activities
Net proceeds (payments) related to the sale of business(772)55,933 
Acquisitions of property, plant, and equipment(18,304)(14,886)
Business acquisitions, net of cash and cash equivalents acquired— 23 
Other investing, net73 2,424 
Net cash provided by (used in) investing activities(19,003)43,494 
Financing activities
Issuance of common stock2,366 2,631 
Repurchase of common stock— (16,972)
Prepaid debt fees(517)(697)
Other financing, net(4,488)(4,358)
Net cash used in financing activities(2,639)(19,396)
Effect of foreign exchange rate changes on cash and cash equivalents(2,670)(8,794)
Increase in cash and cash equivalents52,764 52,834 
Cash and cash equivalents at beginning of period202,007 162,579 
Cash and cash equivalents at end of period$254,771 $215,413 
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes, net$29,031 $9,954 
Interest1,578 1,409 
The accompanying notes are an integral part of these consolidated financial statements.
5
ITRON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023
(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, 2023 and 2022, Consolidated Statements of Equity for the three months ended September 30, 2023 and 2022, June 30, 2023 and 2022 and March 31, 2023 and 2022, the Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022, and the Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022, 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, 2023 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, 2022 filed with the SEC in our Annual Report on Form 10-K on February 27, 2023 (2022 Annual Report). There have been no significant changes in financial statement preparation or significant accounting policies since December 31, 2022.

Risks and Uncertainties
Global economic impacts, such as the COVID-19 pandemic and the various ongoing conflicts around the globe, may create disruption in customer demand and global supply chains, resulting in market volatility, which our management continues to monitor. In the aftermath of these types of events global supply chains, including labor, struggle to keep pace with rapidly changing demand. While recently improving from 2022 levels, our ability to obtain adequate supply of semiconductor components has impacted our ability to service customer demand. Temporal imbalance in supply and demand creates business uncertainties that include costs and availability. Efforts continue with suppliers to increase supply, including the approval of alternate sources. Recently, inflation in our raw materials and component costs, freight charges, and labor costs have increased above historical levels, due to, among other things, the continuing impacts of the uncertain economic environment. We may or may not be able to fully recover these increased costs through pricing actions with our customers. Currently, we have not identified any significant decrease in long-term customer demand for our products and services. Certain of our customer projects have experienced delays in deliveries, with revenues originally forecasted in prior periods shifting to future periods.

While we have limited direct business exposure in areas with current conflict, such as Russia, Belarus, Ukraine, and Israel, military actions globally and any resulting sanctions could adversely affect the global economy, as well as further disrupt the supply chain. A major disruption in the global economy and supply chain could have a material adverse effect on our business, prospects, financial condition, results of operations, and cash flows. The extent and duration of the military action, sanctions, and resulting market and/or supply disruptions are impossible to predict, but could be substantial, and our management continues to monitor these events closely.

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Reclassification
In the Consolidated Statements of Cash Flows, the following reclassifications have been made to prior year amounts to conform to current year presentation of restructuring liabilities:

Nine Months Ended September 30, 2022
In thousandsAs Previously ReportedAdjustmentsAs Reclassified
Changes in operating assets and liabilities, net of acquisitions and sale of business:
Accounts payable, other current liabilities, and taxes payable$42,550 $12,482 $55,032 
Restructuring— (34,410)(34,410)
Other operating, net(29,246)21,928 (7,318)

Recently Adopted Accounting Standards
In October 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2021-08 amending Business Combination: (Topic 805), which was necessary due to 2014-09, Revenue from Contracts with Customers (Topic 606). The FASB issued this Update to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to (1) recognition of an acquired contract liability and (2) payment terms and their effect on subsequent revenue recognized by the acquirer. We adopted this amendment as of the effective date of January 1, 2023. These amendments are to be applied prospectively to business combinations occurring on or after the effective date of the amendments. We currently plan to apply the practical expedients as needed for any future acquisitions. The practical expedients cover contracts that were modified prior to acquisition date as well as determining which date an acquirer would have to determine the standalone selling price of each performance obligation in an acquired contract.

Note 2:    Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share (EPS):
Three Months Ended September 30,Nine Months Ended September 30,
In thousands, except per share data2023202220232022
Net income (loss) available to common shareholders$40,172 $4,117 $52,537 $(31,944)
Weighted average common shares outstanding - Basic45,462 45,139 45,393 45,075 
Dilutive effect of stock-based awards488 191 375 — 
Dilutive effect of convertible notes— — — — 
Weighted average common shares outstanding - Diluted45,950 45,330 45,768 45,075 
Net income (loss) per common share - Basic$0.88 $0.09 $1.16 $(0.71)
Net income (loss) per common share - Diluted$0.87 $0.09 $1.15 $(0.71)

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 0.2 million and 0.3 million stock-based awards were excluded from the calculation of diluted EPS for the three and nine months ended September 30, 2023 because they were anti-dilutive. Approximately 0.4 million and 0.7 million stock-based awards were excluded from the calculation of diluted EPS for the three and nine months ended September 30, 2022 because they were anti-dilutive. These stock-based awards could be dilutive in future periods.
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Convertible Notes and Warrants
For our convertible notes issued in March 2021, the dilutive effect is calculated using the if-converted method. We are required, pursuant to the indenture governing our convertible notes, to settle the principal amount of the convertible notes in cash and may elect to settle the remaining conversion obligation (stock price in excess of conversion price) in cash, shares, or a combination thereof. Under the if-converted method, we include the number of shares required to satisfy the remaining conversion obligation, assuming all the convertible notes were converted. The average closing prices of our common stock for the quarter ended September 30, 2023 were used as the basis for determining the dilutive effect on EPS. The quarterly average closing prices for our common stock did not exceed the conversion price of $126.00, and therefore all associated shares were anti-dilutive.

In conjunction with the issuance of the convertible notes, we sold warrants to purchase 3.7 million shares of Itron common stock. The warrants have a strike price of $180.00 per share. For calculating the dilutive effect of the warrants, we use the treasury stock method. With this method, we assume exercise of the warrants at the beginning of the period, or at time of issuance if later, and the issuance of common stock upon exercise. Proceeds from the exercise of the warrants are assumed to be used to repurchase shares of our stock at the average market price during the period. The incremental shares, representing the number of shares assumed to be exercised with the warrants less the number of shares repurchased, are included in diluted weighted average common shares outstanding. For periods where the warrants strike price of $180.00 per share is greater than the average share price of Itron stock for the period, the warrants would be anti-dilutive. For the three and nine months ended September 30, 2023, the quarterly average closing prices of our common stock did not exceed the warrant strike price and therefore 3.7 million shares were considered anti-dilutive.

Convertible Note Hedge Transactions
In connection with the issuance of the convertible notes, we entered into privately negotiated call option contracts on our common stock (the convertible note hedge transactions) with certain commercial banks (the Counterparties). The convertible note hedge transactions cover, subject to anti-dilution adjustments substantially similar to those in the convertible notes, approximately 3.7 million shares of our common stock, the same number of shares initially underlying the convertible notes, at a strike price of approximately $126.00, subject to customary adjustments. The convertible note hedge transactions will expire upon the maturity of the convertible notes, subject to earlier exercise or termination. Exercise of the convertible note hedge transactions would reduce the number of shares of our common stock outstanding and therefore would be anti-dilutive.

Note 3:    Certain Balance Sheet Components

A summary of accounts receivable from contracts with customers is as follows:
Accounts receivable, net
In thousandsSeptember 30, 2023December 31, 2022
Trade receivables (net of allowance of $4,643 and $4,863)
$289,637 $249,771 
Unbilled receivables28,467 30,664 
Total accounts receivable, net$318,104 $280,435 

Allowance for credit losses account activityThree Months Ended September 30,Nine Months Ended September 30,
In thousands2023202220232022
Beginning balance$4,694 $5,630 $4,863 $5,730 
Provision for (release of) doubtful accounts, net76 (1,062)37 (544)
Accounts written-off, net(60)(214)(304)(458)
Effect of change in exchange rates(67)152 47 (222)
Ending balance$4,643 $4,506 $4,643 $4,506 

Inventories
In thousandsSeptember 30, 2023December 31, 2022
Raw materials$216,316 $182,118 
Work in process12,606 8,386 
Finished goods47,177 38,197 
Total inventories$276,099 $228,701 
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Property, plant, and equipment, net
In thousandsSeptember 30, 2023December 31, 2022
Machinery and equipment$312,529 $306,699 
Computers and software123,198 119,670 
Buildings, furniture, and improvements129,755 130,301 
Land8,513 8,566 
Construction in progress, including purchased equipment20,634 19,403 
Total cost594,629 584,639 
Accumulated depreciation(464,915)(444,516)
Property, plant, and equipment, net$129,714 $140,123 

Depreciation expenseThree Months Ended September 30,Nine Months Ended September 30,
In thousands2023202220232022
Depreciation expense$8,982 $10,948 $27,580 $31,161 

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, 2023December 31, 2022
In thousandsGrossAccumulated
(Amortization) Accretion		NetGrossAccumulated
(Amortization) Accretion		Net
Intangible Assets
Core-developed technology$497,988 $(494,989)$2,999 $498,601 $(492,782)$5,819 
Customer contracts and relationships320,995 (275,508)45,487 322,360 (265,503)56,857 
Trademarks and trade names71,903 (70,099)1,804 72,156 (70,101)2,055 
Other12,017 (11,899)118 12,017 (11,807)210 
Total intangible assets
$902,903 $(852,495)$50,408 $905,134 $(840,193)$64,941 
Intangible Liabilities
Customer contracts and relationships$(23,900)$23,900 $— $(23,900)$23,900 $— 

A summary of intangible assets and liabilities activity is as follows:
Nine Months Ended September 30,
In thousands20232022
Intangible assets, gross beginning balance$905,134 $928,422 
Effect of change in exchange rates(2,231)(47,113)
Intangible assets, gross ending balance$902,903 $881,309 
Intangible liabilities, gross beginning balance$(23,900)$(23,900)
Effect of change in exchange rates— — 
Intangible liabilities, gross ending balance$(23,900)$(23,900)

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.

9
Estimated future annual amortization is as follows:
Year Ending December 31,Estimated Annual Amortization
In thousands
2023 (amount remaining at September 30, 2023)$4,496 
202414,986 
202514,267 
202610,287 
20275,628 
Thereafter744 
Total intangible assets subject to amortization$50,408 

Note 5:    Goodwill

The following table reflects changes in the carrying amount of goodwill for the nine months ended September 30, 2023:
In thousandsDevice SolutionsNetworked SolutionsOutcomesTotal Company
Goodwill balance at January 1, 2023$— $899,887 $138,834 $1,038,721 
Effect of change in exchange rates— (2,568)(392)(2,960)
Goodwill balance at September 30, 2023$— $897,319 $138,442 $1,035,761 

Note 6:    Debt

The components of our borrowings were as follows:
In thousandsSeptember 30, 2023December 31, 2022
Credit facility
Multicurrency revolving line of credit$— $— 
Convertible notes460,000 460,000 
Total debt460,000 460,000 
Less: unamortized prepaid debt fees - convertible notes5,753 7,474 
Long-term debt, net $454,247 $452,526 

Credit Facility
Our current credit facility, initially entered on January 5, 2018 (as amended, the 2018 credit facility), originally provided for committed credit facilities in the amount of $1.2 billion U.S. dollars. This facility now consists of a multicurrency revolving line of credit (the revolver) with a principal amount of up to $500 million. The revolver also contains a $300 million standby letter of credit sub-facility and a $50 million swingline sub-facility. The $650 million U.S. dollar term loan included in the original facility was fully repaid in August 2021.

The 2018 credit facility permits us and certain of our foreign subsidiaries to borrow in U.S. dollars, euros, or, with lender approval, other currencies readily convertible into U.S. dollars. All obligations under the 2018 credit facility are guaranteed by Itron, Inc. and material U.S. domestic subsidiaries and are secured by a pledge of substantially all of the assets of Itron, Inc. and material U.S. domestic subsidiaries. This includes a pledge of 100% of the capital stock of material U.S. domestic subsidiaries and up to 66% of the voting stock (100% of the non-voting stock) of first-tier foreign subsidiaries. In addition, the obligations of any foreign subsidiary who is a foreign borrower, as defined by the 2018 credit facility, are guaranteed by the foreign subsidiary and by its direct and indirect foreign parents. The 2018 credit facility includes debt covenants, which contain certain financial thresholds and place certain restrictions on the incurrence of debt, investments, and the issuance of dividends. We were in compliance with the debt covenants under the 2018 credit facility at September 30, 2023.

Under the 2018 credit facility, we elect applicable market interest rates for both the term loan and any outstanding revolving loans. We also pay an applicable margin, which is based on our total net leverage ratio as defined in the credit agreement. The applicable rates per annum may be based on either: (1) the LIBOR rate or EURIBOR rate (subject to a floor of 0%), plus an applicable margin, or (2) the Alternate Base Rate, plus an applicable margin. The Alternate Base Rate election is equal to the greatest of three rates: (i) the prime rate, (ii) the Federal Reserve effective rate plus 0.50%, or (iii) one-month LIBOR plus
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1.00%. The cessation of LIBOR occurred in June 2023. On November 23, 2022, we amended the 2018 credit facility to replace the LIBOR rate with the Term Secured Overnight Financing Rate (SOFR) as the base interest rate. On February 21, 2023, we entered into a sixth amendment to the 2018 credit facility. This amendment modified provisions to allow for the addback for debt covenant calculations of non-recurring cash expenses related to restructuring charges incurred during the quarter ended March 31, 2023. Subsequent to quarter end on October 13, 2023, we entered into a seventh amendment to extend the maturity date to October 18, 2026. However, that date may be advanced to December 14, 2025 if Itron does not settle or extend a sufficient portion of outstanding convertible notes detailed in the amendment. In addition, the amendment revises the interest cost, as follows:

Total Net Leverage RatioInterest CostCommitment Fee
Greater than 4.00
SOFR + 250 bps
40 bps
3.51 to 4.00
SOFR + 225 bps
35 bps
2.51 to 3.50
SOFR + 200 bps
30 bps
Less than or equal to 2.50
SOFR + 175 bps
25 bps

At September 30, 2023, there were no outstanding loan balances under the credit facility, and $61.6 million was utilized by outstanding standby letters of credit, resulting in $438.4 million available for additional borrowings or standby letters of credit within the revolver. At September 30, 2023, $238.4 million was available for additional standby letters of credit under the letter of credit sub-facility, and no amounts were outstanding under the swingline sub-facility.

Convertible Notes
On March 12, 2021, we closed the sale of the convertible notes in a private placement to qualified institutional buyers, resulting in net proceeds to us of $448.5 million after deducting initial purchasers' discounts of the offering. The convertible notes do not bear regular interest, and the principal amount does not accrete. The convertible notes will mature on March 15, 2026, unless earlier repurchased, redeemed, or converted in accordance with their terms. No sinking fund is provided for the convertible notes.

The initial conversion rate of the convertible notes is 7.9365 shares of our common stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately $126.00 per share. The conversion rate of the convertible notes is subject to adjustment upon the occurrence of certain specified events. In addition, upon the occurrence of a make-whole fundamental change (as defined in the indenture governing the convertible notes) or upon a notice of redemption, we will, in certain circumstances, increase the conversion rate for a holder that elects to convert its convertible notes in connection with such make-whole fundamental change or notice of redemption, as the case may be.

Prior to the close of business on the business day immediately preceding December 15, 2025, the convertible notes are convertible at the option of the holders only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2021 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business-day period after any five consecutive trading-day period (the measurement period) in which the trading price per $1,000 principal amount of convertible notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the common stock and the conversion rate on each such trading day; (3) upon the occurrence of specified corporate events; or (4) upon redemption by us. On or after December 15, 2025, until the close of business on the second scheduled trading day immediately preceding March 15, 2026, holders of the convertible notes may convert all or a portion of their notes at any time. Upon conversion, we will pay cash up to the aggregate principal amount of convertible notes to be converted and pay and/or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at our election, in respect of the remainder, if any, of our conversion obligation in excess of the aggregate principal amount of the convertible notes being converted.

On or after March 20, 2024 and prior to December 15, 2025, we may redeem for cash all or part of the convertible notes, at our option, if the last reported sales price of common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which we provide notice of redemption, during any 30 consecutive trading days ending on, and including, the trading day immediately before the date we send the related notice of the redemption. The redemption price of each convertible note to be redeemed will be the principal amount of such note, plus accrued and unpaid special interest, if any. Upon the occurrence of a fundamental change (as defined in the indenture governing the convertible notes), subject to a limited exception described in the indenture governing the convertible notes, holders may require us to repurchase all or a portion of their notes for cash at a price equal to
11
plus accrued and unpaid special interest to, but not including, the fundamental change repurchase date (as defined in the indenture governing the convertible notes).

The convertible notes are senior unsecured obligations and rank equally in right of payment with all of our existing and future unsubordinated debt and senior in right of payment to any future debt that is expressly subordinated in right of payment to the convertible notes. The convertible notes will be effectively subordinated to any of our existing and future secured debt to the extent of the assets securing such indebtedness. The convertible notes will be structurally subordinated to all existing debt and any future debt and any other liabilities of our subsidiaries.

Debt Maturities
The amount of required minimum principal payments on our long-term debt in aggregate over the next five years is as follows:
Year Ending December 31,Minimum Payments
In thousands
2023 (amount remaining at September 30, 2023)$— 
2024— 
2025— 
2026460,000 
2027— 
Thereafter— 
Total minimum payments on debt$460,000 

Note 7:    Derivative Financial Instruments

As part of our risk management strategy, we use derivative instruments to hedge certain foreign currencies. Refer to Note 13: Shareholders' Equity and Note 14: Fair Value of Financial Instruments for additional disclosures on our derivative instruments.

Derivatives Not Designated as Hedging Relationships
We are exposed to foreign exchange risk when we enter into non-functional currency transactions, both intercompany and third party. At each period-end, non-functional currency monetary assets and liabilities are revalued with the change recognized within other income (expense) in our Consolidated Statements of Operations. We enter into monthly foreign exchange forward contracts, which are not designated for hedge accounting, with the intent to reduce earnings volatility associated with currency exposures. As of September 30, 2023, a total of 40 contracts were offsetting our exposures from the euro, pound sterling, Indonesian rupiah, Canadian dollar, Australian dollar, and various other currencies, with notional amounts ranging from $109,000 to $42.3 million.

We will continue to monitor and assess our interest rate and foreign exchange risk and may institute additional derivative instruments to manage such risk in the future.

Note 8:    Defined Benefit Pension Plans

We sponsor both funded and unfunded defined benefit pension plans offering death and disability, retirement, and special termination benefits for certain of our international employees, primarily in Germany, France, Indonesia, India, and Italy. The defined benefit obligation is calculated annually by using the projected unit credit method. The measurement date for the pension plans was December 31, 2022.

Amounts recognized on the Consolidated Balance Sheets consist of:
In thousandsSeptember 30, 2023December 31, 2022
Assets
Plan assets in other long-term assets$149 $162 
Liabilities
Current portion of pension benefit obligation in wages and benefits payable$4,083 $3,400 
Long-term portion of pension benefit obligation58,079 57,839 
Pension benefit obligation, net$62,013 $61,077 

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Our asset investment strategy focuses on maintaining a portfolio using primarily insurance funds, which are accounted for as investments and measured at fair value, in order to achieve our long-term investment objectives on a risk-adjusted basis. Our general funding policy for these qualified pension plans is to contribute amounts sufficient to satisfy regulatory funding standards of the respective countries for each plan.

Net periodic pension benefit cost for our plans includes the following components:
Three Months Ended September 30,Nine Months Ended September 30,
In thousands2023202220232022
Service cost$605 $739 $1,845 $2,241 
Interest cost720 403 2,153 1,269 
Expected return on plan assets(88)(75)(264)(238)
Amortization of prior service costs15 17 45 53 
Amortization of actuarial net loss(122)187 (365)618 
Net periodic benefit cost$1,130 $1,271 $3,414 $3,943 

The components of net periodic benefit cost, other than the service cost component, are included in total other income (expense) on the Consolidated Statements of Operations.

Note 9:    Stock-Based Compensation

We grant stock-based compensation awards, including restricted stock units, phantom stock, and unrestricted stock units, under the Second Amended and Restated 2010 Stock Incentive Plan (Stock Incentive Plan). Prior to December 31, 2020, stock options were also granted as part of the stock-based compensation awards. In the Stock Incentive Plan, we have 12,123,538 shares of common stock authorized for issuance subject to stock splits, dividends, and other similar events, and at September 30, 2023, 3,396,555 shares were available for grant. We issue new shares of common stock upon the exercise of stock options or when vesting conditions on restricted stock units are fully satisfied. These shares are subject to a fungible share provision such that the authorized share available for grant is reduced by (i) one share for every one share subject to a stock option or share appreciation right granted under the Plan and (ii) 1.7 shares for every one share of common stock that was subject to an award other than an option or share appreciation right.

We also award phantom stock units, which are settled in cash upon vesting and accounted for as liability-based awards, with no impact to the shares available for grant.

In addition, we maintain the Employee Stock Purchase Plan (ESPP), for which 534,418 shares of common stock were available for future issuance at September 30, 2023. In May 2023, the shareholders authorized, via a proxy approval, the reallocation of 500,000 reserved shares from the shares available for grant in the Stock Incentive Plan to the ESPP.

ESPP activity and stock-based grants other than stock options and restricted stock units were not significant for the three and nine months ended September 30, 2023 and 2022.

Stock-Based Compensation Expense
Total stock-based compensation expense and the related tax benefit were as follows:
Three Months Ended September 30,Nine Months Ended September 30,
In thousands2023202220232022
Stock options$18 $236 $98 $798 
Restricted stock units6,581 4,430 19,680 15,883 
Unrestricted stock awards238 218 753 735 
Phantom stock units1,190 (176)3,114 596 
Total stock-based compensation$8,027 $4,708 $23,645 $18,012 
Related tax benefit$1,686 $1,195 $5,059 $4,264 

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Stock Options
A summary of our stock option activity is as follows:
SharesWeighted
Average Exercise
Price per Share		Weighted Average
Remaining
Contractual Life		Aggregate
Intrinsic Value		Weighted
Average Grant
Date Fair Value
In thousandsYearsIn thousands
Outstanding, January 1, 2022393 $61.18 5.9$4,737 
Granted— — $— 
Exercised— — — 
Forfeited(2)87.27 
Canceled(8)78.76 
Outstanding, September 30, 2022383 $60.69 5.1$729 
Outstanding, January 1, 2023381 $60.63 4.8$1,892 
Granted— — $— 
Exercised(6)56.83 88 
Forfeited— — 
Canceled— — 
Outstanding, September 30, 2023375 $60.69 4.1$3,316 
Exercisable, September 30, 2023375 $60.64 4.1$3,316 

At September 30, 2023, all stock-based compensation expense related to nonvested stock options has been recognized.

Restricted Stock Units
The following table summarizes restricted stock unit activity:
In thousands, except fair valueNumber of
Restricted Stock Units		Weighted
Average Grant
Date Fair Value		Aggregate
Intrinsic Value
Outstanding, January 1, 2022430 
Granted371 $53.32 
Released (1)
(220)$11,441 
Forfeited(62)
Outstanding, September 30, 2022519 
Outstanding, January 1, 2023528 $66.39 
Granted459 56.62 
Released (1)
(235)71.83 $739 
Forfeited(25)62.32 
Outstanding, September 30, 2023727 58.81 
Vested but not released, September 30, 202315 $887 
(1)    Shares released is presented as gross shares and does not reflect shares withheld by us for employee payroll tax obligations.

At September 30, 2023, total unrecognized compensation expense on restricted stock units was $37.5 million, which is expected to be recognized over a weighted average period of approximately 1.8 years.

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The weighted average assumptions used to estimate the fair value of performance-based restricted stock units granted with a service and market condition and the resulting weighted average fair value are as follows:
Nine Months Ended September 30,
20232022
Expected volatility50.0 %55.7 %
Risk-free interest rate4.6 %1.7 %
Expected term (years)2.22.9
Weighted average fair value$59.52 $57.88 

Note 10: Income Taxes

We determine the interim tax benefit (provision) by applying an estimate of the annual effective tax rate to the year-to-date pretax book income (loss) and adjusting for discrete items during the reporting period, if any. Tax jurisdictions with losses for which tax benefits cannot be realized, as well as significant unusual or infrequently occurring items that are separately reported, are excluded from the annual effective tax rate.

Our tax rate for the three and nine months ended September 30, 2023 of 28% and 31%, respectively, differed from the federal statutory rate of 21% due to the impact of valuation allowances on deferred tax assets, the forecasted mix of earnings in domestic and international jurisdictions, U.S. taxation of foreign earnings including GILTI (Global Intangible Low Taxed Income) tax, net of Section 250 deduction (largely driven by research and development capitalization), Subpart F income, an expense related to stock-based compensation, tax credits, and uncertain tax positions.

Our tax rate for the three and nine months ended September 30, 2022 of 10% and (19)%, respectively, differed from the federal statutory rate of 21% due to the impact of valuation allowances on deferred tax assets, the forecasted mix of earnings in domestic and international jurisdictions, GILTI (Global Intangible Low-Taxed Income) and Subpart F tax, net of Section 250 deduction (largely driven by research and development capitalization), discrete tax expense related to the Dresser divestiture, a discrete tax benefit due to goodwill impairment, an expense related to stock-based compensation, tax credits, and uncertain tax positions.

Beginning January 1, 2022, the Tax Cuts and Jobs Act of 2017 eliminated the option to deduct research and development expenditures currently and requires taxpayers to capitalize and amortize them over five or fifteen years, dependent upon the geography in which the expenditures are incurred. Although Congress has considered legislation that would defer, modify, or repeal the capitalization and amortization requirement, as of quarter end no such deferral has been passed. The income tax provision has been prepared according to currently enacted tax legislation.

In August 2022, the Inflation Reduction Act was signed into law, which made a number of changes to the Internal Revenue Code, including adding a 1% excise tax on stock buybacks by publicly traded corporations and a 15% minimum tax on adjusted financial statement income of certain large companies. We are subject to the new 1% excise tax beginning January 1, 2023, but the amount will vary depending upon various factors. The 15% minimum tax only applies to corporations with average book income in excess of $1 billion, therefore it is not currently applicable.

The Organization for Economic Cooperation and Development (OECD) Pillar 2 global minimum tax rules are intended to apply for tax years beginning in 2024. On February 1, 2023, the FASB staff noted that they believe that the Pillar 2 tax would be an alternative minimum tax and therefore deferred tax assets would not need to be recognized related to this parallel taxing system. On February 2, 2023, the OECD issued administrative guidance providing transition and safe harbor rules around the implementation of the Pillar 2 global minimum tax. Under an additional transitional safe harbor released July 17, 2023, the undertaxed profits rule (UTPR) top-up tax will not be applied by any constituent entity's jurisdiction of residence with respect to income earned by a company's ultimate parent entity in its jurisdiction of residence, if the ultimate parent entity's jurisdiction has a corporate tax rate of at least 20%. This transition safe harbor will apply to fiscal years beginning on or before December 31, 2025 and ending before December 31, 2026. The Company is closely monitoring developments and evaluating the impacts these new rules will have on our tax rate, including eligibility to qualify for these safe harbor rules. Based upon preliminary calculations for calendar year 2024, the Company anticipates it will meet the safe harbors in most jurisdictions, and any remaining top-up tax should be immaterial.
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We classify interest expense and penalties related to unrecognized tax liabilities and interest income on tax overpayments as components of income tax expense. The net interest and penalties expense amounts recognized were as follows:
Three Months Ended September 30,Nine Months Ended September 30,
In thousands2023202220232022
Net interest and penalties expense$592 $373 $1,398 $989 

Accrued interest and penalties recognized were as follows:
In thousandsSeptember 30, 2023December 31, 2022
Accrued interest$8,970 $7,575 
Accrued penalties452 567 

Unrecognized tax benefits related to uncertain tax positions and the amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate were as follows:
In thousandsSeptember 30, 2023December 31, 2022
Unrecognized tax benefits related to uncertain tax positions$126,529 $130,144 
The amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate
126,522 130,137 

At September 30, 2023, we are under examination by certain tax authorities. We believe we have appropriately accrued for the expected outcome of all tax matters and do not currently anticipate that the ultimate resolution of these examinations will have a material adverse effect on our financial condition, future results of operations, or cash flows.

Based upon the timing and outcome of examinations, litigation, the impact of legislative, regulatory, and judicial developments, and the impact of these items on the statute of limitations, it is reasonably possible that the related unrecognized tax benefits could change from those recognized within the next 12 months. However, at this time, an estimate of the range of reasonably possible adjustments to the balance of unrecognized tax benefits cannot be made.

We file income tax returns in various jurisdictions. The material jurisdictions where we are subject to examination include, among others, the United States, France, Germany, Italy, Indonesia, and the United Kingdom.

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Note 11:    Commitments and Contingencies

Guarantees and Indemnifications
We are often required to obtain standby letters of credit (LOCs) or bonds in support of our obligations for customer contracts. These standby LOCs or bonds typically provide a guarantee to the customer for our future performance, which usually covers the installation phase of a contract and may, on occasion, cover the operations and maintenance phase of outsourcing contracts.

Our available lines of credit, outstanding standby LOCs, and bonds were as follows:
In thousandsSeptember 30, 2023December 31, 2022
Credit facility
Multicurrency revolving line of credit$500,000 $500,000 
Standby LOCs issued and outstanding(61,635)(55,990)
Net available for additional borrowings under the multicurrency revolving line of credit$438,365 $444,010 
Net available for additional standby LOCs under sub-facility$238,365 $244,010 
Unsecured multicurrency revolving lines of credit with various financial institutions
Multicurrency revolving lines of credit$82,287 $81,781 
Standby LOCs issued and outstanding(19,908)(22,530)
Short-term borrowings— — 
Net available for additional borrowings and LOCs$62,379 $59,251 
Unsecured surety bonds in force$271,160 $285,754 

In the event any such standby LOC or bond were called, we would be obligated to reimburse the issuer of the standby LOC or bond; however, as of November 2, 2023, we do not believe any outstanding standby LOCs or bonds will be called.

We generally provide an indemnification related to the infringement of any patent, copyright, trademark, or other intellectual property right on software or equipment within our sales contracts, which indemnifies the customer from, and pays the resulting costs, damages, and attorney's fees awarded against a customer with respect to, such a claim provided that (a) the customer promptly notifies us in writing of the claim and (b) we have the sole control of the defense and all related settlement negotiations. We may also provide an indemnification to our customers for third-party claims resulting from damages caused by the negligence or willful misconduct of our employees/agents in connection with the performance of certain contracts. The terms of our indemnifications generally do not limit the maximum potential payments. It is not possible to predict the maximum potential amount of future payments under these or similar agreements.

Legal Matters
We are subject to various legal proceedings and claims of which the outcomes are subject to significant uncertainty. Our policy is to assess the likelihood of any adverse judgments or outcomes related to legal matters, as well as ranges of probable losses. A determination of the amount of the liability required, if any, for these contingencies is made after an analysis of each known issue. A liability would be recognized and charged to operating expense when we determine that a loss is probable and the amount can be reasonably estimated. Additionally, we disclose contingencies for which a material loss is reasonably possible, but not probable.

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Warranty
A summary of the warranty accrual account activity is as follows:
Three Months Ended September 30,Nine Months Ended September 30,
In thousands2023202220232022
Beginning balance$25,486 $28,709 $25,698 $32,022 
New product warranties1,647 1,166 5,094 3,600 
Other adjustments and expirations, net(1,343)(1,092)(1,309)(1,157)
Claims activity(2,005)(2,299)(5,935)(7,071)
Effect of change in exchange rates(302)(1,026)(65)(1,936)
Ending balance23,483 25,458 23,483 25,458 
Less: current portion of warranty16,221 17,943 16,221 17,943 
Long-term warranty$7,262 $7,515 $7,262 $7,515 

Total warranty expense is classified within cost of revenues and consists of new product warranties issued, costs related to insurance and supplier recoveries, other changes and adjustments to warranties, and customer claims. Warranty expense was as follows:
Three Months Ended September 30,Nine Months Ended September 30,
In thousands2023202220232022
Total warranty expense$304 $74 $3,785 $2,443 

Note 12:    Restructuring

2023 Projects
On February 23, 2023, our Board of Directors approved a restructuring plan (the 2023 Projects). The 2023 Projects include activities that continue Itron's efforts to optimize its global supply chain and manufacturing operations, sales and marketing organizations, and other overhead. These projects are to be substantially complete by early 2025.

The total expected restructuring costs, the restructuring costs recognized, and the remaining expected restructuring costs related to the 2023 Projects were as follows:
In thousandsTotal Expected Costs at September 30, 2023Costs Recognized in Prior PeriodsCosts Recognized During the Nine Months Ended September 30, 2023Expected Remaining Costs to be Recognized at September 30, 2023
Employee severance costs$38,004 $— $38,004 $— 
Asset impairments & net loss (gain) on sale or disposal1,130 — 1,130 — 
Other restructuring costs6,508 — 2,073 4,435 
Total
$45,642 $— $41,207 $4,435 

2021 Projects
On October 29, 2021, our Board of Directors approved a restructuring plan (the 2021 Projects), which in conjunction with the announcement of the sale of certain Gas product lines from our Device Solutions manufacturing and business operations in Europe and North America to Dresser, includes activities to drive reductions in certain locations and functional support areas. These projects are expected to be substantially complete by the end of 2024.

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The total expected restructuring costs, the restructuring costs recognized, and the remaining expected restructuring costs related to the 2021 Projects were as follows:
In thousandsTotal Expected Costs at September 30, 2023Costs Recognized in Prior PeriodsAdjustments Recognized During the Nine Months Ended September 30, 2023Expected Remaining Costs to be Recognized at September 30, 2023
Employee severance costs$34,794 $38,359 $(3,565)$— 
Asset impairments & net loss (gain) on sale or disposal8,379 8,599 (220)— 
Other restructuring costs5,496 3,084 362 2,050 
Total
$48,669 $50,042 $(3,423)$2,050 

2020 Projects
In September 2020, our Board of Directors approved a restructuring plan (the 2020 Projects), which includes activities that continue our efforts to optimize our global supply chain and manufacturing operations, sales and marketing organizations, and other overhead. These projects are scheduled to be substantially complete by the end of 2023.

The total expected restructuring costs, the restructuring costs recognized, and the remaining expected restructuring costs related to the 2020 Projects were as follows:
In thousandsTotal Expected Costs at September 30, 2023Costs Recognized in Prior PeriodsAdjustments Recognized During the Nine Months Ended September 30, 2023Expected Remaining Costs to be Recognized at September 30, 2023
Employee severance costs$18,735 $20,382 $(1,647)$— 
Asset impairments & net loss (gain) on sale or disposal6,465 6,465 — — 
Other restructuring costs8,272 7,341 731 200 
Total
$33,472 $34,188 $(916)$200 

The following table summarizes the activity within the restructuring related balance sheet accounts for the 2023 Projects, the 2021 Projects, and the 2020 Projects during the nine months ended September 30, 2023:
In thousandsAccrued Employee SeveranceAsset Impairments & Net Loss (Gain) on Sale or DisposalOther Accrued CostsTotal
Beginning balance, January 1, 2023$39,558 $— $2,886 $42,444 
Costs charged to expense
32,792 910 3,166 36,868 
Cash payments(8,440)(27)(2,999)(11,466)
Cash receipts— 12 — 12 
Net assets disposed and impaired— (895)— (895)
Effect of change in exchange rates(533)— — (533)
Ending balance, September 30, 2023$63,377 $— $3,053 $66,430 

Asset impairments are determined at the asset group level. Revenues and net operating income from the activities we have exited or will exit under the restructuring projects are not material to our operating segments or consolidated results.

Certain of Itron's employees are represented by unions or works councils, which requires consultation, and potential restructuring projects may be subject to regulatory approval, both of which could impact the timing of planned savings in certain jurisdictions.

Other restructuring costs include expenses for employee relocation, professional fees associated with employee severance, costs to exit the facilities once the operations in those facilities have ceased, and other costs associated with the liquidation of any affected legal entities. Costs associated with restructuring activities are generally presented in the Consolidated Statements of Operations as restructuring, except for certain costs associated with inventory write-downs, which are classified within cost of revenues, and accelerated depreciation expense, which is recognized according to the use of the asset. Restructuring expense is part of the Corporate unallocated segment and does not impact the results of our operating segments.
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The current portions of restructuring liabilities were $15.7 million and $14.5 million as of September 30, 2023 and December 31, 2022 and are classified within other current liabilities on the Consolidated Balance Sheets. The long-term portions of restructuring liabilities were $50.7 million and $27.9 million as of September 30, 2023 and December 31, 2022. The long-term portions of restructuring liabilities are classified within other long-term obligations on the Consolidated Balance Sheets and include severance accruals and facility exit costs.

Note 13:    Shareholders' Equity

Preferred Stock
We have authorized the issuance of 10 million shares of preferred stock with no par value. In the event of a liquidation, dissolution, or winding up of the affairs of the corporation, whether voluntary or involuntary, the holders of any outstanding preferred stock would be entitled to be paid a preferential amount per share to be determined by the Board of Directors prior to any payment to holders of common stock. There was no preferred stock issued or outstanding at September 30, 2023 or December 31, 2022.

Stock Repurchase Authorization
Effective May 11, 2023, Itron's Board of Directors authorized a share repurchase up to $100 million of our common stock over an 18-month period (the 2023 Stock Repurchase Program). Repurchases will be made in the open market pursuant to the terms of any Rule 10b5-1 plans that we may enter into, and in accordance with applicable securities laws. The repurchase program is intended to comply with Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended. Depending on market conditions and other factors, these repurchases may be commenced or suspended from time to time without prior notice. There have been no repurchases under the 2023 Stock Repurchase Program through November 2, 2023.

Convertible Note Hedge Transactions
We paid an aggregate amount of $84.1 million for the convertible note hedge transactions. The convertible note hedge transactions cover, subject to anti-dilution adjustments substantially similar to those in the convertible notes, approximately 3.7 million shares of our common stock, the same number of shares initially underlying the convertible notes, at a strike price of approximately $126.00, subject to customary adjustments. The convertible note hedge transactions will expire upon the maturity of the convertible notes, subject to earlier exercise or termination. The convertible note hedge transactions are expected generally to reduce the potential dilutive effect of the conversion of our convertible notes and/or offset any cash payments we are required to make in excess of the principal amount of the converted notes, as the case may be, in the event that the market price per share of our common stock, as measured under the terms of the convertible note hedge transactions, is greater than the strike price of the convertible note hedge transactions. The convertible note hedge transactions meet the criteria in Accounting Standards Codification (ASC) 815-40 to be classified within Stockholders' Equity, and therefore the convertible note hedge transactions are not revalued after their issuance.

We made a tax election to integrate the convertible notes and the call options. We are retaining the identification statements in our books and records, together with a schedule providing the accruals on the synthetic debt instruments. The accounting impact of this tax election makes the call options deductible as original issue discount for tax purposes over the term of the convertible notes, and results in a $20.6 million deferred tax asset recognized through equity.

Warrant Transactions
In addition, concurrently with entering into the convertible note hedge transactions, we separately entered into privately-negotiated warrant transactions (the warrant transactions), whereby we sold to the Counterparties warrants to acquire, collectively, subject to anti-dilution adjustments, 3.7 million shares of our common stock at an initial strike price of $180.00 per share, which represents a premium of 100% over the public offering price in the common stock issuance. We received aggregate proceeds of $45.3 million from the warrant transactions with the Counterparties, with such proceeds partially offsetting the costs of entering into the convertible note hedge transactions. The warrants expire in June 2026. If the market value per share of our common stock, as measured under the warrant transactions, exceeds the strike price of the warrants, the warrants will have a dilutive effect on our earnings per share, unless we elect, subject to certain conditions, to settle the warrants in cash. The warrants meet the criteria in ASC 815-40 to be classified within Stockholders' Equity, and therefore the warrants are not revalued after issuance.

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Accumulated Other Comprehensive Income (Loss) (AOCI)
The changes in the components of AOCI, net of tax, were as follows:
In thousandsForeign Currency Translation AdjustmentsNet Unrealized Gain (Loss) on Derivative InstrumentsNet Unrealized Gain (Loss) on Nonderivative InstrumentsPension Benefit Obligation AdjustmentsAccumulated Other Comprehensive Income (Loss)
Balances at January 1, 2022$(111,766)$(210)$(14,380)$(21,742)$(148,098)
OCI before reclassifications(55,716)— — 4,183 (51,533)
Amounts reclassified from AOCI57,321 — — 489 57,810 
Total other comprehensive income (loss)1,605 — — 4,672 6,277 
Balances at September 30, 2022$(110,161)$(210)$(14,380)$(17,070)$(141,821)
Balances at January 1, 2023$(83,193)$(210)$(14,380)$3,109 $(94,674)
OCI before reclassifications(5,844)— — — (5,844)
Amounts reclassified from AOCI— — — (322)(322)
Total other comprehensive income (loss)(5,844)— — (322)(6,166)
Balances at September 30, 2023$(89,037)$(210)$(14,380)$2,787 $(100,840)

The before-tax, income tax (provision) benefit, and net-of-tax amounts related to each component of other comprehensive income (OCI) were as follows:
Three Months Ended September 30,Nine Months Ended September 30,
In thousands2023202220232022
Before-tax amount
Foreign currency translation adjustment
$(15,094)$(28,380)$(5,834)$(55,917)
Foreign currency translation adjustment reclassified to net income (loss) on sale of business— 1,885 — 57,321 
Net unrealized gain (loss) on defined benefit plans
— — — 4,205 
Net defined benefit plan (gain) loss reclassified to net income (loss)(107)204 (320)492 
Total other comprehensive income (loss), before tax$(15,201)$(26,291)$(6,154)$6,101 
Tax (provision) benefit
Foreign currency translation adjustment
$85 $183 $(10)$201 
Foreign currency translation adjustment reclassified to net income (loss) on sale of business— — — — 
Net unrealized gain (loss) on defined benefit plans
— (6)— (22)
Net defined benefit plan (gain) loss reclassified to net income (loss)(2)(2)(2)(3)
Total other comprehensive income (loss) tax (provision) benefit$83 $175 $(12)$176 
Net-of-tax amount
Foreign currency translation adjustment
$(15,009)$(28,197)$(5,844)$(55,716)
Foreign currency translation adjustment reclassified to net income (loss) on sale of business— 1,885 — 57,321 
Net unrealized gain (loss) on defined benefit plans
— (6)— 4,183 
Net defined benefit plan (gain) loss reclassified to net income (loss)(109)202 (322)489 
Total other comprehensive income (loss), net of tax$(15,118)$(26,116)$(6,166)$6,277 

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Note 14:    Fair Value of Financial Instruments

The fair values at September 30, 2023 and December 31, 2022 do not reflect subsequent changes in the economy, interest rates, tax rates, and other variables that may affect the determination of fair value.
September 30, 2023December 31, 2022
In thousandsCarrying
Amount		Fair
Value		Carrying
Amount		Fair
Value
Credit facility
Multicurrency revolving line of credit$— $— $— $— 
Convertible notes454,247 396,621 452,526 377,200 

The following methods and assumptions were used in estimating fair values:

Cash and cash equivalents: Due to the liquid nature of these instruments, the carrying amount approximates fair value (Level 1).

Credit facility - multicurrency revolving line of credit: The revolver is not traded publicly. The fair values, which are determined based upon a hypothetical market participant, are calculated using a discounted cash flow model with Level 2 inputs, including estimates of incremental borrowing rates for debt with similar terms, maturities, and credit profiles. Refer to Note 6: Debt for a further discussion of our debt.

Convertible notes: The convertible notes are not listed on any securities exchange but may be actively traded. The fair value is estimated using Level 1 inputs, as it is based on quoted prices for these instruments in active markets.

Derivatives: Each derivative asset and liability has a carrying value equal to fair value. The fair values of our derivative instruments are determined using the income approach and significant other observable inputs (and are classified as "Level 2" in the fair value hierarchy). We have used observable market inputs based on the type of derivative and the nature of the underlying instrument. The key inputs include foreign exchange spot and forward rates, all of which are available in an active market. We have utilized the mid-market pricing convention for these inputs.

Note 15:    Segment Information

We operate under the Itron brand worldwide and manage and report under three operating segments: Device Solutions, Networked Solutions, and Outcomes.

We have three GAAP measures of segment performance: revenues, gross profit (gross margin), and operating income (operating margin). Intersegment revenues are minimal. Certain operating expenses are allocated to the operating segments based upon internally established allocation methodologies. Corporate operating expenses, interest income, interest expense, other income (expense), and the income tax provision (benefit) are neither allocated to the segments, nor are they included in the measure of segment performance. Goodwill impairment charges are recognized in Corporate unallocated. In addition, we allocate only certain production assets and intangible assets to our operating segments. We do not manage the performance of the segments on a balance sheet basis.

Segment Products

Device Solutions – This segment primarily includes hardware products used for measurement, control, or sensing that do not have communications capability embedded for use with our broader Itron systems, i.e., hardware-based products not part of a complete end-to-end solution. Examples from the Device Solutions portfolio include: standard endpoints that are shipped without Itron communications, such as our standard gas, electricity, and water meters for a variety of global markets and adhering to regulations and standards within those markets, as well as our heat and allocation products; communicating meters that are not a part of an Itron end-to-end solution, such as Smart Spec meters; and the implementation and installation of non-communicating devices.

Networked Solutions – This segment primarily includes a combination of communicating devices (e.g., smart meters, modules, endpoints, and sensors), network infrastructure, and associated application software designed and sold as a complete solution for acquiring and transporting robust application-specific data. Networked Solutions includes products and software for the implementation, installation, and management of communicating devices and data networks. The Industrial Internet of Things (IIoT) solutions supported by this segment include automated meter reading (AMR), advanced metering infrastructure (AMI),
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distributed energy resource management (DERMs), smart grid and distribution automation, smart street lighting, and an ever-growing set of smart city applications such as traffic management, smart parking, air quality monitoring, electric vehicle charging, customer engagement, digital signage, acoustic (e.g., gunshot) detection, and leak detection and mitigation for both gas and water systems. Our IIoT platform allows all these utility and smart city applications to be run and managed on a single, multi-purpose network.

Outcomes – This segment primarily includes our value-added, enhanced software and services in which we manage, organize, analyze, and interpret raw, anonymized and aggregated data to improve decision making, maximize operational profitability, drive resource efficiency, improve grid analytics, and deliver results for consumers, utilities, and smart cities. Outcomes supports high-value use cases such as data management, grid operations, distributed intelligence, operations management, gas distribution and safety, water operations management, revenue assurance, DERMs, energy forecasting, consumer engagement, smart payment, and fleet energy resource management. Utilities leverage these outcomes to capitalize on the power of networks and devices, empower their workforce, maximize their operations, and enhance the customer experience. The revenues from these offerings are primarily recurring in nature and would include any direct management of Device Solutions, Networked Solutions, and other products on behalf of our end customers.

Revenues, gross profit, and operating income (loss) associated with our operating segments were as follows:
Three Months Ended September 30,Nine Months Ended September 30,
In thousands2023202220232022
Product revenues
Device Solutions$110,138 $92,893 $340,098 $334,212 
Networked Solutions352,771 240,498 964,909 731,358 
Outcomes17,446 14,400 56,475 41,929 
Total Company$480,355 $347,791 $1,361,482 $1,107,499 
Service revenues
Device Solutions$631 $1,110 $2,085 $4,166 
Networked Solutions32,200 29,374 94,460 86,796 
Outcomes47,586 42,585 138,433 129,612 
Total Company$80,417 $73,069 $234,978 $220,574 
Total revenues
Device Solutions$110,769 $94,003 $342,183 $338,378 
Networked Solutions384,971 269,872 1,059,369 818,154 
Outcomes65,032 56,985 194,908 171,541 
Total Company$560,772 $420,860 $1,596,460 $1,328,073 
Gross profit
Device Solutions$26,919 $14,805 $75,351 $50,489 
Networked Solutions135,203 81,895 362,852 263,155 
Outcomes25,081 23,362 79,315 67,747 
Total Company$187,203 $120,062 $517,518 $381,391 
Operating income (loss)
Device Solutions$17,675 $7,066 $45,837 $24,103 
Networked Solutions102,503 54,640 266,052 177,929 
Outcomes10,280 11,339 35,867 28,789 
Corporate unallocated(75,568)(66,157)(268,159)(250,641)
Total Company54,890 6,888 79,597 (19,820)
Total other income (expense)843 (1,943)(1,673)(6,704)
Income (loss) before income taxes$55,733 $4,945 $77,924 $(26,524)

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For the three and nine months ended September 30, 2023 and 2022, no single customer represented more than 10% of total company revenue.

Revenues by region were as follows:
Three Months Ended September 30,Nine Months Ended September 30,
In thousands2023202220232022
United States and Canada$452,583 $317,960 $1,256,042 $947,684 
Europe, Middle East, and Africa81,394 80,735 265,814 306,962 
Asia Pacific26,795 22,165 74,604 73,427 
Total Company$560,772 $420,860 $1,596,460 $1,328,073 

Depreciation expense is allocated to the operating segments based upon each segment's use of the assets. All amortization expense is recognized within Corporate unallocated. Depreciation and amortization of intangible assets expense associated with our operating segments was as follows:
Three Months Ended September 30,Nine Months Ended September 30,
In thousands2023202220232022
Device Solutions$2,976 $3,566 $9,467 $11,049 
Networked Solutions4,074 4,401 12,273 13,126 
Outcomes1,270 2,057 3,748 4,184 
Corporate unallocated5,325 7,337 16,525 22,253 
Total Company$13,645 $17,361 $42,013 $50,612 

Note 16: Revenues

A summary of significant net changes in the contract assets and the contract liabilities balances during the period is as follows:
In thousandsContract Liabilities, Less Contract Assets
Beginning balance, January 1, 2023$75,958 
Revenues recognized from beginning contract liability(61,425)
Cumulative catch-up adjustments7,304 
Increases due to amounts collected or due265,717 
Revenues recognized from current period increases(193,353)
Other585 
Ending balance, September 30, 2023$94,786 

On January 1, 2023, total contract assets were $57.0 million and total contract liabilities were $133.0 million. On September 30, 2023, total contract assets were $78.6 million and total contract liabilities were $173.4 million. The contract assets primarily relate to contracts that include a retention clause and allocations related to contracts with multiple performance obligations. The contract liabilities primarily relate to deferred revenue, such as extended warranty and maintenance cost. The cumulative catch-up adjustments relate to contract modifications, measure-of-progress changes, and changes in the estimate of the transaction price.

Transaction price allocated to the remaining performance obligations
Total transaction price allocated to remaining performance obligations represents committed but undelivered products and services for contracts and purchase orders at period end. Twelve-month remaining performance obligations represent the portion of total transaction price allocated to remaining performance obligations that we estimate will be recognized as revenue over the next 12 months. Total transaction price allocated to remaining performance obligations is not a complete measure of our future revenues as we also receive orders where the customer may have legal termination rights but are not likely to terminate.

Total transaction price allocated to remaining performance obligations related to contracts is approximately $1.9 billion for the next 12 months and approximately $1.5 billion for periods longer than 12 months. The total remaining performance obligations consist of product and service components. The service component relates primarily to maintenance agreements for which
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customers pay a full year's maintenance in advance, and service revenues are generally recognized over the service period. Total transaction price allocated to remaining performance obligations also includes our extended warranty contracts, for which revenue is recognized over the warranty period, and hardware, which is recognized as units are delivered. The estimate of when remaining performance obligations will be recognized requires significant judgment.

Cost to obtain a contract and cost to fulfill a contract with a customer
Cost to obtain a contract and costs to fulfill a contract were capitalized and amortized using a systematic rational approach to align with the transfer of control of underlying contracts with customers. While amounts were capitalized, they are not material.

Disaggregation of revenue
Refer to Note 15: Segment Information and the Consolidated Statements of Operations for disclosure regarding the disaggregation of revenue into categories, which depict how revenue and cash flows are affected by economic factors. Specifically, our operating segments and geographical regions as disclosed, and categories for products, which include hardware and software and services, are presented.

Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and notes included in this report and with the consolidated financial statements and the notes thereto for the fiscal year ended December 31, 2022 filed with the Securities and Exchange Commission (SEC) in our Annual Report on Form 10-K on February 27, 2023 (2022 Annual Report).

The objective of Management's Discussion and Analysis is to provide our assessment of the financial condition and results of operations, including an evaluation of our liquidity and capital resources along with material events occurring during the year. The discussion and analysis focuses on material events and uncertainties known to management that are reasonably likely to cause reported financial information not to be necessarily indicative of future operating results or of future financial condition. In addition, we address matters that are reasonably likely, based on management's assessment, to have a material impact on future operations. We expect the analysis will enhance a reader's understanding of our financial condition, cash flows, and other changes in financial condition and results of operations.

Documents we provide to the SEC are available free of charge under the Investors section of our website at www.itron.com as soon as practicable after they are filed with or furnished to the SEC. In addition, these documents are available at the SEC's website (http://www.sec.gov).

Certain Forward-Looking Statements

This report contains, and our officers and representatives may from time to time make, "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are neither historical factors nor assurances of future performance. These statements are based on our expectations about, among others, revenues, operations, financial performance, earnings, liquidity, earnings per share, cash flows and restructuring activities including headcount reductions and other cost savings initiatives. This document reflects our current strategy, plans and expectations and is based on information currently available as of the date of this Quarterly Report on Form 10-Q. When we use words such as "expect", "intend", "anticipate", "believe", "plan", "goal", "seek", "project", "estimate", "future", "strategy", "objective", "may", "likely", "should", "will", "will continue", and similar expressions, including related to future periods, they are intended to identify forward-looking statements. Forward-looking statements rely on a number of assumptions and estimates. Although we believe the estimates and assumptions upon which these forward-looking statements are based are reasonable, any of these estimates or assumptions could prove to be inaccurate and the forward-looking statements based on these estimates and assumptions could be incorrect. Our operations involve risks and uncertainties, many of which are outside our control, and any one of which, or a combination of which, could materially affect our results of operations and whether the forward-looking statements ultimately prove to be correct. Actual results and trends in the future may differ materially from those suggested or implied by the forward-looking statements depending on a variety of factors. Therefore, you should not rely on any of these forward-looking statements. Some of the factors that we believe could affect our results include our ability to execute on our restructuring plans, our ability to achieve estimated cost savings, the rate and timing of customer demand for our products, rescheduling of current customer orders, changes in estimated liabilities for product warranties, adverse impacts of litigation, changes in laws and regulations, our dependence on new product development and intellectual property, future acquisitions, changes in estimates for stock-based and bonus compensation, increasing volatility in foreign exchange rates, international business risks, uncertainties caused by adverse economic conditions, including without limitation those resulting from extraordinary events or circumstances and other factors that are
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more fully described in Part I, Item 1A: Risk Factors included in our 2022 Annual Report and other reports on file with the SEC. We undertake no obligation to update or revise any forward-looking statement, whether written or oral.

Overview

We are a technology and service company, and we are a leader in the Industrial Internet of Things (IIoT). We offer solutions that enable utilities and municipalities to safely, securely, and reliably operate their critical infrastructure. Our solutions include the deployment of smart networks, software, services, devices, sensors, and data analytics that allow our customers to manage assets, secure revenue, lower operational costs, improve customer service, improve safety, and enable efficient management of valuable resources. Our comprehensive solutions and data analytics address the unique challenges facing the energy, water, and municipality sectors, including increasing demand on resources, non-technical loss, leak detection, environmental and regulatory compliance, and improved operational reliability.

We operate under the Itron brand worldwide and manage and report under three operating segments: Device Solutions, Networked Solutions, and Outcomes. The product and operating definitions of the three segments are as follows:

Device Solutions – This segment primarily includes hardware products used for measurement, control, or sensing that do not have communications capability embedded for use with our broader Itron systems, i.e., hardware-based products not part of a complete end-to-end solution. Examples from the Device Solutions portfolio include: standard endpoints that are shipped without Itron communications, such as our standard gas, electricity, and water meters for a variety of global markets and adhering to regulations and standards within those markets, as well as our heat and allocation products; communicating meters that are not a part of an Itron end-to-end solution, such as Smart Spec meters; and the implementation and installation of non-communicating devices.

Networked Solutions – This segment primarily includes a combination of communicating devices (e.g., smart meters, modules, endpoints, and sensors), network infrastructure, and associated application software designed and sold as a complete solution for acquiring and transporting robust application-specific data. Networked Solutions includes products and software for the implementation, installation, and management of communicating devices and data networks. The Industrial Internet of Things (IIoT) solutions supported by this segment include automated meter reading (AMR), advanced metering infrastructure (AMI), distributed energy resource management (DERMs), smart grid and distribution automation, smart street lighting, and an ever-growing set of smart city applications such as traffic management, smart parking, air quality monitoring, electric vehicle charging, customer engagement, digital signage, acoustic (e.g., gunshot) detection, and leak detection and mitigation for both gas and water systems. Our IIoT platform allows all these utility and smart city applications to be run and managed on a single, multi-purpose network.

Outcomes – This segment primarily includes our value-added, enhanced software and services in which we manage, organize, analyze, and interpret raw, anonymized and aggregated data to improve decision making, maximize operational profitability, drive resource efficiency, improve grid analytics, and deliver results for consumers, utilities, and smart cities. Outcomes supports high-value use cases such as data management, grid operations, distributed intelligence, operations management, gas distribution and safety, water operations management, revenue assurance, DERMs, energy forecasting, consumer engagement, smart payment, and fleet energy resource management. Utilities leverage these outcomes to capitalize on the power of networks and devices, empower their workforce, maximize their operations, and enhance the customer experience. The revenues from these offerings are primarily recurring in nature and would include any direct management of Device Solutions, Networked Solutions, and other products on behalf of our end customers.

We have three measures of segment performance: revenues, gross profit (margin), and operating income (margin). Intersegment revenues are minimal. Certain operating expenses are allocated to the operating segments based upon internally established allocation methodologies. Interest income, interest expense, other income (expense), the income tax provision (benefit), and certain corporate operating expenses are neither allocated to the segments nor included in the measures of segment performance.

Non-GAAP Measures
To supplement our consolidated financial statements, which are prepared in accordance with accounting principles generally accepted in the United States (GAAP), we use certain adjusted or non-GAAP financial measures, including non-GAAP operating expense, non-GAAP operating income, non-GAAP net income, non-GAAP diluted earnings per share (EPS), adjusted EBITDA, free cash flow, and constant currency. We provide these non-GAAP financial measures because we believe they provide greater transparency and represent supplemental information used by management in its financial and operational decision making. We exclude certain costs in our non-GAAP financial measures as we believe the net result is a measure of our core business. We believe these measures facilitate operating performance comparisons from period to period by eliminating
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potential differences caused by the existence and timing of certain expense items that would not otherwise be apparent on a GAAP basis. Non-GAAP performance measures should be considered in addition to, and not as a substitute for, results prepared in accordance with GAAP. We strongly encourage investors and shareholders to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure. Our non-GAAP financial measures may be different from those reported by other companies.

In our discussions of the operating results below, we may refer to the impact of foreign currency exchange rate fluctuations, which are references to the differences between the foreign currency exchange rates we use to convert operating results from local currencies into U.S. dollars for reporting purposes. We also use the term "constant currency", which represents results adjusted to exclude foreign currency exchange rate impacts. We calculate the constant currency change as the difference between the current period results translated using the current period currency exchange rates and the comparable prior period's results restated using current period currency exchange rates. We believe the reconciliations of changes in constant currency provide useful supplementary information to investors in light of fluctuations in foreign currency exchange rates.

Refer to the Non-GAAP Measures section below on pages 42-45 for information about these non-GAAP measures and the detailed reconciliation of items that impacted non-GAAP operating expenses, non-GAAP operating income, non-GAAP net income, non-GAAP diluted EPS, adjusted EBITDA, and free cash flow in the periods presented.

Total Company Highlights

Highlights and significant developments for the three months ended September 30, 2023 compared with the three months ended September 30, 2022
•Revenues were $560.8 million compared with $420.9 million in 2022, an increase of 33%
•Gross margin was 33.4%, compared with 28.5% in 2022
•Operating expenses increased $19.1 million, or 17%, compared with 2022
•Net income attributable to Itron, Inc. was $40.2 million compared with net income of $4.1 million in 2022
•GAAP diluted EPS increased by $0.78 to a diluted income per share of $0.87 in 2023
•Non-GAAP net income attributable to Itron, Inc. was $44.9 million compared with $10.5 million in 2022
•Non-GAAP diluted EPS was $0.98, an increase of $0.75 compared with 2022
•Adjusted EBITDA was $68.5 million compared with $24.3 million in 2022
•Total backlog was $4.3 billion and twelve-month backlog was $2.0 billion at September 30, 2023, compared with $4.2 billion and $1.6 billion at September 30, 2022

Highlights and significant developments for the nine months ended September 30, 2023 compared with the nine months ended September 30, 2022
•Revenues were $1.6 billion compared with $1.3 billion in 2022, an increase of $0.3 billion, or 20%
•Gross margin was 32.4% compared with 28.7% in 2022
•Operating expenses increased $36.7 million, or 9%, compared with 2022
•Net income attributable to Itron, Inc. was $52.5 million compared with net loss of $31.9 million in 2022
•GAAP diluted EPS increased by $1.86 to a diluted income per share of $1.15 in 2023
•Non-GAAP net income attributable to Itron, Inc. was $97.1 million compared with $18.8 million in 2022
•Non-GAAP diluted EPS was $2.12, an increase of $1.70 compared with 2022
•Adjusted EBITDA was $157.2 million compared with $60.7 million in 2022

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Credit Facility Amendment
Subsequent to quarter end, on October 13, 2023, Itron, Inc. (Itron) entered into a seventh amendment to extend the maturity date to October 18, 2026. However, that date may be advanced to December 14, 2025 if Itron does not settle or extend a sufficient portion of outstanding convertible notes detailed in the amendment. In addition, the amendment revises the interest cost, as follows:

Total Net Leverage RatioInterest CostCommitment Fee
Greater than 4.00SOFR + 250 bps40 bps
3.51 to 4.00SOFR + 225 bps35 bps
2.51 to 3.50SOFR + 200 bps30 bps
Less than or equal to 2.50SOFR + 175 bps25 bps

On February 21, 2023, we entered into a sixth amendment to the 2018 credit facility. This amendment modified provisions to allow for the addback for debt covenant calculations of non-recurring cash expenses related to restructuring charges incurred during the quarter ended March 31, 2023.

For additional details, refer to Item 1: Financial Statements (Unaudited), Note 6: Debt included in this Quarterly Report on Form 10-Q.

Stock Repurchase Authorization
Effective May 11, 2023, the Board of Directors of Itron authorized a new share repurchase program of up to $100 million of Itron's common stock over an 18-month period (the 2023 Stock Repurchase Program). Repurchases will be made in the open market and pursuant to the terms of any Rule 10b5-1 plans that Itron may enter into, and in accordance with applicable securities laws. The repurchase program is intended to comply with Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended. Depending on market conditions and other factors, these repurchases may be commenced or suspended from time to time without prior notice. There have been no repurchases under the 2023 Stock Repurchase Program through November 2, 2023.

2023 Restructuring Projects
On February 23, 2023, the Board of Directors of Itron approved a restructuring plan (the 2023 Projects). The 2023 Projects include activities that continue the Company's efforts to optimize its global supply chain and manufacturing operations, sales and marketing organizations, and other overhead. These projects are to be substantially complete by early 2025. Itron estimates pre-tax restructuring charges of $45.6 million. Of the total estimated charge, approximately 95% will result in cash expenditures, and the remainder to non-cash impairment charges. The majority of the expense were recognized during the first quarter of 2023. Once the 2023 Projects are substantially completed, Itron estimates $14-17 million in annualized savings. Certain of Itron's employees are represented by unions or works councils, which requires consultation, and potential restructuring projects may be subject to regulatory approval, both of which could impact the timing of planned savings in certain jurisdictions.

Global Geopolitical and Economic Supply Chain Risk
Global economic impacts, such as the COVID-19 pandemic and the various ongoing conflicts around the globe, may create disruption in customer demand and global supply chains, resulting in market volatility, which our management continues to monitor. In the aftermath of these types of events global supply chains, including labor, struggle to keep pace with rapidly changing demand. While recently improving from 2022 levels, our ability to obtain adequate supply of semiconductor components has impacted our ability to service customer demand. Temporal imbalance in supply and demand creates business uncertainties that include costs and availability. Efforts continue with suppliers to increase supply, including the approval of alternate sources. Recently, inflation in our raw materials and component costs, freight charges, and labor costs have increased above historical levels, due to, among other things, the continuing impacts of the uncertain economic environment. We may or may not be able to fully recover these increased costs through pricing actions with our customers. Currently, we have not identified any significant decrease in long-term customer demand for our products and services. Certain of our customer projects have experienced delays in deliveries, with revenues originally forecasted in prior periods shifting to future periods. For more information on risks associated with the pandemic and supply chain challenges, please see our risk in Part I, Item 1A, Risk Factors in our 2022 Annual Report.

While we have limited direct business exposure in areas with current conflict, such as Russia, Belarus, Ukraine, and Israel, military actions globally and any resulting sanctions could adversely affect the global economy, as well as further disrupt the supply chain. A major disruption in the global economy and supply chain could have a material adverse effect on our business,
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prospects, financial condition, results of operations, and cash flows. The extent and duration of the military action, sanctions, and resulting market and/or supply disruptions are impossible to predict, but could be substantial, and our management continues to monitor these events closely.

Total Company GAAP and Non-GAAP Highlights and Endpoints Under Management:
Three Months Ended September 30,Nine Months Ended September 30,
In thousands, except margin and per share data20232022% Change20232022% Change
GAAP
Revenues
Product revenues$480,355 $347,791 38%$1,361,482 $1,107,499 23%
Service revenues80,417 73,069 10%234,978 220,574 7%
Total revenues560,772 420,860 33%1,596,460 1,328,073 20%
Gross profit187,203 120,062 56%517,518 381,391 36%
Operating expenses132,313 113,174 17%437,921 401,211 9%
Operating income (loss)54,890 6,888 697%79,597 (19,820)NM
Other income (expense)843 (1,943)NM(1,673)(6,704)(75)%
Income tax provision(15,388)(473)NM(24,513)(4,973)393%
Net income (loss) attributable to Itron, Inc.40,172 4,117 876%52,537 (31,944)NM
Non-GAAP(1)
Non-GAAP operating expenses$128,197 $105,262 22%$385,833 $348,265 11%
Non-GAAP operating income59,006 14,800 299%131,685 33,126 298%
Non-GAAP net income attributable to Itron, Inc.44,892 10,513 327%97,098 18,817 416%
Adjusted EBITDA68,461 24,328 181%157,229 60,700 159%
GAAP Margins and Earnings Per Share
Gross margin
Product gross margin30.9 %25.7 %30.1 %26.1 %
Service gross margin48.4 %42.2 %45.8 %42.0 %
Total gross margin33.4 %28.5 %32.4 %28.7 %
Operating margin9.8 %1.6 %5.0 %(1.5)%
Net income (loss) per common share - Basic$0.88 $0.09 $1.16 $(0.71)
Net income (loss) per common share - Diluted$0.87 $0.09 $1.15 $(0.71)
Non-GAAP Earnings Per Share(1)
Non-GAAP diluted EPS$0.98 $0.23 $2.12 $0.42 
(1)These measures exclude certain expenses that we do not believe are indicative of our core operating results. See pages 42-45 for information about these non-GAAP measures and reconciliations to the most comparable GAAP measures.

Definition of an Endpoint Under Management
An "endpoint under management" is a unique endpoint, or data from that endpoint, which Itron manages via our networked platform or a third party's platform that is connected to one or multiple types of endpoints. Itron's management of an endpoint occurs when on behalf of our client, we manage one or more of the physical endpoints, operating system, data, application, data analytics, and/or outcome deriving from this unique endpoint. Itron has the ability to monitor and/or manage endpoints or the data from the endpoints via Network-as-a-Service (NaaS), Software-as-a-Service (SaaS), and/or a licensed offering at a remote location designated by our client. Our offerings typically, but not exclusively, provide an Itron product or Itron certified partner product to our clients that has the capability of one-way communication or two-way communication of data that may include remote product configuration and upgradability. Examples of these offerings include our Temetra, OpenWay®, OpenWay® Riva and Gen X.
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This metric primarily includes Itron or third-party endpoints deployed within the electricity, water, and gas utility industries, as well as within cities and municipalities around the globe. Endpoints under management also include smart communication modules and network interface cards (NICs) within Itron's platforms. At times, these NICs are communicating modules that were sold separately from an Itron product directly to our customers or to third party manufacturers for use in endpoints such as electric, water, and gas meters; streetlights and other types of IIoT sensors and actuators; sensors and other capabilities that the end customer would like Itron to connect and manage on their behalf.

The "endpoint under management" metric only accounts for the specific, unique endpoint itself, though that endpoint may have multiple applications, services, outcomes, and higher margin recurring offerings associated with it. This metric does not reflect the multi-application value that can be derived from the individual endpoint itself. Additionally, this metric excludes those endpoints that are non-communicating, non-Itron system hardware component sales or licensed applications that Itron does not manage the unit or the data from that unit directly.

While the one-time sale of the platform and endpoints are primarily delivered via our Networked Solutions segment, our enhanced solutions, on-going monitoring, maintenance, software, analytics, and distributed intelligent applications are predominantly recognized in our Outcomes segment. We anticipate the opportunity to increase our penetration of Outcomes applications, software, and managed applications will increase as our endpoints under management increases. Management believes using the endpoints under management metric enhances insight to the strategic and operational direction of our Networked Solutions and Outcomes segments to serve clients for years after their one-time installation of an endpoint.

A summary of our endpoints under management is as follows:
As of September 30,
Units in thousands20232022
Endpoints under management96,143 91,541 

Results of Operations

Revenues and Gross Margin

The actual results of and effects of changes in foreign currency exchange rates on revenues and gross profit were as follows:
Effect of Changes in Foreign Currency Exchange RatesConstant Currency ChangeTotal Change
Three Months Ended September 30,
In thousands20232022
Total Company
Revenues$560,772 $420,860 $5,743 $134,169 $139,912 
Gross profit187,203 120,062 1,254 65,887 67,141 
Effect of Changes in Foreign Currency Exchange RatesConstant Currency ChangeTotal Change
Nine Months Ended September 30,
In thousands20232022
Total Company
Revenues$1,596,460 $1,328,073 $(2,732)$271,119 $268,387 
Gross profit517,518 381,391 (573)136,700 136,127 

Revenues - Three months ended September 30, 2023 vs. Three months ended September 30, 2022
Total revenues increased $139.9 million, or 33%, in the current 2023 quarter, compared with the same period in 2022. Product revenues increased by $132.6 million, and service revenues increased $7.3 million. Device Solutions increased by $16.8 million; Networked Solutions increased by $115.1 million; and Outcomes increased by $8.0 million when compared with the same period last year. Changes in exchange rates favorably impacted total revenues by $5.7 million, of which $5.0 million favorably impacted Device Solutions.
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Revenues - Nine months ended September 30, 2023 vs. Nine months ended September 30, 2022
Total revenues increased $268.4 million, or 20%, compared with the same period in 2022. Product revenues increased by $254.0 million, and service revenues increased by $14.4 million. Device Solutions increased by $3.8 million; Networked Solutions increased by $241.2 million; and Outcomes increased by $23.4 million when compared with the same period last year. Changes in exchange rates unfavorably impacted total revenues by $2.7 million, of which $2.2 million unfavorably impacted Networked Solutions.

Gross Margin - Three months ended September 30, 2023 vs. Three months ended September 30, 2022
Gross margin in the 2023 period was 33.4%, compared with 28.5% in 2022. Product sales gross margin increased to 30.9% for the quarter in 2023, compared with 25.7% in 2022. Gross margin on service revenues increased to 48.4% in 2023, compared with 42.2% in 2022.

Gross Margin - Nine months ended September 30, 2023 vs. Nine months ended September 30, 2022
Gross margin was 32.4%, compared with 28.7% in 2022. Product sales gross margin increased to 30.1%, compared with 26.1% in 2022, and gross margin on service revenues increased to 45.8%, compared with 42.0% in 2022.

Refer to Operating Segment Results section below for further detail on total company revenues and gross margin.

Operating Expenses

The actual results of and effects of changes in foreign currency exchange rates on operating expenses were as follows:
Effect of Changes in Foreign Currency Exchange RatesConstant Currency ChangeTotal Change
Three Months Ended September 30,
In thousands20232022
Total Company
Sales, general and administrative$76,576 $63,446 $1,211 $11,919 $13,130 
Research and development51,644 43,820 488 7,336 7,824 
Amortization of intangible assets4,663 6,413 81 (1,831)(1,750)
Restructuring(615)(1,272)(80)737 657 
Loss on sale of business45 767 (20)(702)(722)
Total operating expenses$132,313 $113,174 $1,680 $17,459 $19,139 
Effect of Changes in Foreign Currency Exchange RatesConstant Currency ChangeTotal Change
Nine Months Ended September 30,
In thousands20232022
Total Company
Sales, general and administrative$231,176 $212,724 $515 $17,937 $18,452 
Research and development154,769 138,471 57 16,241 16,298 
Amortization of intangible assets14,433 19,451 7 (5,025)(5,018)
Restructuring36,868 (11,097)(137)48,102 47,965 
Loss on sale of business675 3,182 2,495 (5,002)(2,507)
Goodwill impairment— 38,480 281 (38,761)(38,480)
Total operating expenses$437,921 $401,211 $3,218 $33,492 $36,710 

Operating expenses increased $19.1 million for the third quarter of 2023 as compared with the same period in 2022. This was primarily the result of an increase of $13.1 million in sales, general and administrative expenses and $7.8 million in research and development expenses. The increase in sales, general and administrative and research and development expenses were primarily driven by increased labor costs, including variable compensation.

Operating expenses increased $36.7 million for the nine months ended as compared with the same period in 2022. This was primarily the result of a $48.0 million increase in restructuring costs, of which $41.2 million was related to the 2023 Projects, as
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well an increase of $18.5 million in sales, general and administrative expenses and a $16.3 million increase in research and development expenses. The increase in sales, general and administrative and research and development expenses were primarily driven by increased labor costs, including variable compensation. The increase was partially offset by $38.5 million in goodwill impairment recognized in 2022 and a $5.0 million decrease in amortization of intangible assets. For additional details, refer to Item 1: Financial Statements (Unaudited), Note 12: Restructuring included in this Quarterly Report on Form 10-Q.

Other Income (Expense)

The following table shows the components of other income (expense):
Three Months Ended September 30,% ChangeNine Months Ended September 30,% Change
In thousands2023202220232022
Interest income$2,642 $801 230%$5,968 $1,367 337%
Amortization of prepaid debt fees(941)(890)6%(2,761)(2,610)6%
Other interest expense(1,504)(789)91%(3,718)(2,321)60%
Interest expense(2,445)(1,679)46%(6,479)(4,931)31%
Other income (expense), net646 (1,065)NM(1,162)(3,140)(63)%
Total other income (expense)$843 $(1,943)NM$(1,673)$(6,704)(75)%

Total other income (expense) for the three and nine months ended September 30, 2023 was net income of $0.8 million and net expense of $1.7 million, compared with net expense of $1.9 million and $6.7 million in the same period in 2022.

The change in total other income (expense) for the three months ended September 30, 2023, as compared with the same period in 2022, was primarily driven by the $1.8 million increase in interest income.

The lower net expense for the nine months ended September 30, 2023, as compared with the same period in 2022, was primarily driven by the $4.6 million increase in interest income.

Income Tax Provision

For the three and nine months ended September 30, 2023, our income tax expense was $15.4 million and $24.5 million, compared with income tax expense of $0.5 million and $5.0 million for the same period in 2022. Our tax rate for the three and nine months ended September 30, 2023 of 28% and 31%, differed from the federal statutory rate of 21% due to the impact of valuation allowances on deferred tax assets, the forecasted mix of earnings in domestic and international jurisdictions, U.S. taxation of foreign earnings including GILTI (Global Intangible Low-Taxed Income), net of Section 250 deduction, Subpart F income, an expense related to stock-based compensation, tax credits, and uncertain tax positions. Our tax rate for the three and nine months ended September 30, 2022 of 10% and (19)% differed from the federal statutory rate of 21% primarily due to the impact of valuation allowances on deferred tax assets, the forecasted mix of earnings in domestic and international jurisdictions, GILTI and Subpart F tax, net of Section 250 deduction (largely driven by research and development capitalization), discrete tax expense related to the Dresser divestiture, a discrete tax benefit due to goodwill impairment, an expense related to stock-based compensation, tax credits, and uncertain tax positions.

Beginning January 1, 2022, the Tax Cuts and Jobs Act of 2017 eliminated the option to deduct research and development expenditures currently and requires taxpayers to capitalize and amortize them over five or fifteen years, dependent upon the geography in which the expenditures are incurred. Although Congress has considered legislation that would defer, modify, or repeal the capitalization and amortization requirement, as of quarter end no such deferral has been passed. The income tax provision has been prepared according to currently enacted tax legislation.

In August 2022, the Inflation Reduction Act was signed into law, which made a number of changes to the Internal Revenue Code, including adding a 1% excise tax on stock buybacks by publicly traded corporations and a 15% minimum tax on adjusted financial statement income of certain large companies. We are subject to the new 1% excise tax beginning January 1, 2023, but the amount will vary depending upon various factors. The 15% minimum tax only applies to corporations with average book income in excess of $1 billion, therefore it is not currently applicable.

The Organization for Economic Cooperation and Development (OECD) Pillar 2 global minimum tax rules are intended to apply for tax years beginning in 2024. On February 1, 2023, the Financial Accounting Standards Board (FASB) staff noted that they believe that the Pillar 2 tax would be an alternative minimum tax and therefore deferred tax assets would not need to be recognized related to this parallel taxing system. On February 2, 2023, the OECD issued administrative guidance providing
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transition and safe harbor rules around the implementation of the Pillar 2 global minimum tax. Under an additional transitional safe harbor released July 17, 2023, the undertaxed profits rule (UTPR) top-up tax will not be applied by any constituent entity's jurisdiction of residence with respect to income earned by a company's ultimate parent entity in its jurisdiction of residence, if the ultimate parent entity's jurisdiction has a corporate tax rate of at least 20%. This transition safe harbor will apply to fiscal years beginning on or before December 31, 2025 and ending before December 31, 2026. The Company is closely monitoring developments and evaluating the impacts these new rules will have on our tax rate, including eligibility to qualify for these safe harbor rules. Based upon preliminary calculations for calendar year 2024, the Company anticipates it will meet the safe harbors in most jurisdictions, and any remaining top-up tax should be immaterial.

For additional discussion related to income taxes, see Item 1: Financial Statements (Unaudited), Note 10: Income Taxes included in this Quarterly Report on Form 10-Q.

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Operating Segment Results

For a description of our operating segments, refer to Item 1: Financial Statements (Unaudited), Note 15: Segment Information included in this Quarterly Report on Form 10-Q. The following tables and discussion highlight significant changes in trends or components of each operating segment:
Three Months Ended September 30,Nine Months Ended
September 30,
In thousands20232022% Change20232022% Change
Segment revenues
Device Solutions$110,769 $94,003 18%$342,183 $338,378 1%
Networked Solutions384,971 269,872 43%1,059,369 818,154 29%
Outcomes65,032 56,985 14%194,908 171,541 14%
Total revenues
$560,772 $420,860 33%$1,596,460 $1,328,073 20%
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
In thousandsGross
Profit		Gross
Margin		Gross
Profit		Gross
Margin		Gross
Profit		Gross
Margin		Gross
Profit		Gross
Margin
Segment gross profit and margin
Device Solutions$26,919 24.3%$14,805 15.7%$75,351 22.0%$50,489 14.9%
Networked Solutions135,203 35.1%81,895 30.3%362,852 34.3%263,155 32.2%
Outcomes25,081 38.6%23,362 41.0%79,315 40.7%67,747 39.5%
Total gross profit and margin
$187,203 33.4%$120,062 28.5%$517,518 32.4%$381,391 28.7%
Three Months Ended September 30,Nine Months Ended
September 30,
In thousands20232022% Change20232022% Change
Segment operating expenses
Device Solutions$9,244 $7,739 19%$29,514 $26,386 12%
Networked Solutions32,700 27,255 20%96,800 85,226 14%
Outcomes14,801 12,023 23%43,448 38,958 12%
Corporate unallocated75,568 66,157 14%268,159 250,641 7%
Total operating expenses$132,313 $113,174 17%$437,921 $401,211 9%
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
In thousandsOperating
Income (Loss)		Operating
Margin		Operating
Income (Loss)		Operating
Margin		Operating
Income (Loss)		Operating
Margin		Operating
Income (Loss)		Operating
Margin
Segment operating income (loss) and operating margin
Device Solutions$17,675 16.0%$7,066 7.5%$45,837 13.4%$24,103 7.1%
Networked Solutions102,503 26.6%54,640 20.2%266,052 25.1%177,929 21.7%
Outcomes10,280 15.8%11,339 19.9%35,867 18.4%28,789 16.8%
Corporate unallocated(75,568)NM(66,157)NM(268,159)NM(250,641)NM
Total operating income (loss) and operating margin$54,890 9.8%$6,888 1.6%$79,597 5.0%$(19,820)(1.5)%

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Device Solutions

The effects of changes in foreign currency exchange rates and the constant currency changes in certain Device Solutions segment financial results were as follows:
Effect of Changes in Foreign Currency Exchange RatesConstant Currency ChangeTotal Change
Three Months Ended September 30,
In thousands20232022
Device Solutions Segment
Revenues$110,769 $94,003 $4,967 $11,799 $16,766 
Gross profit26,919 14,805 804 11,310 12,114 
Operating expenses9,244 7,739 131 1,374 1,505 
Effect of Changes in Foreign Currency Exchange RatesConstant Currency ChangeTotal Change
Nine Months Ended September 30,
In thousands20232022
Device Solutions Segment
Revenues$342,183 $338,378 $110 $3,695 $3,805 
Gross profit75,351 50,489 197 24,665 24,862 
Operating expenses29,514 26,386 61 3,067 3,128 

Revenues - Three months ended September 30, 2023 vs. Three months ended September 30, 2022
Revenues increased $16.8 million, or 18%. Changes in foreign currency exchange rates favorably impacted revenues by $5.0 million. Revenues increased compared with the prior year driven primarily by increased water meter sales in Europe, Middle East, and Africa (EMEA).

Revenues - Nine months ended September 30, 2023 vs. Nine months ended September 30, 2022
Revenues increased $3.8 million, or 1%. Changes in foreign currency exchange rates favorably impacted revenues by $0.1 million. The 2023 increase in revenues was driven primarily by increased water meter sales in EMEA, partially offset by reduced gas hardware sales resulting from our divestiture to Dresser in the first quarter of 2022.

Gross Margin - Three months ended September 30, 2023 vs. Three months ended September 30, 2022
For the three months ended September 30, 2023, gross margin was 24.3%, compared with 15.7% for the same period in 2022. The 860 basis point increase over the prior year was primarily due to an improved product mix and operational efficiencies.

Gross Margin - Nine months ended September 30, 2023 vs. Nine months ended September 30, 2022
For the nine months ended September 30, 2023, gross margin was 22.0%, compared with 14.9% for the same period in 2022. The 710 basis point increase over the prior year was primarily due to an improved product mix and operational efficiencies.

Operating Expenses - Three months ended September 30, 2023 vs. Three months ended September 30, 2022
Operating expenses increased $1.5 million, or 19%, compared with 2022. The increase was primarily due to higher marketing expenses, driven by variable compensation, as well as higher product development expenses.

Operating Expenses - Nine months ended September 30, 2023 vs. Nine months ended September 30, 2022
Operating expenses increased $3.1 million, or 12%, for the first nine months of 2023, compared with the same period in 2022. The increase was primarily due to higher product development expenses.
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Networked Solutions

The effects of changes in foreign currency exchange rates and the constant currency changes in certain Networked Solutions segment financial results were as follows:
Effect of Changes in Foreign Currency Exchange RatesConstant Currency ChangeTotal Change
Three Months Ended September 30,
In thousands20232022
Networked Solutions Segment
Revenues$384,971 $269,872 $218 $114,881 $115,099 
Gross profit135,203 81,895 193 53,115 53,308 
Operating expenses32,700 27,255 36 5,409 5,445 
Effect of Changes in Foreign Currency Exchange RatesConstant Currency ChangeTotal Change
Nine Months Ended September 30,
In thousands20232022
Networked Solutions Segment
Revenues$1,059,369 $818,154 $(2,153)$243,368 $241,215 
Gross profit362,852 263,155 (561)100,258 99,697 
Operating expenses96,800 85,226 (3)11,577 11,574 

Revenues - Three months ended September 30, 2023 vs. Three months ended September 30, 2022
Revenues increased $115.1 million, or 43%, in 2023 compared with 2022. The increase was primarily from product revenues due to the ramp of new deployments and improving component supply enabling us to fulfill more customer demand.

Revenues - Nine months ended September 30, 2023 vs. Nine months ended September 30, 2022
Revenues increased $241.2 million, or 29%, for the first nine months of 2023 compared with the same period in 2022. The increase was primarily from product revenues due to the ramp of new deployments and improving component supply enabling us to fulfill more customer demand.

Gross Margin - Three months ended September 30, 2023 vs. Three months ended September 30, 2022
Gross margin was 35.1% for the period ending September 30, 2023, compared with 30.3% in 2022. The 480 basis point increase was primarily related to favorable product and solutions mix and improved operational efficiencies.

Gross Margin - Nine months ended September 30, 2023 vs. Nine months ended September 30, 2022
Gross margin was 34.3% for the 2023 period, compared with 32.2% in 2022. The 210 basis point increase was primarily related to favorable product and solutions mix and improved operational efficiencies.

Operating Expenses - Three months ended September 30, 2023 vs. Three months ended September 30, 2022
Operating expenses increased $5.4 million, or 20%, for the quarter in 2023, compared with the same period in 2022. The increase was primarily related to higher product development and marketing expenses driven by variable compensation.

Operating Expenses - Nine months ended September 30, 2023 vs. Nine months ended September 30, 2022
Operating expenses increased $11.6 million, or 14%, for the first nine months of 2023, compared with the same period in 2022. The increase was primarily related to higher product development and marketing expenses driven by variable compensation.
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Outcomes

The effects of changes in foreign currency exchange rates and the constant currency changes in certain Outcomes segment financial results were as follows:
Effect of Changes in Foreign Currency Exchange RatesConstant Currency ChangeTotal Change
Three Months Ended September 30,
In thousands20232022
Outcomes Segment
Revenues$65,032 $56,985 $557 $7,490 $8,047 
Gross profit25,081 23,362 257 1,462 1,719 
Operating expenses14,801 12,023 21 2,757 2,778 
Effect of Changes in Foreign Currency Exchange RatesConstant Currency ChangeTotal Change
Nine Months Ended September 30,
In thousands20232022
Outcomes Segment
Revenues$194,908 $171,541 $(690)$24,057 $23,367 
Gross profit79,315 67,747 (209)11,777 11,568 
Operating expenses43,448 38,958 — 4,490 4,490 

Revenues - Three months ended September 30, 2023 vs. Three months ended September 30, 2022
For the 2023 period, revenues increased $8.0 million, or 14%, compared with the 2022 period. This increase was driven by recurring services, delivery services, and hardware sales.

Revenues - Nine months ended September 30, 2023 vs. Nine months ended September 30, 2022
Revenues increased $23.4 million, or 14%, for the first nine months of 2023, compared with 2022. This increase was driven by software license, hardware sales, delivery, and recurring services.

Gross Margin - Three months ended September 30, 2023 vs. Three months ended September 30, 2022
Gross margin decreased to 38.6% for the third quarter of 2023, compared with 41.0% for the same period last year. The 240 basis point decrease was driven by solution mix and increased variable compensation.

Gross Margin - Nine months ended September 30, 2023 vs. Nine months ended September 30, 2022
Gross margin increased to 40.7% for the period ending in 2023, compared with 39.5% for last year. The 120 basis point increase was driven by higher margin software license sales, favorable managed services mix, and other cost efficiencies.

Operating Expenses - Three months ended September 30, 2023 vs. Three months ended September 30, 2022
Operating expenses for the 2023 period increased $2.8 million, or 23%, compared with the same period last year. This was primarily related to increased research and development and marketing expenses, driven by increased employee costs including variable compensation.

Operating Expenses - Nine months ended September 30, 2023 vs. Nine months ended September 30, 2022
Operating expenses for the first nine months of 2023 increased $4.5 million, or 12%, compared with the same period last year. This was primarily related to increased research and development and marketing expenses, driven by increased employee costs including variable compensation.

Corporate Unallocated

Corporate Unallocated Expenses - Three months ended September 30, 2023 vs. Three months ended September 30, 2022
Operating expenses not directly associated with an operating segment are classified as Corporate unallocated. These expenses increased $9.4 million, or 14%, for the three months ended September 30, 2023 compared with the same period in 2022. This increase was primarily the result of $10.0 million increase in sales, general and administrative expenses. The increase in sales, general and administrative expenses was primarily driven by increased labor costs, including variable compensation.
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Corporate Unallocated Expenses - Nine months ended September 30, 2023 vs. Nine months ended September 30, 2022
For the first nine months of 2023, Corporate unallocated expenses increased $17.5 million, or 7%, compared with the 2022 period. This was primarily the result of a $48.0 million increase in restructuring costs, of which $41.2 million was related to the 2023 Projects, as well as a $13.5 million increase in sales, general and administrative expenses. The increase in sales, general and administrative expenses was primarily driven by increased labor costs, including variable compensation. The increase was offset by $38.5 million in goodwill impairment recognized in 2022 and a $5.0 million decrease in amortization of intangible assets.

Bookings and Backlog of Orders

Bookings for a reported period represent customer contracts and purchase orders received during the period for hardware, software, and services that have met certain conditions, such as regulatory and/or contractual approval. Total backlog represents committed but undelivered products and services for contracts and purchase orders at period-end. Twelve-month backlog represents the portion of total backlog that reflects our understanding of customer's desired deployment over the next 12 months. The actual revenue recognized and timing of revenue earned from backlog may vary based on actual currency rates at the time of shipment, supply constraints, and adjusted customer project timing. Backlog is not a complete measure of our future revenues as we also receive significant book-and-ship orders, as well as frame contracts. Bookings and backlog may fluctuate significantly due to the timing of large project awards. In addition, annual or multi-year contracts are subject to rescheduling due to the long-term nature of the contracts. Certain of our customers have the right to cancel contracts, but we do not have a history of any significant cancellations. Beginning total backlog, plus bookings, minus revenues, will not equal ending total backlog due to miscellaneous contract adjustments, foreign currency fluctuations, and other factors. Total bookings and backlog include certain contracts with a termination for convenience clause, which will not agree to the total transaction price allocated to the remaining performance obligations disclosed in Item 1: Financial Statements (Unaudited), Note 16: Revenues included in this Quarterly Report on Form 10-Q.

Quarter EndedQuarterly
Bookings		Ending
Total
Backlog 		Ending
12-Month
Backlog
In millions
September 30, 2023$413 $4,337 $2,022 
June 30, 2023475 4,493 2,008 
March 31, 2023428 4,558 1,897 
December 31, 2022898 4,619 2,052 
September 30, 2022578 4,201 1,612 

Financial Condition

Cash Flow Information
Nine Months Ended September 30,
In thousands20232022
Net cash provided by operating activities$77,076 $37,530 
Net cash provided by (used in) investing activities(19,003)43,494 
Net cash used in financing activities(2,639)(19,396)
Effect of foreign exchange rate changes on cash and cash equivalents(2,670)(8,794)
Increase in cash and cash equivalents$52,764 $52,834 

Cash and cash equivalents were $254.8 million at September 30, 2023, compared with $202.0 million at December 31, 2022. The $52.8 million increase in cash and cash equivalents in the 2023 period was primarily the result of cash provided by operations, partially offset by cash used for variable compensation payouts and acquisition of property, plant, and equipment.

Operating activities
Cash provided by operating activities during the nine months in 2023 was $77.1 million compared with $37.5 million during the same period in 2022. The increase was primarily due to increased earnings and lower variable compensation payouts in 2023, partially offset by an increase in working capital.

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Investing activities
During the nine months ended September 30, 2023, net cash from investing activities shifted from cash provided of $43.5 million in 2022 to cash used of $19.0 million in 2023, resulting in a change of $62.5 million. This change was primarily the result of proceeds from the sale of certain Gas product lines from our Device Solutions manufacturing and business operations in Europe and North America to Dresser of $55.9 million in 2022 and an increase in cash used to purchase property, plant, and equipment of $3.4 million in 2023.

Financing activities
Net cash used in financing activities during the nine months in 2023 was $2.6 million, compared with net cash used of $19.4 million for the same period in 2022. The increase is due primarily to the repurchase of common stock in 2022 of $17.0 million.

Effect of exchange rates on cash and cash equivalents
The effect of exchange rates on the cash balances of currencies held in foreign denominations at September 30, 2023 was a decrease of $2.7 million, compared with a decrease of $8.8 million for the same period in 2022. Our foreign currency exposure relates to non-U.S. dollar denominated balances in our international subsidiary operations.

Free cash flow (Non-GAAP)
To supplement our Consolidated Statements of Cash Flows presented on a GAAP basis, we use the non-GAAP measure of free cash flow to analyze cash flows generated from our operations. The presentation of non-GAAP free cash flow is not meant to be considered in isolation or as an alternative to net income (loss) as an indicator of our performance, or as an alternative to cash flows from operating activities as a measure of liquidity. We calculate free cash flows, using amounts from our Consolidated Statements of Cash Flows, as follows:
Nine Months Ended September 30,
In thousands20232022
Net cash provided by operating activities$77,076 $37,530 
Acquisitions of property, plant, and equipment(18,304)(14,886)
Free cash flow$58,772 $22,644 

Free cash flow fluctuated primarily as a result of changes in cash provided by operating activities. See the cash flow discussion of operating activities above.

Off-balance sheet arrangements

We have no off-balance sheet financing agreements or guarantees as defined by Item 303 of Regulation S-K at September 30, 2023 and December 31, 2022 that we believe could reasonably likely have a current or future effect on our financial condition, results of operations, or cash flows.

Liquidity and Capital Resources

Our principal sources of liquidity are cash flows from operations, borrowings, and the sale of our common stock. Cash flows may fluctuate and are sensitive to many factors including changes in working capital and the timing and magnitude of capital expenditures and payments of debt. Working capital, which represents current assets less current liabilities, continues to be in a net favorable position. We expect existing cash, cash flows from operations, and access to capital markets to continue to be sufficient to fund our operating activities and cash commitments, such as material capital expenditures and debt obligations, for at least the next 12 months and into the foreseeable future.

Borrowings
We initially entered into our credit facility on January 5, 2018 (together with the subsequent seven amendments, the 2018 credit facility). The 2018 credit facility provides a multicurrency revolving line of credit (the revolver) with a principal amount of up to $500 million. The revolver also contains a $300 million standby letter of credit sub-facility and a $50 million swingline sub-facility. At September 30, 2023, no amount was outstanding under the 2018 credit facility, and $61.6 million was utilized by outstanding standby letters of credit, resulting in $438.4 million available for borrowing or standby letters of credit under the revolver. At September 30, 2023, $238.4 million was available for additional standby letters of credit under the letter of credit sub-facility, and no amounts were outstanding under the swingline sub-facility. Amounts borrowed under the revolver may be repaid and reborrowed until the revolver's maturity on October 18, 2026, at which time all outstanding loans together with all
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accrued and unpaid interest must be repaid. However, that date may be advanced to December 14, 2025 if Itron does not settle or extend a sufficient portion of outstanding convertible notes detailed in the amendment.

On March 12, 2021, we closed the sale of $460 million in convertible notes in a private placement to qualified institutional buyers. The convertible notes do not bear regular interest, and the principal amount does not accrete. The convertible notes will mature on March 15, 2026, unless earlier repurchased, redeemed, or converted in accordance with their terms.

For further description of our borrowings, refer to Item 1: Financial Statements (Unaudited), Note 6: Debt included in this Quarterly Report on Form 10-Q.

For a description of our letters of credit and performance bonds, and the amounts available for additional borrowings or letters of credit under our lines of credit, including the revolver that is part of our credit facility, refer to Item 1: Financial Statements (Unaudited), Note 11: Commitments and Contingencies included in this Quarterly Report on Form 10-Q.

Restructuring
On September 17, 2020, our Board of Directors approved a restructuring plan (the 2020 Projects). The 2020 Projects include activities that continue our efforts to optimize global supply chain and manufacturing operations, sales and marketing organizations, and other overhead. These projects are scheduled to be substantially complete by the end of 2023, with an estimated $3 million in cash payments remaining as of September 30, 2023 with cash outflows expected through 2025.

On October 29, 2021, our Board of Directors approved a restructuring plan (the 2021 Projects), which in conjunction with the announcement of the sale of certain Gas product lines from our Device Solutions manufacturing and business operations in Europe and North America to Dresser, includes activities to drive reductions in certain locations and functional support areas. These projects are expected to be substantially complete by the end of 2024, with an estimated $26 million in cash payments remaining as of September 30, 2023 with cash outflows expected through 2025.

On February 23, 2023, our Board of Directors approved a restructuring plan (the 2023 Projects). The 2023 Projects include activities that continue Itron's efforts to optimize its global supply chain and manufacturing operations, sales and marketing organizations, and other overhead. These projects are to be substantially complete by early 2025, with an estimated $42 million in cash payments remaining as of September 30, 2023 with cash outflows expected through 2027.

For the nine months ended September 30, 2023, we paid out a net $11.5 million related to all our restructuring projects. As of September 30, 2023, $66.4 million was accrued for these restructuring projects, of which $15.7 million is expected to be paid within the next 12 months.

For further details regarding our restructuring activities, refer to Item 1: Financial Statements (Unaudited), Note 12: Restructuring included in this Quarterly Report on Form 10-Q.

Stock Repurchase Authorization
Effective May 11, 2023, Itron's Board of Directors authorized a share repurchase up to $100 million of our common stock over an 18-month period (the 2023 Stock Repurchase Program). Repurchases will be made in the open market pursuant to the terms of any Rule 10b5-1 plans that we may enter into, and in accordance with applicable securities laws. The repurchase program is intended to comply with Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended. Depending on market conditions and other factors, these repurchases may be commenced or suspended from time to time without prior notice.

There have been no repurchases under the 2023 Stock Repurchase Program through November 2, 2023.

Other Liquidity Considerations
We have tax credits and net operating loss carryforwards in various jurisdictions that are available to reduce cash taxes. However, utilization of tax credits and net operating losses are limited in certain jurisdictions. Based on current projections, we expect to pay, net of refunds, approximately $23 million in U.S federal taxes, $14 million in state taxes, and $15 million in local and foreign taxes during 2023. For a discussion of our tax provision and unrecognized tax benefits, see Item 1: Financial Statements (Unaudited), Note 10: Income Taxes included in this Quarterly Report on Form 10-Q.

As of September 30, 2023, we are under examination by certain tax authorities. We believe we have appropriately accrued for the expected outcome of all tax matters and do not currently anticipate that the ultimate resolution of these examinations will have a material adverse effect on our financial condition, future results of operations, or liquidity.

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As of September 30, 2023, there was $45.4 million of cash and short-term investments held by certain foreign subsidiaries in which we are permanently reinvested for tax purposes. As a result of recent changes in U.S. tax legislation, any repatriation in the future would not result in U.S. federal income tax. Accordingly, there is no provision for U.S. deferred taxes on this cash. If this cash were repatriated to fund U.S. operations, additional withholding tax costs may be incurred. Tax is only one of the many factors that we consider in the management of global cash. Accordingly, the amount of taxes that we would need to accrue and pay to repatriate foreign cash could vary significantly.

In one of our consolidated international subsidiaries we have a joint venture partner, who is a minority shareholder. Although this entity is not wholly-owned by Itron, Inc., we consolidate the subsidiary because we exercise control over the operations. The noncontrolling interest balance in our Consolidated Balance Sheets represents the proportional share of the equity of the joint venture entity, which is attributable to the minority shareholders. At September 30, 2023, $3.3 million of our consolidated cash balance was held in this joint venture entity. As a result, the minority shareholder of this entity has rights to its proportional share of this cash balance, and there may be limitations on our ability to repatriate cash to the United States from this entity.

General Liquidity Overview
We expect to grow through a combination of internal new research and development, licensing technology from and to others, distribution agreements, partnering arrangements, and acquisitions of technology or other companies. We expect these activities to be funded with existing cash, cash flow from operations, borrowings, or the sale of our common stock or other securities. We believe existing sources of liquidity will be sufficient to fund our existing operations and obligations for the next 12 months and into the foreseeable future, but offer no assurances. Our liquidity could be affected by the stability of the electricity, gas, and water utility industries, competitive pressures, our dependence on certain key vendors and components, changes in estimated liabilities for product warranties and/or litigation, supply constraints, future business combinations, capital market fluctuations, international risks, and other factors described under Part I, Item 1A: Risk Factors of our 2022 Annual Report, as well as Part I, Item 3: Quantitative and Qualitative Disclosures About Market Risk included in this Quarterly Report on Form 10-Q.

Contingencies

Refer to Item 1: Financial Statements (Unaudited), Note 11: Commitments and Contingencies included in this Quarterly Report on Form 10-Q.

Critical Accounting Estimates and Policies

Our consolidated financial statements and accompanying notes are prepared in accordance with GAAP. Preparing consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. These estimates and assumptions are affected by management's application of accounting policies. Our critical accounting policies that require the use of estimates and assumptions were discussed in detail in the 2022 Annual Report and have not changed materially.

Refer to Item 1: Financial Statements (Unaudited), Note 1: Summary of Significant Accounting Policies included in this Quarterly Report on Form 10-Q for further disclosures regarding new accounting pronouncements.

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Non-GAAP Measures

To supplement our consolidated financial statements, which are prepared in accordance with GAAP, we use certain non-GAAP financial measures, including non-GAAP operating expense, non-GAAP operating income, non-GAAP net income, non-GAAP diluted EPS, adjusted EBITDA, free cash flow, and constant currency. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, and other companies may define such measures differently. For a reconciliation of each non-GAAP measure to the most comparable financial measure prepared and presented in accordance with GAAP, please see the table captioned Reconciliations of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures.

We use these non-GAAP financial measures for financial and operational decision making and/or as a means for determining executive compensation. Management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our performance and ability to service debt by excluding certain expenses that may not be indicative of our recurring core operating results. These non-GAAP financial measures facilitate management's internal comparisons to our historical performance, as well as comparisons to our competitors' operating results. Our executive compensation plans exclude non-cash charges related to amortization of intangibles and certain discrete cash and non-cash charges, such as restructuring, loss on sale of business, strategic initiative expenses, Russian currency translation write-off, goodwill impairment, or acquisition and integration related expenses. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting and analyzing future periods. We believe these non-GAAP financial measures are useful to investors because they provide greater transparency with respect to key metrics used by management in its financial and operational decision making and because they are used by our institutional investors and the analyst community to analyze the health of our business.

Non-GAAP operating expenses and non-GAAP operating income – We define non-GAAP operating expenses as operating expenses excluding certain expenses related to the amortization of intangible assets, restructuring, loss on sale of business, strategic initiative expenses, Russian currency translation write-off, goodwill impairment, and acquisition and integration related expenses. We define non-GAAP operating income as operating income (loss) excluding the expenses related to the amortization of intangible assets, restructuring, loss on sale of business, strategic initiative expenses, Russian currency translation write-off, goodwill impairment, and acquisition and integration related expenses. Acquisition and integration related expenses include costs, which are incurred to affect and integrate business combinations, such as professional fees, certain employee retention and salaries related to integration, severances, contract terminations, travel costs related to knowledge transfer, system conversion costs, and asset impairment charges. We consider these non-GAAP financial measures to be useful metrics for management and investors because they exclude the effect of expenses that are not related to our core operating results. By excluding these expenses, we believe that it is easier for management and investors to compare our financial results over multiple periods and analyze trends in our operations. For example, in certain periods, expenses related to amortization of intangible assets may decrease, which would improve GAAP operating margins, yet the improvement in GAAP operating margins due to this lower expense is not necessarily reflective of an improvement in our core business. There are some limitations related to the use of non-GAAP operating expenses and non-GAAP operating income versus operating expenses and operating income calculated in accordance with GAAP. We compensate for these limitations by providing specific information about the GAAP amounts excluded from non-GAAP operating expense and non-GAAP operating income and evaluating non-GAAP operating expense and non-GAAP operating income together with GAAP operating expense and operating income.

Non-GAAP net income and non-GAAP diluted EPS – We define non-GAAP net income as net income (loss) attributable to Itron, Inc. excluding the expenses associated with amortization of intangible assets, amortization of debt placement fees, restructuring, loss on sale of business, strategic initiative expenses, Russian currency translation write-off, goodwill impairment, acquisition and integration related expenses, and the tax effect of excluding these expenses. We define non-GAAP diluted EPS as non-GAAP net income divided by diluted weighted-average shares outstanding during the period calculated on a GAAP basis and then reduced to reflect the anti-dilutive impact of the convertible note hedge transactions entered into in connection with the 0% convertible notes due 2026 issued in March 2021. We consider these financial measures to be useful metrics for management and investors for the same reasons that we use non-GAAP operating income. The same limitations described above regarding our use of non-GAAP operating income apply to our use of non-GAAP net income and non-GAAP diluted EPS. We compensate for these limitations by providing specific information regarding the GAAP amounts excluded from these non-GAAP measures and evaluating non-GAAP net income and non-GAAP diluted EPS together with GAAP net income (loss) attributable to Itron, Inc. and GAAP diluted EPS.

For interim periods the budgeted annual effective tax rate (AETR) is used, adjusted for any discrete items, as defined in Accounting Standards Codification (ASC) 740 - Income Taxes. The budgeted AETR is determined at the beginning of the fiscal year. The AETR is revised throughout the year based on changes to our full-year forecast. If the revised AETR increases or decreases by 200 basis points or more from the budgeted AETR due to changes in the full-year forecast during the year, the
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revised AETR is used in place of the budgeted AETR beginning with the quarter the 200 basis point threshold is exceeded and going forward for all subsequent interim quarters in the year. We continue to assess the AETR based on latest forecast throughout the year and use the most recent AETR anytime it increases or decreases by 200 basis points or more from the prior interim period.

Adjusted EBITDA – We define adjusted EBITDA as net income (loss) (a) minus interest income, (b) plus interest expense, depreciation and amortization, restructuring, loss on sale of business, strategic initiative expenses, Russian currency translation write-off, goodwill impairment, acquisition and integration related expenses, and (c) excluding income tax provision or benefit. Management uses adjusted EBITDA as a performance measure for executive compensation. A limitation to using adjusted EBITDA is that it does not represent the total increase or decrease in the cash balance for the period and the measure includes some non-cash items and excludes other non-cash items. Additionally, the items that we exclude in our calculation of adjusted EBITDA may differ from the items that our peer companies exclude when they report their results. We compensate for these limitations by providing a reconciliation of this measure to GAAP net income (loss).

Free cash flow – We define free cash flow as net cash provided by operating activities less cash used for acquisitions of property, plant and equipment. We believe free cash flow provides investors with a relevant measure of liquidity and a useful basis for assessing our ability to fund our operations and repay our debt. The same limitations described above regarding our use of adjusted EBITDA apply to our use of free cash flow. We compensate for these limitations by providing specific information regarding the GAAP amounts in the reconciliation.

Constant currency – We refer to the impact of foreign currency exchange rate fluctuations in our discussions of financial results, which references the differences between the foreign currency exchange rates used to translate operating results from the entity's functional currency into U.S. dollars for financial reporting purposes. We also use the term "constant currency", which represents financial results adjusted to exclude changes in foreign currency exchange rates as compared with the rates in the comparable prior year period. We calculate the constant currency change as the difference between the current period results and the comparable prior period's results restated using current period foreign currency exchange rates.
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Reconciliations of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures

The tables below reconcile the non-GAAP financial measures of operating expenses, operating income, net income, diluted EPS, adjusted EBITDA, and free cash flow with the most directly comparable GAAP financial measures.

TOTAL COMPANY RECONCILIATIONSThree Months Ended September 30,Nine Months Ended September 30,
In thousands, except per share data2023202220232022
NON-GAAP OPERATING EXPENSES
GAAP operating expenses$132,313 $113,174 $437,921 $401,211 
Amortization of intangible assets(4,663)(6,413)(14,433)(19,451)
Restructuring615 1,272 (36,868)11,097 
Loss on sale of business(45)(767)(675)(3,182)
Strategic initiative5 35 5 (675)
Russian currency translation write-off— (1,885)— (1,885)
Goodwill impairment— — — (38,480)
Acquisition and integration(28)(154)(117)(370)
Non-GAAP operating expenses$128,197 $105,262 $385,833 $348,265 
NON-GAAP OPERATING INCOME
GAAP operating income (loss)$54,890 $6,888 $79,597 $(19,820)
Amortization of intangible assets4,663 6,413 14,433 19,451 
Restructuring (615)(1,272)36,868 (11,097)
Loss on sale of business45 767 675 3,182 
Strategic initiative(5)(35)(5)675 
Russian currency translation write-off— 1,885 — 1,885 
Goodwill impairment— — — 38,480 
Acquisition and integration28 154 117 370 
Non-GAAP operating income$59,006 $14,800 $131,685 $33,126 
NON-GAAP NET INCOME & DILUTED EPS
GAAP net income (loss) attributable to Itron, Inc.$40,172 $4,117 $52,537 $(31,944)
Amortization of intangible assets4,663 6,413 14,433 19,451 
Amortization of debt placement fees897 846 2,629 2,478 
Restructuring (615)(1,272)36,868 (11,097)
Loss on sale of business45 767 675 3,182 
Strategic initiative(5)(35)(5)675 
Russian currency translation write-off— 1,885 — 1,885 
Goodwill impairment— — — 38,480 
Acquisition and integration28 154 117 370 
Income tax effect of non-GAAP adjustments(293)(2,362)(10,156)(4,663)
Non-GAAP net income attributable to Itron, Inc.$44,892 $10,513 $97,098 $18,817 
Non-GAAP diluted EPS$0.98 $0.23 $2.12 $0.42 
Non-GAAP weighted average common shares outstanding - Diluted45,950 45,330 45,768 45,267 
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TOTAL COMPANY RECONCILIATIONSThree Months Ended September 30,Nine Months Ended September 30,
In thousands, except per share data2023202220232022
ADJUSTED EBITDA
GAAP net income (loss) attributable to Itron, Inc.$40,172 $4,117 $52,537 $(31,944)
Interest income(2,642)(801)(5,968)(1,367)
Interest expense2,445 1,679 6,479 4,931 
Income tax provision15,388 473 24,513 4,973 
Depreciation and amortization13,645 17,361 42,013 50,612 
Restructuring (615)(1,272)36,868 (11,097)
Loss on sale of business45 767 675 3,182 
Strategic initiative(5)(35)(5)675 
Russian currency translation write-off— 1,885 — 1,885 
Goodwill impairment— — — 38,480 
Acquisition and integration28 154 117 370 
Adjusted EBITDA$68,461 $24,328 $157,229 $60,700 
FREE CASH FLOW
Net cash provided by operating activities$34,087 $14,874 $77,076 $37,530 
Acquisitions of property, plant, and equipment(5,806)(4,223)(18,304)(14,886)
Free Cash Flow$28,281 $10,651 $58,772 $22,644 

Item 3:    Quantitative and Qualitative Disclosures About Market Risk

In the normal course of business, we are exposed to interest rate and foreign currency exchange rate risks that could impact our financial position and results of operations. As part of our risk management strategy, we may use derivative financial instruments to hedge certain foreign currency and interest rate exposures. Our objective is to offset gains and losses resulting from these exposures with losses and gains on the derivative contracts used to hedge them, therefore reducing the impact of volatility on earnings or protecting the fair values of assets and liabilities. We use derivative contracts only to manage existing underlying exposures. Accordingly, we do not use derivative contracts for trading or speculative purposes.

Interest Rate Risk
We may be exposed to interest rate risk through our variable rate debt instruments, namely the multicurrency revolving line of credit. At September 30, 2023, we had no outstanding variable rate debt.

We continually monitor and assess our interest rate risk and may institute additional interest rate swaps or other derivative instruments to manage such risk in the future if we were to have variable rate debt outstanding.

Foreign Currency Exchange Rate Risk
We conduct business in a number of countries. Revenues denominated in functional currencies other than the U.S. dollar were 22% and 24% of total revenues for the three and nine months ended September 30, 2023 compared with 28% and 31% for the same respective period in 2022. These transactions expose our account balances to movements in foreign currency exchange rates that could have a material effect on our financial results. Our primary foreign currency exposure relates to non-U.S. dollar denominated transactions in our international subsidiary operations, the most significant of which is the euro.

We are also exposed to foreign exchange risk when we enter into non-functional currency transactions, both intercompany and third party. At each period-end, non-functional currency monetary assets and liabilities are revalued with the change recognized within other income (expense) in our Consolidated Statements of Operations. We enter into monthly foreign exchange forward contracts, which are not designated for hedge accounting, with the intent to reduce earnings volatility associated with currency exposures. As of September 30, 2023, a total of 40 contracts were offsetting our exposures from the euro, pound sterling, Indonesian rupiah, Canadian dollar, Australian dollar, and various other currencies, with notional amounts ranging from $109,000 to $42.3 million.

In future periods, we may use additional derivative contracts to protect against foreign currency exchange rate risks.

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Item 4:    Controls and Procedures

Evaluation of disclosure controls and procedures
An evaluation was performed under the supervision and with the participation of our Company's management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e)) under the Securities Exchange Act of 1934 as amended. Based on that evaluation, the Company's management, including the Chief Executive Officer and Chief Financial Officer, concluded that as of September 30, 2023, the Company's disclosure controls and procedures were effective to ensure the information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

Changes in internal controls over financial reporting
There have been no changes in our internal control over financial reporting during the three months ended September 30, 2023 that materially affected, or are reasonably likely to materially affect, internal control over financial reporting.
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PART II: OTHER INFORMATION

Item 1:    Legal Proceedings
Refer to Item 1: Financial Statements (Unaudited), Note 11: Commitments and Contingencies included in this Quarterly Report on Form 10-Q.

Item 1A:    Risk Factors
For a complete list of Risk Factors, refer to Part I, Item 1A: Risk Factors of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the Securities and Exchange Commission on February 27, 2023.


Item 2:    Unregistered Sales of Equity Securities and Use of Proceeds

(a)Not applicable.

(b)Not applicable.

(c)Issuer Repurchase of Equity Securities.
Period
Total Number of
Shares Purchased (1)
Average Price Paid per Share (2)
Total Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsMaximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
In thousands
July 1, 2023 through July 31, 2023— $— — $100,000 
August 1, 2023 through August 31, 2023— — — 100,000 
September 1, 2023 through September 30, 2023— — — 100,000 
Total— — 

(1)Effective May 11, 2023, Itron's Board of Directors authorized a share repurchase program of up to $100 million of Itron's common stock over an 18-month period.
(2)Excludes commissions.

Item 5:    Other Information

(a)No information was required to be disclosed in a report on Form 8-K during the third quarter of 2023 that was not reported.

(b)Not applicable.
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Item 6:    Exhibits

Exhibit
Number		Description of Exhibits
10.1
31.1
31.2
32.1
101The following financial information from Itron, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 formatted in Inline XBRL (Extensible Business Reporting Language) includes: (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of Comprehensive Income (Loss), (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Equity, (v) the Consolidated Statements of Cash Flows, and (vi) Notes to the Consolidated Financial Statements.
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ITRON, INC.
November 2, 2023By:/s/ JOAN S. HOOPER
DateJoan S. Hooper
Senior Vice President and Chief Financial Officer

49
Document
Exhibit 31.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Thomas L. Deitrich, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Itron, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 
ITRON, INC.
By:/s/ THOMAS L. DEITRICH
Thomas L. Deitrich
President and Chief Executive Officer
Date: November 2, 2023

Document
Exhibit 31.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Joan S. Hooper, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Itron, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
 
ITRON, INC.
By:/s/ JOAN S. HOOPER
Joan S. Hooper
Senior Vice President and Chief Financial Officer
Date: November 2, 2023

Document
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002

The certification set forth below is being submitted in connection with the Quarterly Report of Itron, Inc. (the Company) on Form 10-Q for the quarterly period ended September 30, 2023 (the Report) for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code.
 
Thomas L. Deitrich, the Chief Executive Officer and Joan S. Hooper, the Chief Financial Officer of the Company, each certifies that to the best of his or her knowledge:
 
(1)    The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
(2)    The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 
/s/ THOMAS L. DEITRICHNovember 2, 2023
Thomas L. Deitrich
President and Chief Executive Officer		Date
/s/ JOAN S. HOOPERNovember 2, 2023
Joan S. Hooper
Senior Vice President and Chief Financial Officer		Date