10-Q 1 itri-20240331.htm 10-Q itri-20240331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024
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)
Itron Logo RGB.jpg
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 filerAccelerated 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 April 29, 2024, there were outstanding 45,869,373 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 March 31,
In thousands, except per share data20242023
Revenues
Product revenues$527,822 $416,324 
Service revenues75,620 78,294 
Total revenues603,442 494,618 
Cost of revenues
Product cost of revenues356,707 297,343 
Service cost of revenues41,356 40,907 
Total cost of revenues398,063 338,250 
Gross profit205,379 156,368 
Operating expenses
Sales, general and administrative85,971 75,521 
Research and development52,401 49,565 
Amortization of intangible assets3,986 5,048 
Restructuring198 36,609 
Loss on sale of business23 18 
Total operating expenses142,579 166,761 
Operating income (loss)62,800 (10,393)
Other income (expense)
Interest income3,846 1,818 
Interest expense(1,893)(2,057)
Other income (expense), net463 (1,475)
Total other income (expense)2,416 (1,714)
Income (loss) before income taxes65,216 (12,107)
Income tax benefit (provision)(13,429)70 
Net income (loss)51,787 (12,037)
Net income (loss) attributable to noncontrolling interests66 (201)
Net income (loss) attributable to Itron, Inc.$51,721 $(11,836)
Net income (loss) per common share - Basic$1.13 $(0.26)
Net income (loss) per common share - Diluted$1.12 $(0.26)
Weighted average common shares outstanding - Basic45,652 45,281 
Weighted average common shares outstanding - Diluted46,357 45,281 
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 March 31,
In thousands20242023
Net income (loss)$51,787 $(12,037)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments
(10,851)7,225 
Pension benefit obligation adjustment
(57)(106)
Total other comprehensive income (loss), net of tax(10,908)7,119 
Total comprehensive income (loss), net of tax40,879 (4,918)
Comprehensive income (loss) attributable to noncontrolling interests, net of tax66 (201)
Comprehensive income (loss) attributable to Itron, Inc.$40,813 $(4,717)
The accompanying notes are an integral part of these consolidated financial statements.
2

ITRON, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
In thousandsMarch 31, 2024December 31, 2023
ASSETS
Current assets
Cash and cash equivalents$300,606 $302,049 
Accounts receivable, net339,948 303,821 
Inventories287,220 283,686 
Other current assets169,323 159,882 
Total current assets1,097,097 1,049,438 
Property, plant, and equipment, net124,979 128,806 
Deferred tax assets, net249,694 247,211 
Other long-term assets42,397 38,836 
Operating lease right-of-use assets, net40,998 41,186 
Intangible assets, net57,123 46,282 
Goodwill1,064,275 1,052,504 
Total assets$2,676,563 $2,604,263 
LIABILITIES AND EQUITY
Current liabilities
Accounts payable$223,575 $199,520 
Other current liabilities59,621 54,407 
Wages and benefits payable94,318 135,803 
Taxes payable27,754 8,636 
Current portion of warranty15,812 14,663 
Unearned revenue157,237 124,207 
Total current liabilities578,317 537,236 
Long-term debt, net455,400 454,827 
Long-term warranty7,763 7,501 
Pension benefit obligation62,626 63,887 
Deferred tax liabilities, net678 697 
Operating lease liabilities31,702 32,656 
Other long-term obligations154,767 176,028 
Total liabilities1,291,253 1,272,832 
Equity
Preferred stock, no par value, 10,000 shares authorized, no shares issued or outstanding
  
Common stock, no par value, 75,000 shares authorized, 45,850 and 45,512 shares issued and outstanding
1,833,510 1,820,510 
Accumulated other comprehensive loss, net(92,098)(81,190)
Accumulated deficit(376,688)(428,409)
Total Itron, Inc. shareholders' equity1,364,724 1,310,911 
Noncontrolling interests20,586 20,520 
Total equity1,385,310 1,331,431 
Total liabilities and equity$2,676,563 $2,604,263 
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, 202445,512 $1,820,510 $(81,190)$(428,409)$1,310,911 $20,520 $1,331,431 
Net income
51,721 51,721 66 51,787 
Other comprehensive income (loss), net of tax(10,908)(10,908)(10,908)
Net stock issued and repurchased338 1,560 1,560 1,560 
Stock-based compensation expense11,429 11,429 11,429 
Registration fee11 11 11 
Balances at March 31, 202445,850$1,833,510 $(92,098)$(376,688)$1,364,724 $20,586 $1,385,310 

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, 202345,405$1,796,005 $(87,555)$(537,168)$1,171,282 $22,861 $1,194,143 
The accompanying notes are an integral part of these consolidated financial statements.
4

ITRON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31,
In thousands20242023
Operating activities
Net income (loss)$51,787 $(12,037)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization of intangible assets12,744 14,463 
Non-cash operating lease expense3,814 3,972 
Stock-based compensation11,429 6,919 
Amortization of prepaid debt fees888 889 
Deferred taxes, net(1,579)(4,272)
Loss on sale of business23 18 
Restructuring, non-cash(194)1,070 
Other adjustments, net(322)56 
Changes in operating assets and liabilities, net of acquisition and sale of business:
Accounts receivable(36,826)(22,497)
Inventories(5,559)(34,791)
Other current assets(9,690)(17,129)
Other long-term assets(4,824)3,002 
Accounts payable, other current liabilities, and taxes payable48,412 15,113 
Wages and benefits payable(40,561)(12,895)
Unearned revenue35,738 34,471 
Warranty1,489 (1,041)
Restructuring(7,166)33,209 
Other operating, net(18,295)(7,091)
Net cash provided by operating activities41,308 1,429 
Investing activities
Net proceeds (payments) related to the sale of business (772)
Acquisitions of property, plant, and equipment(7,145)(6,902)
Business acquisitions, net of cash and cash equivalents acquired(34,126) 
Other investing, net125 16 
Net cash used in investing activities(41,146)(7,658)
Financing activities
Issuance of common stock1,564 607 
Prepaid debt fees(206)(517)
Other financing, net(281)(185)
Net cash provided by (used in) financing activities1,077 (95)
Effect of foreign exchange rate changes on cash and cash equivalents(2,682)330 
Decrease in cash and cash equivalents(1,443)(5,994)
Cash and cash equivalents at beginning of period302,049 202,007 
Cash and cash equivalents at end of period$300,606 $196,013 
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes, net$14,014 $1,432 
Interest322 459 
The accompanying notes are an integral part of these consolidated financial statements.
5

ITRON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(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 months ended March 31, 2024 and 2023, Consolidated Statements of Equity for the three months ended March 31, 2024 and 2023, the Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023, and the Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023, of Itron, Inc. and its subsidiaries. All entries required for the fair presentation of the financial statements are of a normal recurring nature, except as disclosed. The results of operations for the three months ended March 31, 2024 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, 2023 filed with the SEC in our Annual Report on Form 10-K on February 26, 2024 (2023 Annual Report). There have been no significant changes in financial statement preparation or significant accounting policies since December 31, 2023.

Restricted Cash and Cash Equivalents
Cash and cash equivalents that are contractually restricted from operating use are classified as restricted cash and cash equivalents. We had $1.8 million pledged for standby letters of credit as of March 31, 2024 and December 31, 2023.

Risks and Uncertainties
Global economic impacts, such as pandemics and various ongoing conflicts around the world, 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 we have had improvements since 2022 levels, our ability to obtain adequate supply of semiconductor components has impacted our ability to service customer demand in a timely manner. The temporary imbalance in supply and demand creates business uncertainties that include costs and availability. Efforts continue with suppliers to improve supply resiliency, 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 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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Recent Accounting Standards Not Yet Adopted
In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07, Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures, which amends the reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for our annual financial reporting in 2024 and interim financial reports for the first quarter of 2025, with early adoption permitted. These amendments are to be applied retrospectively to all prior periods presented in the financial statements. We are currently evaluating the impact this standard will have on our consolidated financial statement disclosures for our reportable segment information.

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which amends Income Taxes (Topic 740). The FASB issued this update to improve annual basis income tax disclosures related to (1) rate reconciliation, (2) income taxes paid, and (3) other disclosures related to pretax income (or loss) and income tax expense (or benefit) from continuing operations. The effective date for this amendment is January 1, 2025, with early adoption permitted. These amendments are to be applied on a prospective basis. Retrospective application is permitted. We are currently evaluating the impact this standard will have on our consolidated financial statement disclosures.

Note 2:    Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share (EPS):
Three Months Ended March 31,
In thousands, except per share data20242023
Net income (loss) available to common shareholders$51,721 $(11,836)
Weighted average common shares outstanding - Basic45,652 45,281 
Dilutive effect of stock-based awards705  
Dilutive effect of convertible notes  
Weighted average common shares outstanding - Diluted46,357 45,281 
Net income (loss) per common share - Basic$1.13 $(0.26)
Net income (loss) per common share - Diluted$1.12 $(0.26)

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 0.1 million and 0.7 million stock-based awards were excluded from the calculation of diluted EPS for the three months ended March 31, 2024 and 2023 because they were anti-dilutive. These stock-based awards could be dilutive in future periods.

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 March 31, 2024 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
7

the average share price of Itron stock for the period, the warrants would be anti-dilutive. For the three months ended March 31, 2024, 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 thousandsMarch 31, 2024December 31, 2023
Trade receivables (net of allowance of $722 and $738)
$310,617 $272,890 
Unbilled receivables29,331 30,931 
Total accounts receivable, net$339,948 $303,821 

Allowance for credit losses account activityThree Months Ended March 31,
In thousands20242023
Beginning balance$738 $4,863 
Provision for (release of) doubtful accounts, net22 (91)
Accounts written-off, net(26)(66)
Effect of change in exchange rates(12)76 
Ending balance$722 $4,782 

Inventories
In thousandsMarch 31, 2024December 31, 2023
Raw materials$209,937 $213,303 
Work in process13,976 17,849 
Finished goods63,307 52,534 
Total inventories$287,220 $283,686 

Property, plant, and equipment, net
In thousandsMarch 31, 2024December 31, 2023
Machinery and equipment$314,740 $318,546 
Computers and software125,942 126,149 
Buildings, furniture, and improvements124,381 126,041 
Land7,768 7,846 
Construction in progress, including purchased equipment22,539 24,316 
Total cost595,370 602,898 
Accumulated depreciation(470,391)(474,092)
Property, plant, and equipment, net$124,979 $128,806 

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Depreciation expenseThree Months Ended March 31,
In thousands20242023
Depreciation expense$8,758 $9,415 

Note 4:    Intangible Assets and Liabilities

The gross carrying amount and accumulated amortization (accretion) of our intangible assets and liabilities, other than goodwill, were as follows:
March 31, 2024December 31, 2023
In thousandsGrossAccumulated
(Amortization) Accretion
NetGrossAccumulated
(Amortization) Accretion
Net
Intangible Assets
Core-developed technology$512,787 $(498,434)$14,353 $502,010 $(499,571)$2,439 
Customer contracts and relationships328,438 (287,386)41,052 329,688 (287,653)42,035 
Trademarks and trade names72,775 (71,130)1,645 73,461 (71,740)1,721 
Other12,019 (11,946)73 12,019 (11,932)87 
Total intangible assets
$926,019 $(868,896)$57,123 $917,178 $(870,896)$46,282 
Intangible Liabilities
Customer contracts and relationships$(23,900)$23,900 $ $(23,900)$23,900 $ 

A summary of intangible assets and liabilities activity is as follows:
Three Months Ended March 31,
In thousands20242023
Intangible assets, gross beginning balance$917,178 $905,134 
Intangible assets acquired (1)
15,000  
Effect of change in exchange rates(6,159)4,929 
Intangible assets, gross ending balance$926,019 $910,063 
Intangible liabilities, gross beginning balance$(23,900)$(23,900)
Effect of change in exchange rates  
Intangible liabilities, gross ending balance$(23,900)$(23,900)

(1) On March 1, 2024, we completed the acquisition of 100% of the shares Elpis2, Inc. (Elpis Squared), a privately held software and services company. The purchase resulted in the addition of intangible assets of $15.0 million. Refer to Note 5: Goodwill and Note 17: Business Combination for additional information.

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

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Estimated future annual amortization is as follows:
Year Ending December 31,Estimated Annual Amortization
In thousands
2024 (amount remaining at March 31, 2024)$12,608 
202516,161 
202612,145 
20277,449 
20281,993 
Thereafter6,767 
Total intangible assets subject to amortization$57,123 

Note 5:    Goodwill

The following table reflects changes in the carrying amount of goodwill for the three months ended March 31, 2024:
In thousandsDevice SolutionsNetworked SolutionsOutcomesTotal Company
Goodwill balance at January 1, 2024$ $911,847 $140,657 $1,052,504 
Goodwill acquired (1)
  19,676 19,676 
Effect of change in exchange rates (6,859)(1,046)(7,905)
Goodwill balance at March 31, 2024$ $904,988 $159,287 $1,064,275 

(1) On March 1, 2024, we acquired Elpis Squared. The purchase resulted in the recognition of $19.7 million in goodwill allocated to our Outcomes operating segment and reporting unit. Refer to Note 4: Intangible Assets and Liabilities and Note 17: Business Combination for additional information on the transaction.

Note 6:    Debt

The components of our borrowings were as follows:
In thousandsMarch 31, 2024December 31, 2023
Credit facility
Multicurrency revolving line of credit$ $ 
Convertible notes460,000 460,000 
Total debt460,000 460,000 
Less: unamortized prepaid debt fees - convertible notes4,600 5,173 
Long-term debt, net $455,400 $454,827 

Credit Facility
Our current credit facility, 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 (the 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 March 31, 2024.

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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 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 debt covenant provisions to allow for the addback of non-recurring cash expenses related to restructuring charges incurred during the quarter ended March 31, 2023. 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 March 31, 2024, there were no outstanding loan balances under the credit facility, and $52.4 million was utilized by outstanding standby letters of credit, resulting in $447.6 million available for additional borrowings or standby letters of credit within the revolver. At March 31, 2024, $247.6 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.

Subsequent to 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
11

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 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
2024 (amount remaining at March 31, 2024)$ 
2025 
2026460,000 
2027 
2028 
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 currency and interest rate exposures. 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 March 31, 2024, a total of 39 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 $111,000 to $34.9 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, India, and Indonesia. The defined benefit obligation is calculated annually by using the projected unit credit method. The measurement date for the pension plans was December 31, 2023.

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Amounts recognized on the Consolidated Balance Sheets consist of:
In thousandsMarch 31, 2024December 31, 2023
Assets
Plan assets in other long-term assets$74 $80 
Liabilities
Current portion of pension benefit obligation in wages and benefits payable$3,647 $3,623 
Long-term portion of pension benefit obligation62,626 63,887 
Pension benefit obligation, net$66,199 $67,430 

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 include the following components:
Three Months Ended March 31,
In thousands20242023
Service cost$635 $604 
Interest cost681 712 
Expected return on plan assets(73)(87)
Amortization of prior service costs34 15 
Amortization of actuarial net loss(85)(121)
Net periodic benefit cost$1,192 $1,123 

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 10,357,273 shares of common stock authorized for issuance subject to stock splits, dividends, and other similar events, and at March 31, 2024, 982,319 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 510,025 shares of common stock were available for future issuance at March 31, 2024.

ESPP activity and stock-based grants other than stock options and restricted stock units were not significant for the three months ended March 31, 2024 and 2023.

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Stock-Based Compensation Expense
Total stock-based compensation expense and the related tax benefit were as follows:
Three Months Ended March 31,
In thousands20242023
Stock options$ $60 
Restricted stock units11,093 6,583 
Unrestricted stock awards336 276 
Phantom stock units1,449 777 
Total stock-based compensation$12,878 $7,696 
Related tax benefit$2,799 $1,703 

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, 2023381 $60.63 4.8$1,892 
Granted  $ 
Exercised   
Forfeited  
Canceled  
Outstanding, March 31, 2023381 $60.63 4.6$2,549 
Outstanding, January 1, 2024363 $61.36 4.0$5,886 
Granted  $ 
Exercised(19)44.61 769 
Forfeited  
Canceled  
Outstanding, March 31, 2024344 $62.27 3.8$10,419 
Exercisable, March 31, 2024344 $62.27 3.8$10,419 

At March 31, 2024, all stock-based compensation expense related to nonvested stock options has been recognized.

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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, 2023528 
Granted411 $55.59 
Released (1)
(202)$14,897 
Forfeited(12)
Outstanding, March 31, 2023725 
Outstanding, January 1, 2024751 $58.89 
Granted397 74.85 
Released (1)
(306)63.99 $22,962 
Forfeited(6)59.21 
Outstanding, March 31, 2024836 65.18 
Vested but not released, March 31, 202416 $1,496 

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

At March 31, 2024, total unrecognized compensation expense on restricted stock units was $71.0 million, which is expected to be recognized over a weighted average period of approximately 2.0 years.

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:
Three Months Ended March 31,
20242023
Expected volatility45.7 %50.0 %
Risk-free interest rate4.4 %4.6 %
Expected term (years)2.92.2
Weighted average fair value$83.26 $59.22 

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.

While our tax rate for the three months ended March 31, 2024 of 21% is in line with the federal statutory rate of 21%, it is overall impacted by the effect 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, a benefit related to stock-based compensation, tax credits, state taxes, and uncertain tax positions.

Our tax rate for the three months ended March 31, 2023 of 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) 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.

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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, including the effect of guidance issued in December 2023 that provided clarity regarding research providers and recipients.

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) guidance under the Base Erosion and Profit Shifting (BEPS) initiative aims to minimize perceived tax abuses and modernize global tax policy, including the implementation of a global minimum effective tax rate of 15%. In December 2022, the Council of the European Union adopted OECD Pillar 2 for implementation by European Union member states by December 31, 2023. Legislation is in various stages of adoption, from formal legislative proposals to passage into law, in most countries where Itron has significant operations, and is expected to take effect for calendar year 2024. The OECD continues to release more guidance on these rules and framework and we are evaluating the impact to our financial position. These enactments or amendments could adversely affect our tax rate and ultimately result in a negative impact on our operating results and cash flows. Based upon forecast calculations for calendar year 2024, the Company expects to meet the safe harbors in most jurisdictions, and the remaining top-up tax is forecasted to be immaterial.

We classify interest expense and penalties related to unrecognized tax benefits 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 March 31,
In thousands20242023
Net interest and penalties expense$474 $250 

Accrued interest and penalties recognized were as follows:
In thousandsMarch 31, 2024December 31, 2023
Accrued interest$10,176 $9,794 
Accrued penalties360 466 

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 thousandsMarch 31, 2024December 31, 2023
Unrecognized tax benefits related to uncertain tax positions$128,992 $130,067 
The amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate
128,528 129,591 

At March 31, 2024, we are under examination by certain tax authorities. We have received assessments of approximately $13 million from German tax authorities for years 2014-2017 and have reflected those amounts as current liabilities, and plan to appeal certain items not taken into account in the assessments. 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 twelve 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 thousandsMarch 31, 2024December 31, 2023
Credit facility
Multicurrency revolving line of credit$500,000 $500,000 
Standby LOCs issued and outstanding(52,415)(59,059)
Net available for additional borrowings under the multicurrency revolving line of credit$447,585 $440,941 
Net available for additional standby LOCs under sub-facility$247,585 $240,941 
Unsecured multicurrency revolving lines of credit with various financial institutions
Multicurrency revolving lines of credit$90,206 $84,318 
Standby LOCs issued and outstanding(21,992)(21,853)
Short-term borrowings  
Net available for additional borrowings and LOCs$68,214 $62,465 
Unsecured surety bonds in force$271,184 $271,164 

In the event any such standby LOC or bond were called, we would be obligated to reimburse the issuer of the standby LOC or bond. As of May 2, 2024, we are not aware of any valid claims against our outstanding standby LOCs or bonds.

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

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

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Warranty
A summary of the warranty accrual account activity is as follows:
Three Months Ended March 31,
In thousands20242023
Beginning balance$22,164 $25,698 
New product warranties1,698 1,630 
Other adjustments and expirations, net1,480 (689)
Claims activity(1,690)(1,987)
Effect of change in exchange rates(77)179 
Ending balance23,575 24,831 
Less: current portion of warranty15,812 17,829 
Long-term warranty$7,763 $7,002 

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 March 31,
In thousands20242023
Total warranty expense$3,178 $941 

Note 12:    Restructuring

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

The total expected restructuring costs, the restructuring costs recognized, and the remaining expected restructuring costs related to the 2023 Projects were as follows:
In thousandsTotal Expected Costs at March 31, 2024Costs Recognized in Prior Periods
Costs Recognized During the Three Months Ended March 31, 2024
Expected Remaining Costs to be Recognized at March 31, 2024
Employee severance costs$42,803 $43,347 $(544)$ 
Asset impairments & net loss (gain) on sale or disposal1,169 1,130 39  
Other restructuring costs7,539 4,051 1,038 2,450 
Total
$51,511 $48,528 $533 $2,450 

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 Utility Solutions, includes activities to drive reductions in certain locations and functional support areas. These projects are expected to be substantially complete by the end of 2024.

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The total expected restructuring costs, the restructuring costs recognized, and the remaining expected restructuring costs related to the 2021 Projects were as follows:
In thousandsTotal Expected Costs at March 31, 2024Costs Recognized in Prior PeriodsAdjustments Recognized During the Three Months Ended March 31, 2024Expected Remaining Costs to be Recognized at March 31, 2024
Employee severance costs$34,671 $34,821 $(150)$ 
Asset impairments & net loss (gain) on sale or disposal8,146 8,379 (233) 
Other restructuring costs5,427 3,729 48 1,650 
Total
$48,244 $46,929 $(335)$1,650 

The following table summarizes the activity within the restructuring related balance sheet accounts for the 2023 Projects and the 2021 Projects during the three months ended March 31, 2024:
In thousandsAccrued Employee SeveranceAsset Impairments & Net Loss (Gain) on Sale or DisposalOther Accrued CostsTotal
Beginning balance, January 1, 2024$68,698 $ $3,678 $72,376 
Costs charged to expense
(694)(194)1,086 198 
Cash payments(4,899)(13)(1,299)(6,211)
Cash receipts    
Net assets disposed and impaired 207  207 
Effect of change in exchange rates(1,367) (16)(1,383)
Ending balance, March 31, 2024$61,738 $ $3,449 $65,187 

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

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

Other restructuring costs include expenses for employee relocation, professional fees associated with employee severance, costs to exit the facilities once the operations in those facilities have ceased, and other costs associated with the liquidation of any affected legal entities. Costs associated with restructuring activities are generally presented in the Consolidated Statements of Operations as restructuring, except for certain costs associated with inventory write-downs, which are classified within cost of revenues, and accelerated depreciation expense, which is recognized according to the use of the asset. Restructuring expense is recognized within the Corporate unallocated segment and does not impact the results of our operating segments.

The current portions of restructuring liabilities were $23.7 million and $21.0 million as of March 31, 2024 and December 31, 2023 and are classified within other current liabilities on the Consolidated Balance Sheets. The long-term portions of restructuring liabilities were $41.5 million and $51.4 million as of March 31, 2024 and December 31, 2023. 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 March 31, 2024 or December 31, 2023.

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Stock Repurchase Program
Effective May 11, 2023, Itron's Board of Directors authorized a share repurchase up to $100 million of our common stock over an 18-month period (the 2023 Stock Repurchase Program). Repurchases will be made in the open market pursuant to the terms of any Rule 10b5-1 plans that we may enter into, and in accordance with applicable securities laws. The repurchase program is intended to comply with Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended. Depending on market conditions and other factors, these repurchases may be commenced or suspended from time to time without prior notice. There have been no repurchases under the 2023 Stock Repurchase Program through May 2, 2024.

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

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

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

Accumulated Other Comprehensive Income (Loss) (AOCI)
The changes in the components of AOCI, net of tax, were as follows:
In thousandsForeign Currency Translation AdjustmentsNet Unrealized Gain (Loss) on Derivative InstrumentsNet Unrealized Gain (Loss) on Nonderivative InstrumentsPension Benefit Obligation AdjustmentsAccumulated Other Comprehensive Income (Loss)
Balances at January 1, 2023$(83,193)$(210)$(14,380)$3,109 $(94,674)
OCI before reclassifications7,225    7,225 
Amounts reclassified from AOCI   (106)(106)
Total other comprehensive income (loss)7,225   (106)7,119 
Balances at March 31, 2023$(75,968)$(210)$(14,380)$3,003 $(87,555)
Balances at January 1, 2024$(67,643)$(210)$(14,380)$1,043 $(81,190)
OCI before reclassifications(10,851)   (10,851)
Amounts reclassified from AOCI   (57)(57)
Total other comprehensive income (loss)(10,851)  (57)(10,908)
Balances at March 31, 2024$(78,494)$(210)$(14,380)$986 $(92,098)
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The before-tax, income tax (provision) benefit, and net-of-tax amounts related to each component of other comprehensive income (OCI) were as follows:
Three Months Ended March 31,
In thousands20242023
Before-tax amount
Foreign currency translation adjustment
$(10,908)$7,227 
Net defined benefit plan (gain) loss reclassified to net income (loss)(51)(106)
Total other comprehensive income (loss), before tax$(10,959)$7,121 
Tax (provision) benefit
Foreign currency translation adjustment
$57 $(2)
Net defined benefit plan (gain) loss reclassified to net income (loss)(6) 
Total other comprehensive income (loss) tax (provision) benefit$51 $(2)
Net-of-tax amount
Foreign currency translation adjustment
$(10,851)$7,225 
Net defined benefit plan (gain) loss reclassified to net income (loss)(57)(106)
Total other comprehensive income (loss), net of tax$(10,908)$7,119 

Note 14:    Fair Value of Financial Instruments

The fair values at March 31, 2024 and December 31, 2023 do not reflect subsequent changes in the economy, interest rates, tax rates, and other variables that may affect the determination of fair value.
March 31, 2024December 31, 2023
In thousandsCarrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Credit facility
Multicurrency revolving line of credit$ $ $ $ 
Convertible notes455,400 463,620 454,827 423,476 

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

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

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

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

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

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Note 15:    Segment Information

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

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

Segment Products

Device Solutions – This segment primarily includes hardware products used for measurement, control, or sensing. These products generally do not have communications capability or may be designed for use with non-Itron systems. 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 and designed to meet market requirements; and the implementation and installation of said hardware products.

Networked Solutions – This segment primarily includes a combination of communicating devices (e.g., smart meters, modules, endpoints, and sensors), network infrastructure, and associated head-end management and application software designed and sold as a complete solution for acquiring and transporting robust application-specific data. Networked Solutions includes products and software for the implementation, installation, and management of communicating devices and data networks. The Industrial Internet of Things (IIoT) solutions supported by this segment include automated meter reading (AMR); advanced metering infrastructure (AMI) for electricity, water and gas; distributed energy resource management (DERMs); smart grid and distribution automation; smart street lighting; and leak detection and applications for both gas and water systems. Our IIoT platform allows utility and smart city applications to be run and managed on a flexible multi-purpose network.

Outcomes – This segment primarily includes our value-added, enhanced software and services, artificial intelligence, and machine learning in which we enable grid edge intelligence and manage, organize, analyze, and interpret raw, anonymized data to improve decision making, maximize operational profitability, enhance resource efficiency, improve grid analytics, and deliver results for consumers, utilities, and smart cities. Outcomes supports high-value use cases, such as data management, grid operations, distributed intelligence, AMI operations, 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 unlock the capabilities of their networks and devices, improve the productivity of their workforce, increase the reliability of their operations, manage and optimize the proliferation of distributed energy resources (DERs), address grid complexity, and enhance the customer experience. Revenue from these offerings are primarily recurring in nature and would include any direct management of Device Solutions, Networked Solutions, and other third-parties' products on behalf of our end customers.

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Revenues, gross profit, and operating income (loss) associated with our operating segments were as follows:
Three Months Ended March 31,
In thousands20242023
Product revenues
Device Solutions$125,908 $117,451 
Networked Solutions381,305 281,470 
Outcomes20,609 17,403 
Total Company$