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, 2022~~March 31, 2023


☐			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 class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, no par value

ITRI

NASDAQ 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 31, 2022,~~May 1, 2023, there were outstanding ~~45,177,993~~45,422,809 shares of the registrant's common stock, no par value, which is the only class of common stock of the registrant.

Table of Contents

Itron, Inc.

Table of Contents

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,					Three Months Ended March 31,
In thousands, except per share data	In thousands, except per share data	2022		2021		2022		2021		In thousands, except per share data		2023		2022
Revenues	Revenues									Revenues
Product revenues	Product revenues	$	347,791	$	410,947	$	1,107,499	$	1,265,470	Product revenues		$	416,324	$	399,810
Service revenues	Service revenues	73,069		76,002		220,574		230,465		Service revenues		78,294		75,521
Total revenues	Total revenues	420,860		486,949		1,328,073		1,495,935		Total revenues		494,618		475,331
Cost of revenues	Cost of revenues									Cost of revenues
Product cost of revenues	Product cost of revenues	258,541		306,168		818,639		908,923		Product cost of revenues		297,343		294,820
Service cost of revenues	Service cost of revenues	42,257		45,818		128,043		135,130		Service cost of revenues		40,907		45,287
Total cost of revenues	Total cost of revenues	300,798		351,986		946,682		1,044,053		Total cost of revenues		338,250		340,107
Gross profit	Gross profit	120,062		134,963		381,391		451,882		Gross profit		156,368		135,224

Operating expenses	Operating expenses									Operating expenses
Sales, general and administrative	Sales, general and administrative	63,446		71,838		212,724		221,974		Sales, general and administrative		75,521		76,401
Research and development	Research and development	43,820		46,889		138,471		147,379		Research and development		49,565		49,596
Amortization of intangible assets	Amortization of intangible assets	6,413		8,944		19,451		26,914		Amortization of intangible assets		5,048		6,553
Restructuring	Restructuring	(1,272)		958		(11,097)		(830)		Restructuring		36,609		(6,366)
Loss on sale of business	Loss on sale of business	767		2,171		3,182		28,274		Loss on sale of business		18		2,221
Goodwill impairment		—		—		38,480		—

Total operating expenses	Total operating expenses	113,174		130,800		401,211		423,711		Total operating expenses		166,761		128,405

Operating income (loss)	Operating income (loss)	6,888		4,163		(19,820)		28,171		Operating income (loss)		(10,393)		6,819
Other income (expense)	Other income (expense)									Other income (expense)
Interest income	Interest income	801		352		1,367		1,326		Interest income		1,818		217
Interest expense	Interest expense	(1,679)		(2,628)		(4,931)		(27,107)		Interest expense		(2,057)		(1,592)
Other income (expense), net	Other income (expense), net	(1,065)		(1,761)		(3,140)		(16,684)		Other income (expense), net		(1,475)		(689)
Total other income (expense)	Total other income (expense)	(1,943)		(4,037)		(6,704)		(42,465)		Total other income (expense)		(1,714)		(2,064)

Income (loss) before income taxes	Income (loss) before income taxes	4,945		126		(26,524)		(14,294)		Income (loss) before income taxes		(12,107)		4,755
Income tax provision		(473)		(1,136)		(4,973)		(5,581)
Income tax benefit (provision)										Income tax benefit (provision)		70		(3,859)
Net income (loss)	Net income (loss)	4,472		(1,010)		(31,497)		(19,875)		Net income (loss)		(12,037)		896
Net income attributable to noncontrolling interests		355		859		447		2,514
Net loss attributable to noncontrolling interests										Net loss attributable to noncontrolling interests		(201)		(10)
Net income (loss) attributable to Itron, Inc.	Net income (loss) attributable to Itron, Inc.	$	4,117	$	(1,869)	$	(31,944)	$	(22,389)	Net income (loss) attributable to Itron, Inc.		$	(11,836)	$	906

Net income (loss) per common share - Basic	Net income (loss) per common share - Basic	$	0.09	$	(0.04)	$	(0.71)	$	(0.51)	Net income (loss) per common share - Basic		$	(0.26)	$	0.02
Net income (loss) per common share - Diluted	Net income (loss) per common share - Diluted	$	0.09	$	(0.04)	$	(0.71)	$	(0.51)	Net income (loss) per common share - Diluted		$	(0.26)	$	0.02

Weighted average common shares outstanding - Basic	Weighted average common shares outstanding - Basic	45,139		45,240		45,075		43,983		Weighted average common shares outstanding - Basic		45,281		45,018
Weighted average common shares outstanding - Diluted	Weighted average common shares outstanding - Diluted	45,330		45,240		45,075		43,983		Weighted average common shares outstanding - Diluted		45,281		45,240

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

ITRON, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
In thousands	In thousands	2022		2021		2022		2021		In thousands	2023		2022
Net income (loss)	Net income (loss)	$	4,472	$	(1,010)	$	(31,497)	$	(19,875)	Net income (loss)	$	(12,037)	$	896

Other comprehensive income (loss), net of tax:	Other comprehensive income (loss), net of tax:									Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	Foreign currency translation adjustments	(28,197)		(7,764)		(55,716)		(17,118)		Foreign currency translation adjustments	7,225		(6,891)
Foreign currency translation adjustment reclassified to net income (loss) for sale or disposal of business		1,885		—		57,321		—
Net unrealized gain on derivative instruments, designated as cash flow hedges		—		510		—		1,818
Foreign currency translation adjustment reclassified to net income (loss) on sale of business										Foreign currency translation adjustment reclassified to net income (loss) on sale of business	—		55,436

Pension benefit obligation adjustment	Pension benefit obligation adjustment	196		687		4,672		2,087		Pension benefit obligation adjustment	(106)		4,270
Total other comprehensive income (loss), net of tax	Total other comprehensive income (loss), net of tax	(26,116)		(6,567)		6,277		(13,213)		Total other comprehensive income (loss), net of tax	7,119		52,815

Total comprehensive income (loss), net of tax	Total comprehensive income (loss), net of tax	(21,644)		(7,577)		(25,220)		(33,088)		Total comprehensive income (loss), net of tax	(4,918)		53,711

Comprehensive income attributable to noncontrolling interests, net of tax		355		859		447		2,514
Comprehensive loss attributable to noncontrolling interests, net of tax										Comprehensive loss attributable to noncontrolling interests, net of tax	(201)		(10)

Comprehensive income (loss) attributable to Itron, Inc.	Comprehensive income (loss) attributable to Itron, Inc.	$	(21,999)	$	(8,436)	$	(25,667)	$	(35,602)	Comprehensive income (loss) attributable to Itron, Inc.	$	(4,717)	$	53,721

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

ITRON, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


In thousands	In thousands	September 30, 2022		December 31, 2021		In thousands	March 31, 2023		December 31, 2022
ASSETS	ASSETS					ASSETS
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	215,413	$	162,579	Cash and cash equivalents	$	196,013	$	202,007
Accounts receivable, net	Accounts receivable, net	266,669		298,459		Accounts receivable, net	305,275		280,435
Inventories	Inventories	203,612		165,799		Inventories	265,122		228,701
Other current assets	Other current assets	122,948		123,092		Other current assets	135,646		118,441
Total current assets	Total current assets	808,642		749,929		Total current assets	902,056		829,584

Property, plant, and equipment, net	Property, plant, and equipment, net	138,768		163,184		Property, plant, and equipment, net	136,397		140,123
Deferred tax assets, net	Deferred tax assets, net	188,728		181,472		Deferred tax assets, net	215,745		211,982

Other long-term assets	Other long-term assets	44,433		42,178		Other long-term assets	37,857		39,901
Operating lease right-of-use assets, net	Operating lease right-of-use assets, net	54,814		65,523		Operating lease right-of-use assets, net	49,147		52,826
Intangible assets, net	Intangible assets, net	70,346		92,529		Intangible assets, net	60,052		64,941
Goodwill	Goodwill	1,011,051		1,098,975		Goodwill	1,044,661		1,038,721
Total assets	Total assets	$	2,316,782	$	2,393,790	Total assets	$	2,445,915	$	2,378,078

LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Current liabilities	Current liabilities					Current liabilities
Accounts payable	Accounts payable	$	235,812	$	193,129	Accounts payable	$	244,820	$	237,178
Other current liabilities	Other current liabilities	46,555		81,253		Other current liabilities	44,096		42,869
Wages and benefits payable	Wages and benefits payable	77,613		113,532		Wages and benefits payable	77,165		89,431
Taxes payable	Taxes payable	13,663		12,208		Taxes payable	21,481		15,324

Current portion of warranty	Current portion of warranty	17,943		18,406		Current portion of warranty	17,829		18,203
Unearned revenue	Unearned revenue	110,531		82,816		Unearned revenue	131,164		95,567
Total current liabilities	Total current liabilities	502,117		501,344		Total current liabilities	536,555		498,572

Long-term debt, net	Long-term debt, net	451,947		450,228		Long-term debt, net	453,094		452,526
Long-term warranty	Long-term warranty	7,515		13,616		Long-term warranty	7,002		7,495
Pension benefit obligation	Pension benefit obligation	71,111		87,863		Pension benefit obligation	59,127		57,839
Deferred tax liabilities, net	Deferred tax liabilities, net	1,723		2,000		Deferred tax liabilities, net	849		833
Operating lease liabilities	Operating lease liabilities	47,147		57,314		Operating lease liabilities	40,294		44,370
Other long-term obligations	Other long-term obligations	118,049		138,666		Other long-term obligations	154,851		124,887
Total liabilities	Total liabilities	1,199,609		1,251,031		Total liabilities	1,251,772		1,186,522

Equity	Equity					Equity
Preferred stock, no par value, 10,000 shares authorized, no shares issued or outstanding	Preferred stock, no par value, 10,000 shares authorized, no shares issued or outstanding	—		—		Preferred stock, no par value, 10,000 shares authorized, no shares issued or outstanding	—		—
Common stock, no par value, 75,000 shares authorized, 45,154 and 45,152 shares issued and outstanding		1,783,193		1,779,775
Common stock, no par value, 75,000 shares authorized, 45,405 and 45,186 shares issued and outstanding						Common stock, no par value, 75,000 shares authorized, 45,405 and 45,186 shares issued and outstanding	1,796,005		1,788,479
Accumulated other comprehensive loss, net	Accumulated other comprehensive loss, net	(141,821)		(148,098)		Accumulated other comprehensive loss, net	(87,555)		(94,674)
Accumulated deficit	Accumulated deficit	(547,544)		(515,600)		Accumulated deficit	(537,168)		(525,332)
Total Itron, Inc. shareholders' equity	Total Itron, Inc. shareholders' equity	1,093,828		1,116,077		Total Itron, Inc. shareholders' equity	1,171,282		1,168,473
Noncontrolling interests	Noncontrolling interests	23,345		26,682		Noncontrolling interests	22,861		23,083
Total equity	Total equity	1,117,173		1,142,759		Total equity	1,194,143		1,191,556
Total liabilities and equity	Total liabilities and equity	$	2,316,782	$	2,393,790	Total liabilities and equity	$	2,445,915	$	2,378,078

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

ITRON, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)


		Common Stock			Accumulated Other Comprehensive Loss				Accumulated Deficit		Total Itron, Inc. Shareholders' Equity				Noncontrolling Interests				Total Equity				Common Stock					Accumulated Other Comprehensive Loss				Accumulated Deficit				Total Itron, Inc. Shareholders' Equity				Noncontrolling Interests				Total Equity
In thousands	In thousands	Shares	Amount										In thousands	Shares								Amount
Balances at January 1, 2022		45,152	$	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 tax					52,815						52,815								52,815

Net stock issued and repurchased		165	784								784								784

Stock-based compensation expense			6,127								6,127								6,127
Stock repurchased program		(280)	(16,629)								(16,629)								(16,629)

Balances at March 31, 2022		45,037	1,770,057		(95,283)				(514,694)		1,160,080				26,672				1,186,752
Balances at January 1, 2023																						Balances at January 1, 2023	45,186			$	1,788,479			$	(94,674)			$	(525,332)			$	1,168,473			$	23,083			$	1,191,556
Net income (loss)	Net income (loss)								(36,967)		(36,967)				102				(36,865)			Net income (loss)										(11,836)				(11,836)				(201)				(12,037)
Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax				(20,422)						(20,422)								(20,422)			Other comprehensive income (loss), net of tax						7,119								7,119								7,119
Distributions to noncontrolling interests	Distributions to noncontrolling interests														(3,784)				(3,784)			Distributions to noncontrolling interests																		(21)				(21)
Net stock issued and repurchased	Net stock issued and repurchased	33	1,014								1,014								1,014			Net stock issued and repurchased	219			607										607								607

Stock-based compensation expense	Stock-based compensation expense		6,405								6,405								6,405			Stock-based compensation expense				6,919										6,919								6,919

Balances at June 30, 2022		45,070	1,777,476		(115,705)				(551,661)		1,110,110				22,990				1,133,100
Net income									4,117		4,117				355				4,472

Other comprehensive income (loss), net of tax					(26,116)						(26,116)								(26,116)

Net stock issued and repurchased		84	833								833								833

Balances at March 31, 2023																						Balances at March 31, 2023	45,405			$	1,796,005	$	(87,555)			$	(537,168)			$	1,171,282			$	22,861			$	1,194,143

Stock-based compensation expense			4,884								4,884								4,884

Balances at September 30, 2022		45,154	$	1,783,193	$	(141,821)			$	(547,544)	$	1,093,828			$	23,345			$	1,117,173


		Common Stock			Accumulated Other Comprehensive Loss				Accumulated Deficit		Total Itron, Inc. Shareholders' Equity				Noncontrolling Interests				Total Equity				Common Stock					Accumulated Other Comprehensive Loss				Accumulated Deficit				Total Itron, Inc. Shareholders' Equity				Noncontrolling Interests				Total Equity
In thousands	In thousands	Shares	Amount										In thousands	Shares								Amount
Balances at January 1, 2021		40,444	$	1,389,419			$	(138,526)			$	(434,345)					$	816,548			$	23,725		$	840,273
Net income									12,603		12,603				977				13,580

Other comprehensive income (loss), net of tax					(11,783)						(11,783)								(11,783)

Net stock issued and repurchased		206	2,009								2,009								2,009

Stock-based compensation expense			6,270								6,270								6,270
Stock issued related to equity offering		4,472	389,419								389,419								389,419
Proceeds from sale of warrants			45,349								45,349								45,349
Purchases of convertible note hedge contracts, net of tax			(63,576)								(63,576)								(63,576)

Registration fee			(373)								(373)								(373)
Balances at March 31, 2021		45,122	1,768,517		(150,309)				(421,742)		1,196,466				24,702				1,221,168
Net income (loss)									(33,123)		(33,123)				678				(32,445)

Other comprehensive income (loss), net of tax					5,137						5,137								5,137

Net stock issued and repurchased		28	458								458								458

Stock-based compensation expense			6,316								6,316								6,316
Registration fee			24								24								24

Balances at June 30, 2021		45,150	1,775,315		(145,172)				(454,865)		1,175,278				25,380				1,200,658
Balances at January 1, 2022																						Balances at January 1, 2022	45,152			$	1,779,775			$	(148,098)			$	(515,600)			$	1,116,077			$	26,682			$	1,142,759
Net income (loss)	Net income (loss)								(1,869)		(1,869)				859				(1,010)			Net income (loss)										906				906				(10)				896

Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax				(6,567)						(6,567)								(6,567)			Other comprehensive income (loss), net of tax						52,815								52,815								52,815

Net stock issued and repurchased	Net stock issued and repurchased	110	1,080								1,080								1,080			Net stock issued and repurchased	165			784										784								784

Stock-based compensation expense	Stock-based compensation expense		5,665								5,665								5,665			Stock-based compensation expense				6,127										6,127								6,127

Balances at September 30, 2021		45,260	$	1,782,060	$	(151,739)			$	(456,734)	$	1,173,587			$	26,239			$	1,199,826

Stock repurchased program																						Stock repurchased program	(280)			(16,629)										(16,629)								(16,629)

Balances at March 31, 2022																						Balances at March 31, 2022	45,037			$	1,770,057	$	(95,283)			$	(514,694)			$	1,160,080			$	26,672			$	1,186,752

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

ITRON, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


		Nine Months Ended September 30,					Three Months Ended March 31,
In thousands	In thousands	2022		2021		In thousands	2023		2022
Operating activities	Operating activities					Operating activities
Net loss		$	(31,497)	$	(19,875)
Adjustments to reconcile net loss to net cash provided by operating activities:
Net income (loss)						Net income (loss)	$	(12,037)	$	896
Adjustments to reconcile net income (loss) to net cash provided by operating activities:						Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization of intangible assets	Depreciation and amortization of intangible assets	50,612		64,252		Depreciation and amortization of intangible assets	14,463		16,837
Non-cash operating lease expense	Non-cash operating lease expense	12,250		12,962		Non-cash operating lease expense	3,972		4,113
Stock-based compensation	Stock-based compensation	17,416		18,251		Stock-based compensation	6,919		6,127
Amortization of prepaid debt fees	Amortization of prepaid debt fees	2,610		17,383		Amortization of prepaid debt fees	889		839
Deferred taxes, net	Deferred taxes, net	(6,428)		(5,170)		Deferred taxes, net	(4,272)		(4,362)
Loss on sale of business	Loss on sale of business	3,182		28,274		Loss on sale of business	18		2,221
Loss on extinguishment of debt, net		—		10,000
Goodwill impairment		38,480		—

Restructuring, non-cash	Restructuring, non-cash	(879)		951		Restructuring, non-cash	1,070		390
Other adjustments, net	Other adjustments, net	2,148		3,720		Other adjustments, net	56		137
Changes in operating assets and liabilities, net of acquisition and sale of business:	Changes in operating assets and liabilities, net of acquisition and sale of business:					Changes in operating assets and liabilities, net of acquisition and sale of business:
Accounts receivable	Accounts receivable	12,270		40,624		Accounts receivable	(22,497)		(8,816)
Inventories	Inventories	(48,377)		2,150		Inventories	(34,791)		(6,345)
Other current assets	Other current assets	(15,907)		26,072		Other current assets	(17,129)		(11,899)
Other long-term assets	Other long-term assets	(7,897)		5,058		Other long-term assets	3,002		(2,887)
Accounts payable, other current liabilities, and taxes payable	Accounts payable, other current liabilities, and taxes payable	42,550		(27,124)		Accounts payable, other current liabilities, and taxes payable	15,113		17,778
Wages and benefits payable	Wages and benefits payable	(30,877)		14,110		Wages and benefits payable	(12,895)		(26,185)
Unearned revenue	Unearned revenue	32,151		(13,158)		Unearned revenue	34,471		35,320
Warranty	Warranty	(5,031)		(5,969)		Warranty	(1,041)		(928)
Restructuring						Restructuring	33,209		(13,167)
Other operating, net	Other operating, net	(29,246)		(31,364)		Other operating, net	(7,091)		(2,478)
Net cash provided by operating activities	Net cash provided by operating activities	37,530		141,147		Net cash provided by operating activities	1,429		7,591

Investing activities	Investing activities					Investing activities
Net proceeds related to the sale of business		55,933		3,142
Net proceeds (payments) related to the sale of business						Net proceeds (payments) related to the sale of business	(772)		55,933
Acquisitions of property, plant, and equipment	Acquisitions of property, plant, and equipment	(14,886)		(27,781)		Acquisitions of property, plant, and equipment	(6,902)		(5,369)
Business acquisitions, net of cash and cash equivalents acquired	Business acquisitions, net of cash and cash equivalents acquired	23		—		Business acquisitions, net of cash and cash equivalents acquired	—		23
Other investing, net	Other investing, net	2,424		2,820		Other investing, net	16		362
Net cash provided by (used in) investing activities	Net cash provided by (used in) investing activities	43,494		(21,819)		Net cash provided by (used in) investing activities	(7,658)		50,949

Financing activities	Financing activities					Financing activities
Proceeds from borrowings		—		460,000
Payments on debt		—		(946,094)

Issuance of common stock	Issuance of common stock	2,631		4,351		Issuance of common stock	607		784
Proceeds from common stock offering		—		389,419
Proceeds from sale of warrants		—		45,349
Purchases of convertible note hedge contracts		—		(84,139)

Repurchase of common stock	Repurchase of common stock	(16,972)		—		Repurchase of common stock	—		(16,972)
Prepaid debt fees	Prepaid debt fees	(697)		(12,021)		Prepaid debt fees	(517)		(695)
Other financing, net	Other financing, net	(4,358)		6,327		Other financing, net	(185)		(222)
Net cash used in financing activities	Net cash used in financing activities	(19,396)		(136,808)		Net cash used in financing activities	(95)		(17,105)

Effect of foreign exchange rate changes on cash and cash equivalents	Effect of foreign exchange rate changes on cash and cash equivalents	(8,794)		(762)		Effect of foreign exchange rate changes on cash and cash equivalents	330		(17)
Increase (decrease) in cash and cash equivalents	Increase (decrease) in cash and cash equivalents	52,834		(18,242)		Increase (decrease) in cash and cash equivalents	(5,994)		41,418
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	162,579		206,933		Cash and cash equivalents at beginning of period	202,007		162,579
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	215,413	$	188,691	Cash and cash equivalents at end of period	$	196,013	$	203,997

Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:					Supplemental disclosure of cash flow information:
Cash paid during the period for:	Cash paid during the period for:					Cash paid during the period for:
Income taxes, net	Income taxes, net	$	9,954	$	5,989	Income taxes, net	$	1,432	$	1,740
Interest	Interest	1,409		8,655		Interest	459		514

The accompanying notes are an integral part of these consolidated financial statements.

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ITRON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~September 30, 2022~~March 31, 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,~~March 31, 2023 and 2022, ~~and 2021,~~ Consolidated Statements of Equity for the three months ended ~~September 30, 2022 and 2021, June 30, 2022 and 2021, and~~ March 31, ~~2022~~2023 and ~~2021,~~2022, the Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ and the Consolidated Balance Sheets as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~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, 2022~~March 31, 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, ~~2021~~2022 filed with the SEC in our Annual Report on Form 10-K on February ~~28, 2022 (2021~~27, 2023 (2022 Annual Report). There have been no significant changes in financial statement preparation or significant accounting policies since December 31, ~~2021.~~2022.

Risks and Uncertainties

The ~~COVID-19~~ pandemic has ~~had~~resulted in global economic impacts including disrupting customer demand and global supply chains, resulting in market ~~volatility. The extent of the recent pandemic and its ongoing impact on~~volatility, which our ~~operations is volatile, but is being monitored closely by our management. New variants of the virus may cause previously lifted restrictions~~management continues to ~~be reinstated, which could result in more disruptions.~~monitor. As economies have reopened, global supply chains have struggled to keep pace with rapidly changing demand. The resulting supply constraints have manifested across a variety of areas including mechanical, electrical, and logistics portions of the supply chain, which has impacted our ability to ship products in a timely manner. In particular, our ability to obtain adequate supply of semiconductor components has impacted our ability to service recovering customer demand. While we believe the current imbalance in supply and demand is temporal, the timeline to recovery is uncertain. Efforts are ongoing 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 ~~pandemic and~~ uncertain economic environment. We may or may not be able to fully recover these increased costs through pricing actions with our customers. At this time, we have not identified any significant decrease in long-term customer demand for our products and services. However, certain of our customer projects have experienced delay in deliveries, with ~~revenue~~revenues originally forecasted in prior periods shifting to future periods.

During the third quarter of 2022, we substantially liquidated our legal entity in Russia, recognizing a loss of $1.9 million for the reclassification of the currency translation adjustment from accumulated other comprehensive income (AOCI). The loss was classified within sales, general and administrative expense within the Consolidated Statements of Operations.

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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:


	Three Months Ended March 31, 2022
In thousands	As Previously Reported		Adjustments		As Reclassified
Changes in operating assets and liabilities, net of acquisitions and sale of business:
Accounts payable, other current liabilities, and taxes payable	$	14,065	$	3,713	$	17,778
Restructuring	—		(13,167)		(13,167)
Other operating, net	(11,932)		9,454		(2,478)

Recently Adopted Accounting Standards

In ~~May~~October 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) ~~2021-04 amending~~ Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation - Stock Compensation (Topic 718), and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40). The amendment affects entities when a freestanding equity-classified written call option is modified or exchanged and remains equity classified after the modification or exchange. We adopted this amendment as of the effective date of January 1, 2022. The adoption of this amendment did not have a material impact on our financial statements.

~~In July 2021, the FASB issued ASU 2021-05,~~ ~~Leases (Topic 842): Lessors-Certain Leases with Variable Lease Payments~~. The amendments in this Update modify the lease classification requirements for lessors to align them with practice under Topic 840, particularly in the area of day-one loss accounting. Lessors should classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if certain criteria are met. The effective date for this amendment was January 1, 2022. The adoption of this amendment did not have a material impact on our financial statements.

~~In November 2021, the FASB issued ASU 2021-10 amending~~ ~~Government Assistance:~~ (~~Topic 832)~~. The FASB issued this Update to increase the transparency of government assistance including the disclosure of (1) the types of assistance, (2) an entity's accounting for the assistance, and (3) the effect of the assistance on an entity's financial statements. The effective date for this amendment was January 1, 2022. The adoption of this amendment did not have a material impact on our financial statements.

~~Recent Accounting Standards Not Yet Adopted~~

~~In October 2021, the FASB issued 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. ~~The~~We adopted this amendment as of the effective date ~~for this amendment is~~of January 1, ~~2023 and all interim periods thereafter.~~ 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,					Three Months Ended March 31,
In thousands, except per share data	In thousands, except per share data	2022		2021		2022		2021		In thousands, except per share data		2023		2022
Net income (loss) available to common shareholders	Net income (loss) available to common shareholders	$	4,117	$	(1,869)	$	(31,944)	$	(22,389)	Net income (loss) available to common shareholders		$	(11,836)	$	906

Weighted average common shares outstanding - Basic	Weighted average common shares outstanding - Basic	45,139		45,240		45,075		43,983		Weighted average common shares outstanding - Basic		45,281		45,018
Dilutive effect of stock-based awards	Dilutive effect of stock-based awards	191		—		—		—		Dilutive effect of stock-based awards		—		222
Dilutive effect of convertible notes	Dilutive effect of convertible notes	—		—		—		—		Dilutive effect of convertible notes		—		—
Weighted average common shares outstanding - Diluted	Weighted average common shares outstanding - Diluted	45,330		45,240		45,075		43,983		Weighted average common shares outstanding - Diluted		45,281		45,240
Net income (loss) per common share - Basic	Net income (loss) per common share - Basic	$	0.09	$	(0.04)	$	(0.71)	$	(0.51)	Net income (loss) per common share - Basic		$	(0.26)	$	0.02
Net income (loss) per common share - Diluted	Net income (loss) per common share - Diluted	$	0.09	$	(0.04)	$	(0.71)	$	(0.51)	Net income (loss) per common share - Diluted		$	(0.26)	$	0.02

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Stock-based Awards

For stock-based awards, the dilutive effect is calculated using the treasury stock method. Under this method, the dilutive effect is computed as if the awards were exercised at the beginning of the period (or at time of issuance, if later) and assumes the related proceeds were used to repurchase our common stock at the average market price during the period. Related proceeds include the amount the employee must pay upon exercise and the future compensation cost associated with the stock award. Approximately ~~0.4~~0.7 million and ~~0.7~~0.4 million stock-based awards were excluded from the calculation of diluted EPS for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~because they were anti-dilutive. Approximately 0.4 million and 0.5 million stock-based awards were excluded from the calculation of diluted EPS for the three and nine months ended September 30, 2021~~ 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~~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,~~convertible notes, to settle the principal amount of the ~~Convertible Notes~~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~~convertible notes were converted. The average closing prices of our common stock for the quarter ended ~~September 30, 2022~~March 31, 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,~~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, 2022,~~March 31, 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,~~convertible notes, we entered into privately negotiated call option contracts on our common stock (the ~~Convertible Note Hedge Transactions)~~convertible note hedge transactions) with certain commercial banks (the Counterparties). The ~~Convertible Note Hedge Transactions~~convertible note hedge transactions cover, subject to anti-dilution adjustments substantially similar to those in the ~~Convertible Notes,~~convertible notes, approximately 3.7 million shares of our common stock, the same number of shares initially underlying the ~~Convertible Notes,~~convertible notes, at a strike price of approximately $126.00, subject to customary adjustments. The ~~Convertible Note Hedge Transactions~~convertible note hedge transactions will expire upon the maturity of the ~~Convertible Notes,~~convertible notes, subject to earlier exercise or termination. Exercise of the ~~Convertible Note Hedge Transactions~~convertible note hedge transactions would reduce the number of shares of our common stock outstanding and therefore would be anti-dilutive.

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Note 3: Certain Balance Sheet Components

A summary of accounts receivable from contracts with customers is as follows:


Accounts receivable, net	Accounts receivable, net					Accounts receivable, net
In thousands	In thousands	September 30, 2022		December 31, 2021		In thousands	March 31, 2023		December 31, 2022
Trade receivables (net of allowance of $4,506 and $5,730)		$	231,998	$	261,124
Trade receivables (net of allowance of $4,782 and $4,863)						Trade receivables (net of allowance of $4,782 and $4,863)	$	259,587	$	249,771
Unbilled receivables	Unbilled receivables	34,671		37,335		Unbilled receivables	45,688		30,664
Total accounts receivable, net	Total accounts receivable, net	$	266,669	$	298,459	Total accounts receivable, net	$	305,275	$	280,435


Allowance for credit losses account activity	Allowance for credit losses account activity	Three Months Ended September 30,				Nine Months Ended September 30,				Allowance for credit losses account activity	Three Months Ended March 31,
In thousands	In thousands	2022		2021		2022		2021		In thousands		2023		2022
Beginning balance	Beginning balance	$	5,630	$	1,107	$	5,730	$	1,312	Beginning balance		$	4,863	$	5,730
Provision for (release of) doubtful accounts, net	Provision for (release of) doubtful accounts, net	(1,062)		2,164		(544)		2,122		Provision for (release of) doubtful accounts, net		(91)		(101)
Accounts recovered (written-off), net	Accounts recovered (written-off), net	(214)		(440)		(458)		(582)		Accounts recovered (written-off), net		(66)		78
Effect of change in exchange rates	Effect of change in exchange rates	152		(33)		(222)		(54)		Effect of change in exchange rates		76		(109)
Ending balance	Ending balance	$	4,506	$	2,798	$	4,506	$	2,798	Ending balance		$	4,782	$	5,598

Inventories
In thousands September 30, 2022 December 31, 2021
Raw materials $ 160,000 $ 122,434
Work in process 8,359 7,856
Finished goods 35,253 35,509
Total inventories $ 203,612 $ 165,799

Property, plant, and equipment, net
In thousands September 30, 2022 December 31, 2021
Machinery and equipment $ 296,488 $ 314,502
Computers and software 115,822 111,540
Buildings, furniture, and improvements 125,911 131,764
Land 8,221 8,952
Construction in progress, including purchased equipment 20,212 39,527
Total cost 566,654 606,285
Accumulated depreciation (427,886) (443,101)
Property, plant, and equipment, net $ 138,768 $ 163,184

Depreciation expense Three Months Ended September 30, Nine Months Ended September 30,
In thousands 2022 2021 2022 2021
Depreciation expense $ 10,948 $ 12,389 $ 31,161 $ 37,338


Inventories
In thousands	March 31, 2023		December 31, 2022
Raw materials	$	215,203	$	182,118
Work in process	9,239		8,386
Finished goods	40,680		38,197
Total inventories	$	265,122	$	228,701

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Property, plant, and equipment, net
In thousands	March 31, 2023		December 31, 2022
Machinery and equipment	$	312,339	$	306,699
Computers and software	120,498		119,670
Buildings, furniture, and improvements	130,957		130,301
Land	8,668		8,566
Construction in progress, including purchased equipment	18,232		19,403
Total cost	590,694		584,639
Accumulated depreciation	(454,297)		(444,516)
Property, plant, and equipment, net	$	136,397	$	140,123


Depreciation expense	Three Months Ended March 31,
In thousands		2023		2022
Depreciation expense		$	9,415	$	10,284

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, 2022						December 31, 2021							March 31, 2023						December 31, 2022
In thousands	In thousands	Gross		Accumulated (Amortization) Accretion		Net		Gross		Accumulated (Amortization) Accretion		Net		In thousands	Gross		Accumulated (Amortization) Accretion		Net		Gross		Accumulated (Amortization) Accretion		Net
Intangible Assets	Intangible Assets													Intangible Assets
Core-developed technology	Core-developed technology	$	491,898	$	(484,225)	$	7,673	$	505,429	$	(491,047)	$	14,382	Core-developed technology	$	500,000	$	(495,338)	$	4,662	$	498,601	$	(492,782)	$	5,819
Customer contracts and relationships	Customer contracts and relationships	307,838		(247,555)		60,283		336,421		(261,043)		75,378		Customer contracts and relationships	325,346		(272,107)		53,239		322,360		(265,503)		56,857
Trademarks and trade names	Trademarks and trade names	69,562		(67,416)		2,146		74,551		(72,133)		2,418		Trademarks and trade names	72,699		(70,727)		1,972		72,156		(70,101)		2,055
Other	Other	12,011		(11,767)		244		12,021		(11,670)		351		Other	12,018		(11,839)		179		12,017		(11,807)		210

Total intangible assets	Total intangible assets	$	881,309	$	(810,963)	$	70,346	$	928,422	$	(835,893)	$	92,529	Total intangible assets	$	910,063	$	(850,011)	$	60,052	$	905,134	$	(840,193)	$	64,941

Intangible Liabilities	Intangible Liabilities													Intangible Liabilities
Customer contracts and relationships	Customer contracts and relationships	$	(23,900)	$	23,785	$	(115)	$	(23,900)	$	23,441	$	(459)	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,					Three Months Ended March 31,
In thousands	In thousands	2022		2021		In thousands	2023		2022
Intangible assets, gross beginning balance	Intangible assets, gross beginning balance	$	928,422	$	1,000,037	Intangible assets, gross beginning balance	$	905,134	$	928,422

Effect of change in exchange rates	Effect of change in exchange rates	(47,113)		(21,109)		Effect of change in exchange rates	4,929		(5,578)
Intangible assets, gross ending balance	Intangible assets, gross ending balance	$	881,309	$	978,928	Intangible assets, gross ending balance	$	910,063	$	922,844

Intangible liabilities, gross beginning balance	Intangible liabilities, gross beginning balance	$	(23,900)	$	(23,900)	Intangible liabilities, gross beginning balance	$	(23,900)	$	(23,900)

Effect of change in exchange rates	Effect of change in exchange rates	—		—		Effect of change in exchange rates	—		—
Intangible liabilities, gross ending balance	Intangible liabilities, gross ending balance	$	(23,900)	$	(23,900)	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.

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Estimated future annual amortization ~~(accretion)~~ is as follows:


Year Ending December 31,	Year Ending December 31,	Amortization		Accretion		Estimated Annual Amortization, net		Year Ending December 31,	Estimated Annual Amortization
In thousands	In thousands							In thousands
2022 (amount remaining at September 30, 2022)		$	6,457	$	(115)	$	6,342
2023		18,616		—		18,616
2023 (amount remaining at March 31, 2023)								2023 (amount remaining at March 31, 2023)	$	13,955
2024	2024	14,748		—		14,748		2024	15,080
2025	2025	14,080		—		14,080		2025	14,342
2026	2026	10,160		—		10,160		2026	10,329
2027								2027	5,630
Thereafter	Thereafter	6,285		—		6,285		Thereafter	716
Total intangible assets subject to amortization (accretion)		$	70,346	$	(115)	$	70,231
Total intangible assets subject to amortization								Total intangible assets subject to amortization	$	60,052

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Note 5: Goodwill

The following table reflects changes in the carrying amount of goodwill for the ~~nine~~three months ended ~~September 30, 2022:~~March 31, 2023:

In thousands Device Solutions Networked Solutions Outcomes Total Company
Goodwill balance at January 1, 2022 $ 39,377 $ 918,005 $ 141,593 $ 1,098,975
Adjustment to goodwill acquired — (23) — (23)
Goodwill impairment (38,480) — — (38,480)
Effect of change in exchange rates (897) (42,105) (6,419) (49,421)
Goodwill balance at September 30, 2022 $ — $ 875,877 $ 135,174 $ 1,011,051

On October 12, 2021, we acquired SELC Group Limited (SELC), from Sensus Metering Systems (LUXCO3) S.ár.l. During the nine months ended September 30, 2022, an adjustment was recorded to the goodwill acquired.

As the result of increases in raw material, component, labor and other costs, coupled with a decrease in forecasted revenue within the Device Solutions operating segment and reporting unit, which we determined during the second quarter of 2022, we performed an interim goodwill impairment test. At the conclusion of the test, a goodwill impairment of $38.5 million was recognized in our Corporate unallocated segment as of June 30, 2022. No interim impairment test was determined to be necessary for the Networked Solutions or Outcomes reporting units. Refer to Note 1: Summary of Significant Accounting Policies in Part II, Item 8: Financial Statements and Supplementary Data of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 for a description of our reporting units and our method used to determine the fair values of our reporting units and to determine the amount of any goodwill impairment.


In thousands	Device Solutions		Networked Solutions		Outcomes		Total Company
Goodwill balance at January 1, 2023	$	—	$	899,887	$	138,834	$	1,038,721


Effect of change in exchange rates	—		5,155		785		5,940
Goodwill balance at March 31, 2023	$	—	$	905,042	$	139,619	$	1,044,661

Note 6: Debt

The components of our borrowings were as follows:


In thousands	In thousands	September 30, 2022		December 31, 2021		In thousands	March 31, 2023		December 31, 2022
Credit facility	Credit facility					Credit facility

Multicurrency revolving line of credit	Multicurrency revolving line of credit	$	—	$	—	Multicurrency revolving line of credit	$	—	$	—

Convertible notes	Convertible notes	460,000		460,000		Convertible notes	460,000		460,000
Total debt	Total debt	460,000		460,000		Total debt	460,000		460,000

Less: unamortized prepaid debt fees - convertible notes	Less: unamortized prepaid debt fees - convertible notes	8,053		9,772		Less: unamortized prepaid debt fees - convertible notes	6,906		7,474
Long-term debt, net	Long-term debt, net	$	451,947	$	450,228	Long-term debt, net	$	453,094	$	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 ~~originally consisted~~now consists of ~~a $650 million U.S. dollar term loan (the term loan) and~~ 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 was amended on October 18, 2019, and this amendment extended the maturity date to October 18, 2024. The amendment also modified the required interest payments and with covenants based on total net leverage instead of total leverage. On October 19, 2020, we entered into a second amendment to obtain temporary covenant relief while also adding an additional level of pricing to the pricing grid, which is effective throughout the remaining term of the debt. On March 8, 2021, we entered into a third amendment to the 2018 credit facility, which modified provisions to permit cash settlement upon the conversion of the Convertible Notes, the Convertible Note Hedge Transactions and Warrant Transactions and also to adjust certain settlement provisions for convertible indebtedness. Refer to Note 7: Derivative Financial Instruments for further details of the Convertible Note Hedge Transactions and Warrant Transactions.

On February 25, 2022, we entered into a fourth amendment to the 2018 credit facility, which modifies to allow for the addback of non-cash expenses related to restructuring charges incurred during the quarter ended December 31, 2021 and also adjusts the maximum total net leverage ratio thresholds for the period beginning with the first quarter of 2022 through the fourth quarter of 2022 to allow for increased operational flexibility. The maximum leverage ratio is increased to 4.75:1 for the first through third quarters of 2022 and 4.50:1 for the fourth quarter of 2022.

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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, 2022.~~March 31, 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 will occur 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 modifies provisions to allow for the addback for debt covenant calculations of non-recurring cash expenses related to restructuring charges to be incurred during the quarter ended March 31, 2023.

At ~~September 30, 2022,~~March 31, 2023, there were no outstanding loan balances under the ~~Credit Facility,~~credit facility, and ~~$55.9~~$62.1 million was utilized by outstanding standby letters of credit, resulting in ~~$444.1~~$437.9 million available for additional borrowings or standby letters of credit within the revolver. At ~~September 30, 2022, $244.1~~March 31, 2023, $237.9 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~~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~~convertible notes do not bear regular interest, and the principal amount does not accrete. The ~~Convertible Notes~~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.~~convertible notes.

The initial conversion rate of the ~~Convertible Notes~~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~~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)~~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~~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~~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~~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~~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~~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~~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,~~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 Notes~~convertible notes 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)~~convertible notes), subject to a limited exception described in the indenture governing the ~~Convertible Notes,~~convertible notes, holders may require us to repurchase all or a portion of their notes for cash at a

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price equal to plus accrued and unpaid special interest to, but not including, the fundamental change repurchase date (as defined in the indenture governing the ~~Convertible Notes)~~convertible notes).

The ~~Convertible Notes~~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.~~convertible notes. The ~~Convertible Notes~~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~~convertible notes will be structurally subordinated to all existing debt and any future debt and any other liabilities of our subsidiaries.

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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,	Year Ending December 31,	Minimum Payments		Year Ending December 31,	Minimum Payments
In thousands	In thousands			In thousands
2022 (amount remaining at September 30, 2022)		$	—
2023		—
2023 (amount remaining at March 31, 2023)				2023 (amount remaining at March 31, 2023)	$	—
2024	2024	—		2024	—
2025	2025	—		2025	—
2026	2026	460,000		2026	460,000
2027				2027	—
Thereafter	Thereafter	—		Thereafter	—
Total minimum payments on debt	Total minimum payments on debt	$	460,000	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 ~~currency and interest rate exposures.~~currencies. Refer to Note 13: Shareholders' Equity and Note 14: Fair Value of Financial Instruments for additional disclosures on our derivative instruments.

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 interest rate yield curves (swap rates and futures) and 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. We include, as a discount to the derivative asset, the effect of our counterparty credit risk based on current published credit default swap rates when the net fair value of our derivative instruments is in a net asset position. We consider our own nonperformance risk when the net fair value of our derivative instruments is in a net liability position by discounting our derivative liabilities to reflect the potential credit risk to our counterparty through applying a current market indicative credit spread to all cash flows.

~~The fair values of our derivative instruments were as follows:~~

Fair Value
Derivatives Assets Balance Sheet Location September 30, 2022 December 31, 2021
Derivatives not designated as hedging instruments under ASC 815-20 In thousands
Foreign exchange forward contracts Other current assets $ 570 $ 37
Total asset derivatives $ 570 $ 37
Derivatives Liabilities
Derivatives not designated as hedging instruments under ASC 815-20
Foreign exchange forward contracts Other current liabilities $ 862 $ 135
Total liability derivatives $ 862 $ 135

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The changes in accumulated other comprehensive income (loss) (AOCI), net of tax, for our derivative and nonderivative hedging instruments designated as hedging instruments, net of tax, were as follows:

In thousands 2022 2021
Net unrealized gain (loss) on hedging instruments at January 1, $ 14,590 $ (16,001)
Unrealized gain (loss) on derivative instruments — 1,085
Realized (gains) losses reclassified into net income (loss) — 733
Net unrealized gain (loss) on hedging instruments at September 30, $ 14,590 $ (14,183)

Reclassification of amounts related to hedging instruments are included in interest expense in the Consolidated Statements of Operations. Included in the net unrealized gain (loss) on hedging instruments at September 30, 2022 and 2021 is a loss of $14.4 million, net of tax, related to our nonderivative net investment hedge, which terminated in 2011. This loss on our net investment hedge will remain in AOCI until earnings are impacted by a sale or liquidation of the associated foreign operation.

A summary of the effect of netting arrangements on our financial position related to the offsetting of our recognized derivative assets and liabilities under master netting arrangements or similar agreements is as follows:

Offsetting of Derivative Assets Gross Amounts of Recognized Assets Presented in the Consolidated Balance Sheets Gross Amounts Not Offset in the Consolidated Balance Sheets
In thousands Derivative Financial Instruments Cash Collateral Received Net Amount
September 30, 2022 $ 570 $ (567) $ — $ 3
December 31, 2021 37 (37) — —

Offsetting of Derivative Liabilities Gross Amounts of Recognized Liabilities Presented in the Consolidated Balance Sheets Gross Amounts Not Offset in the Consolidated Balance Sheets
In thousands Derivative Financial Instruments Cash Collateral Pledged Net Amount
September 30, 2022 $ 862 $ (567) $ — $ 295
December 31, 2021 135 (37) — 98

Our derivative assets and liabilities subject to netting arrangements include foreign exchange forward and interest rate contracts with three counterparties at September 30, 2022 and three counterparties at December 31, 2021. No derivative asset or liability balance with any of our counterparties was individually significant at September 30, 2022 or December 31, 2021. Our derivative contracts with each of these counterparties exist under agreements that provide for the net settlement of all contracts through a single payment in a single currency in the event of default. We have no pledges of cash collateral against our obligations, and we have not received pledges of cash collateral from our counterparties under the associated derivative contracts.

~~Cash Flow Hedges~~

As a result of our forecasted inventory purchases in a non-functional currency, we are exposed to foreign exchange risk. We hedge portions of these purchases. During February 2021, we entered into foreign exchange option contracts for a total notional amount of $76.5 million at a cost of $1.1 million. The contracts matured ratably through the year with final maturity occurring in October 2021. Changes in the fair values of the option contracts are recognized as a component of other comprehensive income (OCI) and are recognized in product cost of revenues when the hedged item affects earnings. We have not entered into any similar arrangements in 2022.

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~~The before-tax effects of our accounting for derivative instruments designated as hedges on AOCI were as follows:~~

Derivatives in ASC 815-20
Cash Flow
Hedging Relationships Amount of Gain (Loss)
Recognized in OCI on
Derivative Gain (Loss) Reclassified from
AOCI into Income
Location Amount
In thousands 2022 2021 2022 2021
Three Months Ended September 30,
Foreign exchange options $ — $ 478 Product cost of revenues $ — $ (32)
Nine Months Ended September 30,
Interest rate swap contract $ — $ 73 Interest expense $ — $ (229)
Interest rate swap contract — — Other income (expense), net — (1,681)
Foreign exchange options — 367 Product cost of revenues — (40)
Cross currency swap contract — 669 Interest expense — 94
Cross currency swap contract — — Other income (expense), net — 656

Derivatives Not Designated as Hedging Relationships

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, 2022,~~March 31, 2023, a total of 3238 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 ~~$135,000~~$115,000 to ~~$57.8~~$47.0 million.

~~The effect of our derivative instruments not designated as hedges on the Consolidated Statements of Operations was as follows:~~

Derivatives Not Designated as Hedging Instrument under ASC 815-20 Location Gain (Loss) Recognized on Derivatives in Other Income (Expense)
In thousands 2022 2021
Three Months Ended September 30,
Foreign exchange forward contracts Other income (expense), net $ 1,338 $ 673
Nine Months Ended September 30,
Foreign exchange forward contracts Other income (expense), net $ 1,299 $ 210

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.

~~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 the 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 those 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 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

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impact of this tax election makes the call options deductible as original issue discount for tax purposes over the term of the Convertible Note, 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 Warrants 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, therefore the warrants are not revalued after issuance.

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 iswas December 31, ~~2021.~~2022.

Amounts recognized on the Consolidated Balance Sheets consist of:

In thousands September 30, 2022 December 31, 2021
Liabilities
Current portion of pension benefit obligation in wages and benefits payable $ 2,915 $ 3,088
Pension benefit obligation held for sale within other current liabilities — 11,513
Long-term portion of pension benefit obligation 71,111 87,863
Pension benefit obligation, net $ 74,026 $ 102,464

~~On November 2, 2021, Itron entered into an agreement to sell certain of its Gas device businesses and operations to~~ ~~Dresser Utility Solutions (Dresser)~~. The related disposal group was classified as held for sale during the fourth quarter of 2021. The disposal group was removed from our balance sheet when the transaction closed on February 28, 2022. Refer to Note 17: Sale of Business for additional information on the transaction.


In thousands	March 31, 2023		December 31, 2022
Assets
Plan assets in other long-term assets	$	167	$	162

Liabilities
Current portion of pension benefit obligation in wages and benefits payable	$	3,562	$	3,400
Long-term portion of pension benefit obligation	59,127		57,839

Pension benefit obligation, net	$	62,522	$	61,077

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.

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Net periodic pension benefit cost for our plans includes the following components:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
In thousands	In thousands	2022		2021		2022		2021		In thousands		2023		2022
Service cost	Service cost	$	739	$	1,125	$	2,241	$	3,376	Service cost		$	604	$	794
Interest cost	Interest cost	403		345		1,269		1,046		Interest cost		712		443
Expected return on plan assets	Expected return on plan assets	(75)		(87)		(238)		(264)		Expected return on plan assets		(87)		(83)
Amortization of prior service costs	Amortization of prior service costs	17		17		53		51		Amortization of prior service costs		15		18
Amortization of actuarial net loss	Amortization of actuarial net loss	187		681		618		2,070		Amortization of actuarial net loss		(121)		235

Net periodic benefit cost	Net periodic benefit cost	$	1,271	$	2,081	$	3,943	$	6,279	Net periodic benefit cost		$	1,123	$	1,407

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.

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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 12,623,538 shares of common stock reserved and authorized for issuance subject to stock splits, dividends, and other similar ~~events. At September 30, 2022, 4,626,437~~events, and at March 31, 2023, 3,969,520 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 ~~91,074~~58,633 shares of common stock were available for future issuance at ~~September 30, 2022.~~March 31, 2023.

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, 2022~~March 31, 2023 and ~~2021.~~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,					Three Months Ended March 31,
In thousands	In thousands	2022		2021		2022		2021		In thousands		2023		2022
Stock options	Stock options	$	236	$	344	$	798	$	1,055	Stock options		$	60	$	284
Restricted stock units	Restricted stock units	4,430		5,104		15,883		16,546		Restricted stock units		6,583		5,584
Unrestricted stock awards	Unrestricted stock awards	218		217		735		650		Unrestricted stock awards		276		259
Phantom stock units	Phantom stock units	(176)		519		596		2,861		Phantom stock units		777		190
Total stock-based compensation	Total stock-based compensation	$	4,708	$	6,184	$	18,012	$	21,112	Total stock-based compensation		$	7,696	$	6,317

Related tax benefit	Related tax benefit	$	1,195	$	1,159	$	4,264	$	3,840	Related tax benefit		$	1,703	$	1,369

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Stock Options

A summary of our stock option activity is as follows:


		Shares	Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value		Weighted Average Grant Date Fair Value			Shares	Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value		Weighted Average Grant Date Fair Value
		(In thousands)			(Years)	(In thousands)					In thousands			Years	In thousands
Outstanding, January 1, 2021		433	$	61.95	6.9	$	14,697
Outstanding, January 1, 2022										Outstanding, January 1, 2022	393	$	61.18	5.9	$	4,737

Granted	Granted	—	—					$	—	Granted	—	—					$	—
Exercised	Exercised	(34)	67.21			1,215				Exercised	—	—			—
Forfeited	Forfeited	(6)	83.33							Forfeited	(2)	87.27

Outstanding, September 30, 2021		393	$	61.18	6.1	$	6,496
Outstanding, March 31, 2022										Outstanding, March 31, 2022	391	$	61.03	5.5	$	2,173

Outstanding, January 1, 2022		393	$	61.18	5.9	$	4,737
Outstanding, January 1, 2023										Outstanding, January 1, 2023	381	$	60.63	4.8	$	1,892
Granted	Granted	—	—					$	—	Granted	—	—					$	—
Exercised	Exercised	—	—			—				Exercised	—	—			—

Forfeited	Forfeited	(2)	87.27							Forfeited	—	—
Canceled	Canceled	(8)	78.76							Canceled	—	—
Outstanding, September 30, 2022		383	$	60.69	5.1	$	729
Outstanding, March 31, 2023										Outstanding, March 31, 2023	381	$	60.63	4.6	$	2,549

Exercisable, September 30, 2022		361	$	59.26	5.0	$	729
Exercisable, March 31, 2023										Exercisable, March 31, 2023	378	$	60.60	4.6	$	2,549

At ~~September 30, 2022,~~March 31, 2023, total unrecognized stock-based compensation expense related to nonvested stock options was ~~$0.2 million,~~$42,000, which is expected to be recognized over a weighted average period of approximately ~~0.7~~0.6 years.

Restricted Stock Units

The following table summarizes restricted stock unit activity:


In thousands, except fair value	In thousands, except fair value	Number of Restricted Stock Units	Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value		In thousands, except fair value	Number of Restricted Stock Units	Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
Outstanding, January 1, 2021		544
Outstanding, January 1, 2022							Outstanding, January 1, 2022	430

Granted	Granted	212	$	97.96			Granted	332	$	53.95
Released (1)	Released (1)	(288)			$	28,494	Released (1)	(149)			$	8,025
Forfeited	Forfeited	(46)					Forfeited	(25)
Outstanding, September 30, 2021		422
Outstanding, March 31, 2022							Outstanding, March 31, 2022	588

Outstanding, January 1, 2022		430	$	85.77
Outstanding, January 1, 2023							Outstanding, January 1, 2023	528	$	66.39
Granted	Granted	371	53.32				Granted	411	55.59
Released (1)	Released (1)	(220)	79.96		$	11,441	Released (1)	(202)	73.74		$	14,897
Forfeited	Forfeited	(62)	71.77				Forfeited	(12)	66.19
Outstanding, September 30, 2022		519	66.83
Outstanding, March 31, 2023							Outstanding, March 31, 2023	725	58.43

Vested but not released, September 30, 2022		11			$	481
Vested but not released, March 31, 2023							Vested but not released, March 31, 2023	13			$	719

(1) Shares released is presented as gross shares and does not reflect shares withheld by us for employee payroll tax obligations.

At ~~September 30, 2022,~~March 31, 2023, total unrecognized compensation expense on restricted stock units was ~~$26.4~~$47.9 million, which is expected to be recognized over a weighted average period of approximately ~~1.7~~2.0 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,								Three Months Ended March 31,
			2022			2021					2023			2022

Expected volatility	Expected volatility		55.7		%	50.5		%	Expected volatility		50.0		%	55.7		%
Risk-free interest rate	Risk-free interest rate		1.7		%	0.2		%	Risk-free interest rate		4.6		%	1.7		%
Expected term (years)	Expected term (years)		2.9			2.9			Expected term (years)		2.2			2.9

Weighted average fair value	Weighted average fair value		$	57.88		$	113.75		Weighted average fair value		$	59.22		$	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, 2022~~March 31, 2023 of ~~10% and (19)%~~1%, ~~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 ~~and ECI (Effectively Connected Income), discrete tax expense related to the Dresser divestiture, a discrete tax benefit due to goodwill impairment,~~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, 2021~~March 31, 2022 of ~~902% and (39)%~~81%, ~~respectively,~~ differed from the federal statutory rate of 21% ~~primarily~~ due to reserves recognized on deferred sales price receivables in the second quarter related to the 2020 divestiture of the majority of our Latin American business activities. This item was recognized for tax as a discrete and resulted in no tax benefit. Other rate drivers include losses in jurisdictions for which no benefit is recognized because of valuation allowances on deferred tax assets, the forecasted mix of earnings in domestic and international jurisdictions, ~~a benefit~~GILTI tax, net of Section 250 deduction (largely driven by research and development capitalization), discrete tax expense related to the Dresser Utility Solutions (Dresser) divestiture, an expense related to stock-based compensation, and uncertain tax positions.

Beginning January 1, 2022, the Tax Cuts and Jobs Act of 2017 ~~eliminates~~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 ~~is considering~~has considered legislation that would defer, modify, or repeal the capitalization and amortization requirement, ~~there is~~as of quarter end no assurance that the provision will be repealed or otherwise modified. As a result of research and development conducted outside of the U.S., the amount of expected inclusion of foreign earnings in our U.S. taxable income is largely driven by research and development cost capitalization, and may decrease significantly should these rules be deferred or revoked effective for 2022.such deferral has been passed. The income tax provision has been prepared according to currently enacted tax ~~legislation,~~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 ~~a change~~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 ~~law with regards~~rules are intended to ~~capitalization~~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 ~~research~~the Pillar 2 global minimum tax. The Company is closely monitoring developments and ~~development expenditures would~~evaluating the impacts these new rules will have ~~a material beneficial impact~~ on our ~~annual effective~~ tax ~~rate.~~rate, including eligibility to qualify for these safe harbor rules.

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,					Three Months Ended March 31,
In thousands	In thousands	2022		2021		2022		2021		In thousands		2023		2022
Net interest and penalties expense	Net interest and penalties expense	$	373	$	195	$	989	$	153	Net interest and penalties expense		$	250	$	170

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Accrued interest and penalties recognized were as follows:


In thousands	In thousands	September 30, 2022		December 31, 2021		In thousands	March 31, 2023		December 31, 2022
Accrued interest	Accrued interest	$	3,637	$	2,964	Accrued interest	$	8,054	$	7,575
Accrued penalties	Accrued penalties	613		747		Accrued penalties	465		567

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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 thousands	In thousands	September 30, 2022		December 31, 2021		In thousands	March 31, 2023		December 31, 2022
Unrecognized tax benefits related to uncertain tax positions	Unrecognized tax benefits related to uncertain tax positions	$	136,559	$	139,529	Unrecognized tax benefits related to uncertain tax positions	$	124,923	$	130,144
The amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate	The amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate	136,552		139,503		The amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate	124,915		130,137

At ~~September 30, 2022,~~March 31, 2023, we are under examination by certain tax authorities. During the first quarter 2023, we settled a French tax audit on years 2019-2020 with minimal impact to the financial statements or cash taxes. 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.

On March 27, 2020, the U.S. Federal government passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act to provide economic relief from COVID-19. The CARES Act also provides employer payroll tax credits for wages paid to employees who are unable to work during the COVID-19 outbreak and options to defer payroll tax payments. The Company has elected to defer remittances of payroll and other taxes into the future as provided for under the Act.

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 thousands	In thousands	September 30, 2022		December 31, 2021		In thousands	March 31, 2023		December 31, 2022
Credit facility	Credit facility					Credit facility
Multicurrency revolving line of credit	Multicurrency revolving line of credit	$	500,000	$	500,000	Multicurrency revolving line of credit	$	500,000	$	500,000

Standby LOCs issued and outstanding	Standby LOCs issued and outstanding	(55,937)		(64,374)		Standby LOCs issued and outstanding	(62,058)		(55,990)
Net available for additional borrowings under the multicurrency revolving line of credit	Net available for additional borrowings under the multicurrency revolving line of credit	$	444,063	$	435,626	Net available for additional borrowings under the multicurrency revolving line of credit	$	437,942	$	444,010

Net available for additional standby LOCs under sub-facility	Net available for additional standby LOCs under sub-facility	$	244,063	$	235,626	Net available for additional standby LOCs under sub-facility	$	237,942	$	244,010

Unsecured multicurrency revolving lines of credit with various financial institutions	Unsecured multicurrency revolving lines of credit with various financial institutions					Unsecured multicurrency revolving lines of credit with various financial institutions
Multicurrency revolving lines of credit	Multicurrency revolving lines of credit	$	71,594	$	94,845	Multicurrency revolving lines of credit	$	83,732	$	81,781
Standby LOCs issued and outstanding	Standby LOCs issued and outstanding	(18,365)		(19,957)		Standby LOCs issued and outstanding	(22,742)		(22,530)
Short-term borrowings	Short-term borrowings	—		—		Short-term borrowings	—		—
Net available for additional borrowings and LOCs	Net available for additional borrowings and LOCs	$	53,229	$	74,888	Net available for additional borrowings and LOCs	$	60,990	$	59,251

Unsecured surety bonds in force	Unsecured surety bonds in force	$	281,343	$	281,270	Unsecured surety bonds in force	$	271,202	$	285,754

In the event any such standby LOC or bond is called, we would be obligated to reimburse the issuer of the standby LOC or bond; however, as of ~~November 3, 2022,~~May 4, 2023, we do not believe any outstanding standby LOCs or bonds will be called.

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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

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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.

Warranty

A summary of the warranty accrual account activity is as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
In thousands	In thousands	2022		2021		2022		2021		In thousands		2023		2022
Beginning balance	Beginning balance	$	28,709	$	36,210	$	32,022	$	41,390	Beginning balance		$	25,698	$	32,022

New product warranties	New product warranties	1,166		1,925		3,600		3,611		New product warranties		1,630		1,466
Other adjustments and expirations, net	Other adjustments and expirations, net	(1,092)		(975)		(1,157)		631		Other adjustments and expirations, net		(689)		42
Claims activity	Claims activity	(2,299)		(2,156)		(7,071)		(10,040)		Claims activity		(1,987)		(2,434)
Effect of change in exchange rates	Effect of change in exchange rates	(1,026)		(317)		(1,936)		(905)		Effect of change in exchange rates		179		(261)
Ending balance	Ending balance	25,458		34,687		25,458		34,687		Ending balance		24,831		30,835
Less: current portion of warranty	Less: current portion of warranty	17,943		18,089		17,943		18,089		Less: current portion of warranty		17,829		17,651
Long-term warranty	Long-term warranty	$	7,515	$	16,598	$	7,515	$	16,598	Long-term warranty		$	7,002	$	13,184

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 thousands 2022 2021 2022 2021
Total warranty expense $ 74 $ 950 $ 2,443 $ 4,242


	Three Months Ended March 31,
In thousands		2023		2022
Total warranty expense		$	941	$	1,508

Note 12: Restructuring

~~2021~~2023 Projects

On ~~October 29, 2021,~~February 23, 2023, our Board of Directors approved a restructuring plan (the ~~2021~~2023 Projects) ~~which, in conjunction with the~~ ~~announcement of the sale of certain of our Gas device~~. The 2023 Projects include activities that continue Itron's efforts to optimize its global supply chain and manufacturing operations, ~~(refer to Note 17: Sale of Business), includes activities to drive reductions in certain locations~~ sales and ~~functional support areas.~~marketing organizations, and other overhead. These projects are to be substantially complete by the end of 2024. 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.early 2025.

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The total expected restructuring costs, the restructuring costs recognized, and the remaining expected restructuring costs related to the 2023 Projects were as follows:


In thousands	Total Expected Costs at March 31, 2023		Costs Recognized in Prior Periods		Costs Recognized During the Three Months Ended March 31, 2023		Expected Remaining Costs to be Recognized at March 31, 2023
Employee severance costs	$	36,625	$	—	$	36,625	$	—
Asset impairments & net loss (gain) on sale or disposal	1,067		—		1,067		—
Other restructuring costs	6,503		—		321		6,182
Total	$	44,195	$	—	$	38,013	$	6,182

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.

The total expected restructuring costs, the restructuring costs recognized, and the remaining expected restructuring costs related to the 2021 Projects were as follows:


In thousands	In thousands	Total Expected Costs at September 30, 2022		Costs Recognized in Prior Periods		Adjustments Recognized During the Nine Months Ended September 30, 2022		Expected Remaining Costs to be Recognized at September 30, 2022		In thousands	Total Expected Costs at March 31, 2023		Costs Recognized in Prior Periods		Adjustments Recognized During the Three Months Ended March 31, 2023		Expected Remaining Costs to be Recognized at March 31, 2023
Employee severance costs	Employee severance costs	$	40,709	$	49,013	$	(8,304)	$	—	Employee severance costs	$	37,639	$	38,359	$	(720)	$	—
Asset impairments & net loss (gain) on sale or disposal	Asset impairments & net loss (gain) on sale or disposal	8,371		9,246		(875)		—		Asset impairments & net loss (gain) on sale or disposal	8,602		8,599		3		—
Other restructuring costs	Other restructuring costs	5,468		2,452		516		2,500		Other restructuring costs	5,470		3,084		(14)		2,400
Total	Total	$	54,548	$	60,711	$	(8,663)	$	2,500	Total	$	51,711	$	50,042	$	(731)	$	2,400

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 ~~2022.~~ 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.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 thousands	In thousands	Total Expected Costs at September 30, 2022		Costs Recognized in Prior Periods		Adjustments Recognized During the Nine Months Ended September 30, 2022		Expected Remaining Costs to be Recognized at September 30, 2022		In thousands	Total Expected Costs at March 31, 2023		Costs Recognized in Prior Periods		Adjustments Recognized During the Three Months Ended March 31, 2023		Expected Remaining Costs to be Recognized at March 31, 2023
Employee severance costs	Employee severance costs	$	21,534	$	24,532	$	(2,998)	$	—	Employee severance costs	$	19,543	$	20,382	$	(839)	$	—
Asset impairments & net loss (gain) on sale or disposal	Asset impairments & net loss (gain) on sale or disposal	6,438		6,442		(4)		—		Asset impairments & net loss (gain) on sale or disposal	6,465		6,465		—		—
Other restructuring costs	Other restructuring costs	7,480		6,170		568		742		Other restructuring costs	7,982		7,341		166		475
Total	Total	$	35,452	$	37,144	$	(2,434)	$	742	Total	$	33,990	$	34,188	$	(673)	$	475

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The following table summarizes the activity within the ~~restructuring-related~~restructuring related balance sheet accounts for the 2023 Projects, the 2021 Projects, and the 2020 Projects during the ~~nine~~three months ended ~~September 30, 2022:~~March 31, 2023:

In thousands Accrued Employee Severance Asset Impairments & Net Loss (Gain) on Sale or Disposal Other Accrued Costs Total
Beginning balance,
January 1, 2022 $ 79,876 $ — $ 5,130 $ 85,006
Costs charged to expense (11,302) (879) 1,084 (11,097)
Cash payments (14,937) (116) (2,599) (17,652)
Cash receipts — 1,783 — 1,783
Net assets disposed and impaired — (788) — (788)
Effect of change in exchange rates (8,441) — (276) (8,717)
Ending balance, September 30, 2022 $ 45,196 $ — $ 3,339 $ 48,535

~~During the nine months ended September 30, 2022, $11.3 million in accrued employee severance has been released due to employee attrition and other employee agreements.~~


In thousands	Accrued Employee Severance		Asset Impairments & Net Loss (Gain) on Sale or Disposal		Other Accrued Costs		Total
Beginning balance, January 1, 2023	$	39,558	$	—	$	2,886	$	42,444
Costs charged to expense	35,066		1,070		473		36,609
Cash payments	(2,899)		(15)		(198)		(3,112)

Net assets disposed and impaired	—		(1,055)		—		(1,055)
Effect of change in exchange rates	797		—		15		812
Ending balance, March 31, 2023	$	72,522	$	—	$	3,176	$	75,698

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

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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.

The current portions of restructuring liabilities were ~~$15.3~~$14.3 million and ~~$29.7~~$14.5 million as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 and are classified within other current liabilities on the Consolidated Balance Sheets. The long-term portions of restructuring liabilities were ~~$33.2~~$61.4 million and ~~$55.3~~$27.9 million as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~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, 2022~~March 31, 2023 or December 31, ~~2021.~~

~~Stock Repurchase Authorization~~

Effective November 1, 2021, Itron's Board of Directors authorized a share repurchase up to $100 million of our common stock over an 18-month period (the 2021 Stock Repurchase Program). Repurchases are made in the open market or in privately negotiated transactions, and in accordance with applicable securities laws. During the first quarter of 2022, we repurchased 279,968 shares of our common stock under the 2021 Stock Repurchase Program. The average price paid per share was $60.60 (excluding commissions) for total of $17.0 million. No shares were repurchased during the second and third quarters of 2022. ~~Following the announcement of the program and through September 30, 2022, we repurchased 405,282 shares at an average share price of $61.67 (excluding commissions) for a total of $25.0 million.~~

Convertible Note Hedge Transactions

We paid an aggregate amount of $84.1 million for the ~~Convertible Note Hedge Transactions.~~convertible note hedge transactions. The ~~Convertible Note Hedge Transactions~~convertible note hedge transactions cover, subject to anti-dilution adjustments substantially similar to those in the ~~Convertible Notes,~~convertible notes, approximately 3.7 million shares of our common stock, the same number of shares initially underlying the ~~Convertible Notes,~~convertible notes, at a strike price of approximately $126.00, subject to customary adjustments. The ~~Convertible Note Hedge Transactions~~convertible note hedge transactions will expire upon the maturity of the ~~Convertible Notes,~~convertible notes, subject to earlier exercise or termination. The ~~Convertible Note Hedge Transactions~~convertible note hedge transactions are expected generally to reduce the potential dilutive effect of the conversion of our ~~Convertible Notes~~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,~~convertible note hedge transactions, is greater than the strike price of the ~~Convertible Note Hedge Transactions.~~convertible note hedge transactions. The ~~Convertible Note Hedge Transactions~~convertible note hedge transactions meet the criteria in ~~ASC~~Accounting Standards Codification (ASC) 815-40 to be classified within Stockholders' Equity, and therefore the ~~Convertible Note Hedge Transactions~~convertible note hedge transactions are not revalued after their issuance.

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We made a tax election to integrate the ~~Convertible Notes~~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 Note,~~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,~~convertible note hedge transactions, we separately entered into privately-negotiated ~~Warrant Transactions,~~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~~warrant transactions with the Counterparties, with such proceeds partially offsetting the costs of entering into the ~~Convertible Note Hedge Transactions.~~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,~~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 thousands Foreign Currency Translation Adjustments Net Unrealized Gain (Loss) on Derivative Instruments Net Unrealized Gain (Loss) on Nonderivative Instruments Pension Benefit Obligation Adjustments Accumulated Other Comprehensive Income (Loss)
Balances at January 1, 2021 $ (84,843) $ (1,621) $ (14,380) $ (37,682) $ (138,526)
OCI before reclassifications (17,118) 1,085 — — (16,033)
Amounts reclassified from AOCI — 733 — 2,087 2,820
Total other comprehensive income (loss) (17,118) 1,818 — 2,087 (13,213)
Balances at September 30, 2021 $ (101,961) $ 197 $ (14,380) $ (35,595) $ (151,739)
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 AOCI 57,321 — — 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)


In thousands	Foreign Currency Translation Adjustments		Net Unrealized Gain (Loss) on Derivative Instruments		Net Unrealized Gain (Loss) on Nonderivative Instruments		Pension Benefit Obligation Adjustments		Accumulated Other Comprehensive Income (Loss)
Balances at January 1, 2022	$	(111,766)	$	(210)	$	(14,380)	$	(21,742)	$	(148,098)
OCI before reclassifications	(6,891)		—		—		4,196		(2,695)
Amounts reclassified from AOCI	55,436		—		—		74		55,510
Total other comprehensive income (loss)	48,545		—		—		4,270		52,815
Balances at March 31, 2022	$	(63,221)	$	(210)	$	(14,380)	$	(17,472)	$	(95,283)

Balances at January 1, 2023	$	(83,193)	$	(210)	$	(14,380)	$	3,109	$	(94,674)
OCI before reclassifications	7,225		—		—		—		7,225
Amounts reclassified from AOCI	—		—		—		(106)		(106)
Total other comprehensive income (loss)	7,225		—		—		(106)		7,119
Balances at March 31, 2023	$	(75,968)	$	(210)	$	(14,380)	$	3,003	$	(87,555)

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The before-tax, income tax (provision) benefit, and net-of-tax amounts related to each component of ~~OCI~~other comprehensive income (OCI) were as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
In thousands	In thousands	2022		2021		2022		2021		In thousands		2023		2022
Before-tax amount	Before-tax amount									Before-tax amount
Foreign currency translation adjustment	Foreign currency translation adjustment	$	(28,380)	$	(7,827)	$	(55,917)	$	(16,941)	Foreign currency translation adjustment		$	7,227	$	(6,850)
Foreign currency translation adjustment reclassified to net income (loss) for sale or disposal of business		1,885		—		57,321		—
Foreign currency translation adjustment reclassified to net income (loss) on sale of business										Foreign currency translation adjustment reclassified to net income (loss) on sale of business		—		55,436

Net unrealized gain (loss) on derivative instruments, designated as cash flow hedges		—		478		—		1,103
Net hedging (gain) loss reclassified to net income (loss)		—		32		—		1,200

Net unrealized gain (loss) on defined benefit plans	Net unrealized gain (loss) on defined benefit plans	—		—		4,205		—		Net unrealized gain (loss) on defined benefit plans		—		4,205
Net defined benefit plan (gain) loss reclassified to net income (loss)	Net defined benefit plan (gain) loss reclassified to net income (loss)	204		698		492		2,121		Net defined benefit plan (gain) loss reclassified to net income (loss)		(106)		74
Total other comprehensive income (loss), before tax	Total other comprehensive income (loss), before tax	$	(26,291)	$	(6,619)	$	6,101	$	(12,517)	Total other comprehensive income (loss), before tax		$	7,121	$	52,865

Tax (provision) benefit	Tax (provision) benefit									Tax (provision) benefit
Foreign currency translation adjustment	Foreign currency translation adjustment	$	183	$	63	$	201	$	(177)	Foreign currency translation adjustment		$	(2)	$	(41)
Foreign currency translation adjustment reclassified to net income (loss) for sale or disposal of business		—		—		—		—
Net unrealized gain (loss) on derivative instruments, designated as cash flow hedges		—		—		—		(18)
Net hedging (gain) loss reclassified to net income (loss)		—		—		—		(467)
Foreign currency translation adjustment reclassified to net income (loss) on sale of business										Foreign currency translation adjustment reclassified to net income (loss) on sale of business		—		—

Net unrealized gain (loss) on defined benefit plans	Net unrealized gain (loss) on defined benefit plans	(6)		—		(22)		—		Net unrealized gain (loss) on defined benefit plans		—		(9)
Net defined benefit plan (gain) loss reclassified to net income (loss)	Net defined benefit plan (gain) loss reclassified to net income (loss)	(2)		(11)		(3)		(34)		Net defined benefit plan (gain) loss reclassified to net income (loss)		—		—
Total other comprehensive income (loss) tax (provision) benefit	Total other comprehensive income (loss) tax (provision) benefit	$	175	$	52	$	176	$	(696)	Total other comprehensive income (loss) tax (provision) benefit		$	(2)	$	(50)

Net-of-tax amount	Net-of-tax amount									Net-of-tax amount
Foreign currency translation adjustment	Foreign currency translation adjustment	$	(28,197)	$	(7,764)	$	(55,716)	$	(17,118)	Foreign currency translation adjustment		$	7,225	$	(6,891)
Foreign currency translation adjustment reclassified to net income (loss) for sale or disposal of business		1,885		—		57,321		—
Net unrealized gain (loss) on derivative instruments, designated as cash flow hedges		—		478		—		1,085
Net hedging (gain) loss reclassified to net income (loss)		—		32		—		733
Foreign currency translation adjustment reclassified to net income (loss) on sale of business										Foreign currency translation adjustment reclassified to net income (loss) on sale of business		—		55,436

Net unrealized gain (loss) on defined benefit plans	Net unrealized gain (loss) on defined benefit plans	(6)		—		4,183		—		Net unrealized gain (loss) on defined benefit plans		—		4,196
Net defined benefit plan (gain) loss reclassified to net income (loss)	Net defined benefit plan (gain) loss reclassified to net income (loss)	202		687		489		2,087		Net defined benefit plan (gain) loss reclassified to net income (loss)		(106)		74
Total other comprehensive income (loss), net of tax	Total other comprehensive income (loss), net of tax	$	(26,116)	$	(6,567)	$	6,277	$	(13,213)	Total other comprehensive income (loss), net of tax		$	7,119	$	52,815

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Note 14: Fair Value of Financial Instruments

The fair values at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~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, 2022				December 31, 2021					March 31, 2023				December 31, 2022
In thousands	In thousands	Carrying Amount		Fair Value		Carrying Amount		Fair Value		In thousands	Carrying Amount		Fair Value		Carrying Amount		Fair Value

Credit facility	Credit facility									Credit facility

Multicurrency revolving line of credit	Multicurrency revolving line of credit	$	—	$	—	$	—	$	—	Multicurrency revolving line of credit	$	—	$	—	$	—	$	—

Convertible notes	Convertible notes	451,947		363,363		450,228		422,749		Convertible notes	453,094		381,621		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~~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:~~notes: The ~~Convertible Notes~~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: ~~Refer to Note 7: Derivative Financial Instruments for a description of our methods and assumptions in determining the fair value of our derivatives, which were determined using Level 2 inputs.~~ 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

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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. ~~Refer to Note 5: Goodwill for discussion of goodwill impairment recognized during the second quarter of 2022.~~ 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.

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communication modules, GenX networking infrastructure products and network interface cards (NICs), Smart City control and management software, Distribution Automation bridge devices, and specific network control and management software applications. 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 ~~industry~~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 ~~places an emphasis~~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 ~~delivering to Itron customers high-value, turn-key, digital experiences by leveraging~~ the ~~footprint~~power of ~~our Device Solutions~~networks and ~~Networked Solutions segments.~~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. Examples from the Outcomes portfolio include: our meter data management and analytics offerings; our managed service solutions including Network-as-a-Service (NaaS) and Platform-as-a-Service (PaaS); forecasting software and services; our Distributed Energy Management suite of products and services; our Distributed Intelligence suite of applications and services; and any consulting-based engagement. Within the Outcomes segment, we also identify new business models, including performance-based contracting, to drive broader portfolio offerings across utilities and cities.

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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,					Three Months Ended March 31,
In thousands	In thousands	2022		2021		2022		2021		In thousands		2023		2022
Product revenues	Product revenues									Product revenues
Device Solutions	Device Solutions	$	92,893	$	149,830	$	334,212	$	480,808	Device Solutions		$	117,451	$	137,886
Networked Solutions	Networked Solutions	240,498		242,527		731,358		736,397		Networked Solutions		281,470		249,268
Outcomes	Outcomes	14,400		18,590		41,929		48,265		Outcomes		17,403		12,656
Total Company	Total Company	$	347,791	$	410,947	$	1,107,499	$	1,265,470	Total Company		$	416,324	$	399,810

Service revenues	Service revenues									Service revenues
Device Solutions	Device Solutions	$	1,110	$	2,404	$	4,166	$	7,174	Device Solutions		$	803	$	1,679
Networked Solutions	Networked Solutions	29,374		31,971		86,796		91,473		Networked Solutions		31,998		29,552
Outcomes	Outcomes	42,585		41,627		129,612		131,818		Outcomes		45,493		44,290
Total Company	Total Company	$	73,069	$	76,002	$	220,574	$	230,465	Total Company		$	78,294	$	75,521

Total revenues	Total revenues									Total revenues
Device Solutions	Device Solutions	$	94,003	$	152,234	$	338,378	$	487,982	Device Solutions		$	118,254	$	139,565
Networked Solutions	Networked Solutions	269,872		274,498		818,154		827,870		Networked Solutions		313,468		278,820
Outcomes	Outcomes	56,985		60,217		171,541		180,083		Outcomes		62,896		56,946
Total Company	Total Company	$	420,860	$	486,949	$	1,328,073	$	1,495,935	Total Company		$	494,618	$	475,331

Gross profit	Gross profit									Gross profit
Device Solutions	Device Solutions	$	14,805	$	22,480	$	50,489	$	85,228	Device Solutions		$	23,713	$	21,806
Networked Solutions	Networked Solutions	81,895		89,915		263,155		298,627		Networked Solutions		105,776		91,351
Outcomes	Outcomes	23,362		22,568		67,747		68,027		Outcomes		26,879		22,067
Total Company	Total Company	$	120,062	$	134,963	$	381,391	$	451,882	Total Company		$	156,368	$	135,224

Operating income (loss)	Operating income (loss)									Operating income (loss)
Device Solutions	Device Solutions	$	7,066	$	12,095	$	24,103	$	53,784	Device Solutions		$	14,078	$	11,578
Networked Solutions	Networked Solutions	54,640		61,150		177,929		205,071		Networked Solutions		74,956		61,007
Outcomes	Outcomes	11,339		11,774		28,789		34,647		Outcomes		12,911		8,341
Corporate unallocated	Corporate unallocated	(66,157)		(80,856)		(250,641)		(265,331)		Corporate unallocated		(112,338)		(74,107)
Total Company	Total Company	6,888		4,163		(19,820)		28,171		Total Company		(10,393)		6,819
Total other income (expense)	Total other income (expense)	(1,943)		(4,037)		(6,704)		(42,465)		Total other income (expense)		(1,714)		(2,064)
Income (loss) before income taxes	Income (loss) before income taxes	$	4,945	$	126	$	(26,524)	$	(14,294)	Income (loss) before income taxes		$	(12,107)	$	4,755

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ no single customer represented more than 10% of total company revenue.

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Revenues by region were as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
In thousands	In thousands	2022		2021		2022		2021		In thousands		2023		2022
United States and Canada	United States and Canada	$	317,960	$	323,784	$	947,684	$	957,993	United States and Canada		$	372,842	$	317,893
Europe, Middle East, and Africa	Europe, Middle East, and Africa	80,735		126,548		306,962		437,768		Europe, Middle East, and Africa		98,744		129,306
Asia Pacific	Asia Pacific	22,165		36,617		73,427		100,174		Asia Pacific		23,032		28,132
Total Company	Total Company	$	420,860	$	486,949	$	1,328,073	$	1,495,935	Total Company		$	494,618	$	475,331

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,					Three Months Ended March 31,
In thousands	In thousands	2022		2021		2022		2021		In thousands		2023		2022
Device Solutions	Device Solutions	$	3,566	$	5,911	$	11,049	$	17,708	Device Solutions		$	3,262	$	3,934
Networked Solutions	Networked Solutions	4,401		4,274		13,126		12,801		Networked Solutions		4,131		4,440
Outcomes	Outcomes	2,057		1,068		4,184		3,431		Outcomes		1,254		909
Corporate unallocated	Corporate unallocated	7,337		10,080		22,253		30,312		Corporate unallocated		5,816		7,554
Total Company	Total Company	$	17,361	$	21,333	$	50,612	$	64,252	Total Company		$	14,463	$	16,837

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 thousands	Contract Liabilities, Less Contract Assets
Beginning balance, January 1, ~~2022~~2023	$	~~83,180~~75,958

Revenues recognized from beginning contract liability	~~(47,909)~~(52,304)
Cumulative catch-up adjustments	~~998~~3,270
Increases due to amounts collected or due	~~246,723~~107,038
Revenues recognized from current period increases	~~(192,423)~~(27,804)
Other	~~(2,755)~~1,011
Ending balance, ~~September 30, 2022~~March 31, 2023	$	~~87,814~~107,169

On January 1, ~~2022,~~2023, total contract assets were ~~$33.7~~$57.0 million and total contract liabilities were ~~$116.9~~$133.0 million. On ~~September 30, 2022,~~March 31, 2023, total contract assets were ~~$58.3~~$61.3 million and total contract liabilities were ~~$146.1~~$168.5 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 ~~$1.4~~$1.7 billion for the next 12 months and approximately ~~$1.6~~$1.8 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 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

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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.

~~Note 17: Sale of Business~~

~~Sale to Dresser~~

On November 2, 2021, Itron entered into a definitive securities and asset purchase agreement to sell certain of its Gas device manufacturing and business operations in Europe and North America to Dresser. The sale included one German subsidiary – Itron GmbH along with its business operations, personnel, and the owned manufacturing facility in Karlsruhe; the business operations, personnel, and assets associated with the leased manufacturing facility in Argenteuil, France; and the business and manufacturing assets maintained at one of our contract manufacturers in North America. The base sale price of this divestiture was $75.0 million, with adjustments for (1) pension liabilities assumed by Dresser for related active employees and (2) the final working capital balance. Cash proceeds from the sale were $55.9 million.

The transaction closed on February 28, 2022. The final sales price and loss on sale will be determined and recognized after the finalization of the working capital adjustment, expected in the fourth quarter of 2022.As of December 31, 2021, we recognized a pre-tax impairment loss of $34.4 million as well as $3.1 million for professional services in conjunction with the planned sale to Dresser (classified within loss on sale of business within the Consolidated Statements of Operations). In determining the amount of the impairment loss for the assets of this transaction during the fourth quarter of 2021, we included $59.7 million of accumulated foreign currency translation losses and $0.9 million in unrealized loss on defined benefit pension plans, both classified within AOCI. Upon closing of the sale transaction in the first quarter of 2022, the then outstanding amounts in AOCI were reclassified to net income through loss on sale of business for a total of $55.4 million, with a corresponding reversal of the impairment loss originally booked in the fourth quarter of 2021. The difference between the amounts included for the impairment loss in the fourth quarter of 2021 and the first quarter of 2022 was driven by the change in the euro to U.S. dollar exchange rate, and operating results for the period owned in 2022.

In the first quarter of 2022, we recognized additional loss of $2.2 million related to changes in the working capital balances and additional professional services. In the second quarter of 2022, the loss increased by $0.2 million for professional services related to the divestiture. In the third quarter of 2022, we recognized additional loss of $0.8 million related primarily to a true-up in the working capital balances.

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, ~~2021~~2022 filed with the Securities and Exchange Commission (SEC) in our Annual Report on Form 10-K on February ~~28, 2022 (2021~~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).

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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 ~~such as the COVID-19 pandemic~~ and other factors that are more fully described in Part I, Item 1A: Risk Factors included in our ~~2021~~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.

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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:

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. Examples from the Networked Solutions portfolio include: communicating measurement, control, or sensing endpoints, such as our Itron OpenWay® Centron and Riva meters, Itron traditional ERT® technology, Intelis smart gas meters, 500G gas communication modules, 500W water communication modules, GenX networking infrastructure products and network interface cards (NICs), Smart City control and management software, Distribution Automation bridge devices, and specific network control and management software applications. The Industrial Internet of Things (IIoT) solutions supported by this segment include automated meter reading

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(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 ~~industry~~utility and smart city applications to be run and managed on a single, multi-purpose network.

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, ~~constant currency, and~~ free cash ~~flow.~~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 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

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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 ~~sometimes~~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 ~~46-49~~38-41 for information about these non-GAAP measures and the detailed reconciliation of items that impacted ~~free cash flow,~~ non-GAAP operating ~~expense,~~expenses, non-GAAP operating income, non-GAAP net income, non-GAAP diluted EPS, adjusted EBITDA, and ~~non-GAAP diluted EPS~~free cash flow in the ~~presented periods.~~periods presented.

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Total Company Highlights

Highlights and significant developments for the three months ended~~September 30, 2022~~March 31, 2023 compared with the three months ended ~~September 30, 2021~~March 31, 2022

•Revenues were ~~$420.9~~$494.6 million compared with ~~$486.9~~$475.3 million in ~~2021, a decrease~~2022, an increase of ~~14%~~$19.3 million, or 4%

•Gross margin was ~~28.5%~~,31.6% compared with ~~27.7%~~28.4% in ~~2021~~2022

•Operating expenses ~~decreased $17.6~~increased $38.4 million, or ~~13%~~30%, compared with ~~2021~~2022

•Net ~~income~~loss attributable to Itron, Inc. was ~~$4.1~~$11.8 million compared with net ~~loss~~income of ~~$1.9~~$0.9 million in ~~2021~~2022

•GAAP ~~diluted EPS increased by~~ ~~$0.13~~ ~~to a~~loss per share was $0.26 compared with diluted income per share of ~~$0.09~~$0.02 in 2022

•Non-GAAP net income attributable to Itron, Inc. was ~~$10.5~~$22.4 million compared with ~~$9.5~~$5.2 million in ~~2021~~2022

•Non-GAAP diluted EPS was ~~$0.23, an increase of $0.02~~$0.49 compared $0.11 with ~~2021~~2022

•Adjusted EBITDA was ~~$24.3~~$39.5 million compared with ~~$26.1~~$18.9 million ~~in 2021~~

~~Highlights and significant developments for the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2022 compared with the nine months ended September 30, 2021~~

•~~Revenues were $1.3 billion compared with $1.5 billion in 2021, a decrease of $167.9 million, or 11%~~

•~~Gross margin was 28.7% compared with 30.2% in 2021~~

•~~Operating expenses decreased $22.5 million, or 5%, compared with 2021~~

•~~Net loss attributable to Itron, Inc. was $31.9 million compared with net loss of $22.4 million in~~ ~~2021~~

•~~GAAP loss per share increased by $0.20 to a loss per share of~~ ~~$0.71~~ in 2022

•~~Non-GAAP net income attributable to Itron, Inc. was~~ ~~$18.8 million~~ ~~compared with~~ ~~$44.0 million~~ ~~in 2021~~

•~~Non-GAAP diluted EPS was $0.42, a decrease of $0.57 compared with 2021~~

•~~Adjusted EBITDA was $60.7 million compared with $112.0 million in~~ ~~2021~~

~~Bookings and Backlog~~

~~Bookings during the quarter were $578 million resulting in a book to bill ratio of 1.4:1.~~ Total backlog was ~~$4.2~~$4.6 billion and twelve-month backlog was ~~$1.6~~$1.9 billion at ~~September 30, 2022,~~March 31, 2023, compared with ~~$3.4~~$3.9 billion and ~~$1.4~~$1.6 billion at ~~September 30, 2021.~~March 31, 2022

~~Goodwill Impairment~~2023 Restructuring Projects

AsOn February 23, 2023, the ~~result~~Board of ~~increases in raw material, component, labor~~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 ~~costs, coupled with a decrease~~overhead. These projects are to be substantially complete by early 2025. Itron estimates pre-tax restructuring charges of $44.2 million. Of the total estimated charge, approximately 95% will result in ~~forecasted revenue within~~cash expenditures, and the ~~Device Solutions operating segment and reporting unit, which we determined during the second quarter of 2022, we performed an interim goodwill~~remainder to non-cash impairment ~~test. At the conclusion~~charges. The majority of the ~~test, a goodwill impairment of $38.5 million was~~expense were recognized in our Corporate unallocated segment as of June 30, 2022. No interim impairment test was determined to be necessary for the Networked Solutions or Outcomes reporting units. Refer to Note 1: Summary of Significant Accounting Policies in Part II, Item 8: Financial Statements and Supplementary Data of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 for a description of our reporting units and our method used to determine the fair values of our reporting units and to determine the amount of any goodwill impairment.

~~Sale of Business~~

~~On November 2, 2021, Itron entered into a definitive securities and asset purchase agreement to sell certain of its Gas device manufacturing and business operations in Europe and North America to~~ ~~Dresser Utility Solutions (Dresser)~~. The sale included one German subsidiary – Itron GmbH along with its business operations, personnel, and the owned manufacturing facility in Karlsruhe; the business operations, personnel, and assets associated with the leased manufacturing facility in Argenteuil, France; and the business and manufacturing assets maintained at one of our contract manufacturers in North America. The base sale price of this divestiture was $75.0 million, with adjustments for (1) pension liabilities assumed by Dresser for related active employees and (2) the final working capital balance. Cash proceeds from the sale were $55.9 million.

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The transaction closed on February 28, 2022. The final sales price and loss on sale will be determined and recognized after the finalization of the working capital adjustment, expected in the fourth quarter of 2022. As of December 31, 2021, we recognized a pre-tax impairment loss of $34.4 million as well as $3.1 million for professional services in conjunction with the planned sale to Dresser (classified within loss on sale of business within the Consolidated Statements of Operations). In determining the amount of the impairment loss for the assets of this transaction during the fourth quarter of 2021, we included $59.7 million of accumulated foreign currency translation losses and $0.9 million in unrealized loss on defined benefit pension plans, both classified within accumulated other comprehensive income (AOCI). Upon closing of the sale transaction in the first quarter of ~~2022,~~2023. Once the ~~then outstanding amounts~~2023 Projects are substantially completed, Itron estimates $14-17 million in ~~AOCI were reclassified~~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 ~~net income through loss on sale~~regulatory approval, both of ~~business for a total~~which could impact the timing of ~~$55.4 million, with a corresponding reversal of the impairment loss originally booked~~planned savings in the fourth quarter of 2021. The difference between the amounts included for the impairment loss in the fourth quarter of 2021 and the first quarter of 2022 was driven by the change in the euro to U.S. dollar exchange rate, and operating results for the period owned in 2022.certain jurisdictions.

~~Impact of COVID-19,~~ Supply Chain Challenges and the Conflict in Ukraine

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periods. For more information on risks associated with the ~~COVID-19~~ pandemic and supply chain challenges, please see our risk in Part I, Item 1A, Risk Factors in our ~~2021~~2022 Annual Report.

The COVID-19 pandemic remains a rapidly evolving situation with varying impacts on the locations in which we do business. Changes in the mix of earnings or losses from our different geographical operations, as well as any future enactment of tax legislation and other factors, may result in more volatile quarterly and annual effective tax rates. The detrimental impacts to financial results may be partially offset by financial assistance from the U.S. or the municipalities in which we operate, including employer payroll tax credits for wages paid to employees who are unable to work during the COVID-19 pandemic. Other benefits, including options to defer payroll tax payments and additional deductions, resulted in reduced cash payments in 2020, but increased cash outlays during 2021 and into 2022.

While we have limited direct business exposure in Russia, Belarus and Ukraine, the Russian military actions and the 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. During the third quarter of 2022, we substantially liquidated our legal entity in Russia, recognizing a loss of $1.9 million for the reclassification of the currency translation adjustment from accumulated other comprehensive income. The loss was classified within sales, general and administrative expense within the Consolidated Statements of Operations.

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Total Company GAAP and Non-GAAP Highlights and ~~Unit Shipments:~~Endpoints Under Management:


		Three Months Ended September 30,							Nine Months Ended September 30,								Three Months Ended March 31,
In thousands, except margin and per share data	In thousands, except margin and per share data	2022			2021			% Change	2022			2021			% Change	In thousands, except margin and per share data			2023			2022			% Change
GAAP	GAAP															GAAP
Revenues	Revenues															Revenues
Product revenues	Product revenues	$	347,791		$	410,947		(15)%	$	1,107,499		$	1,265,470		(12)%	Product revenues			$	416,324		$	399,810		4%

Service revenues	Service revenues	73,069			76,002			(4)%	220,574			230,465			(4)%	Service revenues			78,294			75,521			4%

Total revenues	Total revenues	420,860			486,949			(14)%	1,328,073			1,495,935			(11)%	Total revenues			494,618			475,331			4%

Gross profit	Gross profit	120,062			134,963			(11)%	381,391			451,882			(16)%	Gross profit			156,368			135,224			16%
Operating expenses	Operating expenses	113,174			130,800			(13)%	401,211			423,711			(5)%	Operating expenses			166,761			128,405			30%
Operating income (loss)	Operating income (loss)	6,888			4,163			65%	(19,820)			28,171			NM	Operating income (loss)			(10,393)			6,819			NM
Other income (expense)	Other income (expense)	(1,943)			(4,037)			(52)%	(6,704)			(42,465)			(84)%	Other income (expense)			(1,714)			(2,064)			(17)%
Income tax provision		(473)			(1,136)			(58)%	(4,973)			(5,581)			(11)%
Income tax benefit (provision)																Income tax benefit (provision)		70	(3,859)			NM
Net income (loss) attributable to Itron, Inc.	Net income (loss) attributable to Itron, Inc.	4,117			(1,869)			NM	(31,944)			(22,389)			43%	Net income (loss) attributable to Itron, Inc.			(11,836)			906			NM

Non-GAAP(1)	Non-GAAP(1)															Non-GAAP(1)
Non-GAAP operating expenses	Non-GAAP operating expenses	$	105,262		$	118,609		(11)%	$	348,265		$	369,721		(6)%	Non-GAAP operating expenses			$	125,041		$	125,935		(1)%
Non-GAAP operating income	Non-GAAP operating income	14,800			16,354			(10)%	33,126			82,161			(60)%	Non-GAAP operating income			31,327			9,289			237%
Non-GAAP net income attributable to Itron, Inc.	Non-GAAP net income attributable to Itron, Inc.	10,513			9,452			11%	18,817			44,043			(57)%	Non-GAAP net income attributable to Itron, Inc.			22,382			5,171			333%
Adjusted EBITDA	Adjusted EBITDA	24,328			26,123			(7)%	60,700			111,982			(46)%	Adjusted EBITDA			39,468			18,894			109%

GAAP Margins and Earnings Per Share	GAAP Margins and Earnings Per Share															GAAP Margins and Earnings Per Share
Gross margin	Gross margin															Gross margin
Product gross margin	Product gross margin	25.7		%	25.5		%		26.1		%	28.2		%		Product gross margin			28.6		%	26.3		%
Service gross margin	Service gross margin	42.2		%	39.7		%		42.0		%	41.4		%		Service gross margin			47.8		%	40.0		%
Total gross margin	Total gross margin	28.5		%	27.7		%		28.7		%	30.2		%		Total gross margin			31.6		%	28.4		%

Operating margin	Operating margin	1.6		%	0.9		%		(1.5)		%	1.9		%		Operating margin			(2.1)		%	1.4		%
Net income (loss) per common share - Basic	Net income (loss) per common share - Basic	$	0.09		$	(0.04)			$	(0.71)		$	(0.51)			Net income (loss) per common share - Basic			$	(0.26)		$	0.02
Net income (loss) per common share - Diluted	Net income (loss) per common share - Diluted	$	0.09		$	(0.04)			$	(0.71)		$	(0.51)			Net income (loss) per common share - Diluted			$	(0.26)		$	0.02

Non-GAAP Earnings Per Share(1)	Non-GAAP Earnings Per Share(1)															Non-GAAP Earnings Per Share(1)
Non-GAAP diluted EPS	Non-GAAP diluted EPS	$	0.23		$	0.21			$	0.42		$	0.99			Non-GAAP diluted EPS			$	0.49		$	0.11

(1)These measures exclude certain expenses that we do not believe are indicative of our core operating results. See pages ~~46-49~~38-41 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

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data from the endpoints via ~~NaaS,~~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.

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

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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 ~~would~~ 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,		As of March 31,
Units in thousands	Units in thousands	2022	2021		Units in thousands	2023	2022
Endpoints under management	Endpoints under management	91,541	78,487		Endpoints under management	92,410	83,156

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 Rates			Constant Currency Change			Total Change
			Three Months Ended September 30,
In thousands			2022		2021
Total Company

		Revenues	$	420,860	$	486,949		$	(21,317)		$	(44,772)				$	(66,089)
		Gross profit	120,062		134,963		(3,887)			(11,014)			(14,901)

							Effect of Changes in Foreign Currency Exchange Rates			Constant Currency Change			Total Change											Effect of Changes in Foreign Currency Exchange Rates		Constant Currency Change		Total Change
			Nine Months Ended September 30,											Three Months Ended March 31,
In thousands	In thousands		2022		2021						In thousands			2023					2022
Total Company	Total Company																	Total Company
		Revenues	$	1,328,073	$	1,495,935		$	(52,019)		$	(115,843)			$	(167,862)				Revenues	$	494,618	$		475,331	$	(8,731)	$	28,018	$	19,287
		Gross profit	381,391		451,882		(10,832)			(59,659)			(70,491)		Gross profit			156,368				135,224			(2,145)		23,289		21,144

Revenues - Three months ended ~~September 30, 2022~~March 31, 2023 vs. Three ~~months ended September 30, 2021~~Months Ended March 31, 2022

Total revenues ~~decreased $66.1~~increased $19.3 million, or ~~14%~~4%, compared with the same period in ~~2021. We have been unfavorably impacted by global component constraints, which limited our ability to fulfill customer demand.~~2022. Product revenues ~~decreased~~increased by ~~$63.2~~$16.5 million and service revenues ~~decreased $2.9~~increased by $2.8 million. Device Solutions decreased by ~~$58.2~~$21.3 million; Networked Solutions ~~decreased~~increased by ~~$4.6 million;~~$34.6 million; and Outcomes ~~decreased~~increased by ~~$3.2~~$6.0 million when compared with the same period last year. Revenue decreased for Device Solutions partially due to the sale of certain Gas device manufacturing and business operations in Europe and North America to Dresser. Changes in exchange rates unfavorably impacted total revenues by $21.3 million, of which $16.7 million unfavorably impacted Device Solutions.

~~Revenues - Nine months ended September 30, 2022 vs. Nine Months Ended September 30, 2021~~

~~Total revenues decreased $167.9 million, or 11%, compared with the same period in~~ 2021. We have been unfavorably impacted by global component constraints, which limited our ability to fulfill customer demand. Product revenues decreased by $158.0 million and service revenues decreased by $9.9 million. ~~Device Solutions decreased by $149.6 million; Networked~~

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~~Solutions decreased by~~ ~~$9.7 million; and Outcomes decreased by $8.5 million when compared with the same period last year.~~ ~~Revenue decreased for Device Solutions partially due to the sale of certain Gas device manufacturing and business operations in Europe and North America to Dresser.~~ Changes in exchange rates unfavorably impacted total revenues by $~~52.0~~8.7 million, of which $~~41.1~~6.0 million unfavorably impacted Device Solutions.

Gross Margin - Three months ended ~~September 30, 2022~~March 31, 2023 vs. Three ~~months ended September 30, 2021~~Months Ended March 31, 2022

Gross margin was ~~28.5%~~31.6%, compared with ~~27.7%~~28.4% in ~~2021~~2022.~~We were favorably impacted due to mix, partially offset by inefficiencies related to component shortages in 2022 compared with 2021.~~ Product sales gross margin increased to ~~25.7%~~28.6%, compared with ~~25.5%~~26.3% in ~~2021. Gross margin on service revenues increased to 42.2%, compared with 39.7% in~~ ~~2021~~.

~~Gross Margin - Nine months ended September 30,~~ 2022, ~~vs. Nine Months Ended September 30, 2021~~

~~Gross margin was 28.7%, compared with 30.2% in~~ ~~2021. We were unfavorably impacted by higher input costs and manufacturing inefficiencies in 2022 compared with~~ ~~2021.~~ ~~Product sales gross margin decreased to 26.1%, compared with 28.2% in~~ ~~2021,~~ and gross margin on service revenues increased to ~~42.0%~~47.8%, compared with ~~41.4%~~40.0% in ~~2021~~2022.

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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 Rates				Constant Currency Change				Total Change
			Three Months Ended September 30,
In thousands			2022		2021
Total Company

		Sales, general and administrative	$	63,446	$	71,838			$	(4,370)			$	(4,022)					$	(8,392)
		Research and development	43,820		46,889		(175)				(2,894)				(3,069)
		Amortization of intangible assets	6,413		8,944		(246)				(2,285)				(2,531)
		Restructuring	(1,272)		958		(118)				(2,112)				(2,230)
		Loss on sale of business	767		2,171		(34)				(1,370)				(1,404)
		Goodwill impairment	—		—		—				—				—
		Total operating expenses	$	113,174	$	130,800	$	(4,943)			$	(12,683)			$	(17,626)

							Effect of Changes in Foreign Currency Exchange Rates				Constant Currency Change				Total Change													Effect of Changes in Foreign Currency Exchange Rates		Constant Currency Change		Total Change
			Nine Months Ended September 30,														Three Months Ended March 31,
In thousands	In thousands		2022		2021								In thousands				2023					2022
Total Company	Total Company																				Total Company
		Sales, general and administrative	$	212,724	$	221,974			$	(10,104)			$	854				$	(9,250)				Sales, general and administrative	$	75,521		$		76,401	$	(980)	$	100	$	(880)
		Research and development	138,471		147,379		(964)				(7,944)				(8,908)			Research and development			49,565				49,596				(504)		473		(31)
		Amortization of intangible assets	19,451		26,914		(539)				(6,924)				(7,463)			Amortization of intangible assets			5,048				6,553			(81)		(1,424)		(1,505)
		Restructuring	(11,097)		(830)		116				(10,383)				(10,267)			Restructuring			36,609				(6,366)			6		42,969		42,975
		Loss on sale of business	3,182		28,274		(1,226)				(23,866)				(25,092)			Loss on sale of business			18				2,221			2,517		(4,720)		(2,203)
		Goodwill impairment	38,480		—		—				38,480				38,480
		Total operating expenses	$	401,211	$	423,711	$	(12,717)			$	(9,783)			$	(22,500)		Total operating expenses			$	166,761			$	128,405		$	958	$	37,398	$	38,356

Operating expenses ~~decreased $17.6~~increased $38.4 million for the ~~third~~first quarter of ~~2022~~2023 as compared with the same period in ~~2021.~~2022. This was primarily the result of ~~a reduction~~an increase of $8.4 million in sales, general and administrative, $3.1 million in research and development expenses, $2.5 million in amortization of intangible assets, and $2.2 million in restructuring. The reduction in sales, general and administrative and research and development expenses were primarily driven by management's cost saving actions, as well as reductions in labor costs and variable compensation.

Operating expenses decreased $22.5 million for the nine months ended September 30, 2022 as compared with the same period in 2021. This was primarily the result of a reduction of $9.3 million in sales, general and administrative, $8.9 million in

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~~research and development expenses, $7.5 million in amortization of intangible assets, $10.3~~$43.0 million in restructuring, ~~and $25.1~~of which $38.0 million ~~for~~was related to the 2023 Projects. The increase was partially offset by a $2.2 million reduction in loss on sale of business ~~primarily~~ related to the ~~Latin~~2022 sale of certain Gas product lines from our Device Solutions manufacturing and business operations in Europe and North America ~~divestiture, which occurred~~to Dresser Utility Solutions (Dresser). For additional details, refer to Item 1: Financial Statements (Unaudited), Note 12: Restructuring included in 2020, partially offset by $38.5 million in goodwill impairment in 2022. The reduction in sales, general and administrative and research and development expenses were primarily driven by management's cost saving actions, as well as reductions in labor costs and variable compensation.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,				% Change		Nine Months Ended September 30,								% Change					Three Months Ended March 31,				% Change
In thousands	In thousands	2022		2021			2022			2021				In thousands						2023		2022
Interest income	Interest income	$	801	$	352		128%			$	1,367			$	1,326			3%	Interest income						$	1,818	$	217	NM
Amortization of prepaid debt fees	Amortization of prepaid debt fees	(890)		(1,949)		(54)%		(2,610)				(17,383)				(85)%	Amortization of prepaid debt fees						(889)		(839)		6%
Other interest expense	Other interest expense	(789)		(679)		16%		(2,321)				(9,724)				(76)%	Other interest expense						(1,168)		(753)		55%
Interest expense	Interest expense	(1,679)		(2,628)		(36)%		(4,931)				(27,107)				(82)%	Interest expense						(2,057)		(1,592)		29%
Other income (expense), net	Other income (expense), net	(1,065)		(1,761)		(40)%		(3,140)				(16,684)				(81)%	Other income (expense), net						(1,475)		(689)		NM
Total other income (expense)	Total other income (expense)	$	(1,943)	$	(4,037)	(52)%		$	(6,704)			$	(42,465)			(84)%	Total other income (expense)						$	(1,714)	$	(2,064)	(17)%

Total other income (expense) for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 was a net expense of ~~$1.9 million and $6.7~~$1.7 million, compared with net expense of ~~$4.0 million and $42.5~~$2.1 million in the same period in ~~2021.~~

2022. The lower total expense for the three months ended ~~September 30, 2022,~~March 31, 2023, as compared with the same period in ~~2021,~~2022, was primarily driven by ~~$1.1~~the $1.6 million ~~lower debt fee amortization.~~

~~The lower total expense for the nine months ended September 30, 2022, as compared with the same period~~increase in 2021, was primarily driven by 2021 activity: $12.2 million write-off of prepaid debt fees associated with the repayment of senior subordinated notes, $2.6 million in lower debt fee amortization, $11.7 million related to the extinguishment of debt in other income (expense), net, as well as lower interest ~~costs of $5.4 million for bonds and $2.2 million for the term loan.~~income.

Income Tax Provision

For the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, our income tax ~~expense~~benefit was ~~$0.5~~$0.1 million, ~~and $5.0 million, respectively,~~ compared with income tax expense of ~~$1.1 million and $5.6~~$3.9 million for the same period in ~~2021.~~2022. Our tax rate for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 of ~~10% and (19)%~~1%, 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 ~~and ECI (Effectively Connected Income), discrete tax expense related to the Dresser divestiture, a discrete tax benefit due to goodwill impairment,~~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, 2021~~March 31, 2022 of ~~902% and (39)%~~81% differed from the federal statutory rate of 21% primarily due to reserves on deferred sales price receivables recognized in the second quarter related to the 2020 divestiture of the majority of our Latin American business activities. This item was recognized for tax as a discrete and resulted in no tax benefit. Other rate drivers include losses in jurisdictions for which no benefit is recognized because of valuation allowances on deferred tax assets, the forecasted mix of earnings in domestic and international jurisdictions, ~~a benefit~~GILTI tax, net of Section 250 deduction (largely driven by research and development capitalization), discrete tax expense related to the Dresser divestiture, an expense related to stock-based compensation, and uncertain tax positions.

Table of Contents

Beginning January 1, 2022, the Tax Cuts and Jobs Act of 2017 ~~eliminates~~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 ~~is considering~~has considered legislation that would defer, modify, or repeal the capitalization and amortization requirement, ~~there is~~as of quarter end no assurance that the provision will be repealed or otherwise modified. As a result of research and development conducted outside of the U.S., the amount of expected inclusion of foreign earnings in our U.S. taxable income is largely driven by research and development cost capitalization, and may decrease significantly should these rules be deferred or revoked effective 2022.such deferral has been passed. The income tax provision has been prepared according to currently enacted tax ~~legislation,~~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 ~~a change~~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 ~~law with regards~~rules are intended to ~~capitalization~~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 transition and safe harbor rules around the implementation of ~~research~~the Pillar 2 global minimum tax. The Company is closely monitoring developments and ~~development expenditures would~~evaluating the impacts these new rules will have ~~a material beneficial impact~~ on our ~~annual effective~~ tax ~~rate.~~rate, including eligibility to qualify for these safe harbor rules.

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,										Three Months Ended March 31,
In thousands	In thousands	2022		2021		% Change			2022		2021		% Change			In thousands				2023		2022		% Change
Segment revenues	Segment revenues															Segment revenues
Device Solutions	Device Solutions	$	94,003	$	152,234	(38)%			$	338,378	$	487,982	(31)%			Device Solutions				$	118,254	$	139,565	(15)%
Networked Solutions	Networked Solutions	269,872		274,498		(2)%			818,154		827,870		(1)%			Networked Solutions				313,468		278,820		12%
Outcomes	Outcomes	56,985		60,217		(5)%			171,541		180,083		(5)%			Outcomes				62,896		56,946		10%
Total revenues	Total revenues	$	420,860	$	486,949	(14)%			$	1,328,073	$	1,495,935	(11)%			Total revenues				$	494,618	$	475,331	4%

		Three Months Ended September 30,							Nine Months Ended September 30,								Three Months Ended March 31,
		2022				2021			2022				2021					2023		2022
In thousands	In thousands	Gross Profit		Gross Margin		Gross Profit		Gross Margin	Gross Profit		Gross Margin		Gross Profit		Gross Margin	In thousands				Gross Profit		Gross Margin		Gross Profit		Gross Margin
Segment gross profit and margin	Segment gross profit and margin															Segment gross profit and margin
Device Solutions	Device Solutions	$	14,805	15.7%		$	22,480	14.8%	$	50,489	14.9%		$	85,228	17.5%	Device Solutions				$	23,713	20.1%		$	21,806	15.6%
Networked Solutions	Networked Solutions	81,895		30.3%		89,915		32.8%	263,155		32.2%		298,627		36.1%	Networked Solutions				105,776		33.7%		91,351		32.8%
Outcomes	Outcomes	23,362		41.0%		22,568		37.5%	67,747		39.5%		68,027		37.8%	Outcomes				26,879		42.7%		22,067		38.8%
Total gross profit and margin	Total gross profit and margin	$	120,062	28.5%		$	134,963	27.7%	$	381,391	28.7%		$	451,882	30.2%	Total gross profit and margin				$	156,368	31.6%		$	135,224	28.4%

		Three Months Ended September 30,							Nine Months Ended September 30,										Three Months Ended March 31,
In thousands	In thousands	2022		2021		% Change			2022		2021		% Change			In thousands				2023		2022		% Change
Segment operating expenses	Segment operating expenses															Segment operating expenses
Device Solutions	Device Solutions	$	7,739	$	10,385	(25)%			$	26,386	$	31,444	(16)%			Device Solutions				$	9,635	$	10,228	(6)%
Networked Solutions	Networked Solutions	27,255		28,765		(5)%			85,226		93,556		(9)%			Networked Solutions				30,820		30,344		2%
Outcomes	Outcomes	12,023		10,794		11%			38,958		33,380		17%			Outcomes				13,968		13,726		2%
Corporate unallocated	Corporate unallocated	66,157		80,856		(18)%			250,641		265,331		(6)%			Corporate unallocated				112,338		74,107		52%
Total operating expenses	Total operating expenses	$	113,174	$	130,800	(13)%			$	401,211	$	423,711	(5)%			Total operating expenses				$	166,761	$	128,405	30%

		Three Months Ended September 30,							Nine Months Ended September 30,								Three Months Ended March 31,
		2022				2021			2022				2021					2023		2022
In thousands	In thousands	Operating Income (Loss)		Operating Margin		Operating Income (Loss)		Operating Margin	Operating Income (Loss)		Operating Margin		Operating Income (Loss)		Operating Margin	In thousands				Operating Income (Loss)		Operating Margin		Operating Income (Loss)		Operating Margin
Segment operating income (loss) and operating margin	Segment operating income (loss) and operating margin															Segment operating income (loss) and operating margin
Device Solutions	Device Solutions	$	7,066	7.5%		$	12,095	7.9%	$	24,103	7.1%		$	53,784	11.0%	Device Solutions				$	14,078	11.9%		$	11,578	8.3%
Networked Solutions	Networked Solutions	54,640		20.2%		61,150		22.3%	177,929		21.7%		205,071		24.8%	Networked Solutions				74,956		23.9%		61,007		21.9%
Outcomes	Outcomes	11,339		19.9%		11,774		19.6%	28,789		16.8%		34,647		19.2%	Outcomes				12,911		20.5%		8,341		14.6%
Corporate unallocated	Corporate unallocated	(66,157)		NM		(80,856)		NM	(250,641)		NM		(265,331)		NM	Corporate unallocated				(112,338)		NM		(74,107)		NM
Total operating income (loss) and operating margin	Total operating income (loss) and operating margin	$	6,888	1.6%		$	4,163	0.9%	$	(19,820)	(1.5)%		$	28,171	1.9%	Total operating income (loss) and operating margin				$	(10,393)	(2.1)%		$	6,819	1.4%

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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 Rates			Constant Currency Change			Total Change
			Three Months Ended September 30,
In thousands			2022		2021
Device Solutions Segment

		Revenues	$	94,003	$	152,234		$	(16,714)		$	(41,517)				$	(58,231)
		Gross profit	14,805		22,480		(2,014)			(5,661)			(7,675)
		Operating expenses	7,739		10,385		(468)			(2,178)			(2,646)

							Effect of Changes in Foreign Currency Exchange Rates			Constant Currency Change			Total Change											Effect of Changes in Foreign Currency Exchange Rates		Constant Currency Change		Total Change
			Nine Months Ended September 30,											Three Months Ended March 31,
In thousands	In thousands		2022		2021						In thousands			2023					2022
Device Solutions Segment	Device Solutions Segment																	Device Solutions Segment
		Revenues	$	338,378	$	487,982		$	(41,118)		$	(108,486)			$	(149,604)				Revenues	$	118,254	$		139,565	$	(6,014)	$	(15,297)	$	(21,311)
		Gross profit	50,489		85,228		(5,668)			(29,071)			(34,739)		Gross profit			23,713				21,806			(803)		2,710		1,907
		Operating expenses	26,386		31,444		(1,157)			(3,901)			(5,058)		Operating expenses			9,635				10,228		(115)		(478)		(593)

Revenues - Three months ended ~~September 30, 2022~~March 31, 2023 vs. Three months ended ~~September 30, 2021~~March 31, 2022

Revenues decreased ~~$58.2~~$21.3 million, or ~~38%~~15%. Changes in foreign currency exchange rates unfavorably impacted revenues by ~~$16.7~~$6.0 million. ~~Revenue~~Revenues decreased ~~over~~compared with the prior year due to ~~the discontinuation of some legacy products and~~ the sale of certain Gas product lines ~~to Dresser during 2022, as well as the impact of component shortages, which limited~~from our ~~ability to fulfill customer demand.~~

~~Revenues - Nine months ended September 30, 2022 vs. Nine months ended September 30, 2021~~

~~Revenues decreased $149.6 million, or 31%. Changes~~manufacturing and business operations in ~~foreign currency exchange rates unfavorably impacted revenues by $41.1 million. Revenue decreased over the prior year due to the discontinuation of some legacy products~~Europe and ~~the sale of certain Gas product lines~~North America to Dresser during the first quarter of 2022 ~~as well as~~and the ~~impact~~discontinuation of ~~component shortages, which limited our ability to fulfill customer demand.~~some legacy products.

Gross Margin - Three months ended ~~September 30, 2022~~March 31, 2023 vs. Three months ended ~~September 30, 2021~~March 31, 2022

For the three months ended ~~September 30, 2022,~~March 31, 2023, gross margin was ~~15.7%~~20.1%, compared with ~~14.8%~~15.6% for the same period in ~~2021.~~2022. The 90450 basis point increase over the prior year was primarily due to an improved product ~~mix partially offset by continued higher input costs and manufacturing inefficiencies related to component shortages.~~

~~Gross Margin - Nine months ended September 30, 2022 vs. Nine months ended September 30, 2021~~

For the nine months ended September 30, 2022, gross margin was 14.9%, compared with 17.5% for the same period in 2021. The 260 basis point reduction over the prior year was primarily due to higher input costs and manufacturing inefficiencies related to component shortages.mix.

Operating Expenses - Three months ended ~~September 30, 2022~~March 31, 2023 vs. Three months ended ~~September 30, 2021~~March 31, 2022

Operating expenses ~~in 2022~~decreased $0.6 million, or 6%, for the first three months of 2023, compared with the same period in ~~2021 decreased $2.6 million, or 25%, due to management's cost savings actions resulting in a $1.3 million decrease in sales and marketing expensesand a $1.3 million decrease in research and development expenses.~~

~~Operating Expenses - Nine months ended September 30, 2022 vs. Nine months ended September 30, 2021~~

~~Operating expenses decreased $5.1 million, or 16%, for the first nine months of 2022, compared with the same period in 2021.~~2022. The decrease was primarily due to ~~management's cost savings actions resulting~~the sale of certain Gas product lines from our manufacturing and business operations in ~~a $3.0 million decrease in sales~~Europe and ~~marketing expenses and a $2.1 million decrease in research and development expenses.~~North America to Dresser during the first quarter of 2022.

~~Table of Contents~~

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 Rates			Constant Currency Change			Total Change
			Three Months Ended September 30,
In thousands			2022		2021
Networked Solutions Segment

		Revenues	$	269,872	$	274,498		$	(2,349)		$	(2,277)				$	(4,626)
		Gross profit	81,895		89,915		(830)			(7,190)			(8,020)
		Operating expenses	27,255		28,765		(111)			(1,399)			(1,510)

							Effect of Changes in Foreign Currency Exchange Rates			Constant Currency Change			Total Change											Effect of Changes in Foreign Currency Exchange Rates		Constant Currency Change		Total Change
			Nine Months Ended September 30,											Three Months Ended March 31,
In thousands	In thousands		2022		2021						In thousands			2023					2022
Networked Solutions Segment	Networked Solutions Segment																	Networked Solutions Segment
		Revenues	$	818,154	$	827,870		$	(5,797)		$	(3,919)			$	(9,716)				Revenues	$	313,468	$		278,820	$	(1,620)	$	36,268	$	34,648
		Gross profit	263,155		298,627		(2,717)			(32,755)			(35,472)		Gross profit			105,776				91,351			(764)		15,189		14,425
		Operating expenses	85,226		93,556		(264)			(8,066)			(8,330)		Operating expenses			30,820				30,344		(31)		507		476

Revenues - Three months ended ~~September 30, 2022~~March 31, 2023 vs. Three months ended ~~September 30, 2021~~March 31, 2022

Revenues ~~decreased $4.6~~increased $34.6 million, or 2%, compared with 2021. The change was primarily due to component shortages, which limited our ability to fulfill customer demand, partially offset by the ramp of new deployments. Product revenue was lower by $2.0 million and maintenance service revenue lower by $2.6 million.

~~Revenues - Nine months ended September 30, 2022 vs. Nine months ended September 30, 2021~~

~~Revenues decreased $9.7 million, or 1%~~12%, for the first ~~nine~~three months of ~~2022~~2023 compared with the same period in ~~2021.~~2022. The ~~change~~increase was primarily from product revenues due to the ramp of new deployments and some improving component ~~shortages that limited~~supply enabling our ability to fulfill more customer ~~demand, partially offset by the ramp of new deployments. Product revenue was lower by $5.0 million and maintenance service revenue lower by $4.7 million.~~demand.

Gross Margin - Three months ended ~~September 30, 2022~~March 31, 2023 vs. Three months ended ~~September 30, 2021~~March 31, 2022

Gross margin ~~decreased to 30.3%~~was 33.7% for the 2023 period, ~~ending September 30, 2022,~~ compared with 32.8% in ~~2021.~~2022. The ~~250~~90 basis point ~~decrease was primarily driven by unfavorable product mix, higher input costs, and manufacturing inefficiencies related to component shortages.~~

~~Gross Margin - Nine months ended September 30, 2022 vs. Nine months ended September 30, 2021~~

~~Gross margin was 32.2% for the 2022 period, compared with 36.1% in 2021. The 390 basis point decrease~~increase was primarily related to ~~higher input costs, unfavorable~~favorable product and solutions mix and ~~manufacturing inefficiencies related to component shortages.~~improved operational efficiencies, partially offset by inflationary pressures.

Operating Expenses - Three months ended ~~September 30, 2022~~March 31, 2023 vs. Three months ended ~~September 30, 2021~~March 31, 2022

Operating expenses ~~decreased $1.5~~increased $0.5 million, or 5%2%, ~~in 2022~~for the first three months of 2023, compared with the same period in ~~2021.~~2022. The ~~decrease~~increase was primarily related to ~~reduced research~~higher sales and ~~development expenses.~~

~~Operating Expenses - Nine months ended September 30, 2022 vs. Nine months ended September 30, 2021~~

~~Operating expenses decreased $8.3 million, or 9%, for the first nine months of 2022, compared with the same period in 2021. The decrease was primarily related to reduced research and development~~marketing expenses.

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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 Rates			Constant Currency Change			Total Change
			Three Months Ended September 30,
In thousands			2022		2021
Outcomes Segment

		Revenues	$	56,985	$	60,217		$	(2,253)		$	(979)				$	(3,232)
		Gross profit	23,362		22,568		(1,043)			1,837			794
		Operating expenses	12,023		10,794		(78)			1,307			1,229

							Effect of Changes in Foreign Currency Exchange Rates			Constant Currency Change			Total Change											Effect of Changes in Foreign Currency Exchange Rates		Constant Currency Change		Total Change
			Nine Months Ended September 30,											Three Months Ended March 31,
In thousands	In thousands		2022		2021						In thousands			2023					2022
Outcomes Segment	Outcomes Segment																	Outcomes Segment
		Revenues	$	171,541	$	180,083		$	(5,103)		$	(3,439)			$	(8,542)				Revenues	$	62,896	$		56,946	$	(1,096)	$	7,046	$	5,950
		Gross profit	67,747		68,027		(2,447)			2,167			(280)		Gross profit			26,879				22,067			(578)		5,390		4,812
		Operating expenses	38,958		33,380		(164)			5,742			5,578		Operating expenses			13,968				13,726		(18)		260		242

Revenues - Three months ended ~~September 30, 2022~~March 31, 2023 vs. Three months ended ~~September 30, 2021~~March 31, 2022

Revenues ~~decreased $3.2~~increased $6.0 million, or ~~5%, compared with the same period in 2021. This decrease was driven by a decrease in Europe, Middle East, and Africa (EMEA) prepay sales.~~

~~Revenues - Nine months ended September 30, 2022 vs. Nine months ended September 30, 2021~~

~~Revenues decreased $8.5 million, or 5%~~10%, for the first ~~nine~~three months of ~~2022,~~2023, compared with ~~2021.~~2022. This ~~decline~~increase was driven by ~~a decrease in EMEA prepay sales.~~software license sales and managed services.

Gross Margin - Three months ended ~~September 30, 2022~~March 31, 2023 vs. Three months ended ~~September 30, 2021~~March 31, 2022

Gross margin increased to ~~41.0%~~42.7% for the ~~third quarter of 2022,~~period ending in 2023, compared with ~~37.5%~~38.8% for ~~the same period~~ last year. The ~~350~~390 basis point increase was driven by ~~more favorable managed services mix and other cost efficiencies.~~

~~Gross Margin - Nine months ended September 30, 2022 vs. Nine months ended September 30, 2021~~

~~Gross margin increased to 39.5% for the period ending in 2022, compared with 37.8% for last year. The 170 basis point increase was driven by~~software license sales, favorable managed services mix, and other cost efficiencies.

Operating Expenses - Three months ended ~~September 30, 2022~~March 31, 2023 vs. Three months ended ~~September 30, 2021~~

~~Operating expenses for the~~March 31, 2022 period increased $1.2 million, compared with the same period last year. The increase was primarily related to increased research and development investment of $1.6 million offset by a decrease in marketing expenses of $0.4 million.

~~Operating Expenses - Nine months ended September 30, 2022 vs. Nine months ended September 30, 2021~~

Operating expenses for the first ~~nine~~three months of ~~2022~~2023 increased ~~$5.6~~$0.2 million, or ~~17%~~2%, compared with the same period last year. This was primarily related to increased sales and marketing and research and development ~~expenses of $5.5 million.~~expenses.

Corporate Unallocated

Corporate Unallocated Expenses - Three months ended ~~September 30, 2022~~March 31, 2023 vs. Three months ended ~~September 30, 2021~~

~~Operating expenses not directly associated with an operating segment are classified as Corporate unallocated. These expenses decreased $14.7 million, or 18%, for the three months ended September 30,~~March 31, 2022 compared with the same period in 2021. This was primarily the result of a reduction of $7.6 million in labor costs and variable compensation, $2.5 million in amortization of intangible assets, and $2.2 million in restructuring.

~~Table of Contents~~

~~Corporate Unallocated Expenses - Nine months ended September 30, 2022 vs. Nine months ended September 30, 2021~~

For the first ~~nine~~three months of ~~2022,~~2023, Corporate unallocated expenses ~~decreased $14.7~~increased $38.2 million, or ~~5.5%~~52%, compared with the ~~2021~~2022 period. This was primarily the result of an increase of $43.0 million in restructuring, of which $38.0 million was related to the 2023 Projects. The increase was partially offset by a $2.2 million reduction ~~of $25.1 million~~ in loss on sale of business ~~primarily~~ related to the ~~Latin~~2022 sale of certain Gas product lines from our Device Solutions manufacturing and business operations in Europe and North America ~~divestiture, which occurred~~to Dresser. For additional details, refer to Item 1: Financial Statements (Unaudited), Note 12: Restructuring included in 2020, $18.0 million in labor costs and variable compensation, $10.3 million in restructuring, and $7.5 million in amortization of intangible assets, offset by $38.5 million in goodwill impairment and a

~~$8.3 million increase in professional services.~~this Quarterly Report on Form 10-Q.

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 ~~we estimate will be recognized as revenue~~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 ~~and cancellation by customers~~ 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 Ended Quarterly
Bookings Ending
Total
Backlog Ending
12-Month
Backlog
In millions
September 30, 2022 $ 578 $ 4,201 $ 1,612
June 30, 2022 612 4,063 1,746
March 31, 2022 417 3,897 1,557
December 31, 2021 1,076 4,017 1,539
September 30, 2021 395 3,433 1,442

Table of Contents

~~During the first quarter of 2022, we reduced our total backlog by $55.7 million in order to reflect the sale of certain Gas product lines to Dresser, effective February 28, 2022.~~


Quarter Ended	Quarterly Bookings		Ending Total Backlog		Ending 12-Month Backlog
In millions
March 31, 2023	$	428	$	4,558	$	1,897
December 31, 2022	898		4,619		2,052
September 30, 2022	578		4,201		1,612
June 30, 2022	612		4,063		1,746
March 31, 2022	417		3,897		1,557

Financial Condition

Cash Flow Information


		Nine Months Ended September 30,					Three Months Ended March 31,
In thousands	In thousands	2022		2021		In thousands	2023		2022
Net cash provided by operating activities	Net cash provided by operating activities	$	37,530	$	141,147	Net cash provided by operating activities	$	1,429	$	7,591
Net cash provided by (used in) investing activities	Net cash provided by (used in) investing activities	43,494		(21,819)		Net cash provided by (used in) investing activities	(7,658)		50,949
Net cash used in financing activities	Net cash used in financing activities	(19,396)		(136,808)		Net cash used in financing activities	(95)		(17,105)
Effect of foreign exchange rate changes on cash and cash equivalents	Effect of foreign exchange rate changes on cash and cash equivalents	(8,794)		(762)		Effect of foreign exchange rate changes on cash and cash equivalents	330		(17)
Increase in cash and cash equivalents		$	52,834	$	(18,242)
Increase (decrease) in cash and cash equivalents						Increase (decrease) in cash and cash equivalents	$	(5,994)	$	41,418

Cash and cash equivalents were ~~$215.4~~$196.0 million at ~~September 30, 2022,~~March 31, 2023, compared with ~~$162.6~~$202.0 million at December 31, ~~2021.~~2022. The ~~$52.8~~$6.0 million ~~increase~~decrease in cash and cash equivalents in the ~~2022~~2023 period was primarily the result of ~~proceeds from the sale of our Gas device businesses and operations to Dresser and~~ cash ~~flow from operating activities, offset by cash paid~~used for ~~shares repurchased~~working capital, variable compensation payouts and acquisition of property, plant, and equipment.

Operating activities

Cash provided by operating activities during the ~~nine~~three months in ~~2022~~2023 was ~~$37.5~~$1.4 million compared with ~~$141.1~~$7.6 million during the same period in ~~2021.~~2022. The decrease was primarily due to increases in working capital, partially offset by lower ~~earnings and higher~~ variable compensation payouts in ~~2022.~~2023.

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Investing activities

Cash provided by investing activities during the ~~nine~~three months in ~~2022~~2023 was ~~$65.3~~$58.6 million ~~higher~~lower than in ~~2021.~~2022. This ~~increase~~decrease of cash was primarily ~~related to~~the result of proceeds ~~received~~ from the sale of certain Gas product lines from our ~~Gas device businesses~~Device Solutions manufacturing and business operations in Europe and North America to Dresser ~~for~~of $55.9 million ~~offset by $12.9 million less~~ in ~~purchases of~~2022, and an increase in cash used to purchased property, plant, and equipment of $1.5 million in ~~2022 compared with the same period in 2021.~~2023.

Financing activities

Net cash used in financing activities during the ~~nine~~three months in ~~2022~~2023 was ~~$19.4~~$0.1 million, compared with net cash used of ~~$136.8~~$17.1 million for the same period in ~~2021. In March 2021, we received $389.4 million from issuance~~2022. Cash increased in the current period due to the repurchase of common stock ~~related to the equity offering, after deducting underwriters' discounts~~in 2022 of the offering, purchased $84.1 million of the convertible note hedge contracts, and proceeds of $45.3 million from the sale of warrants. Also in March 2021, we entered into the convertible senior notes with gross proceeds of $460 million, which was used to pay off the outstanding term loan balance. In April 2021, we repaid the senior subordinated notes totaling $410 million (including $10 million early repayment premium) with proceeds from the equity offering and cash on hand. For the nine months ended September 30, 2022, we repurchased shares totaling $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, 2022~~March 31, 2023 was ~~a decrease~~an increase of ~~$8.8~~$0.3 million, compared with a decrease of ~~$0.8 million~~$17,000 for the same period in ~~2021.~~2022. Our foreign currency exposure relates to non-U.S. dollar denominated balances in our international subsidiary operations.

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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,					Three Months Ended March 31,
In thousands	In thousands	2022		2021		In thousands	2023		2022
Net cash provided by operating activities	Net cash provided by operating activities	$	37,530	$	141,147	Net cash provided by operating activities	$	1,429	$	7,591
Acquisitions of property, plant, and equipment	Acquisitions of property, plant, and equipment	(14,886)		(27,781)		Acquisitions of property, plant, and equipment	(6,902)		(5,369)
Free cash flow	Free cash flow	$	22,644	$	113,366	Free cash flow	$	(5,473)	$	2,222

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, 2022~~March 31, 2023 and December 31, ~~2021~~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

~~On October 18, 2019 we amended~~We initially entered into our credit facility ~~that was initially entered~~ on January 5, 2018 (together with the ~~amendment,~~subsequent six 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. ~~The October 18, 2019, amendment extended the maturity date to October 18, 2024.~~ At ~~September 30, 2022,~~March 31, 2023, no amount was outstanding under the 2018 credit facility, and ~~$55.9~~$62.1 million was utilized by outstanding

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standby letters of credit, resulting in ~~$444.1~~$437.9 million available for borrowing or standby letters of credit under the revolver. At ~~September 30, 2022, $244.1~~March 31, 2023, $237.9 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, 2024, at which time all outstanding loans together with all accrued and unpaid interest must be repaid.

On March 12, 2021, we closed the sale of $460 million in ~~Convertible Notes~~convertible notes in a private placement to qualified institutional buyers. The ~~Convertible Notes~~convertible notes do not bear regular interest, and the principal amount does not accrete. The ~~Convertible Notes~~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.

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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 ~~its~~ 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 ~~2022,~~2023, with an estimated ~~$11~~$6 million in cash payments remaining as of ~~September 30, 2022.~~March 31, 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 ofGas product lines from our ~~Gas device~~Device Solutions manufacturing and business operations ~~(refer~~in Europe and North America to ~~Item 1: Financial Statements (Unaudited), Note 17: Sale of Business),~~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 ~~$34~~$32 million in cash payments remaining as of ~~September 30, 2022.~~March 31, 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 $43 million in cash payments remaining as of March 31, 2023 with cash outflows expected through 2027.

For the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, we paid out a net ~~$17.7~~$3.1 million related to all our restructuring projects. As of ~~September 30, 2022, $48.5~~March 31, 2023, $75.7 million was accrued for these restructuring projects, of which ~~$15.3~~$14.3 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 November 1, 2021, Itron's Board of Directors authorized a share repurchase program of up to $100 million of our common stock over an 18-month period (the 2021 Stock Repurchase Program). Repurchases are made in the open market or in privately negotiated transactions, and in accordance with applicable securities laws. Following the announcement of the program and through September 30, 2022, we have repurchased 405,282 shares at an average share price of $61.67 (excluding commissions) for a total of $25 million. As of September 30, 2022, we are authorized to repurchase up to an additional

~~$75 million of our common stock before May 1, 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 $1$18 million in U.S federal taxes, $4$12 million in state taxes, and $6$15 million in local and foreign taxes during ~~2022.~~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, 2022,~~March 31, 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.

As of ~~September 30, 2022,~~March 31, 2023, there was ~~$44.2~~$56.4 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

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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 ~~several~~one of our consolidated international subsidiaries we have a joint venture ~~partners,~~partner, who ~~are~~is a minority ~~shareholders.~~shareholder. Although ~~these entities are~~this entity is not wholly-owned by Itron, Inc., we consolidate ~~them~~the subsidiary because we have a greater than 50% ownership interest and/or 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 ~~entities,~~entity, which is attributable to the minority shareholders. At ~~September 30, 2022, $9.5~~March 31, 2023, $9.1 million of our consolidated cash balance was held in our joint venture ~~entities.~~entity. As a result, the minority shareholders of ~~these entities have~~this entity has rights to their proportional share of this cash balance, and there may be limitations on our ability to repatriate cash to the United States from ~~these entities.~~this entity.

General Liquidity Overview

~~Notwithstanding the expected short to mid-term impacts of the COVID-19 related supply shortages, we~~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, ~~duration of the COVID-19 pandemic and resulting~~ supply constraints, future business combinations, capital market fluctuations,

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international risks, and other factors described under Part I, Item 1A: Risk Factors ~~within Item 1A of Part I~~ of our ~~2021~~2022 Annual Report, as well as Part I, Item 3: Quantitative and Qualitative Disclosures About Market Risk ~~within Item 3 of Part I~~ 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 ~~2021~~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.

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 ~~acquisition and integration related expenses,~~restructuring, loss on sale of business, ~~strategic initiative expenses, Russian currency translation write-off, goodwill impairment,~~ or ~~restructuring charges.~~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

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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, Russian currency translation write-off, goodwill impairment,~~ and acquisition and integration. 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, Russian currency translation write-off, goodwill impairment,~~ and acquisition and integration. 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 ~~acquisitions and restructuring projects.~~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.

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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, ~~debt extinguishment,~~ restructuring, loss on sale of business, ~~strategic initiative, Russian currency translation write-off,~~ acquisition and integration, ~~goodwill impairment,~~ 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 ~~transaction~~transactions entered into in connection with the 0% ~~Convertible Notes~~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 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 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, ~~debt extinguishment,~~ restructuring, loss on sale of business, ~~strategic initiative, Russian currency translation write-off, goodwill impairment,~~ acquisition and integration, 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 ~~and reconciling to free cash flow.~~in the reconciliation.

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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 RECONCILIATIONS Three Months Ended September 30, Nine Months Ended September 30,
In thousands, except per share data 2022 2021 2022 2021
NON-GAAP OPERATING EXPENSES
GAAP operating expenses $ 113,174 $ 130,800 $ 401,211 $ 423,711
Amortization of intangible assets (6,413) (8,944) (19,451) (26,914)
Restructuring 1,272 (958) 11,097 830
Loss on sale of business (767) (2,171) (3,182) (28,274)
Strategic initiative 35 — (675) —
Russian currency translation write-off (1,885) — (1,885) —
Goodwill impairment — — (38,480) —
Acquisition and integration (154) (118) (370) 368
Non-GAAP operating expenses $ 105,262 $ 118,609 $ 348,265 $ 369,721
NON-GAAP OPERATING INCOME
GAAP operating income (loss) $ 6,888 $ 4,163 $ (19,820) $ 28,171
Amortization of intangible assets 6,413 8,944 19,451 26,914
Restructuring (1,272) 958 (11,097) (830)
Loss on sale of business 767 2,171 3,182 28,274
Strategic initiative (35) — 675 —
Russian currency translation write-off 1,885 — 1,885 —
Goodwill impairment — — 38,480 —
Acquisition and integration 154 118 370 (368)
Non-GAAP operating income $ 14,800 $ 16,354 $ 33,126 $ 82,161
NON-GAAP NET INCOME & DILUTED EPS
GAAP net income (loss) attributable to Itron, Inc. $ 4,117 $ (1,869) $ (31,944) $ (22,389)
Amortization of intangible assets 6,413 8,944 19,451 26,914
Amortization of debt placement fees 846 1,905 2,478 17,252
Debt extinguishment — — — 11,681
Restructuring (1,272) 958 (11,097) (830)
Loss on sale of business 767 2,171 3,182 28,274
Strategic initiative (35) — 675 —
Russian currency translation write-off 1,885 — 1,885 —
Acquisition and integration 154 118 370 (368)
Goodwill impairment — — 38,480 —
Income tax effect of non-GAAP adjustments (2,362) (2,775) (4,663) (16,491)
Non-GAAP net income attributable to Itron, Inc. $ 10,513 $ 9,452 $ 18,817 $ 44,043
Non-GAAP diluted EPS $ 0.23 $ 0.21 $ 0.42 $ 0.99
Non-GAAP weighted average common shares outstanding - Diluted 45,330 45,506 45,267 44,330


TOTAL COMPANY RECONCILIATIONS				Three Months Ended March 31,
	In thousands, except per share data				2023		2022
	NON-GAAP OPERATING EXPENSES
		GAAP operating expenses			$	166,761	$	128,405
			Amortization of intangible assets		(5,048)		(6,553)
			Restructuring		(36,609)		6,366
			Loss on sale of business		(18)		(2,221)




			Acquisition and integration		(45)		(62)
		Non-GAAP operating expenses			$	125,041	$	125,935

	NON-GAAP OPERATING INCOME
		GAAP operating income (loss)			$	(10,393)	$	6,819
			Amortization of intangible assets		5,048		6,553
			Restructuring		36,609		(6,366)
			Loss on sale of business		18		2,221




			Acquisition and integration		45		62
		Non-GAAP operating income			$	31,327	$	9,289

	NON-GAAP NET INCOME & DILUTED EPS
		GAAP net income (loss) attributable to Itron, Inc.			$	(11,836)	$	906
			Amortization of intangible assets		5,048		6,553
			Amortization of debt placement fees		845		796
			Restructuring		36,609		(6,366)
			Loss on sale of business		18		2,221




			Acquisition and integration		45		62
			Income tax effect of non-GAAP adjustments		(8,347)		999
		Non-GAAP net income attributable to Itron, Inc.			$	22,382	$	5,171

		Non-GAAP diluted EPS			$	0.49	$	0.11

		Non-GAAP weighted average common shares outstanding - Diluted			45,572		45,240

4840

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TOTAL COMPANY RECONCILIATIONS Three Months Ended September 30, Nine Months Ended September 30,
In thousands, except per share data 2022 2021 2022 2021
ADJUSTED EBITDA
GAAP net income (loss) attributable to Itron, Inc. $ 4,117 $ (1,869) $ (31,944) $ (22,389)
Interest income (801) (352) (1,367) (1,326)
Interest expense 1,679 2,628 4,931 27,107
Income tax provision 473 1,136 4,973 5,581
Debt extinguishment — — — 11,681
Depreciation and amortization 17,361 21,333 50,612 64,252
Restructuring (1,272) 958 (11,097) (830)
Loss on sale of business 767 2,171 3,182 28,274
Strategic initiative (35) — 675 —
Russian currency translation write-off 1,885 — 1,885 —
Goodwill impairment — — 38,480 —
Acquisition and integration 154 118 370 (368)
Adjusted EBITDA $ 24,328 $ 26,123 $ 60,700 $ 111,982
FREE CASH FLOW
Net cash provided by operating activities $ 14,874 $ 18,467 $ 37,530 $ 141,147
Acquisitions of property, plant, and equipment (4,223) (7,305) (14,886) (27,781)
Free Cash Flow $ 10,651 $ 11,162 $ 22,644 $ 113,366


TOTAL COMPANY RECONCILIATIONS				Three Months Ended March 31,
	In thousands, except per share data				2023		2022
	ADJUSTED EBITDA
		GAAP net income (loss) attributable to Itron, Inc.			$	(11,836)	$	906
			Interest income		(1,818)		(217)
			Interest expense		2,057		1,592
			Income tax provision (benefit)		(70)		3,859
			Depreciation and amortization		14,463		16,837
			Restructuring		36,609		(6,366)
			Loss on sale of business		18		2,221




			Acquisition and integration		45		62
		Adjusted EBITDA			$	39,468	$	18,894

	FREE CASH FLOW
		Net cash provided by operating activities			$	1,429	$	7,591
			Acquisitions of property, plant, and equipment		(6,902)		(5,369)
		Free Cash Flow			$	(5,473)	$	2,222

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, 2022,~~March 31, 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 28% ~~and 31%~~ of total revenues for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 compared with ~~36% and 38%~~35% for the same respective ~~periods~~period in ~~2021.~~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.~~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, 2022,~~March 31, 2023, a total of 3238 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 ~~$135,000~~$115,000 to ~~$57.8~~$47.0 million. Based on a sensitivity analysis as of ~~September 30, 2022,~~March 31, 2023, we estimate that, if foreign currency exchange rates average 10 percentage points higher in ~~2022~~2023 for these financial instruments, our financial results in ~~2022~~2023 would not be materially impacted.

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, 2022,~~March 31, 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, 2022~~March 31, 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, ~~2021,~~2022, which was filed with the Securities and Exchange Commission on February ~~28, 2022.~~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 Programs	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
					In thousands
~~July~~January 1, ~~2022~~2023 through ~~July~~January 31, ~~2022~~2023	—	$	—	—	$	75,000
~~August~~February 1, ~~2022~~2023 through ~~August 31, 2022~~February 28, 2023	—	—		—	75,000
~~September~~March 1, ~~2022~~2023 through ~~September 30, 2022~~March 31, 2023	—	—		—	75,000
Total	—			—

(1)Effective November 1, 2021, 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. Repurchases are made in the open market or in privately negotiated transactions and in accordance with applicable securities laws. The share repurchase program expired on May 1, 2023. There were no shares repurchased during the first quarter of 2023.

(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~~first quarter of ~~2022~~2023 that was not reported.

(b)Not applicable.

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Item 6: Exhibits



Exhibit Number						Description of Exhibits











31.1						Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2						Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1						Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101						The following financial information from Itron, Inc.'s Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2022~~March 31, 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.

104						Cover 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 3, 2022~~May 4, 2023	By:	/s/ JOAN S. HOOPER
Date		Joan S. Hooper
		Senior Vice President and Chief Financial Officer

5345



			Page
PART I: FINANCIAL INFORMATION

Item 1: Financial Statements (Unaudited)

Consolidated Statements of Operations			1

Consolidated Statements of Comprehensive Income (Loss)			2

Consolidated Balance Sheets			3

Consolidated Statements of Equity			4

Consolidated Statements of Cash Flows			5

Notes to Consolidated Financial Statements			6

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations			3025

Item 3: Quantitative and Qualitative Disclosures About Market Risk			4941

Item 4: Controls and Procedures			5042


PART II: OTHER INFORMATION

Item 1: Legal Proceedings			5143

Item 1A: Risk Factors			5143

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds			5143

Item 5: Other Information			5143

Item 6: Exhibits			5244


SIGNATURE			5345


		Fair Value
Derivatives Assets	Balance Sheet Location	September 30, 2022		December 31, 2021
Derivatives not designated as hedging instruments under ASC 815-20		In thousands








Foreign exchange forward contracts	Other current assets	$	570	$	37
Total asset derivatives		$	570	$	37

Derivatives Liabilities




Derivatives not designated as hedging instruments under ASC 815-20
Foreign exchange forward contracts	Other current liabilities	$	862	$	135
Total liability derivatives		$	862	$	135


Offsetting of Derivative Assets	Gross Amounts of Recognized Assets Presented in the Consolidated Balance Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheets
In thousands			Derivative Financial Instruments		Cash Collateral Received		Net Amount
September 30, 2022	$	570	$	(567)	$	—	$	3

December 31, 2021	37		(37)		—		—


Offsetting of Derivative Liabilities	Gross Amounts of Recognized Liabilities Presented in the Consolidated Balance Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheets
In thousands			Derivative Financial Instruments		Cash Collateral Pledged		Net Amount
September 30, 2022	$	862	$	(567)	$	—	$	295

December 31, 2021	135		(37)		—		98


Derivatives in ASC 815-20 Cash Flow Hedging Relationships	Amount of Gain (Loss) Recognized in OCI on Derivative				Gain (Loss) Reclassified from AOCI into Income
					Location	Amount
In thousands	2022		2021			2022		2021
Three Months Ended September 30,



Foreign exchange options	$	—	$	478	Product cost of revenues	$	—	$	(32)



Nine Months Ended September 30,
Interest rate swap contract	$	—	$	73	Interest expense	$	—	$	(229)
Interest rate swap contract	—		—		Other income (expense), net	—		(1,681)

Foreign exchange options	—		367		Product cost of revenues	—		(40)
Cross currency swap contract	—		669		Interest expense	—		94
Cross currency swap contract	—		—		Other income (expense), net	—		656


Derivatives Not Designated as Hedging Instrument under ASC 815-20	Location	Gain (Loss) Recognized on Derivatives in Other Income (Expense)
In thousands		2022		2021
Three Months Ended September 30,
Foreign exchange forward contracts	Other income (expense), net	$	1,338	$	673


Nine Months Ended September 30,
Foreign exchange forward contracts	Other income (expense), net	$	1,299	$	210