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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission file number 000-22418
ITRON, INC.
(Exact name of registrant as specified in its charter)
Washington 91-1011792
(State of Incorporation) (I.R.S. Employer Identification No.)
2111 N Molter Road, Liberty Lake, Washington 99019
(509) 924-9900
(Address and telephone number of registrant's principal executive offices) 

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, no par valueITRINASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
As of October 30, 2023, there were outstanding 45,492,770 shares of the registrant's common stock, no par value, which is the only class of common stock of the registrant.


Itron, Inc.
Table of Contents


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

Common StockAccumulated Other Comprehensive LossAccumulated DeficitTotal Itron, Inc. Shareholders' EquityNoncontrolling InterestsTotal Equity
In thousandsSharesAmount
Balances at January 1, 202245,152 $1,779,775 $(148,098)$(515,600)$1,116,077 $26,682 $1,142,759 
Net income (loss)906 906 (10)896 
Other comprehensive income (loss), net of tax52,815 52,815 52,815 
Net stock issued and repurchased165 784 784 784 
Stock-based compensation expense6,127 6,127 6,127 
Stock repurchased program(280)(16,629)(16,629)(16,629)
Balances at March 31, 202245,0371,770,057 (95,283)(514,694)1,160,080 26,672 1,186,752 
Net income (loss)(36,967)(36,967)102 (36,865)
Other comprehensive income (loss), net of tax(20,422)(20,422)(20,422)
Distributions to noncontrolling interests(3,784)(3,784)
Net stock issued and repurchased33 1,014 1,014 1,014 
Stock-based compensation expense6,405 6,405 6,405 
Balances at June 30, 202245,070 1,777,476 (115,705)(551,661)1,110,110 22,990 1,133,100 
Net income4,117 4,117 355 4,472 
Other comprehensive income (loss), net of tax(26,116)(26,116)(26,116)
Net stock issued and repurchased84 833 833 833 
Stock-based compensation expense4,884 4,884 4,884 
Balances at September 30, 202245,154 $1,783,193 $(141,821)$(547,544)$1,093,828 $23,345 $1,117,173 
The accompanying notes are an integral part of these consolidated financial statements.
4
ITRON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30,
In thousands20232022
Operating activities
Net income (loss)$53,411 $(31,497)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization of intangible assets42,013 50,612 
Non-cash operating lease expense12,197 12,250 
Stock-based compensation20,531 17,416 
Amortization of prepaid debt fees2,761 2,610 
Deferred taxes, net1,938 (6,428)
Loss on sale of business675 3,182 
Goodwill impairment— 38,480 
Restructuring, non-cash910 (879)
Other adjustments, net(318)2,148 
Changes in operating assets and liabilities, net of acquisition and sale of business:
Accounts receivable(37,832)12,270 
Inventories(48,280)(48,377)
Other current assets(43,240)(15,907)
Other long-term assets3,392 (7,897)
Accounts payable, other current liabilities, and taxes payable220 55,032 
Wages and benefits payable17,361 (30,877)
Unearned revenue38,619 32,151 
Warranty(2,177)(5,031)
Restructuring23,966 (34,410)
Other operating, net(9,071)(7,318)
Net cash provided by operating activities77,076 37,530 
Investing activities
Net proceeds (payments) related to the sale of business(772)55,933 
Acquisitions of property, plant, and equipment(18,304)(14,886)
Business acquisitions, net of cash and cash equivalents acquired— 23 
Other investing, net73 2,424 
Net cash provided by (used in) investing activities(19,003)43,494 
Financing activities
Issuance of common stock2,366 2,631 
Repurchase of common stock— (16,972)
Prepaid debt fees(517)(697)
Other financing, net(4,488)(4,358)
Net cash used in financing activities(2,639)(19,396)
Effect of foreign exchange rate changes on cash and cash equivalents(2,670)(8,794)
Increase in cash and cash equivalents52,764 52,834 
Cash and cash equivalents at beginning of period202,007 162,579 
Cash and cash equivalents at end of period$254,771 $215,413 
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes, net$29,031 $9,954 
Interest1,578 1,409 
The accompanying notes are an integral part of these consolidated financial statements.
5
ITRON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023
(UNAUDITED)
In this Quarterly Report on Form 10-Q, the terms "we", "us", "our", "Itron", and the "Company" refer to Itron, Inc. and its subsidiaries.

Note 1:    Summary of Significant Accounting Policies

Financial Statement Preparation
The consolidated financial statements presented in this Quarterly Report on Form 10-Q are unaudited and reflect entries necessary for the fair presentation of the Consolidated Statements of Operations and the Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2023 and 2022, Consolidated Statements of Equity for the three months ended September 30, 2023 and 2022, June 30, 2023 and 2022 and March 31, 2023 and 2022, the Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022, and the Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022, of Itron, Inc. and its subsidiaries. All entries required for the fair presentation of the financial statements are of a normal recurring nature, except as disclosed. The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results expected for the full year or for any other period.

Certain information and notes normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been partially or completely omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC) regarding interim results. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto for the fiscal year ended December 31, 2022 filed with the SEC in our Annual Report on Form 10-K on February 27, 2023 (2022 Annual Report). There have been no significant changes in financial statement preparation or significant accounting policies since December 31, 2022.

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

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

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

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

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

Note 2:    Earnings Per Share

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

Stock-based Awards
For stock-based awards, the dilutive effect is calculated using the treasury stock method. Under this method, the dilutive effect is computed as if the awards were exercised at the beginning of the period (or at time of issuance, if later) and assumes the related proceeds were used to repurchase our common stock at the average market price during the period. Related proceeds include the amount the employee must pay upon exercise and the future compensation cost associated with the stock award. Approximately 0.2 million and 0.3 million stock-based awards were excluded from the calculation of diluted EPS for the three and nine months ended September 30, 2023 because they were anti-dilutive. Approximately 0.4 million and 0.7 million stock-based awards were excluded from the calculation of diluted EPS for the three and nine months ended September 30, 2022 because they were anti-dilutive. These stock-based awards could be dilutive in future periods.
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Convertible Notes and Warrants
For our convertible notes issued in March 2021, the dilutive effect is calculated using the if-converted method. We are required, pursuant to the indenture governing our convertible notes, to settle the principal amount of the convertible notes in cash and may elect to settle the remaining conversion obligation (stock price in excess of conversion price) in cash, shares, or a combination thereof. Under the if-converted method, we include the number of shares required to satisfy the remaining conversion obligation, assuming all the convertible notes were converted. The average closing prices of our common stock for the quarter ended September 30, 2023 were used as the basis for determining the dilutive effect on EPS. The quarterly average closing prices for our common stock did not exceed the conversion price of $126.00, and therefore all associated shares were anti-dilutive.

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

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

Note 3:    Certain Balance Sheet Components

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

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

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

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

Note 4:    Intangible Assets and Liabilities

The gross carrying amount and accumulated amortization (accretion) of our intangible assets and liabilities, other than goodwill, were as follows:
September 30, 2023December 31, 2022
In thousandsGrossAccumulated
(Amortization) Accretion		NetGrossAccumulated
(Amortization) Accretion		Net
Intangible Assets
Core-developed technology$497,988 $(494,989)$2,999 $498,601 $(492,782)$5,819 
Customer contracts and relationships320,995 (275,508)45,487 322,360 (265,503)56,857 
Trademarks and trade names71,903 (70,099)1,804 72,156 (70,101)2,055 
Other12,017 (11,899)118 12,017 (11,807)210 
Total intangible assets
$902,903 $(852,495)$50,408 $905,134 $(840,193)$64,941 
Intangible Liabilities
Customer contracts and relationships$(23,900)$23,900 $— $(23,900)$23,900 $— 

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

Assumed intangible liabilities reflect the present value of the projected cash outflows for an existing contract where remaining costs are expected to exceed projected revenues.

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

Note 5:    Goodwill

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

Note 6:    Debt

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

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

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

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

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

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

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

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

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

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

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

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

Note 7:    Derivative Financial Instruments

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

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

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

Note 8:    Defined Benefit Pension Plans

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

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

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

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

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

Note 9:    Stock-Based Compensation

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

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

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

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

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

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

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

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

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

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

Note 10: Income Taxes

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

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

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

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

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

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

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

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

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

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

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

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Note 11:    Commitments and Contingencies

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

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