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 ~~June 30, 2020~~March 31, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 000-22418

ITRON, INC.

(Exact name of registrant as specified in its charter)


Washington						91-1011792
(State of Incorporation)						(I.R.S. Employer Identification ~~Number)~~No.)

2111 N Molter Road, Liberty Lake, Washington 99019

(509) 924-9900

(Address and telephone number of registrant's principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, no par value

ITRI

NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

(Do not check if a smaller reporting company)

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~July 31, 2020,~~April 30, 2021, there were outstanding ~~40,332,428~~45,132,612 shares of the registrant's common stock, no par value, which is the only class of common stock of the registrant.

Table of Contents

Itron, Inc.

Table of Contents

PART I: FINANCIAL INFORMATION

Item 1: Financial Statements (Unaudited)

ITRON, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


		Three Months Ended June 30,						Six Months Ended June 30,					Three Months Ended March 31,
In thousands, except per share data	In thousands, except per share data	2020		2019		2020		2019		In thousands, except per share data	2021		2020
Revenues	Revenues									Revenues
Product revenues	Product revenues	$	438,985	$	566,047	$	967,122	$	1,110,897	Product revenues	$	442,804	$	528,137
Service revenues	Service revenues	70,609		68,990		140,887		138,716		Service revenues	76,770		70,278
Total revenues	Total revenues	509,594		635,037		1,108,009		1,249,613		Total revenues	519,574		598,415
Cost of revenues	Cost of revenues									Cost of revenues
Product cost of revenues	Product cost of revenues	329,293		401,033		713,974		787,135		Product cost of revenues	307,691		384,681
Service cost of revenues	Service cost of revenues	41,784		42,790		83,952		84,001		Service cost of revenues	44,839		42,168
Total cost of revenues	Total cost of revenues	371,077		443,823		797,926		871,136		Total cost of revenues	352,530		426,849
Gross profit	Gross profit	138,517		191,214		310,083		378,477		Gross profit	167,044		171,566

Operating expenses	Operating expenses									Operating expenses
Sales, general and administrative	Sales, general and administrative	69,538		88,259		150,036		180,974		Sales, general and administrative	75,992		80,498
Research and development	Research and development	48,994		49,449		102,775		99,939		Research and development	51,727		53,781
Amortization of intangible assets	Amortization of intangible assets	11,140		16,117		22,305		32,090		Amortization of intangible assets	8,973		11,165
Restructuring	Restructuring	(2,683)		(6,169)		(2,931)		1,093		Restructuring	(1,980)		(248)
Loss on sale of business	Loss on sale of business	56,915		—		56,915		—		Loss on sale of business	1,392		0

Total operating expenses	Total operating expenses	183,904		147,656		329,100		314,096		Total operating expenses	136,104		145,196

Operating income (loss)		(45,387)		43,558		(19,017)		64,381
Operating income										Operating income	30,940		26,370
Other income (expense)	Other income (expense)									Other income (expense)
Interest income	Interest income	1,258		534		1,811		862		Interest income	542		553
Interest expense	Interest expense	(11,684)		(13,496)		(22,961)		(27,031)		Interest expense	(10,475)		(11,277)
Other income (expense), net	Other income (expense), net	(1,873)		(2,060)		(807)		(3,704)		Other income (expense), net	(2,766)		1,066
Total other income (expense)	Total other income (expense)	(12,299)		(15,022)		(21,957)		(29,873)		Total other income (expense)	(12,699)		(9,658)

Income (loss) before income taxes		(57,686)		28,536		(40,974)		34,508
Income before income taxes										Income before income taxes	18,241		16,712
Income tax provision	Income tax provision	(4,801)		(8,419)		(12,351)		(14,540)		Income tax provision	(4,661)		(7,550)
Net income (loss)		(62,487)		20,117		(53,325)		19,968
Net income										Net income	13,580		9,162
Net income attributable to noncontrolling interests	Net income attributable to noncontrolling interests	315		671		793		2,429		Net income attributable to noncontrolling interests	977		478
Net income (loss) attributable to Itron, Inc.		$	(62,802)	$	19,446	$	(54,118)	$	17,539
Net income attributable to Itron, Inc.										Net income attributable to Itron, Inc.	$	12,603	$	8,684

Net income (loss) per common share - Basic		$	(1.56)	$	0.49	$	(1.35)	$	0.44
Net income (loss) per common share - Diluted		$	(1.56)	$	0.49	$	(1.35)	$	0.44
Net income per common share - Basic										Net income per common share - Basic	$	0.30	$	0.22
Net income per common share - Diluted										Net income per common share - Diluted	$	0.30	$	0.21

Weighted average common shares outstanding - Basic	Weighted average common shares outstanding - Basic	40,216		39,389		40,130		39,523		Weighted average common shares outstanding - Basic	41,526		40,043
Weighted average common shares outstanding - Diluted	Weighted average common shares outstanding - Diluted	40,216		39,686		40,130		39,875		Weighted average common shares outstanding - Diluted	41,964		40,474

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

Table of Contents

ITRON, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)


		Three Months Ended June 30,						Six Months Ended June 30,					Three Months Ended March 31,
In thousands	In thousands	2020		2019		2020		2019		In thousands	2021		2020
Net income (loss)		$	(62,487)	$	20,117	$	(53,325)	$	19,968
Net income										Net income	$	13,580	$	9,162

Other comprehensive income (loss), net of tax:	Other comprehensive income (loss), net of tax:									Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	Foreign currency translation adjustments	11,310		5,187		(14,135)		2,801		Foreign currency translation adjustments	(15,012)		(25,445)
Foreign currency translation adjustment reclassified to net income on sale of business		52,088		—		52,088		—

Net unrealized gain (loss) on derivative instruments, designated as cash flow hedges	Net unrealized gain (loss) on derivative instruments, designated as cash flow hedges	(1,389)		(1,634)		(2,156)		(1,499)		Net unrealized gain (loss) on derivative instruments, designated as cash flow hedges	2,528		(767)
Pension benefit obligation adjustment	Pension benefit obligation adjustment	47		183		1,048		654		Pension benefit obligation adjustment	701		1,001
Total other comprehensive income (loss), net of tax	Total other comprehensive income (loss), net of tax	62,056		3,736		36,845		1,956		Total other comprehensive income (loss), net of tax	(11,783)		(25,211)

Total comprehensive income (loss), net of tax	Total comprehensive income (loss), net of tax	(431)		23,853		(16,480)		21,924		Total comprehensive income (loss), net of tax	1,797		(16,049)

Comprehensive income attributable to noncontrolling interests, net of tax	Comprehensive income attributable to noncontrolling interests, net of tax	315		671		793		2,429		Comprehensive income attributable to noncontrolling interests, net of tax	977		478

Comprehensive income (loss) attributable to Itron, Inc.	Comprehensive income (loss) attributable to Itron, Inc.	$	(746)	$	23,182	$	(17,273)	$	19,495	Comprehensive income (loss) attributable to Itron, Inc.	$	820	$	(16,527)

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

Table of Contents

ITRON, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


In thousands	In thousands	June 30, 2020		December 31, 2019		In thousands	March 31, 2021		December 31, 2020
ASSETS	ASSETS					ASSETS
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	544,823	$	149,904	Cash and cash equivalents	$	574,592	$	206,933
Accounts receivable, net	Accounts receivable, net	411,200		472,925		Accounts receivable, net	365,826		369,828
Inventories	Inventories	226,564		227,896		Inventories	169,412		182,377
Other current assets	Other current assets	172,241		146,526		Other current assets	150,271		171,124
Total current assets	Total current assets	1,354,828		997,251		Total current assets	1,260,101		930,262

Property, plant, and equipment, net	Property, plant, and equipment, net	216,319		233,228		Property, plant, and equipment, net	199,650		207,816
Deferred tax assets, net	Deferred tax assets, net	57,835		63,899		Deferred tax assets, net	94,620		76,142

Other long-term assets	Other long-term assets	45,610		44,686		Other long-term assets	57,599		51,656
Operating lease right-of-use assets, net	Operating lease right-of-use assets, net	78,777		79,773		Operating lease right-of-use assets, net	74,815		76,276
Intangible assets, net	Intangible assets, net	157,125		185,097		Intangible assets, net	122,861		132,955
Goodwill	Goodwill	1,101,648		1,103,907		Goodwill	1,118,322		1,131,916
Total assets	Total assets	$	3,012,142	$	2,707,841	Total assets	$	2,927,968	$	2,607,023

LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Current liabilities	Current liabilities					Current liabilities
Accounts payable	Accounts payable	$	240,221	$	328,128	Accounts payable	$	181,606	$	215,639
Other current liabilities	Other current liabilities	63,429		63,785		Other current liabilities	70,890		72,591
Wages and benefits payable	Wages and benefits payable	106,215		119,220		Wages and benefits payable	90,383		86,249
Taxes payable	Taxes payable	19,878		22,193		Taxes payable	14,256		15,804
Current portion of debt	Current portion of debt	14,063		—		Current portion of debt	400,000		18,359
Current portion of warranty	Current portion of warranty	33,039		38,509		Current portion of warranty	22,024		28,329
Unearned revenue	Unearned revenue	124,834		99,556		Unearned revenue	130,403		112,928
Total current liabilities	Total current liabilities	601,679		671,391		Total current liabilities	909,562		549,899

Long-term debt, net	Long-term debt, net	1,320,004		932,482		Long-term debt, net	496,531		902,577
Long-term warranty	Long-term warranty	11,718		14,732		Long-term warranty	17,310		13,061
Pension benefit obligation	Pension benefit obligation	99,184		98,712		Pension benefit obligation	115,257		119,457
Deferred tax liabilities, net	Deferred tax liabilities, net	1,794		1,809		Deferred tax liabilities, net	1,806		1,921
Operating lease liabilities	Operating lease liabilities	69,337		68,919		Operating lease liabilities	65,822		66,823
Other long-term obligations	Other long-term obligations	105,557		118,981		Other long-term obligations	100,512		113,012
Total liabilities	Total liabilities	2,209,273		1,907,026		Total liabilities	1,706,800		1,766,750

Equity	Equity					Equity
Preferred stock, no par value, 10,000 shares authorized, 0 shares issued or outstanding	Preferred stock, no par value, 10,000 shares authorized, 0 shares issued or outstanding	—		—		Preferred stock, no par value, 10,000 shares authorized, 0 shares issued or outstanding	0		0
Common stock, no par value, 75,000 shares authorized, 40,234 and 39,941 shares issued and outstanding		1,376,134		1,357,600
Common stock, no par value, 75,000 shares authorized, 45,122 and 40,444 shares issued and outstanding						Common stock, no par value, 75,000 shares authorized, 45,122 and 40,444 shares issued and outstanding	1,768,517		1,389,419
Accumulated other comprehensive loss, net	Accumulated other comprehensive loss, net	(167,827)		(204,672)		Accumulated other comprehensive loss, net	(150,309)		(138,526)
Accumulated deficit	Accumulated deficit	(430,508)		(376,390)		Accumulated deficit	(421,742)		(434,345)
Total Itron, Inc. shareholders' equity	Total Itron, Inc. shareholders' equity	777,799		776,538		Total Itron, Inc. shareholders' equity	1,196,466		816,548
Noncontrolling interests	Noncontrolling interests	25,070		24,277		Noncontrolling interests	24,702		23,725
Total equity	Total equity	802,869		800,815		Total equity	1,221,168		840,273
Total liabilities and equity	Total liabilities and equity	$	3,012,142	$	2,707,841	Total liabilities and equity	$	2,927,968	$	2,607,023

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

Table of Contents

ITRON, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)


		Common Stock					Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Itron, Inc. Shareholders' Equity		Noncontrolling Interests				Total Equity	Common Stock					Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Itron, Inc. Shareholders' Equity				Noncontrolling Interests				Total Equity
In thousands	In thousands	Shares	Amount																		In thousands	Shares			Amount			Accumulated Other Comprehensive Loss			Accumulated Deficit				Total Itron, Inc. Shareholders' Equity			Noncontrolling Interests	Total Equity
Balances at January 1, 2020		39,941	$	1,357,600	$	(204,672)	$	(376,390)	$	776,538	$	24,277	$	800,815
Balances at January 1, 2021															Balances at January 1, 2021	40,444		$	1,389,419	$	(138,526)		$	(434,345)		$	816,548				$	23,725			$	840,273
Net income	Net income						8,684		8,684		478		9,162		Net income								12,603			12,603			977				13,580
Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax				(25,211)				(25,211)				(25,211)		Other comprehensive income (loss), net of tax					(11,783)						(11,783)							(11,783)

Net stock issues and repurchases		235	2,247						2,247				2,247
Net stock issued and repurchased															Net stock issued and repurchased	206		2,009								2,009							2,009

Stock-based compensation expense	Stock-based compensation expense		8,482						8,482				8,482		Stock-based compensation expense			6,270								6,270							6,270

Balances at March 31, 2020		40,176	$	1,368,329	$	(229,883)	$	(367,706)	$	770,740	$	24,755	$	795,495
Net income (loss)							(62,802)		(62,802)		315		(62,487)
Other comprehensive income (loss), net of tax					62,056				62,056				62,056

Net stock issues and repurchases		58	706						706				706

Stock-based compensation expense			7,099						7,099				7,099

Balances at June 30, 2020		40,234	$	1,376,134	$	(167,827)	$	(430,508)	$	777,799	$	25,070	$	802,869
Stock issued related to equity offering															Stock issued related to equity offering	4,472		389,419								389,419							389,419
Proceeds from sale of warrants															Proceeds from sale of warrants			45,349								45,349							45,349
Purchases of convertible note hedge contracts, net of tax															Purchases of convertible note hedge contracts, net of tax			(63,576)								(63,576)							(63,576)
Registration fee															Registration fee			(373)								(373)							(373)
Balances at March 31, 2021															Balances at March 31, 2021	45,122		$	1,768,517	$	(150,309)		$	(421,742)		$	1,196,466		$	24,702			$	1,221,168

Common Stock Accumulated Other Comprehensive Loss Accumulated Deficit Total Itron, Inc. Shareholders' Equity Noncontrolling Interests Total Equity
In thousands Shares Amount
Balances at January 1, 2019 39,498 $ 1,334,364 $ (196,305) $ (425,396) $ 712,663 $ 21,385 $ 734,048
Net income (loss) (1,907) (1,907) 1,758 (149)
Other comprehensive income (loss), net of tax (1,780) (1,780) (1,780)
Distributions to noncontrolling interests (517) (517)
Net stock issues and repurchases 360 1,195 1,195 1,195
Stock-based compensation expense 7,048 7,048 7,048
Stock repurchased (165) (7,814) (7,814) (7,814)
Balances at March 31, 2019 39,693 $ 1,334,793 $ (198,085) $ (427,303) $ 709,405 $ 22,626 $ 732,031
Net income (loss) 19,446 19,446 671 20,117
Other comprehensive income (loss), net of tax 3,736 3,736 3,736
Net stock issues and repurchases 66 1,481 1,481 1,481
Stock-based compensation expense 6,420 6,420 6,420
Stock repurchased (364) (17,186) (17,186) (17,186)
Balances at June 30, 2019 39,395 $ 1,325,508 $ (194,349) $ (407,857) $ 723,302 $ 23,297 $ 746,599


	Common Stock			Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Itron, Inc. Shareholders' Equity		Noncontrolling Interests		Total Equity
In thousands	Shares	Amount
Balances at January 1, 2020	39,941	$	1,357,600	$	(204,672)	$	(376,390)	$	776,538	$	24,277	$	800,815
Net income						8,684		8,684		478		9,162

Other comprehensive income (loss), net of tax				(25,211)				(25,211)				(25,211)

Net stock issued and repurchased	235	2,247						2,247				2,247




Stock-based compensation expense		8,482						8,482				8,482


Balances at March 31, 2020	40,176	$	1,368,329	$	(229,883)	$	(367,706)	$	770,740	$	24,755	$	795,495

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

Table of Contents

ITRON, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


		Six Months Ended June 30,							Three Months Ended March 31,
In thousands	In thousands	2020		2019		In thousands	2021		2020
Operating activities	Operating activities					Operating activities
Net income (loss)		$	(53,325)	$	19,968
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Net income						Net income	$	13,580	$	9,162
Adjustments to reconcile net income to net cash provided by operating activities:						Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	48,230		57,068		Depreciation and amortization	21,810		24,031
Non-cash operating lease expense	Non-cash operating lease expense	9,909		9,481		Non-cash operating lease expense	4,330		5,496
Stock-based compensation	Stock-based compensation	15,581		13,783		Stock-based compensation	6,498		8,482
Amortization of prepaid debt fees	Amortization of prepaid debt fees	2,013		2,402		Amortization of prepaid debt fees	2,695		1,007
Deferred taxes, net	Deferred taxes, net	5,904		2,076		Deferred taxes, net	2,109		4,062
Loss on sale of business	Loss on sale of business	56,915		—		Loss on sale of business	1,392		0

Restructuring, non-cash	Restructuring, non-cash	(1,146)		(5,295)		Restructuring, non-cash	(45)		(955)
Other adjustments, net	Other adjustments, net	287		(3,471)		Other adjustments, net	391		(874)
Changes in operating assets and liabilities
Changes in operating assets and liabilities, net of sale of business:						Changes in operating assets and liabilities, net of sale of business:
Accounts receivable	Accounts receivable	52,031		(29,121)		Accounts receivable	(2,078)		1,185
Inventories	Inventories	(16,529)		(9,202)		Inventories	9,008		(543)
Other current assets	Other current assets	(7,861)		(14,413)		Other current assets	15,692		(4,526)
Other long-term assets	Other long-term assets	(3,919)		6,616		Other long-term assets	(7,627)		(6,501)
Accounts payable, other current liabilities, and taxes payable	Accounts payable, other current liabilities, and taxes payable	(76,144)		(2,801)		Accounts payable, other current liabilities, and taxes payable	(26,978)		135
Wages and benefits payable	Wages and benefits payable	(11,145)		13,484		Wages and benefits payable	5,458		(19,977)
Unearned revenue	Unearned revenue	23,099		14,961		Unearned revenue	18,050		17,395
Warranty	Warranty	(8,417)		(3,270)		Warranty	(1,382)		(4,250)
Other operating, net	Other operating, net	(9,697)		5,797		Other operating, net	(12,948)		(14,435)
Net cash provided by operating activities	Net cash provided by operating activities	25,786		78,063		Net cash provided by operating activities	49,955		18,894

Investing activities	Investing activities					Investing activities
Net payments related to the sale of business		(3,630)		—
Net proceeds related to the sale of business						Net proceeds related to the sale of business	2,842		0
Acquisitions of property, plant, and equipment	Acquisitions of property, plant, and equipment	(29,049)		(26,511)		Acquisitions of property, plant, and equipment	(11,412)		(12,602)

Other investing, net	Other investing, net	3,520		9,773		Other investing, net	2,764		3,345
Net cash used in investing activities	Net cash used in investing activities	(29,159)		(16,738)		Net cash used in investing activities	(5,806)		(9,257)

Financing activities	Financing activities					Financing activities
Proceeds from borrowings	Proceeds from borrowings	400,000		50,000		Proceeds from borrowings	460,000		400,000
Payments on debt	Payments on debt	—		(72,188)		Payments on debt	(475,000)		0
Issuance of common stock	Issuance of common stock	4,183		4,001		Issuance of common stock	2,238		2,911
Proceeds from common stock offering						Proceeds from common stock offering	389,419		0
Proceeds from sale of warrants						Proceeds from sale of warrants	45,349		0
Purchases of convertible note hedge contracts						Purchases of convertible note hedge contracts	(84,139)		0
Repurchase of common stock	Repurchase of common stock	—		(25,000)		Repurchase of common stock	0		(664)
Prepaid debt fees	Prepaid debt fees	(184)		(175)		Prepaid debt fees	(11,722)		(175)
Other financing, net	Other financing, net	(2,036)		(3,165)		Other financing, net	(1,564)		(335)
Net cash provided by (used in) financing activities		401,963		(46,527)
Net cash provided by financing activities						Net cash provided by financing activities	324,581		401,737

Effect of foreign exchange rate changes on cash, cash equivalents, and restricted cash		(3,671)		727
Increase in cash, cash equivalents, and restricted cash		394,919		15,525
Cash, cash equivalents, and restricted cash at beginning of period		149,904		122,328
Cash, cash equivalents, and restricted cash at end of period		$	544,823	$	137,853
Effect of foreign exchange rate changes on cash and cash equivalents						Effect of foreign exchange rate changes on cash and cash equivalents	(1,071)		(6,758)
Increase in cash and cash equivalents						Increase in cash and cash equivalents	367,659		404,616
Cash and cash equivalents at beginning of period						Cash and cash equivalents at beginning of period	206,933		149,904
Cash and cash equivalents at end of period						Cash and cash equivalents at end of period	$	574,592	$	554,520

Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:					Supplemental disclosure of cash flow information:
Cash paid (received) during the period for:	Cash paid (received) during the period for:					Cash paid (received) during the period for:
Income taxes, net	Income taxes, net	$	(2,994)	$	6,571	Income taxes, net	$	2,147	$	(5,370)
Interest	Interest	32,149		23,333		Interest	3,193		14,804

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

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ITRON, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~June 30, 2020~~March 31, 2021

(UNAUDITED)

In this Quarterly Report on Form 10-Q, the terms ~~"we," "us," "our," "Itron,"~~"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, 2021 and 2020, Consolidated Statements of Equity for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ and the Consolidated Balance Sheets as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, 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 six~~ months ended ~~June 30, 2020~~March 31, 2021 are not necessarily indicative of the results expected for the full year or for any other period.

Certain information and notes normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been partially or completely omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC) regarding interim results. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto for the fiscal year ended December 31, ~~2019~~2020 filed with the SEC in our Annual Report on Form 10-K on February ~~27, 2020 (2019~~24, 2021 (2020 Annual Report). There have been no significant changes in financial statement preparation or significant accounting policies since December 31, ~~2019.~~2020.

Risks and Uncertainties

The COVID-19 pandemic has had global economic impacts including disrupting global supply chains and creating market volatility. The extent of the recent pandemic and its ongoing impact on our operations is volatile, but is being monitored closely by our ~~management. We expect that~~management. During portions of the first half of 2020 certain of our ~~customers’ projects~~European factories were closed due to government actions and ~~deployments~~local conditions, and any further closures that may ~~shift~~be imposed on us could impact our results for 2021. Incremental costs we have incurred related to ~~later in 2020~~COVID-19, such as personal protective equipment, increased cleaning and ~~2021.~~ sanitizing of our facilities, and other such items, have not been material to date. At this time, we have not identified any significant decrease in long-term customer demand for our products and services. ~~Nonetheless, a prolonged pandemic could adversely impact the efficiency and effectiveness~~Certain of our ~~organization, further impact our global supply chain network, result in delays or decreases in customer collections, reduce demand for our products~~customers' projects and ~~services,~~deployments have continued to shift later into 2021 and ~~inhibit our sales efforts, any of which~~ ~~could further~~ ~~materially impact our revenues, results of operations, cash flows and financial condition.~~beyond.

~~Restricted Cash and Cash Equivalents~~

~~Cash and cash equivalents that are contractually restricted from operating use are classified as restricted cash and cash equivalents.~~

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Consolidated Statements of Cash Flows:

In thousands June 30, 2020 December 31, 2019 June 30, 2019
Cash and cash equivalents $ 544,823 $ 149,904 $ 135,736
Current restricted cash included in other current assets — — 51
Long-term restricted cash — — 2,066
Total cash, cash equivalents, and restricted cash $ 544,823 $ 149,904 $ 137,853

~~Accounts Receivable, net~~

Accounts receivable are recognized for invoices issued to customers in accordance with our contractual arrangements. Interest and late payment fees are minimal. Unbilled receivables are recognized when revenues are recognized upon product shipment or service delivery and invoicing occurs at a later date. We recognize an allowance for doubtful accounts representing our estimate of the expected losses in accounts receivable at the date of the balance sheet based on our historical experience of bad debts, our specific review of outstanding receivables, and our review of current and expected economic conditions. Accounts receivable are written-off against the allowance when we believe an account, or a portion thereof, is no longer collectible.

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Recently Adopted Accounting Standards

In ~~June 2016,~~December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) ~~2016-13,~~ ~~Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.~~ Subsequent to 2016-13 the FASB also issued codification improvements and transition relief in ASU 2019-04, ASU 2019-05, ASU 2019-11, ASU 2020-02, and ASU 2020-03, hereafter collectively referred to as Accounting Standards Codification (ASC) 326. ASC 326 replaces the incurred loss impairment methodology in previous GAAP with a methodology based on expected credit losses, which results in losses being recognized earlier. The estimate of expected credit losses uses a broader range of reasonable and supportable information. We adopted ASC 326 on January 1, 2020, and the impacts on our consolidated financial position, results of operations, and cash flows were immaterial.

~~In August 2018, the FASB issued ASU 2018-13,~~ ~~Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which amended the disclosure requirements under ASC 820~~. ~~This update clarifies and unifies the disclosure of Level 3 fair value instruments. We adopted this standard on January 1, 2020, and it did not materially impact our consolidated financial statements.~~

~~In August 2018, the FASB issued ASU 2018-14,~~ ~~Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans,~~ ~~which amends the disclosure requirements under ASC 715-20.This update clarifies annual disclosures for Defined Benefit Plans. We adopted this standard on January 1, 2020, and it did not materially impact our consolidated financial statements.~~

~~Recent Accounting Standards Not Yet Adopted~~

~~In December 2019, the FASB issued ASU~~ 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which modifies certain provisions of ~~ASC~~Accounting Standards Codification (ASC) 740, ~~in an effort~~ to reduce the complexity of accounting for income taxes. ASU 2019-12 is effective for us beginning with our interim financial reports for the first quarter of 2021. ~~We are currently evaluating the effects and do not believe~~The adoption of this standard ~~will have a material~~had no impact onto our Q1 consolidated financial position, results of operations, or cash ~~flows.~~flows and is not expected to have a material impact on full year 2021 financial results.

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40) - Accounting for Convertible Instruments and Contracts in an Entity's Own Equity (ASU 2020-06). This amendment simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. We have chosen to early adopt ASU 2020-06 beginning January 1, 2021, due to the issuance of our convertible debt on March 9, 2021. This amendment will have no retrospective changes but will impact how our newly issued convertible debt is both recognized and disclosed. ASU 2020-06 also amends the diluted earnings per share calculation for convertible instruments by requiring the use of the if-converted method. The treasury stock method is no longer available.

Recent Accounting Standards Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,which provides optional expedients and exceptions for applying GAAP to contracts,

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hedging relationships, and other transactions affected by reference rate reform. ASU 2020-04 applies to contracts that reference LIBOR or another reference rate expected to be terminated because of reference rate reform. An entity may elect certain optional expedients for hedging relationships that exist as of December 31, 2022 and maintain those optional expedients through the end of the hedging relationship. ASU 2020-04 can be adopted as of March 12, ~~2020.~~2020 or thereafter. In January 2021, the FASB issued ASU 2021-01, which further updates the scope of Topic 848. We do not currently have any contracts that have been changed to a new reference rate, but we will continue to evaluate our contracts and the effects of this standard on our consolidated financial position, results of operations, and cash flows prior to adoption.

Note 2: Earnings Per Share

The following table sets forth the computation of basic and diluted earnings ~~(loss)~~ per share (EPS):


		Three Months Ended June 30,						Six Months Ended June 30,					Three Months Ended March 31,
In thousands, except per share data	In thousands, except per share data	2020		2019		2020		2019		In thousands, except per share data	2021		2020
Net income (loss) available to common shareholders		$	(62,802)	$	19,446	$	(54,118)	$	17,539
Net income available to common shareholders										Net income available to common shareholders	$	12,603	$	8,684

Weighted average common shares outstanding - Basic	Weighted average common shares outstanding - Basic	40,216		39,389		40,130		39,523		Weighted average common shares outstanding - Basic	41,526		40,043
Dilutive effect of stock-based awards	Dilutive effect of stock-based awards	—		297		—		352		Dilutive effect of stock-based awards	438		431
Dilutive effect of convertible notes										Dilutive effect of convertible notes	0		0
Weighted average common shares outstanding - Diluted	Weighted average common shares outstanding - Diluted	40,216		39,686		40,130		39,875		Weighted average common shares outstanding - Diluted	41,964		40,474
Net income (loss) per common share - Basic		$	(1.56)	$	0.49	$	(1.35)	$	0.44
Net income (loss) per common share - Diluted		$	(1.56)	$	0.49	$	(1.35)	$	0.44
Net income per common share - Basic										Net income per common share - Basic	$	0.30	$	0.22
Net income per common share - Diluted										Net income per common share - Diluted	$	0.30	$	0.21

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Stock-based Awards

For stock-based awards, the dilutive effect is calculated using the treasury stock method. Under this method, the dilutive effect is computed as if the awards were exercised at the beginning of the period (or at time of issuance, if later) and assumes the related proceeds were used to repurchase our common stock at the average market price during the period. Related proceeds include the amount the employee must pay upon exercise and the future compensation cost associated with the stock award. Approximately ~~0.9~~0.1 million and ~~0.8~~0.3 million stock-based awards were excluded from the calculation of diluted EPS for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020 ~~because they were anti-dilutive. Approximately 0.5 million and 0.6 million stock-based awards were excluded from the calculation of diluted EPS for the three and six months ended June 30, 2019~~ 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 in accordance with ASU 2020-06. 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 conversion obligation, assuming all the Convertible Notes are converted. The average closing price of our common stock for the quarter ended March 31, 2021 is used as the basis for determining the dilutive effect on EPS. The average price of our common stock for the quarter ended March 31, 2021 was less than the conversion price of $126.00, and 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 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 issuance of common shares 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 shares. 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 quarter ended March 31, 2021, the average share price was below 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). 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

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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	Accounts receivable, net					Accounts receivable, net
In thousands	In thousands	June 30, 2020		December 31, 2019		In thousands	March 31, 2021		December 31, 2020
Trade receivables (net of allowance of $2,102 and $3,064)		$	330,283	$	415,887
Trade receivables (net of allowance of $1,136 and $1,312)						Trade receivables (net of allowance of $1,136 and $1,312)	$	319,052	$	318,269
Unbilled receivables	Unbilled receivables	80,917		57,038		Unbilled receivables	46,774		51,559
Total accounts receivable, net	Total accounts receivable, net	$	411,200	$	472,925	Total accounts receivable, net	$	365,826	$	369,828


Allowance for doubtful accounts activity		Three Months Ended June 30,						Six Months Ended June 30,
Allowance for credit losses account activity										Allowance for credit losses account activity	Three Months Ended March 31,
In thousands	In thousands	2020		2019		2020		2019		In thousands	2021		2020
Beginning balance	Beginning balance	$	3,046	$	4,046	$	3,064	$	6,331	Beginning balance	$	1,312	$	3,064
Provision for (release of) doubtful accounts, net	Provision for (release of) doubtful accounts, net	(171)		365		339		(1,738)		Provision for (release of) doubtful accounts, net	(67)		510
Accounts written-off	Accounts written-off	(796)		(80)		(1,211)		(272)		Accounts written-off	(79)		(415)
Effect of change in exchange rates	Effect of change in exchange rates	23		29		(90)		39		Effect of change in exchange rates	(30)		(113)
Ending balance	Ending balance	$	2,102	$	4,360	$	2,102	$	4,360	Ending balance	$	1,136	$	3,046


Inventories	Inventories					Inventories
In thousands	In thousands	June 30, 2020		December 31, 2019		In thousands	March 31, 2021		December 31, 2020
Raw materials	Raw materials	$	139,035	$	120,861	Raw materials	$	109,314	$	114,058
Work in process	Work in process	10,454		11,105		Work in process	9,287		8,094
Finished goods	Finished goods	77,075		95,930		Finished goods	50,811		60,225
Total inventories	Total inventories	$	226,564	$	227,896	Total inventories	$	169,412	$	182,377


Property, plant, and equipment, net	Property, plant, and equipment, net					Property, plant, and equipment, net
In thousands	In thousands	June 30, 2020		December 31, 2019		In thousands	March 31, 2021		December 31, 2020
Machinery and equipment	Machinery and equipment	$	302,385	$	323,003	Machinery and equipment	$	333,973	$	334,050
Computers and software	Computers and software	111,774		109,924		Computers and software	116,121		115,776
Buildings, furniture, and improvements	Buildings, furniture, and improvements	151,440		149,471		Buildings, furniture, and improvements	153,246		155,676
Land	Land	13,771		14,988		Land	13,900		14,303
Construction in progress, including purchased equipment	Construction in progress, including purchased equipment	43,125		54,490		Construction in progress, including purchased equipment	30,207		31,425
Total cost	Total cost	622,495		651,876		Total cost	647,447		651,230
Accumulated depreciation	Accumulated depreciation	(406,176)		(418,648)		Accumulated depreciation	(447,797)		(443,414)
Property, plant, and equipment, net	Property, plant, and equipment, net	$	216,319	$	233,228	Property, plant, and equipment, net	$	199,650	$	207,816


Depreciation expense	Depreciation expense	Three Months Ended June 30,						Six Months Ended June 30,			Depreciation expense			Three Months Ended March 31,
In thousands	In thousands	2020		2019		2020		2019		In thousands		2021		2020
Depreciation expense	Depreciation expense	$	13,059	$	12,594	$	25,925	$	24,978	Depreciation expense		$	12,837	$	12,866

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Note 4: Intangible Assets and Liabilities

The gross carrying amount and accumulated amortization (accretion) of our intangible assets and liabilities, other than goodwill, were as follows:


		June 30, 2020										December 31, 2019											March 31, 2021				December 31, 2020
In thousands	In thousands	Gross		Accumulated (Amortization) Accretion		Net		Gross		Accumulated (Amortization) Accretion		Net		In thousands	Gross		Accumulated (Amortization) Accretion		Net		Gross		Accumulated (Amortization) Accretion		Net
Intangible Assets	Intangible Assets													Intangible Assets
Core-developed technology	Core-developed technology	$	498,006	$	(459,876)	$	38,130	$	507,669	$	(458,109)	$	49,560	Core-developed technology	$	514,416	$	(491,146)	$	23,270	$	525,051	$	(498,113)	$	26,938
Customer contracts and relationships	Customer contracts and relationships	365,567		(251,085)		114,482		381,288		(251,509)		129,779		Customer contracts and relationships	378,430		(281,965)		96,465		383,245		(280,497)		102,748
Trademarks and trade names	Trademarks and trade names	76,631		(72,677)		3,954		78,837		(73,732)		5,105		Trademarks and trade names	78,763		(76,055)		2,708		79,716		(76,912)		2,804
Other	Other	12,021		(11,462)		559		12,020		(11,367)		653		Other	12,024		(11,606)		418		12,025		(11,560)		465

Total intangible assets	Total intangible assets	$	952,225	$	(795,100)	$	157,125	$	979,814	$	(794,717)	$	185,097	Total intangible assets	$	983,633	$	(860,772)	$	122,861	$	1,000,037	$	(867,082)	$	132,955

Intangible Liabilities	Intangible Liabilities													Intangible Liabilities
Customer contracts and relationships	Customer contracts and relationships	$	(23,900)	$	17,465	$	(6,435)	$	(23,900)	$	13,450	$	(10,450)	Customer contracts and relationships	$	(23,900)	$	21,969	$	(1,931)	$	(23,900)	$	21,479	$	(2,421)

A summary of intangible assets and liabilities activity is as follows:

Six Months Ended June 30,
In thousands 2020 2019
Intangible Assets, gross beginning balance $ 979,814 $ 981,160
Intangibles disposed in sale of business (18,140) —
Effect of change in exchange rates (9,449) 4,349
Intangible Assets, gross ending balance $ 952,225 $ 985,509
Intangible Liabilities, gross beginning balance $ (23,900) $ (23,900)
Effect of change in exchange rates — —
Intangible Liabilities, gross ending balance $ (23,900) $ (23,900)


	Three Months Ended March 31,
In thousands	2021		2020
Intangible assets, gross beginning balance	$	1,000,037	$	979,814



Effect of change in exchange rates	(16,404)		(16,075)
Intangible assets, gross ending balance	$	983,633	$	963,739

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

Effect of change in exchange rates	0		0
Intangible liabilities, gross ending balance	$	(23,900)	$	(23,900)

On January 5, 2018, we completed our acquisition of Silver Spring Networks, Inc. (SSNI) and acquired intangible assets including in-process research and development (IPR&D), which were completed during 2019 and are now included within core-developed technology. 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.

The disposal of intangible assets was related to the sale of our Latin America business. The net book value of these assets was $0.8 million at the disposal date. Refer to "Note 17: Sale of Business" for additional information on the transaction.

Estimated future annual amortization (accretion) is as follows:


Year Ending December 31,	Year Ending December 31,	Amortization		Accretion		Estimated Annual Amortization, net		Year Ending December 31,	Amortization		Accretion		Estimated Annual Amortization, net
In thousands	In thousands											In thousands
2020 (amount remaining at June 30, 2020)		$	26,345	$	(4,013)	$	22,332
2021		37,479		(1,963)		35,516
2021 (amount remaining at March 31, 2021)								2021 (amount remaining at March 31, 2021)	$	28,447	$	(1,472)	$	26,975
2022	2022	27,138		(459)		26,679		2022	27,516		(459)		27,057
2023	2023	19,605		—		19,605		2023	19,898		0		19,898
2024	2024	15,469		—		15,469		2024	15,700		0		15,700
2025								2025	14,706		0		14,706
Thereafter	Thereafter	31,089		—		31,089		Thereafter	16,594		0		16,594
Total intangible assets subject to amortization (accretion)	Total intangible assets subject to amortization (accretion)	$	157,125	$	(6,435)	$	150,690	Total intangible assets subject to amortization (accretion)	$	122,861	$	(1,931)	$	120,930

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Note 5: Goodwill

The following table reflects changes in the carrying amount of goodwill for the ~~six~~three months ended ~~June 30, 2020:~~March 31, 2021:

In thousands Device Solutions Networked Solutions Outcomes Total Company
Goodwill balance at January 1, 2020 $ 54,930 $ 908,088 $ 140,889 $ 1,103,907
Goodwill allocated to business sold (3,000) — — (3,000)
Effect of change in exchange rates 37 610 94 741
Goodwill balance at June 30, 2020 $ 51,967 $ 908,698 $ 140,983 $ 1,101,648

~~We recognized a $3.0 million reduction in Device Solutions goodwill as part of our loss on sale of business. Refer to "Note 17: Sale of Business" for additional information on the transaction.~~


In thousands	Device Solutions		Networked Solutions		Outcomes		Total Company
Goodwill balance at January 1, 2021	$	53,214	$	933,814	$	144,888	$	1,131,916


Effect of change in exchange rates	(551)		(11,288)		(1,755)		(13,594)
Goodwill balance at March 31, 2021	$	52,663	$	922,526	$	143,133	$	1,118,322

Note 6: Debt

The components of our borrowings were as follows:


In thousands	In thousands	June 30, 2020		December 31, 2019		In thousands	March 31, 2021		December 31, 2020
Credit facility	Credit facility					Credit facility
USD denominated term loan	USD denominated term loan	$	550,156	$	550,156	USD denominated term loan	$	61,094	$	536,094
Multicurrency revolving line of credit	Multicurrency revolving line of credit	400,000		—		Multicurrency revolving line of credit	0		0
Senior notes	Senior notes	400,000		400,000		Senior notes	400,000		400,000
Convertible notes						Convertible notes	460,000		0
Total debt	Total debt	1,350,156		950,156		Total debt	921,094		936,094
Less: current portion of debt	Less: current portion of debt	14,063		—		Less: current portion of debt	400,000		18,359
Less: unamortized prepaid debt fees - term loan	Less: unamortized prepaid debt fees - term loan	3,232		3,661		Less: unamortized prepaid debt fees - term loan	1,798		3,469
Less: unamortized prepaid debt fees - senior notes	Less: unamortized prepaid debt fees - senior notes	12,857		14,013		Less: unamortized prepaid debt fees - senior notes	11,118		11,689
Less: unamortized prepaid debt fees - convertible notes						Less: unamortized prepaid debt fees - convertible notes	11,647		0
Long-term debt, net	Long-term debt, net	$	1,320,004	$	932,482	Long-term debt, net	$	496,531	$	902,577

Credit Facility

On October 18, 2019, we amended our credit facility that was initially entered on January 5, 2018 (together with the amendment, the ~~"2018~~2018 credit ~~facility")~~facility). The 2018 credit facility provides for committed credit facilities in the amount of $1.2 billion U.S. dollars. The 2018 credit facility consists of a $650 million U.S. dollar term loan (the term loan) and a multicurrency revolving line of credit (the revolver) with a principal amount of up to $500 million. The revolver also contains a $300 million standby letter of credit sub-facility and a $50 million swingline sub-facility. The October 18, 2019 amendment extended the maturity date to October 18, 2024 and re-amortized the term loan based on the new balance as of the amendment date. The amendment also modified the required interest payments and made it based on total net leverage instead of total leverage. ~~Amounts~~Through the third quarter of 2020, amounts not borrowed under the revolver ~~are~~were subject to a commitment fee, which iswas paid in arrears on the last day of each fiscal quarter, ranging from 0.15% to 0.25% and drawn amounts were subject to a margin ranging from 1.00% to 1.75%.

On October 19, 2020, we completed a second amendment to our 2018 credit facility. This amendment adjusts the maximum total net leverage ratio thresholds for the period beginning with the fourth quarter of 2020 through the fourth quarter of 2021 to allow for increased operational flexibility. The maximum leverage ratio is increased to 4.75:1 for the fourth quarter of 2020 and the first quarter of 2021 and 4.50:1 for the second quarter through the fourth quarter of 2021. An additional level of pricing was added to the existing pricing grid and is effective throughout the remaining term of the 2018 credit facility. Beginning with the fourth quarter of 2020, the commitment fee ranges from 0.15% to 0.30% and drawn amounts are subject to a margin ranging from 1.00% to ~~1.75%~~2.00%. Debt fees of approximately $1.4 million were incurred for the amendment, as well as other legal and advisory fees. Both the term loan and the revolver can be repaid without penalty. Amounts repaid on the term loan may not be reborrowed, and amounts borrowed under the revolver may be repaid and reborrowed until the revolver's maturity, at which time all outstanding loans together with all accrued and unpaid interest must be repaid.

On March 8, 2021, we entered into a third amendment to our 2018 credit facility, which modified provisions to permit cash settlement upon the conversion of the Convertible Notes, the Convertible Senior Note Hedge Transactions and Warrant Transactions and also to adjust certain settlement provisions for convertible indebtedness. See Note 7: Derivative Financial Instruments for further details of the Convertible Note Hedge Transactions and Warrant Transactions.

The 2018 credit facility permits us and certain of our foreign subsidiaries to borrow in U.S. dollars, euros, British pounds, or, with lender approval, other currencies readily convertible into U.S. dollars. All obligations under the 2018 credit facility are

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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 ~~June 30, 2020.~~March 31, 2021.

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

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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%. At ~~June 30, 2020,~~March 31, 2021, the interest rate for both the term loan and revolver was ~~1.68%~~1.86%, which includes the LIBOR rate plus a margin of ~~1.50%~~1.75%.

OnIn March ~~25,~~ 2020, we drew $400 million in U.S. dollars under the revolving line of credit within the 2018 credit facility to increase our cash position and preserve future financial ~~flexibility.~~flexibility, which was fully repaid as of December 31, 2020. At ~~June 30, 2020, $400 million~~March 31, 2021, there was 0 amount outstanding under the revolver, and ~~$45.5~~$64.3 million was utilized by outstanding standby letters of credit, resulting in ~~$54.5~~$435.7 million available for additional borrowings or standby letters of credit. At ~~June 30, 2020,~~March 31, 2021, $235.7 million was available for additional standby letters of credit under the letter of credit sub-facility, and 0 amounts were outstanding under the swingline sub-facility.

Senior Notes

OnIn December ~~22,~~ 2017 and January ~~19,~~ 2018, we issued $300 million and $100 million of aggregate principal amount of 5.00% senior notes maturing January 15, 2026 (Senior Notes). The proceeds were used to refinance existing indebtedness related to the acquisition of ~~SSNI,~~Silver Spring Networks, Inc., pay related fees and expenses, and for general corporate purposes. Interest on the Senior Notes iswas payable semi-annually in arrears on January 15 and July 15. The ~~$10 million interest payment due on July 15, 2020 was paid as of June 30, 2020. The~~ Senior Notes ~~are~~were fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by each of our subsidiaries that guarantee the senior credit facilities.

~~Prior~~On March 9, 2021, we submitted a Notice of Redemption to ~~maturity, we may~~the trustee to redeem ~~some or~~ all outstanding Senior Notes at a redemption price of 102.50%, in accordance with the indenture governing the Senior Notes, ~~together with accrued and unpaid interest, if any, plus a "make-whole" premium. On or after January 15,~~totaling $410 million. As of April 8, 2021 ~~we may redeem some or all of~~ the Senior Notes have been fully discharged, and 0 principal or unpaid interest remains outstanding. The 2.5%, or $10 million, early redemption premium and write off of $11.1 million prepaid debt fees will be recognized in the second quarter of 2021.

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 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

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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 at declining redemption prices equal to 102.50% beginning on January 15, 2021, 101.25% beginning on January 15, 2022 and 100.00% beginning on January 15, 2023 and thereafter~~time. Upon conversion, we will pay cash up to the ~~applicable redemption date. In addition, before January 15, 2021,~~aggregate principal amount of Convertible Notes to be converted and ~~subject to certain conditions, we~~pay and/or deliver, as the case may ~~redeem up to 35%~~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 ~~Senior~~the Convertible Notes ~~with~~being converted.

On or after March 20, 2024 and prior to December 15, 2025, we may redeem for cash all or part of the ~~net proceeds~~Convertible Notes, at our option, if the last reported sales price of ~~certain equity offerings~~common stock has been at ~~105.00% thereof to~~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; provided that (i) at least 65%~~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 ~~aggregate~~redemption. The redemption price of each Convertible Notes to be redeemed will be the principal amount of ~~Senior~~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, ~~remains outstanding after such redemption~~holders may require us to repurchase all or a portion of their notes for cash at a price equal to plus accrued and ~~(ii)~~unpaid special interest to, but not including, the ~~redemption occurs within 60 days~~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 ~~closing~~assets securing such indebtedness. The Convertible Notes will be structurally subordinated to all existing debt and any future debt and any other liabilities of ~~any such equity offering.~~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,	Year Ending December 31,	Minimum Payments		Year Ending December 31,	Minimum Payments
In thousands	In thousands			In thousands
2020 (amount remaining at June 30, 2020)		$	—
2021		32,422
2021 (amount remaining at March 31, 2021)				2021 (amount remaining at March 31, 2021)	$	400,000
2022	2022	44,063		2022	0
2023	2023	44,063		2023	0
2024	2024	829,608		2024	61,094
2025				2025	0
Thereafter	Thereafter	400,000		Thereafter	460,000
Total minimum payments on debt	Total minimum payments on debt	$	1,350,156	Total minimum payments on debt	$	921,094

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~~Note 13: Shareholders' ~~Equity"~~Equity and ~~"Note~~Note 14: Fair ~~Values~~Value of Financial ~~Instruments"~~Instruments for additional disclosures on our derivative instruments.

The fair values of our derivative instruments are determined using the income approach and significant other observable inputs (and are classified as "Level 2" in the fair value hierarchy). We have used observable market inputs based on the type of derivative and the nature of the underlying instrument. The key inputs include interest rate yield curves (swap rates and futures) and foreign exchange spot and forward rates, all of which are available in an active market. We have utilized the mid-market pricing convention for these inputs. We include, as a discount to the derivative asset, the effect of our counterparty credit risk based on current published credit default swap rates when the net fair value of our derivative instruments is in a net asset position. We consider our own nonperformance risk when the net fair value of our derivative instruments is in a net liability position by discounting our derivative liabilities to reflect the potential credit risk to our counterparty through applying a current market indicative credit spread to all cash flows.

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The fair values of our derivative instruments were as follows:


			Fair Value											Fair Value
Derivative Assets		Balance Sheet Location	June 30, 2020			December 31, 2019
Derivatives Assets								Derivatives Assets	Balance Sheet Location		March 31, 2021			December 31, 2020
Derivatives designated as hedging instruments under ASC 815-20	Derivatives designated as hedging instruments under ASC 815-20				In thousands								Derivatives designated as hedging instruments under ASC 815-20			In thousands
Interest rate swap contract		Other current assets	$	—		$	174
Interest rate cap contracts		Other current assets	—			1

Foreign exchange options	Foreign exchange options	Other current assets	213			—		Foreign exchange options	Other current assets		$	1,851		$	0
Cross currency swap contract	Cross currency swap contract	Other current assets	3,954			1,156		Cross currency swap contract	Other current assets		1,768			0

Cross currency swap contract		Other long-term assets	—			2,870

Derivatives not designated as hedging instruments under ASC 815-20	Derivatives not designated as hedging instruments under ASC 815-20									Derivatives not designated as hedging instruments under ASC 815-20
Foreign exchange forward contracts	Foreign exchange forward contracts	Other current assets	112			96		Foreign exchange forward contracts	Other current assets		39			52
Total asset derivatives	Total asset derivatives		$	4,279		$	4,297	Total asset derivatives			$	3,658		$	52

Derivative Liabilities
Derivatives Liabilities								Derivatives Liabilities
Derivatives designated as hedging instruments under ASC 815-20	Derivatives designated as hedging instruments under ASC 815-20									Derivatives designated as hedging instruments under ASC 815-20
Interest rate swap contracts	Interest rate swap contracts	Other current liabilities	$	979		$	—	Interest rate swap contracts	Other current liabilities		$	0		$	1,025
Interest rate swap contracts	Interest rate swap contracts	Other long-term obligations	1,171			—		Interest rate swap contracts	Other long-term obligations		0			957
Cross currency swap contract								Cross currency swap contract	Other current liabilities		0			526
Derivatives not designated as hedging instruments under ASC 815-20	Derivatives not designated as hedging instruments under ASC 815-20									Derivatives not designated as hedging instruments under ASC 815-20
Foreign exchange forward contracts	Foreign exchange forward contracts	Other current liabilities	166			162		Foreign exchange forward contracts	Other current liabilities		84			128
Total liability derivatives	Total liability derivatives		$	2,316		$	162	Total liability derivatives			$	84		$	2,636

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


In thousands	In thousands	2020		2019		In thousands	2021		2020
Net unrealized loss on hedging instruments at January 1,	Net unrealized loss on hedging instruments at January 1,	$	(15,103)	$	(13,179)	Net unrealized loss on hedging instruments at January 1,	$	(16,001)	$	(15,103)
Unrealized gain (loss) on hedging instruments		(1,914)		998
Unrealized gain (loss) on derivative instruments						Unrealized gain (loss) on derivative instruments	3,409		282
Realized (gains) losses reclassified into net income (loss)	Realized (gains) losses reclassified into net income (loss)	(242)		(2,497)		Realized (gains) losses reclassified into net income (loss)	(881)		(1,049)
Net unrealized loss on hedging instruments at June 30,		$	(17,259)	$	(14,678)
Net unrealized loss on hedging instruments at March 31,						Net unrealized loss on hedging instruments at March 31,	$	(13,473)	$	(15,870)

Reclassification of amounts related to hedging instruments are included in interest expense in the Consolidated Statements of ~~Operations for the periods ended June 30, 2020 and 2019.~~Operations. Included in the net unrealized gain (loss) on hedging instruments at ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ is a loss of $14.4 million, net of tax, related to our nonderivative net investment hedge, which terminated in 2011. This loss on our net investment hedge will remain in AOCI until earnings are impacted by a sale or liquidation of the associated foreign operation.

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


Offsetting of Derivative Assets	Offsetting of Derivative Assets	Gross Amounts of Recognized Assets Presented in the Consolidated Balance Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheets												Offsetting of Derivative Assets	Gross Amounts of Recognized Assets Presented in the Consolidated Balance Sheets			Gross Amounts Not Offset in the Consolidated Balance Sheets
In thousands	In thousands					Derivative Financial Instruments			Cash Collateral Received			Net Amount		In thousands	Gross Amounts of Recognized Assets Presented in the Consolidated Balance Sheets			Derivative Financial Instruments			Cash Collateral Received			Net Amount
June 30, 2020		$	4,279	$	(204)		$	—		$	4,075
March 31, 2021												March 31, 2021	$	3,658				$	(82)		$	0		$	3,576

December 31, 2019		4,297		(56)			—			4,241
December 31, 2020												December 31, 2020	52				(52)			0			0

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Offsetting of Derivative Liabilities	Offsetting of Derivative Liabilities	Gross Amounts of Recognized Liabilities Presented in the Consolidated Balance Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheets												Offsetting of Derivative Liabilities	Gross Amounts of Recognized Liabilities Presented in the Consolidated Balance Sheets			Gross Amounts Not Offset in the Consolidated Balance Sheets
In thousands	In thousands					Derivative Financial Instruments			Cash Collateral Pledged			Net Amount		In thousands	Gross Amounts of Recognized Liabilities Presented in the Consolidated Balance Sheets			Derivative Financial Instruments			Cash Collateral Pledged			Net Amount
June 30, 2020		$	2,316	$	(204)		$	—		$	2,112
March 31, 2021												March 31, 2021	$	84				$	(82)		$	0		$	2

December 31, 2019		162		(56)			—			106
December 31, 2020												December 31, 2020	2,636				(52)			0			2,584

Our derivative assets and liabilities subject to netting arrangements consist of foreign exchange ~~forwards and options~~forward and interest rate contracts with 6 counterparties at ~~June 30, 2020~~March 31, 2021 and 56 counterparties at December 31, ~~2019.~~2020. No derivative asset or liability

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balance with any of our counterparties was individually significant at ~~June 30, 2020~~March 31, 2021 or December 31, ~~2019.~~2020. Our derivative contracts with each of these counterparties exist under agreements that provide for the net settlement of all contracts through a single payment in a single currency in the event of default. We have no pledges of cash collateral against our obligations, and we have not received pledges of cash collateral from our counterparties under the associated derivative contracts.

Cash Flow Hedges

As a result of our floating rate debt under our Credit Facility, we are exposed to variability in our cash flows from changes in the applicable interest rate index. We enter into interest rate caps and swaps to reduce the variability of cash flows from increases in the LIBOR based borrowing rates on our floating rate credit facility. These instruments do not protect us from changes to the applicable margin under our credit facility. At ~~June 30, 2020,~~March 31, 2021, our LIBOR-based debt balance was ~~$950.2~~$61.1 million.

In October 2015, we entered into 1 interest rate swap, which was effective from August 31, 2016 and expired on June 23, 2020, to convert $214 million of our LIBOR-based debt from a floating LIBOR interest rate to a fixed interest rate of 1.42% (excluding the applicable margin on the debt). The notional balance amortized to maturity at the same rate as required minimum payments on ~~our~~the term loan. ~~The~~This cash flow hedge was expected to be highly effective in achieving offsetting cash flows attributable to the hedged risk through the term of the hedge. Consequently, effective changes in the fair value of the interest rate swap were ~~recorded~~recognized as a component of other comprehensive income (loss) (OCI) and recognized in earnings when the hedged item affected earnings. The amounts paid or received on the hedge were recognized as adjustment to interest expense.

In March 2020, we entered into an1 interest rate swap, which iswas effective from June 30, 2020 to June 30, 2023, and ~~converts~~converted $240 million of our LIBOR-based debt from a floating LIBOR interest rate to a fixed interest rate of 0.617% (excluding the applicable margin). The notional balance ~~will amortize~~amortized to maturity at the same rate of originally required amortizations on our term loan. Changes in the fair value of the interest rate swap are recognized as a component of OCI and recognized in earnings when the hedged item affects earnings. The amounts paid or received on the hedge are recognized as adjustment to interest expense along with the earnings effect of the hedged item. The amount of net losses expected to be reclassified into earnings in the next 12 months is $1.0 million.

In November 2015, we entered into 3 interest rate cap contracts with a total notional amount of $100 million at a cost of $1.7 million. The interest rate cap contracts expired on June 23, 2020 and were entered into in order to limit our interest rate exposure on $100 million of our variable LIBOR based debt up to 2.00%. The interest rate cap contracts did not include the effect of the applicable margin. Changes in the fair value of these instruments were recognized as a component of OCI and recognized in earnings when the hedged item affected earnings. The amounts paid or received on the hedge ~~were~~was recognized as an adjustment to interest expense along with the earnings effect of the hedged item. On March 17, 2021 following the paydown of the term loan within the 2018 credit facility, we terminated the interest rate swap, and paid a fee of $1.7 million to settle it, since the likelihood of LIBOR-based interest payments was no longer probable of occurring.

In April 2018, we entered into 1 cross-currency swap, which converts $56.0 million of floating LIBOR-based U.S. dollar denominated debt into 1.38% fixed rate euro denominated debt. This cross-currency swap matures on April 30, 2021 and mitigates the risk associated with fluctuations in currency rates impacting cash flows related to U.S. dollar denominated debt in a euro functional currency entity. Changes in the fair value of the cross-currency swap are recognized as a component of OCI and are recognized in earnings when the hedged item affects earnings. The amounts paid or received on the hedge are recognized as an adjustment to interest expense along with the earnings effect of the hedged item. The amount of net gains expected to be reclassified into earnings in the next 12 months is ~~$3.9~~$1.8 million.

As a result of our forecasted inventory purchases in a non-functional currency, we are exposed to foreign exchange risk. We hedge portions of these purchases. During February ~~2020,~~2021, we entered into foreign exchange option contracts for a total notional amount of ~~$96~~$77 million at a cost of ~~$1.2~~$1.1 million. The contracts will mature ratably through the year with final maturity in October ~~2020.~~2021. Changes in the fair value of the option contracts are recognized as a component of OCI and ~~are~~will be recognized in product cost of revenues when the hedged item affects earnings.

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


Derivatives in ASC 815-20 Cash Flow Hedging Relationships	Derivatives in ASC 815-20 Cash Flow Hedging Relationships	Amount of Gain (Loss) Recognized in OCI on Derivative					Gain (Loss) Reclassified from AOCI into Income													Derivatives in ASC 815-20 Cash Flow Hedging Relationships	Amount of Gain (Loss) Recognized in OCI on Derivative						Gain (Loss) Reclassified from AOCI into Income
										Location				Amount													Location	Amount
In thousands	In thousands	2020		2019					2020			2019		In thousands	2021			2020					2021			2020
Three Months Ended June 30,
Three Months Ended March 31,												Three Months Ended March 31,
Interest rate swap contracts												Interest rate swap contracts	$	73		$	(1,579)		Interest expense		$	(229)		$	104
Interest rate swap contracts	Interest rate swap contracts	$	(937)	$	(683)	Interest expense	$	(296)		$	453	Interest rate swap contracts	0			0			Other income/(expense), net		(1,681)			0
Interest rate cap contracts	Interest rate cap contracts	389		134		Interest expense	194			305		Interest rate cap contracts	0			393			Interest expense		0			197
Foreign exchange options	Foreign exchange options	(880)		(89)		Product cost of revenues	(161)			162		Foreign exchange options	947			(89)			Product cost of revenues		0			—
Cross currency swap contract	Cross currency swap contract	(898)		(585)		Interest expense	145			416		Cross currency swap contract	2,413			1,255			Interest expense		70			305
Cross currency swap contract	Cross currency swap contract	—		—		Other income/(expense), net	(714)			(607)		Cross currency swap contract	0			0			Other income/(expense), net		2,254			517

Six Months Ended June 30,
Interest rate swap contract		$	(2,516)	$	(1,001)	Interest expense	$	(193)		$	919
Interest rate cap contracts		782		290		Interest expense	392			597
Foreign exchange options		(969)		218		Product cost of revenues	(161)			162
Cross currency swap contract		357		1,423		Interest expense	450			910
Cross currency swap contract		—		—		Other income/(expense), net	(197)			285

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Derivatives Not Designated as Hedging Relationships

We are also exposed to foreign exchange risk when we enter into non-functional currency transactions, both intercompany and third party. At each period-end, non-functional currency monetary assets and liabilities are revalued with the change recognized within other income ~~and expense.~~(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 ~~June 30, 2020,~~March 31, 2021, a total of 5040 contracts were offsetting our exposures from the euro, Pound sterling, Canadian dollar, Chinese ~~yuan, Mexican peso, Pound Sterling~~Yuan, Australian dollar and various other currencies, with notional amounts ranging from ~~$111,000~~$93,300 to $26.4 million.

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


Derivatives Not Designated as Hedging Instrument under ASC 815-20	Derivatives Not Designated as Hedging Instrument under ASC 815-20	Location	Gain (Loss) Recognized on Derivatives in Other Income (Expense)						Derivatives Not Designated as Hedging Instrument under ASC 815-20	Location		Gain (Loss) Recognized on Derivatives in Other Income (Expense)
In thousands	In thousands		2020		2019		In thousands			2021		2020
Three Months Ended June 30,
Three Months Ended March 31,							Three Months Ended March 31,
Foreign exchange forward contracts	Foreign exchange forward contracts	Other income (expense), net	$	(904)	$	(121)	Foreign exchange forward contracts	Other income (expense), net		$	31	$	1,493

Six Months Ended June 30,
Foreign exchange forward contracts		Other income (expense), net	$	589	$	(912)

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

Convertible Note Hedge Transactions

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

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

Warrant Transactions

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

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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, ~~2019.~~

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2020.

Amounts recognized on the Consolidated Balance Sheets consist of:


In thousands	In thousands	June 30, 2020		December 31, 2019		In thousands	March 31, 2021		December 31, 2020
Assets
Plan assets in other long-term assets		$	—	$	44

Liabilities	Liabilities					Liabilities
Current portion of pension benefit obligation in wages and benefits payable	Current portion of pension benefit obligation in wages and benefits payable	3,716		2,885		Current portion of pension benefit obligation in wages and benefits payable	$	2,989	$	3,069
Long-term portion of pension benefit obligation	Long-term portion of pension benefit obligation	99,184		98,712		Long-term portion of pension benefit obligation	115,257		119,457

Pension benefit obligation, net	Pension benefit obligation, net	$	102,900	$	101,553	Pension benefit obligation, net	$	118,246	$	122,526

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 June 30,						Six Months Ended June 30,					Three Months Ended March 31,
In thousands	In thousands	2020		2019		2020		2019		In thousands	2021		2020
Service cost	Service cost	$	1,017	$	892	$	1,993	$	1,971	Service cost	$	1,149	$	976
Interest cost	Interest cost	457		573		930		1,155		Interest cost	352		473
Expected return on plan assets	Expected return on plan assets	(134)		(153)		(280)		(309)		Expected return on plan assets	(89)		(146)
Amortization of prior service costs	Amortization of prior service costs	16		16		32		33		Amortization of prior service costs	17		16
Amortization of actuarial net loss	Amortization of actuarial net loss	453		342		908		687		Amortization of actuarial net loss	695		455

Net periodic benefit cost	Net periodic benefit cost	$	1,809	$	1,670	$	3,583	$	3,537	Net periodic benefit cost	$	2,124	$	1,774

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 stock options, restricted stock units, phantom stock, and unrestricted stock units, under the Second Amended and Restated 2010 Stock Incentive Plan (Stock Incentive Plan)~~, including stock options, restricted stock units, phantom stock, and unrestricted stock units.~~. In the Stock Incentive Plan, we have 12,623,538 shares of common stock reserved and authorized for issuance subject to stock splits, dividends, and other similar events, and at ~~June 30, 2020, 5,611,617~~March 31, 2021, 5,334,496 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 ~~reserve~~available for grant is reduced by (i) 1 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 periodically 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 ~~204,451~~169,194 shares of common stock were available for future issuance at ~~June 30, 2020.~~March 31, 2021.

~~All~~ESPP activity and stock-based grants other ~~forms of~~than stock ~~grants, including Unrestricted stock, ESPP,~~options and ~~Phantom~~restricted stock units were not significant for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 and ~~2019.~~2020.

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Stock-Based Compensation Expense

Total stock-based compensation expense and the related tax benefit were as follows:


		Three Months Ended June 30,						Six Months Ended June 30,					Three Months Ended March 31,
In thousands	In thousands	2020		2019		2020		2019		In thousands	2021		2020
Stock options	Stock options	$	526	$	443	$	993	$	1,024	Stock options	$	340	$	467
Restricted stock units	Restricted stock units	6,367		5,977		14,176		12,444		Restricted stock units	5,931		7,809
Unrestricted stock awards	Unrestricted stock awards	206		158		412		315		Unrestricted stock awards	227		206
Phantom stock units	Phantom stock units	1,060		525		1,493		1,443		Phantom stock units	1,117		433
Total stock-based compensation	Total stock-based compensation	$	8,159	$	7,103	$	17,074	$	15,226	Total stock-based compensation	$	7,615	$	8,915

Related tax benefit	Related tax benefit	$	1,420	$	1,275	$	3,187	$	2,718	Related tax benefit	$	1,363	$	1,767

Stock Options

A summary of our stock option activity is as follows:


		Shares	Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value		Weighted Average Grant Date Fair Value			Shares	Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value		Weighted Average Grant Date Fair Value
		(in thousands)			(years)	(in thousands)					(in thousands)			(years)	(in thousands)
Outstanding, January 1, 2019		895	$	47.93	6.2	$	4,806
Outstanding, January 1, 2020										Outstanding, January 1, 2020	458	$	56.38	7.0	$	12,641

Granted										Granted	73	87.27					$	26.72
Exercised	Exercised	(59)	40.57			1,057				Exercised	(40)	54.03			934
Forfeited	Forfeited	(8)	67.38							Forfeited	0	0
Expired	Expired	(9)	66.36							Expired	0	0
Outstanding, June 30, 2019		819	$	48.06	5.8	$	12,958
Outstanding, March 31, 2020										Outstanding, March 31, 2020	491	$	61.13	7.5	$	3,106

Outstanding, January 1, 2020		458	$	56.38	7.0	$	12,641
Outstanding, January 1, 2021										Outstanding, January 1, 2021	433	$	61.95	6.9	$	14,697
Granted	Granted	73	87.27					$	26.72	Granted	0	0					0
Exercised	Exercised	(47)	51.52			1,131				Exercised	(24)	67.04			926

Forfeited										Forfeited	(4)	80.90
Outstanding, March 31, 2021										Outstanding, March 31, 2021	405	$	61.48	6.7	$	11,012

Outstanding, June 30, 2020		484	$	61.48	7.3	$	4,871

Exercisable, June 30, 2020		292	$	50.30	6.1	$	4,823
Exercisable, March 31, 2021										Exercisable, March 31, 2021	295	$	55.03	5.9	$	9,930

At ~~June 30, 2020,~~March 31, 2021, total unrecognized stock-based compensation expense related to nonvested stock options was ~~$3.4~~$2.1 million, which is expected to be recognized over a weighted average period of approximately ~~2.2~~1.7 years.

The weighted average assumptions used to estimate the fair value of stock options granted and the resulting weighted average fair value are as follows:


		Six Months Ended June 30,					Three Months Ended March 31,
		2020		2019			2021		2020

Expected volatility	Expected volatility	31.0	%	—	%	Expected volatility	0	%	31.0	%
Risk-free interest rate	Risk-free interest rate	1.4	%	—	%	Risk-free interest rate	0	%	1.4	%
Expected term (years)	Expected term (years)	5.3		N/A		Expected term (years)	N/A		5.3

There were no employee stock options granted for the three months ended ~~June 30, 2020, and the three and six months ended June 30, 2019.~~

March 31, 2021.

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Restricted Stock Units

The following table summarizes restricted stock unit activity:


In thousands, except fair value	In thousands, except fair value	Number of Restricted Stock Units	Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value		In thousands, except fair value	Number of Restricted Stock Units	Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
Outstanding, January 1, 2019		817
Outstanding, January 1, 2020							Outstanding, January 1, 2020	684

Granted	Granted	118	$	56.40			Granted	182	$	87.17
Released ⁽¹⁾	Released ⁽¹⁾	(363)			$	22,304	Released (1)	(192)			$	12,454
Forfeited	Forfeited	(36)					Forfeited	(7)
Outstanding, June 30, 2019		536
Outstanding, March 31, 2020							Outstanding, March 31, 2020	667

Outstanding, January 1, 2020		684	$	64.38
Outstanding, January 1, 2021							Outstanding, January 1, 2021	544	$	71.79
Granted	Granted	189	85.97				Granted	186	100.28
Released ⁽¹⁾	Released ⁽¹⁾	(230)	65.14		$	2,506	Released (1)	(177)	74.10		$	18,007
Forfeited	Forfeited	(13)	66.91				Forfeited	(10)	74.41
Outstanding, June 30, 2020		630	70.74
Outstanding, March 31, 2021							Outstanding, March 31, 2021	543	81.03

Vested but not released, June 30, 2020		8			$	534
Vested but not released, March 31, 2021							Vested but not released, March 31, 2021	10			$	845

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

At ~~June 30, 2020,~~March 31, 2021, total unrecognized compensation expense on restricted stock units was ~~$38.0~~$43.4 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:

Six Months Ended June 30,
2020 2019
Expected volatility 37.6 % 31.3 %
Risk-free interest rate 1.5 % 2.5 %
Expected term (years) 1.8 1.6
Weighted average fair value $ 94.28 $ 60.91

~~There were no performance-based restricted stock units granted for the three months ended June 30, 2020 and 2019.~~


	Three Months Ended March 31,
		2021			2020

Expected volatility		50.5		%	37.6		%
Risk-free interest rate		0.2		%	1.5		%
Expected term (years)		2.9			1.8

Weighted average fair value		$	113.75		$	94.28

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 are excluded.

Our tax rate for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 of ~~(8)% and (30)%, respectively,~~26% differed from the federal statutory rate of 21% primarily due to a significant loss recognized in the second quarter for the divestiture of the majority of our Latin American business activities. Refer to "Note 17: Sale of Business" for additional information on the transaction. This loss was recognized for tax as a discrete item and resulted in no tax benefit. Other rate drivers include losses in jurisdictions for which no benefit is recognized because of valuation allowances on deferred tax assets, the forecasted mix of earnings in domestic and international jurisdictions, a benefit related to ~~excess~~ stock-based compensation, and uncertain tax positions.

Our tax rate for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 of ~~30% and 42%, respectively,~~45% differed from the federal statutory rate of 21% primarily due to losses in jurisdictions for which no benefit is recognized because of valuation allowances on deferred tax assets as well as the forecasted mix of earnings in domestic and international jurisdictions, a benefit related to ~~excess~~ stock-based compensation, and uncertain tax positions.

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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 June 30,						Six Months Ended June 30,							Three Months Ended March 31,
In thousands	In thousands	2020		2019		2020		2019		In thousands	2021		2020
Net interest and penalties expense	Net interest and penalties expense	$	312	$	(42)	$	620	$	259	Net interest and penalties expense	$	(231)	$	308

Accrued interest and penalties recognized were as follows:


In thousands	In thousands	June 30, 2020		December 31, 2019		In thousands	March 31, 2021		December 31, 2020
Accrued interest	Accrued interest	$	3,203	$	2,849	Accrued interest	$	3,336	$	3,432
Accrued penalties	Accrued penalties	1,746		1,681		Accrued penalties	1,384		1,645

Unrecognized tax benefits related to uncertain tax positions and the amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate were as follows:


In thousands	In thousands	June 30, 2020		December 31, 2019		In thousands	March 31, 2021		December 31, 2020
Unrecognized tax benefits related to uncertain tax positions	Unrecognized tax benefits related to uncertain tax positions	$	122,621	$	121,715	Unrecognized tax benefits related to uncertain tax positions	$	133,964	$	135,910
The amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate	The amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate	121,311		120,410		The amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate	132,836		134,473

At ~~June 30, 2020,~~March 31, 2021, 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 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.

On March 27, 2020, the U.S. Federal government passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act to provide economic relief from COVID-19. The CARES Act contains significant business tax provisions, which the Company has evaluated and determined will not have a material impact on the Company's financial statements or related disclosures.

The CARES Act also provides employer payroll tax credits for wages paid to employees who are unable to work during the COVID-19 outbreak and options to defer payroll tax payments. The Company has elected to defer remittances of payroll and other taxes into the future as provided for under the Act, and may assess in subsequent quarters the impact and availability of payroll tax credits from the U.S. and similar programs provided for by foreign governments, as applicable.

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.

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Our available lines of credit, outstanding standby LOCs, and bonds were as follows:


In thousands	In thousands	June 30, 2020		December 31, 2019		In thousands	March 31, 2021		December 31, 2020
Credit facility	Credit facility					Credit facility
Multicurrency revolving line of credit	Multicurrency revolving line of credit	$	500,000	$	500,000	Multicurrency revolving line of credit	$	500,000	$	500,000
Long-term borrowings	Long-term borrowings	(400,000)		—		Long-term borrowings	0		0
Standby LOCs issued and outstanding	Standby LOCs issued and outstanding	(45,458)		(41,072)		Standby LOCs issued and outstanding	(64,307)		(64,948)
Net available for additional borrowings under the multi-currency revolving line of credit		$	54,542	$	458,928
Net available for additional borrowings under the multicurrency revolving line of credit						Net available for additional borrowings under the multicurrency revolving line of credit	$	435,693	$	435,052

Net available for additional standby LOCs under sub-facility	Net available for additional standby LOCs under sub-facility	$	54,542	$	258,928	Net available for additional standby LOCs under sub-facility	$	235,693	$	235,052

Unsecured multicurrency revolving lines of credit with various financial institutions	Unsecured multicurrency revolving lines of credit with various financial institutions					Unsecured multicurrency revolving lines of credit with various financial institutions
Multicurrency revolving lines of credit	Multicurrency revolving lines of credit	$	99,782	$	107,206	Multicurrency revolving lines of credit	$	95,687	$	99,201
Standby LOCs issued and outstanding	Standby LOCs issued and outstanding	(23,440)		(25,100)		Standby LOCs issued and outstanding	(24,478)		(24,966)
Short-term borrowings	Short-term borrowings	(134)		(173)		Short-term borrowings	0		0
Net available for additional borrowings and LOCs	Net available for additional borrowings and LOCs	$	76,208	$	81,933	Net available for additional borrowings and LOCs	$	71,209	$	74,235

Unsecured surety bonds in force	Unsecured surety bonds in force	$	160,860	$	136,004	Unsecured surety bonds in force	$	146,532	$	162,912

In the event any such standby LOC or bond is called, we would be obligated to reimburse the issuer of the standby LOC or bond; however, as of ~~August~~May 3, ~~2020,~~2021, we do not believe that any outstanding LOC or bond will be called.

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

Legal Matters

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

Warranty

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


		Three Months Ended June 30,						Six Months Ended June 30,					Three Months Ended March 31,
In thousands	In thousands	2020		2019		2020		2019		In thousands	2021		2020
Beginning balance	Beginning balance	$	48,719	$	57,532	$	53,242	$	60,443	Beginning balance	$	41,390	$	53,241

New product warranties	New product warranties	1,000		538		2,070		2,257		New product warranties	786		1,070
Other adjustments and expirations, net	Other adjustments and expirations, net	3,100		6,070		3,793		7,931		Other adjustments and expirations, net	2,289		694
Claims activity	Claims activity	(8,365)		(7,434)		(14,305)		(13,517)		Claims activity	(4,369)		(5,940)
Effect of change in exchange rates	Effect of change in exchange rates	303		406		(43)		(2)		Effect of change in exchange rates	(762)		(346)
Ending balance	Ending balance	44,757		57,112		44,757		57,112		Ending balance	39,334		48,719
Less: current portion of warranty	Less: current portion of warranty	33,039		38,987		33,039		38,987		Less: current portion of warranty	22,024		36,409
Long-term warranty	Long-term warranty	$	11,718	$	18,125	$	11,718	$	18,125	Long-term warranty	$	17,310	$	12,310

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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 June 30,						Six Months Ended June 30,					Three Months Ended March 31,
In thousands	In thousands	2020		2019		2020		2019		In thousands	2021		2020
Total warranty expense	Total warranty expense	$	4,130	$	6,187	$	5,893	$	7,966	Total warranty expense	$	3,075	$	1,763

Note 12: Restructuring

~~2018~~2020 Projects

On ~~February 22, 2018,~~September 17, 2020, our Board of Directors approved a restructuring plan (the ~~2018~~2020 Projects) to, which includes activities that continue our efforts to optimize our global supply chain and manufacturing operations, ~~research and development, and~~ sales and marketing ~~organizations. We expect~~organizations, and other overhead. These projects are scheduled to be substantially complete ~~expense recognition on the plan~~ by the end of ~~2020.~~2022. The largest component of expected remaining costs to be recognized is related to a non-cash cumulative translation adjustment charge. Many of the affected employees are represented by unions or works councils, which require consultation, and potential restructuring projects may be subject to regulatory approval, both of which could impact the timing of charges, total expected charges, cost recognized, and planned savings in certain jurisdictions. ~~All prior~~

The total expected restructuring ~~plans are~~costs, the restructuring costs recognized, and the remaining expected restructuring costs related to the 2020 Projects were as follows:


In thousands	Total Expected Costs at March 31, 2021		Costs Recognized in Prior Periods		Costs Recognized During the Three Months Ended March 31, 2021		Expected Remaining Costs to be Recognized at March 31, 2021
Employee severance costs	$	32,907	$	36,225	$	(3,318)	$	0
Asset impairments & net loss (gain) on sale or disposal	6,861		6,944		(83)		0
Other restructuring costs	17,076		63		771		16,242
Total	$	56,844	$	43,232	$	(2,630)	$	16,242

2018 Projects

In February 2018, our Board of Directors approved a restructuring plan (the 2018 Projects) to continue our efforts to optimize our global supply chain and manufacturing operations, research and development, and sales and marketing organizations. Actions under the 2018 Projects were substantially ~~complete and are not presented below.~~completed as of the end of 2020.

During the ~~three months ended June 30, 2020~~first quarter of 2021, we ~~reversed expense for employee~~incurred additional legal costs related to a facility closure, partially offset by reduced severance ~~costs and asset impairments we will no longer incur as a result of selling our business in Latin America.~~costs.

The total expected restructuring costs, the restructuring costs recognized, and the remaining expected restructuring costs related to the 2018 Projects were as follows:


In thousands	In thousands	Total Expected Costs at June 30, 2020		Costs Recognized in Prior Periods		Costs Recognized During the Six Months Ended June 30, 2020		Expected Remaining Costs to be Recognized at June 30, 2020		In thousands	Total Expected Costs at March 31, 2021		Costs Recognized in Prior Periods		Costs Recognized During the Three Months Ended March 31, 2021		Expected Remaining Costs to be Recognized at March 31, 2021
Employee severance costs	Employee severance costs	$	67,833	$	72,133	$	(4,300)	$	—	Employee severance costs	$	61,476	$	63,173	$	(1,697)	$	0
Asset impairments & net loss (gain) on sale or disposal	Asset impairments & net loss (gain) on sale or disposal	2,696		3,842		(1,146)		—		Asset impairments & net loss (gain) on sale or disposal	2,824		2,786		38		0
Other restructuring costs	Other restructuring costs	21,381		11,420		2,515		7,446		Other restructuring costs	19,826		15,217		2,309		2,300
Total	Total	$	91,910	$	87,395	$	(2,931)	$	7,446	Total	$	84,126	$	81,176	$	650	$	2,300

Table of Contents

The following table summarizes the activity within the restructuring related balance sheet accounts for the 2020 Projects and 2018 Projects during the ~~six~~three months ended ~~June 30, 2020:~~March 31, 2021:


In thousands	In thousands	Accrued Employee Severance		Asset Impairments & Net Loss (Gain) on Sale or Disposal		Other Accrued Costs		Total		In thousands	Accrued Employee Severance		Asset Impairments & Net Loss (Gain) on Sale or Disposal		Other Accrued Costs		Total
Beginning balance, January 1, 2020		$	53,741	$	—	$	2,366	$	56,107
Beginning balance, January 1, 2021										Beginning balance, January 1, 2021	$	70,005	$	0	$	2,621	$	72,626
Costs charged to expense	Costs charged to expense	(4,300)		(1,146)		2,515		(2,931)		Costs charged to expense	(5,015)		(45)		3,080		(1,980)
Cash (payments) receipts	Cash (payments) receipts	(7,511)		2,312		(2,225)		(7,424)		Cash (payments) receipts	(6,269)		1,868		(1,498)		(5,899)
Net assets disposed and impaired	Net assets disposed and impaired	—		(1,166)		—		(1,166)		Net assets disposed and impaired	0		(1,823)		0		(1,823)
Effect of change in exchange rates	Effect of change in exchange rates	96		—		(1)		95		Effect of change in exchange rates	(2,250)		0		(33)		(2,283)
Ending balance, June 30, 2020		$	42,026	$	—	$	2,655	$	44,681
Ending balance, March 31, 2021										Ending balance, March 31, 2021	$	56,471	$	0	$	4,170	$	60,641

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.

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

The current portion of restructuring liabilities ~~was $15.6~~were $30.2 million and ~~$18.9~~$31.7 million as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020. The current portion of restructuring liabilities is classified within other current liabilities on the Consolidated Balance Sheets.

~~Table of Contents~~

The long-term portion of restructuring liabilities balances ~~was $29.1~~were $30.4 million and ~~$37.2~~$40.9 million as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020. The long-term portion of restructuring liabilities is classified within other long-term obligations on the Consolidated Balance Sheets and includes 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 0 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 will 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 0 preferred stock issued or outstanding at ~~June 30, 2020~~March 31, 2021 or December ~~31, 2019.~~

~~Stock Repurchase Authorization~~

On March 14, 2019, Itron's Board of Directors authorized the Company to repurchase up to $50 million of our common stock over a 12-month period (the 2019 Stock Repurchase Program). Following the announcement of the program and through December 31, 2019, we repurchased 529,396 shares at an average share price of $47.22 (including commissions) for a total of $25 million. The program expired on March 13, 2020 and no additional shares were repurchased during the quarter ended March 31, 2020.

Issuance of Common Stock

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 the 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 ASC 815-40 to be classified within Stockholders' Equity, and therefore the Convertible Note Hedge Transactions are not revalued after their issuance.

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impact of this tax election makes the call options deductible as original issue discount for tax purposes over the term of the note, and results in a $20.6 million deferred tax asset recognized through equity.

Warrant Transactions

In addition, concurrently with entering into the Convertible Note Hedge Transactions, we separately entered into privately-negotiated Warrant Transactions, 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)

The changes in the components of AOCI, net of tax, were as follows:


In thousands	In thousands	Foreign Currency Translation Adjustments		Net Unrealized Gain (Loss) on Derivative Instruments		Net Unrealized Gain (Loss) on Nonderivative Instruments		Pension Benefit Obligation Adjustments		Accumulated Other Comprehensive Income (Loss)		In thousands	Foreign Currency Translation Adjustments		Net Unrealized Gain (Loss) on Derivative Instruments		Net Unrealized Gain (Loss) on Nonderivative Instruments		Pension Benefit Obligation Adjustments		Accumulated Other Comprehensive Income (Loss)
Balances at January 1, 2019		$	(157,489)	$	1,201	$	(14,380)	$	(25,637)	$	(196,305)
OCI before reclassifications		2,801		998		—		663		4,462
Amounts reclassified from AOCI		—		(2,497)		—		(9)		(2,506)
Total other comprehensive income (loss)		2,801		(1,499)		—		654		1,956
Balances at June 30, 2019		$	(154,688)	$	(298)	$	(14,380)	$	(24,983)	$	(194,349)

Balances at January 1, 2020	Balances at January 1, 2020	$	(157,999)	$	(723)	$	(14,380)	$	(31,570)	$	(204,672)	Balances at January 1, 2020	$	(157,999)	$	(723)	$	(14,380)	$	(31,570)	$	(204,672)
OCI before reclassifications	OCI before reclassifications	(14,135)		(1,914)		—		83		(15,966)		OCI before reclassifications	(25,445)		282		0		534		(24,629)
Amounts reclassified from AOCI	Amounts reclassified from AOCI	52,088		(242)		—		965		52,811		Amounts reclassified from AOCI	0		(1,049)		0		467		(582)
Total other comprehensive income (loss)	Total other comprehensive income (loss)	37,953		(2,156)		—		1,048		36,845		Total other comprehensive income (loss)	(25,445)		(767)		0		1,001		(25,211)
Balances at June 30, 2020		$	(120,046)	$	(2,879)	$	(14,380)	$	(30,522)	$	(167,827)
Balances at March 31, 2020												Balances at March 31, 2020	$	(183,444)	$	(1,490)	$	(14,380)	$	(30,569)	$	(229,883)

Balances at January 1, 2021												Balances at January 1, 2021	$	(84,843)	$	(1,621)	$	(14,380)	$	(37,682)	$	(138,526)
OCI before reclassifications												OCI before reclassifications	(15,012)		3,409		0		0		(11,603)
Amounts reclassified from AOCI												Amounts reclassified from AOCI	0		(881)		0		701		(180)
Total other comprehensive income (loss)												Total other comprehensive income (loss)	(15,012)		2,528		0		701		(11,783)
Balances at March 31, 2021												Balances at March 31, 2021	$	(99,855)	$	907	$	(14,380)	$	(36,981)	$	(150,309)

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


		Three Months Ended June 30,						Six Months Ended June 30,					Three Months Ended March 31,
In thousands	In thousands	2020		2019		2020		2019		In thousands	2021		2020
Before-tax amount	Before-tax amount									Before-tax amount
Foreign currency translation adjustment	Foreign currency translation adjustment	$	10,685	$	5,352	$	(15,908)	$	3,098	Foreign currency translation adjustment	$	(14,925)	$	(26,593)
Foreign currency translation adjustment reclassified to net income on sale of business		52,088		—		52,088		—

Net unrealized gain (loss) on derivative instruments, designated as cash flow hedges	Net unrealized gain (loss) on derivative instruments, designated as cash flow hedges	(2,331)		651		(2,341)		822		Net unrealized gain (loss) on derivative instruments, designated as cash flow hedges	3,427		(10)
Net hedging (gain) loss reclassified to net income	Net hedging (gain) loss reclassified to net income	832		(2,610)		(291)		(2,874)		Net hedging (gain) loss reclassified to net income	(414)		(1,123)
Net unrealized gain (loss) on defined benefit plans	Net unrealized gain (loss) on defined benefit plans	(457)		378		81		720		Net unrealized gain (loss) on defined benefit plans	0		538
Net defined benefit plan (gain) loss reclassified to net income	Net defined benefit plan (gain) loss reclassified to net income	469		(189)		940		(10)		Net defined benefit plan (gain) loss reclassified to net income	712		471
Total other comprehensive income (loss), before tax	Total other comprehensive income (loss), before tax	$	61,286	$	3,582	$	34,569	$	1,756	Total other comprehensive income (loss), before tax	$	(11,200)	$	(26,717)

Tax (provision) benefit	Tax (provision) benefit									Tax (provision) benefit
Foreign currency translation adjustment	Foreign currency translation adjustment	$	625	$	(165)	$	1,773	$	(297)	Foreign currency translation adjustment	$	(87)	$	1,148
Foreign currency translation adjustment reclassified to net income on sale of business		—		—		—		—

Net unrealized gain (loss) on derivative instruments, designated as cash flow hedges	Net unrealized gain (loss) on derivative instruments, designated as cash flow hedges	135		136		427		176		Net unrealized gain (loss) on derivative instruments, designated as cash flow hedges	(18)		292
Net hedging (gain) loss reclassified to net income	Net hedging (gain) loss reclassified to net income	(25)		189		49		377		Net hedging (gain) loss reclassified to net income	(467)		74
Net unrealized gain (loss) on defined benefit plans	Net unrealized gain (loss) on defined benefit plans	6		(42)		2		(57)		Net unrealized gain (loss) on defined benefit plans	0		(4)
Net defined benefit plan (gain) loss reclassified to net income	Net defined benefit plan (gain) loss reclassified to net income	29		36		25		1		Net defined benefit plan (gain) loss reclassified to net income	(11)		(4)
Total other comprehensive income (loss) tax benefit		$	770	$	154	$	2,276	$	200
Total other comprehensive income (loss) tax (provision) benefit										Total other comprehensive income (loss) tax (provision) benefit	$	(583)	$	1,506

Net-of-tax amount	Net-of-tax amount									Net-of-tax amount
Foreign currency translation adjustment	Foreign currency translation adjustment	$	11,310	$	5,187	$	(14,135)	$	2,801	Foreign currency translation adjustment	$	(15,012)	$	(25,445)
Foreign currency translation adjustment reclassified to net income on sale of business		52,088		—		52,088		—

Net unrealized gain (loss) on derivative instruments, designated as cash flow hedges	Net unrealized gain (loss) on derivative instruments, designated as cash flow hedges	(2,196)		787		(1,914)		998		Net unrealized gain (loss) on derivative instruments, designated as cash flow hedges	3,409		282
Net hedging (gain) loss reclassified to net income	Net hedging (gain) loss reclassified to net income	807		(2,421)		(242)		(2,497)		Net hedging (gain) loss reclassified to net income	(881)		(1,049)
Net unrealized gain (loss) on defined benefit plans	Net unrealized gain (loss) on defined benefit plans	(451)		336		83		663		Net unrealized gain (loss) on defined benefit plans	0		534
Net defined benefit plan (gain) loss reclassified to net income	Net defined benefit plan (gain) loss reclassified to net income	498		(153)		965		(9)		Net defined benefit plan (gain) loss reclassified to net income	701		467
Total other comprehensive income (loss), net of tax	Total other comprehensive income (loss), net of tax	$	62,056	$	3,736	$	36,845	$	1,956	Total other comprehensive income (loss), net of tax	$	(11,783)	$	(25,211)

Note 14: Fair ~~Values~~Value of Financial Instruments

The fair values at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 do not reflect subsequent changes in the economy, interest rates, tax rates, and other variables that may affect the determination of fair value.

June 30, 2020 December 31, 2019
In thousands Carrying
Amount Fair
Value Carrying
Amount Fair
Value
Credit facility
USD denominated term loan $ 546,924 $ 532,090 $ 546,495 $ 550,135
Multicurrency revolving line of credit 400,000 385,272 — —
Senior notes 387,143 398,500 385,987 416,500

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	March 31, 2021				December 31, 2020
In thousands	Carrying Amount		Fair Value		Carrying Amount		Fair Value










Credit facility
USD denominated term loan	$	59,296	$	59,749	$	532,625	$	520,347
Multicurrency revolving line of credit	0		0		0		0
Senior notes	388,882		410,000		388,311		410,000
Convertible notes	448,353		465,042		0		0

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

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

Credit Facility - term loan and multicurrency revolving line of credit: The term loan and the revolver are not traded publicly. The fair values, which are determined based upon a hypothetical market participant, are calculated using a discounted cash flow

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model with Level 2 inputs, including estimates of incremental borrowing rates for debt with similar terms, maturities, and credit profiles. Refer to ~~"Note~~Note 6: ~~Debt"~~Debt for a further discussion of our debt.

Senior Notes and Convertible Notes: The Senior Notes and Convertible Notes are not registered securities nor listed on any securities exchange but may be actively traded by qualified institutional buyers. The fair value is estimated using Level 1 inputs, as it is based on quoted prices for these instruments in active markets.

Derivatives: See ~~"Note~~Note 7: Derivative Financial ~~Instruments"~~Instruments for a description of our methods and assumptions in determining the fair value of our derivatives, which were determined using Level 2 inputs. Each derivative asset and liability has a carrying value equal to fair value.

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 3 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. In addition, we allocate only certain production assets and intangible assets to our operating segments. We do not manage the performance of the segments on a balance sheet basis.

Segment Products

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

Networked Solutions – This segment primarily includes a combination of communicating devices ~~(smart~~(e.g., smart meters, modules, endpoints, and sensors), network infrastructure, and associated application software designed and sold as a complete solution for acquiring and transporting robust application-specific data. Networked Solutions ~~combines the majority of the assets from the recently acquired SSNI organization with our legacy Itron networking~~includes products and software ~~and~~for the implementation, installation, and ~~installation~~management of communicating devices ~~into one operating segment.~~and data networks. Examples from the Networked Solutions portfolio include: communicating measurement, control, or sensing endpoints such as our Itron® and OpenWay® Riva meters, Itron traditional ERT® technology, Intelis smart gas or water meters, 500G gas communication modules, 500W water communication modules; GenX networking products, network modules and interface cards; and specific network control and management software applications. The ~~IIoT~~Industrial Internet of Things (IIoT) solutions supported by this segment include automated meter reading (AMR), advanced metering infrastructure (AMI), smart grid and distribution automation, ~~(DA), and~~ smart street lighting and an ever-growing set of smart city ~~solutions.~~applications such as traffic management, smart parking, air quality monitoring, electric vehicle charging, customer engagement, digital signage, acoustic (e.g., gunshot) detection, and leak detection and mitigation for both gas and water systems. Our IIoT platform allows all of these industry and smart city applications to be run and managed on a single, multi-purpose network.

Outcomes – This segment primarily includes our value-added, enhanced software and services in which we manage, organize, analyze, and interpret data to improve decision making, maximize operational profitability, drive resource efficiency, and deliver results for consumers, utilities, and smart cities. Outcomes places an emphasis on delivering to Itron customers high-value, turn-key, digital experiences by leveraging the footprint of our Device Solutions and Networked Solutions segments. The revenues from these offerings are primarily recurring in nature and would include any direct management of Device Solutions, Networked Solutions, and other products on behalf of our end customers. Examples from the Outcomes portfolio include: our meter data management and analytics offerings; our managed service solutions including ~~network-as-a-service~~Network-as-a-Service (NaaS) and ~~platform-as-a-service,~~Platform-as-a-Service (PaaS), forecasting software and services; our Distributed Intelligence suite of applications and services; and any consulting-based engagement. Within the Outcomes segment, we also

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identify new business models, including performance-based contracting, to drive broader portfolio offerings across utilities and cities.

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Revenues, gross profit, and operating income associated with our operating segments were as follows:

Three Months Ended June 30, Six Months Ended June 30,
In thousands 2020 2019 2020 2019
Product revenues
Device Solutions $ 126,950 $ 214,589 $ 327,118 $ 433,158
Networked Solutions 300,351 333,422 615,788 647,772
Outcomes 11,684 18,036 24,216 29,967
Total Company $ 438,985 $ 566,047 $ 967,122 $ 1,110,897
Service revenues
Device Solutions $ 2,215 $ 3,134 $ 4,326 $ 6,320
Networked Solutions 24,129 22,494 49,537 44,571
Outcomes 44,265 43,362 87,024 87,825
Total Company $ 70,609 $ 68,990 $ 140,887 $ 138,716
Total revenues
Device Solutions $ 129,165 $ 217,723 $ 331,444 $ 439,478
Networked Solutions 324,480 355,916 665,325 692,343
Outcomes 55,949 61,398 111,240 117,792
Total Company $ 509,594 $ 635,037 $ 1,108,009 $ 1,249,613
Gross profit
Device Solutions $ 11,948 $ 41,590 $ 44,315 $ 81,506
Networked Solutions 108,323 126,243 230,073 253,311
Outcomes 18,246 23,381 35,695 43,660
Total Company $ 138,517 $ 191,214 $ 310,083 $ 378,477
Operating income (loss)
Device Solutions $ (1,120) $ 28,355 $ 17,078 $ 53,812
Networked Solutions 77,382 98,035 166,062 193,357
Outcomes 9,226 14,367 17,424 24,777
Corporate unallocated (130,875) (97,199) (219,581) (207,565)
Total Company (45,387) 43,558 (19,017) 64,381
Total other income (expense) (12,299) (15,022) (21,957) (29,873)
Income (loss) before income taxes $ (57,686) $ 28,536 $ (40,974) $ 34,508

Our corporate unallocated operating loss for the three and six months ended June 30, 2020 includes a $56.9 million loss from the sale of our Latin American business. Refer to "Note 17: Sale of Business" for additional information on the transaction.


	Three Months Ended March 31,
In thousands		2021		2020
Product revenues
Device Solutions		$	170,331	$	200,168
Networked Solutions		258,703		315,437
Outcomes		13,770		12,532
Total Company		$	442,804	$	528,137

Service revenues
Device Solutions		$	2,450	$	2,111
Networked Solutions		29,611		25,408
Outcomes		44,709		42,759
Total Company		$	76,770	$	70,278

Total revenues
Device Solutions		$	172,781	$	202,279
Networked Solutions		288,314		340,845
Outcomes		58,479		55,291
Total Company		$	519,574	$	598,415

Gross profit
Device Solutions		$	32,296	$	32,367
Networked Solutions		112,759		121,750
Outcomes		21,989		17,449
Total Company		$	167,044	$	171,566

Operating income (loss)
Device Solutions		$	21,701	$	18,198
Networked Solutions		79,291		88,680
Outcomes		10,336		8,198
Corporate unallocated		(80,388)		(88,706)
Total Company		30,940		26,370
Total other income (expense)		(12,699)		(9,658)
Income (loss) before income taxes		$	18,241	$	16,712

For the three months ended ~~June 30,~~March 31, 2021, no customer represented more than 10% of total company revenue. During the three months ended March 31, 2020, ~~and 2019,~~ one customer represented ~~13% and 11% of total company revenues. For the six months ended June 30, 2020 and 2019, one customer represented 12% and~~ 11% of total company revenues.

We currently buy a majority of our integrated circuit board assemblies from three suppliers. Management believes that other suppliers could provide similar products, but a change in suppliers, disputes with our suppliers, or unexpected constraints on the suppliers' production capacity could adversely affect operating results.

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Revenues by region were as follows:


		Three Months Ended June 30,						Six Months Ended June 30,					Three Months Ended March 31,
In thousands	In thousands	2020		2019		2020		2019		In thousands	2021		2020
United States and Canada	United States and Canada	$	369,862	$	417,909	$	755,187	$	815,475	United States and Canada	$	325,536	$	385,325
Europe, Middle East, and Africa (EMEA)		107,799		167,314		274,783		338,556
Latin America and Asia Pacific⁽¹⁾		31,933		49,814		78,039		95,582
Europe, Middle East, and Africa										Europe, Middle East, and Africa	160,369		166,984
Asia Pacific and Latin America(1)										Asia Pacific and Latin America(1)	33,669		46,106
Total Company	Total Company	$	509,594	$	635,037	$	1,108,009	$	1,249,613	Total Company	$	519,574	$	598,415

⁽¹⁾ On June 25, 2020, ~~Itron closed on the sale of its~~we sold our Latin American operations. We ~~will~~ continue to sell into the region through an exclusive distributor.

Depreciation expense is allocated to the operating segments based upon each segment's use of the assets. All amortization expense is recognized within Corporate unallocated. Depreciation and amortization of intangible assets expense associated with our operating segments was as follows:


		Three Months Ended June 30,						Six Months Ended June 30,					Three Months Ended March 31,
In thousands	In thousands	2020		2019		2020		2019		In thousands	2021		2020
Device Solutions	Device Solutions	$	6,062	$	6,346	$	12,497	$	12,782	Device Solutions	$	6,188	$	6,435
Networked Solutions	Networked Solutions	4,333		3,205		8,070		6,453		Networked Solutions	4,275		3,737
Outcomes	Outcomes	1,412		1,285		2,805		2,587		Outcomes	1,234		1,393
Corporate unallocated	Corporate unallocated	12,392		17,805		24,858		35,246		Corporate unallocated	10,113		12,466
Total Company	Total Company	$	24,199	$	28,641	$	48,230	$	57,068	Total Company	$	21,810	$	24,031

Note 16: Revenues

A summary of significant net changes in the contract assets and the contract liabilities balances during the period is as follows:


In thousands	Contract ~~liabilities, less contract assets~~Liabilities, Less Contract Assets
Beginning balance, January 1, ~~2020~~2021	$	~~88,215~~98,388

Revenues recognized from beginning contract liability	~~(71,859)~~(58,754)
Cumulative catch-up adjustments	8,668
Increases due to amounts collected or due	~~181,878~~91,347
Revenues recognized from current period increases	~~(75,447)~~(7,434)
Other	~~(5,629)~~(447)
Ending balance, ~~June 30, 2020~~March 31, 2021	$	~~117,158~~131,768

On January 1, ~~2020,~~2021, total contract assets were ~~$50.7~~$49.8 million and total contract liabilities were ~~$138.9~~$148.2 million. On ~~June 30, 2020,~~March 31, 2021, total contract assets were ~~$49.6~~$35.3 million and total contract liabilities were ~~$166.8~~$167.1 million. The contract assets primarily relate to contracts that include a retention clause and allocations related to contracts with multiple performance obligations. The contract liabilities primarily relate to deferred revenue, such as extended warranty and maintenance cost. The cumulative catch-up adjustments relate to contract modifications, measure-of-progress changes, and changes in the estimate of the transaction price.

Transaction price allocated to the remaining performance obligations

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

Total transaction price allocated to remaining performance obligations related to contracts is approximately ~~$1.2~~$1.1 billion for the next twelve months and approximately ~~$1.1~~$1.5 billion for periods longer than 12 months. The total remaining performance obligations consist of product and service components. The service component relates primarily to maintenance agreements for which customers pay a full year's maintenance in advance, and service revenues are generally recognized over the service period. Total transaction price allocated to remaining performance obligations also includes our extended warranty contracts,

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for which revenue is recognized over the warranty period, and hardware, which is recognized as units are delivered. The estimate of when remaining performance obligations will be recognized requires significant judgment.

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Cost to obtain a contract and cost to fulfill a contract with a customer

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

Disaggregation of revenue

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

Note 17: Sale of Business

Latin America Divestiture

On June 25, 2020, we closed on the sale of 5 subsidiaries comprising our manufacturing and sales operations in Latin America to buyers led by Instalación Profesional y Tecnologías del Centro S.A. de C.V., a Mexican company doing business as Accell in Brazil (Accell), through the execution of various definitive stock purchase agreements. The sale of these Latin America-based operations is part of our continued strategy to improve profitability and focus on growing our Networked Solutions and Outcomes businesses in Latin America and throughout the world. We retained the intellectual property rights to our products sold in Latin America. As part of the transaction, we entered into an intellectual property license agreement whereby Accell ~~will pay~~pays a royalty on certain products manufactured by Accell using licensed Company intellectual property. In addition, Accell ~~will serve~~serves as anthe exclusive distributor for our Device Solutions, Networked Solutions, and Outcomes ~~products~~product and ~~services~~service offerings in Latin America.

~~Based~~The total sales price of $35 million included payment of $21.1 million for working capital, which was to be paid in full by December 31, 2020, as evidenced by a promissory note. In January 2021, we agreed to extend the payment terms on the ~~sales price and the net assets~~outstanding working capital balance of the 5 subsidiaries sold, we recognized an impairment loss of $56.9 million in the second quarter of 2020. The impairment was primarily due to the recognition of $52.1 million in foreign currency translation losses accumulated since the acquisition of these subsidiaries in 2006 and 2007, and allocated goodwill of $3.0$18.4 million. Accell ~~assumed all recognized liabilities, as well as all future liabilities,~~agreed to make monthly payments including interest through September 2022. During the quarter ended March 31, 2021, we received $3.5 million of ~~the subsidiaries. We have provided no indemnification for any future losses that may be incurred. The terms of the agreement allow for adjustments to~~payments on the working capital ~~amounts used~~note, including $0.7 million in ~~the calculation of the sales price and net assets written off for a period of 60 days following the close of the transaction.~~interest.

Of the total sales price, $2.5 million was received at closing, and the majority of the remaining portion is due by December 31, 2020. Included in the net assets sold was $6.1 million in cash. This resulted in net outflow of cash at closing of $3.6 million.

~~The~~We recognized additional loss on sale of business ~~was calculated as follows:~~


~~In thousands~~	~~Loss on sale of business~~
~~Sales price~~	$	~~35,008~~
~~Net assets sold (including working capital)~~	~~(36,002)~~
~~Currency translation adjustment loss~~	~~(52,088)~~
~~Goodwill allocated~~	~~(3,000)~~
~~Legal fees~~	~~(833)~~
~~Total loss on sale of business~~	$	~~(56,915)~~

for the quarter ended March 31, 2021 of $1.4 million driven primarily by $1.2 million in adjustment to the working capital note, resulting from a change to the currency denominations of the note.

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

The following discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and notes included in this report and with the consolidated financial statements and the notes thereto for the fiscal year ended December 31, ~~2019~~2020 filed with the Securities and Exchange Commission (SEC) in our Annual Report on Form 10-K on February ~~27, 2020 (2019~~24, 2021 (2020 Annual Report).

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

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

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Certain Forward-Looking Statements

This report contains, and our officers and representatives may from time to time make, "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are neither historical factors nor assurances of future performance. These statements are based on our expectations about,

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among others, revenues, operations, financial performance, earnings, liquidity, earnings per share, cash flows and restructuring activities including headcount reductions and other cost savings initiatives. This document reflects our current strategy, plans and expectations and is based on information currently available as of the date of this Quarterly Report on Form 10-Q. When we use words such as ~~"expect," "intend," "anticipate," "believe," "plan," “goal,” “seek,” "project," "estimate," "future," “strategy,” "objective," "may," “likely,” “should,”~~"expect", "intend", "anticipate", "believe", "plan", "goal", "seek", "project", "estimate", "future", "strategy", "objective", "may", "likely", "should", "will", "will~~" "will continue,"~~ continue", and similar expressions, including related to future periods, they are intended to identify forward-looking statements. Forward-looking statements rely on a number of assumptions and estimates. Although we believe the estimates and assumptions upon which these forward-looking statements are based are reasonable, any of these estimates or assumptions could prove to be inaccurate and the forward-looking statements based on these estimates and assumptions could be incorrect. Our operations involve risks and uncertainties, many of which are outside our control, and any one of which, or a combination of which, could materially affect our results of operations and whether the forward-looking statements ultimately prove to be correct. Actual results and trends in the future may differ materially from those suggested or implied by the forward-looking statements depending on a variety of factors. Therefore, you should not rely on any of these forward-looking statements. Some of the factors that we believe could affect our results include our ability to execute on our restructuring plan, our ability to achieve estimated cost savings, the rate and timing of customer demand for our products, rescheduling of current customer orders, changes in estimated liabilities for product warranties, adverse impacts of litigation, changes in laws and regulations, our dependence on new product development and intellectual property, future acquisitions, changes in estimates for stock-based and bonus compensation, increasing volatility in foreign exchange rates, international business risks, uncertainties caused by adverse economic conditions, including, without limitation those resulting from extraordinary events or circumstances such as the COVID-19 pandemic and other factors that are more fully described in Part I, Item 1A: ~~“Risk Factors”~~Risk Factors included in our ~~2019~~2020 Annual Report, ~~Part II - Item 1A of this document,~~ and other reports on file with the SEC. We ~~do not~~ undertake ~~any~~no obligation to ~~publicly~~ update or revise any forward-looking statement, whether written or oral.

The impact caused by the ongoing COVID-19 pandemic includes uncertainty as to the duration, spread, severity, and any ~~recurrence~~resurgence of the COVID-19 pandemic including other factors contributing to infection rates, such as reinfection or mutation of the virus, the effectiveness or widespread availability and application of vaccines, the duration and scope of related government orders and restrictions, impact on overall demand, impact on our customers’ businesses and workforce levels, disruptions of our business and operations, including the impact on our employees, limitations on, or closures of, our facilities, or the business and operations of our customers or suppliers. Our estimates and statements regarding the impact of COVID-19 are made in good faith to provide insight to our current and future operating and financial environment and any of these may materially change due to factors outside our control. For more information on risks associated with the COVID-19 pandemic, please see our ~~updated~~ risk in Part ~~II,~~I, Item ~~1A, “Risk Factors” of this document.~~1A: Risk Factors in our 2020 Annual Report.

Overview

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

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

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communicating measurement, control, or sensing endpoints such as our Itron® and OpenWay® Riva meters, Itron traditional ERT® technology, Intelis smart gas or water meters, 500G gas communication modules, 500W water communication modules; GenX networking products, network modules and interface cards; and specific network control

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and management software applications. The ~~IIoT~~Industrial Internet of Things (IIoT) solutions supported by this segment include automated meter reading (AMR), advanced metering infrastructure (AMI), smart grid and distribution automation, ~~(DA), and~~ smart street lighting and an ever-growing set of smart city ~~solutions.~~applications such as traffic management, smart parking, air quality monitoring, electric vehicle charging, customer engagement, digital signage, acoustic (e.g., gunshot) detection, and leak detection and mitigation for both gas and water systems. Our IIoT platform allows all of these industry and smart city applications to be run and managed on a single, multi-purpose network.

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

Non-GAAP Measures

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

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

Refer to the Non-GAAP Measures section below on pages ~~41-43~~42-44 for information about these non-GAAP measures and the detailed reconciliation of items that impacted free cash flow, non-GAAP operating expense, non-GAAP operating income, non-GAAP net income, adjusted EBITDA, and non-GAAP diluted EPS in the presented periods.

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Total Company Highlights

Highlights and significant developments for the three months ended March 31, 2021 compared with the three months ended~~June 30,~~March 31, 2020 ~~compared with the three months ended June 30, 2019~~

•Revenues were ~~$509.6~~$519.6 million compared with ~~$635.0~~$598.4 million in ~~2019,~~2020, a decrease of ~~$125.4~~$78.8 million, or ~~20%~~13%

•Gross margin was ~~27.2%~~,32.2% compared with ~~30.1%~~28.7% in ~~the same period last year~~2020

•Operating expenses ~~increased $36.2~~decreased $9.1 million, or ~~25%~~6%, compared with ~~2019, and included a~~ ~~$56.9 million loss on sale of business~~2020

•Net ~~loss~~income attributable to Itron, Inc. was ~~$62.8~~$12.6 million, compared with ~~net income of $19.4~~$8.7 million in ~~2019~~2020

•GAAP diluted EPS ~~decreased~~increased by ~~$2.05~~$0.09 to ~~a diluted loss per share of $1.56~~$0.30 as compared with ~~2019~~2020

•Non-GAAP net income attributable to Itron, Inc. was ~~$1.3~~$21.9 million compared with ~~$34.6~~$23.0 million in ~~2019~~2020

•Non-GAAP diluted EPS was ~~$0.03,~~$0.52, a decrease of ~~$0.84~~$0.05 compared with ~~2019~~2020

•Adjusted EBITDA was ~~$31.2~~$49.7 million compared with ~~$73.0~~$52.0 million in ~~2019~~2020

•Total backlog was ~~$2.9~~$3.4 billion, and twelve-month backlog was $1.3 billion at ~~June 30,~~March 31, 2021, compared with $3.0 billion and $1.3 billion at March 31, 2020

Financing Activity

~~Highlights and significant developments for~~On March 12, 2021, we closed the ~~six months ended~~sale of 4,472,222 shares of our common stock in a public offering, resulting in net proceeds to us of approximately ~~June 30, 2020 compared~~$389.4 million, after deducting underwriters’ discounts of the offering, as well as the sale of the Convertible Notes in a private placement to qualified institutional buyers, resulting in net proceeds to us of approximately $448.5 million after deducting initial purchasers’ discounts of the offering. Concurrently with the ~~six months ended~~ ~~June 30, 2019~~issuance of the Convertible Notes, we entered into the Convertible Note Hedge Transactions and Warrant Transactions. For further description of these transactions, refer to Item 1: Financial Statements (Unaudited), Note 6: Debt and Item 1: Financial Statements (Unaudited), Note 7: Derivative Financial Instruments included in this Quarterly Report on Form 10-Q.

•
~~Revenues were $1.11 billion compared with $1.25 billion~~

Credit Facility Amendment

On March 8, 2021, we entered into a third amendment to our 2018 credit facility, which modified provisions to permit cash settlement upon the conversion of the Convertible Notes, the Convertible Senior Note Hedge Transactions and Warrant Transactions and also to adjust certain settlement provisions for convertible indebtedness. See Item 1: Financial Statements (Unaudited), Note 7: Derivative Financial Instruments, included in ~~2019, a decrease~~this Quarterly Report on Form 10-Q, for further details of ~~$141.6 million, or 11%~~

•~~Gross margin was 28.0% compared with 30.3% in 2019~~

•~~Operating expenses increased $15.0 million, or 5%, compared with 2019,~~the Convertible Note Hedge Transactions and ~~included a~~ ~~$56.9 million loss on sale of business~~

•~~Net loss attributable to Itron, Inc. was $54.1 million, compared with net income of $17.5 million in 2019~~

•~~GAAP diluted EPS decreased by $1.79 to a diluted loss per share of $1.35 as compared with 2019~~

•~~Non-GAAP net income attributable to Itron, Inc. was $24.3 million compared with $62.5 million in 2019~~

•~~Non-GAAP diluted EPS was $0.60, a decrease of $0.97 compared with 2019~~

•~~Adjusted EBITDA was $83.2 million compared with $138.7 million in 2019~~Warrant Transactions.

Outlook for ~~2020~~2021 due to COVID-19

The COVID-19 pandemic has had global economic impacts including disrupting global supply chains and creating market volatility. The extent of the recent pandemic and its ongoing impact on our operations is volatile, but is being monitored closely by our management. ~~Certain~~During portions of the first half of 2020 certain of our European factories were closed ~~during portions of~~ ~~the~~ ~~first~~ ~~half of~~ ~~2020~~ due to government actions and local conditions, and ~~all had reopened as of the end of the second quarter. These closures as well as~~ any further closures that may be imposed on us could impact our results for ~~the remainder of 2020. We expect that certain of our customers’ projects and deployments may shift to later in 2020 and~~ 2021. ~~At this time, we expect that the~~se ~~Q2 2020 financial results of operations will be~~ ~~the~~ ~~most impacted by the pandemic.~~ Incremental costs ~~to us~~we have incurred related to COVID-19, such as personal protective equipment, increased cleaning and sanitizing of our facilities, and other such items, have not been material to date. At this time, we have not identified any significant decrease in long-term customer demand for our products and services. Certain of our customers' projects and deployments have continued to shift later into 2021 and beyond. For more information on risks associated with the COVID-19 pandemic, please see our ~~updated~~ risk in Part ~~II,~~I, Item 1A, ~~"Risk Factors".~~Risk Factors in our 2020 Annual Report.

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

~~Sale~~ ~~of Business~~

On June 25, 2020, we closed on the sale of five subsidiaries comprising our manufacturing and sales operations in Latin America to buyers led by Instalación Profesional y Tecnologías del Centro S.A. de C.V., a Mexican company doing business as Accell in Brazil (Accell), through the execution of various definitive stock purchase agreements. The sale of these Latin America-based operations is part of our continued strategy to improve profitability and focus on growing our Networked Solutions and Outcomes businesses in Latin America and throughout the world. We retained the intellectual property rights to our products sold in Latin America. As part of the transaction, we entered into an intellectual property license agreement

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whereby Accell will pay a royalty on certain products manufactured by Accell using licensed Company intellectual property. In addition, Accell will serve as an exclusive distributor for our Device Solutions, Networked Solutions, and Outcomes products and services offerings in Latin America. We recognized a loss on sale of business of $56.9 million in the second quarter of 2020, primarily due to foreign currency translation losses and allocated goodwill. Refer to Item 1: "Financial Statements (Unaudited), Note 17: Sale of Business" for more information.

~~Credit Facility~~

We drew $400 million U.S. dollars under the revolving line of credit within the 2018 credit facility on March 25, 2020. In light of the current uncertain environment, we deemed it prudent to increase our cash position and preserve future financial flexibility. The Total Net Leverage Ratio, as defined in the amended 2018 credit facility agreement, was unchanged by this drawing.

Total Company GAAP and Non-GAAP Highlights and Unit Shipments:


		Three Months Ended June 30,													Six Months Ended June 30,								Three Months Ended March 31,
In thousands, except margin and per share data	In thousands, except margin and per share data	2020			2019			% Change	2020			2019			% Change	In thousands, except margin and per share data	2021			2020			% Change
GAAP	GAAP															GAAP
Revenues	Revenues															Revenues
Product revenues	Product revenues	$	438,985		$	566,047		(22)%	$	967,122		$	1,110,897		(13)%	Product revenues	$	442,804		$	528,137		(16)%

Service revenues	Service revenues	70,609			68,990			2%	140,887			138,716			2%	Service revenues	76,770			70,278			9%

Total revenues	Total revenues	509,594			635,037			(20)%	1,108,009			1,249,613			(11)%	Total revenues	519,574			598,415			(13)%

Gross profit	Gross profit	$	138,517		$	191,214		(28)%	$	310,083		$	378,477		(18)%	Gross profit	$	167,044		$	171,566		(3)%
Operating expenses	Operating expenses	183,904			147,656			25%	329,100			314,096			5%	Operating expenses	136,104			145,196			(6)%
Operating income (loss)		(45,387)			43,558			NM	(19,017)			64,381			NM
Operating income																Operating income	30,940			26,370			17%
Other income (expense)	Other income (expense)	(12,299)			(15,022)			(18)%	(21,957)			(29,873)			(26)%	Other income (expense)	(12,699)			(9,658)			31%
Income tax provision	Income tax provision	(4,801)			(8,419)			(43)%	(12,351)			(14,540)			(15)%	Income tax provision	(4,661)			(7,550)			(38)%
Net income (loss) attributable to Itron, Inc.		(62,802)			19,446			NM	(54,118)			17,539			NM
Net income attributable to Itron, Inc.																Net income attributable to Itron, Inc.	12,603			8,684			45%

Non-GAAP⁽¹⁾	Non-GAAP⁽¹⁾															Non-GAAP(1)
Non-GAAP operating expenses	Non-GAAP operating expenses	$	118,187		$	128,041		(8)%	$	251,234		$	258,598		(3)%	Non-GAAP operating expenses	$	128,096		$	133,047		(4)%
Non-GAAP operating income	Non-GAAP operating income	20,330			63,173			(68)%	58,849			119,879			(51)%	Non-GAAP operating income	38,948			38,519			1%
Non-GAAP net income attributable to Itron, Inc.	Non-GAAP net income attributable to Itron, Inc.	1,326			34,600			(96)%	24,295			62,490			(61)%	Non-GAAP net income attributable to Itron, Inc.	21,947			22,969			(4)%
Adjusted EBITDA	Adjusted EBITDA	31,201			72,966			(57)%	83,174			138,724			(40)%	Adjusted EBITDA	49,723			51,973			(4)%

GAAP Margins and Earnings Per Share	GAAP Margins and Earnings Per Share															GAAP Margins and Earnings Per Share
Gross margin	Gross margin															Gross margin
Product gross margin	Product gross margin	25.0		%	29.2		%		26.2		%	29.1		%		Product gross margin	30.5		%	27.2		%
Service gross margin	Service gross margin	40.8		%	38.0		%		40.4		%	39.4		%		Service gross margin	41.6		%	40.0		%
Total gross margin	Total gross margin	27.2		%	30.1		%		28.0		%	30.3		%		Total gross margin	32.2		%	28.7		%

Operating margin	Operating margin	(8.9)		%	6.9		%		(1.7)		%	5.2		%		Operating margin	6.0		%	4.4		%
Net income (loss) per common share - Basic		$	(1.56)		$	0.49			$	(1.35)		$	0.44
Net income (loss) per common share - Diluted		$	(1.56)		$	0.49			$	(1.35)		$	0.44
Net income per common share - Basic																Net income per common share - Basic	$	0.30		$	0.22
Net income per common share - Diluted																Net income per common share - Diluted	$	0.30		$	0.21

Non-GAAP Earnings Per Share⁽¹⁾	Non-GAAP Earnings Per Share⁽¹⁾															Non-GAAP Earnings Per Share(1)
Non-GAAP diluted EPS	Non-GAAP diluted EPS	$	0.03		$	0.87			$	0.60		$	1.57			Non-GAAP diluted EPS	$	0.52		$	0.57

⁽¹⁾These measures exclude certain expenses that we do not believe are indicative of our core operating results. See pages ~~41-43~~42-44 for information about these non-GAAP measures and reconciliations to the most comparable GAAP measures.

~~Table~~Definition of ~~Contents~~

an Endpoint Under Management

~~Endpoints Summary~~

~~Our revenue~~An "endpoint under management" is ~~driven significantly by sales~~a unique endpoint, or data from that endpoint, which Itron manages via our networked platform or a third party's platform that is connected to one or multiple types of endpoints. ~~We classify~~Itron’s management of an endpoint occurs when on behalf of our client, we manage one or more of the physical endpoints, ~~into two categories:~~

•~~Standard Endpoints~~ –operating system, data, application, data analytics, and/or outcome deriving from this unique endpoint. Itron has the ability to monitor and/or manage endpoints or the data from the endpoints via NaaS, Software-as-a-Service, and/or a licensed offering at a remote location designated by our client. Our offerings typically, but not exclusively, provide an Itron product ~~delivered primarily via~~or Itron certified partner product to our Device Solutions segment. The majority of our standard endpoint devices are used for delivery and metrology in the electricity, water, and gas distribution industries, and have no built-in remote reading communication technology. However, some standard endpoint devices are shipped with non-Itron communications capabilities and are not a part of an Itron solution, such as the Smart Spec meters, and are classified as a standard endpoint.

•~~Networked Endpoints~~ ~~– an Itron product with~~clients that has the capability of one-way communication or two-way communication of data ~~including~~that may include remote ~~device~~product configuration and ~~upgrade (consisting primarily~~upgradability. Examples of these offerings include our Temetra, OpenWay®, OpenWay® orRiva and Gen ~~X technology).~~ X.

This metric primarily includes Itron ~~devices used in~~or third-party endpoints deployed within the electricity, water, and gas ~~distribution industries. Networked endpoints~~utility industries, as well as within cities and municipalities around the globe. Endpoints under management also include smart communication modules and network interface cards (NICs). within Itron’s platforms. At times, these NICs are communicating modules that ~~can be~~were sold separately from ~~the device~~an Itron product directly to our customers or to third party manufacturers for use in endpoints such as

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electric, water, and gas meters; streetlights and ~~smart city devices;~~other types of IIoT sensors ~~or another standard device~~and actuators; sensors and other capabilities that the end customer would like Itron to connect ~~to our OpenWay~~and manage on their behalf.

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

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

A summary of our endpoints ~~shipped~~under management is as follows:

Three Months Ended June 30, Six Months Ended June 30,
Units in thousands 2020 2019 2020 2019
Itron Endpoints
Standard endpoints 3,130 5,570 8,520 11,040
Networked endpoints 4,190 4,260 8,090 8,240
Total endpoints 7,320 9,830 16,610 19,280


	As of March 31,
Units in thousands		2021	2020
Endpoints Under Management		71,388	63,741

Results of Operations

Revenues and Gross Margin

The actual results of and effects of changes in foreign currency exchange rates on revenues and gross profit were as follows:


									Effect of Changes in Foreign Currency Exchange Rates		Constant Currency Change		Total Change
			Three Months Ended June 30,
In thousands					2020			2019
Total Company

		Revenues	$	509,594		$	635,037		$	(10,766)	$	(114,677)	$	(125,443)
		Gross profit	138,517			191,214			(2,623)		(50,074)		(52,697)

											Effect of Changes in Foreign Currency Exchange Rates		Constant Currency Change			Total Change								Effect of Changes in Foreign Currency Exchange Rates			Constant Currency Change			Total Change
			Six Months Ended June 30,																				Three Months Ended March 31,			Effect of Changes in Foreign Currency Exchange Rates			Constant Currency Change		Total Change
In thousands	In thousands				2020			2019												In thousands	2021											Total Change
Total Company	Total Company															Total Company
		Revenues	$	1,108,009		$	1,249,613		$	(19,180)	$	(122,424)	$	(141,604)	Revenues		$	519,574	$	598,415	$	17,692		$	(96,533)		$	(78,841)
		Gross profit	310,083			378,477			(4,489)		(63,905)		(68,394)		Gross profit		167,044		171,566		3,012			(7,534)			(4,522)

Revenues - Three months ended ~~June 30, 2020~~March 31, 2021 vs. Three ~~months ended June 30, 2019~~Months Ended March 31, 2020

Total revenues decreased ~~$125.4~~$78.8 million, or ~~20%~~13%, infor the first ~~2020 quarter~~three months of 2021, compared with the same period in ~~2019.~~2020. We ~~were negatively~~have been unfavorably impacted by ~~COVID-19,~~timing of customer projects and shipments that continue to be impacted by COVD-19, which ~~played a significant role in~~drove the lower year-over-year results. Product revenues decreased by ~~$127.1~~$85.3 million, and service revenues increased ~~slightly.~~by $6.5 million. Device Solutions decreased by ~~$88.6~~$29.5 million; Networked ~~Solution~~Solutions decreased by ~~$31.4 million;~~$52.5 million; and Outcomes ~~decreased~~increased by ~~$5.4~~$3.2 million when compared with the same period last year. Changes in exchange rates ~~unfavorably impacted total revenues in the 2020 period by $10.8 million, of which $9.1 million unfavorably impacted Device Solutions.~~

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~~Revenues - Six months ended June 30, 2020 vs. Six months ended June 30, 2019~~

~~Total revenues decreased $141.6 million, or 11%, for the first half of~~ ~~2020, compared with the same period in~~ ~~2019. We were negatively impacted by COVID-19, which played a significant role in lower year-over-year results. Product revenues decreased by $143.8 million, and service revenues increased slightly.~~ ~~Device Solutions decreased by $108.0 million; Networked Solutions decreased by $27.0 million; and Outcomes decreased by $6.6 million when compared with the same period last year. Changes in exchange rates unfavorably~~favorably impacted total revenues by ~~$19.2~~$17.7 million, of which ~~$16.7~~$13.4 million ~~unfavorably~~ favorably impacted Device Solutions.

Gross Margin - Three months ended ~~June 30, 2020~~March 31, 2021 vs. Three ~~months ended June 30, 2019~~

~~Gross margin in the~~ Months Ended March 31, 2020 ~~period was 27.2%, compared with 30.1% in~~ ~~2019~~. ~~We were negatively impacted by unfavorable product mix and manufacturing inefficiencies.~~ ~~Product sales gross margin decreased to 25.0% for the quarter in~~ ~~2020, compared with 29.2% in~~ ~~2019. Gross margin on service revenues increased to 40.8% in~~ ~~2020, compared with 38.0% in~~ ~~2019~~.

~~Gross Margin - Six months ended June 30, 2020 vs. Six months ended June 30, 2019~~

Gross margin for the current year was ~~28.0%~~32.2%, compared with ~~30.3%~~28.7% in ~~2019~~2020. ~~Unfavorable~~We were impacted by favorable product and solution mix and ~~manufacturing inefficiencies~~operating efficiencies in 2021 compared with the first quarter of 2020, which was more negatively impacted by COVID-19 ~~impacted our results.~~. Product sales gross margin ~~decreased~~increased to ~~26.2%~~30.5% in the ~~2020~~2021 period, compared with ~~29.1%~~27.2% in ~~2019~~2020, and gross margin on service revenues increased to ~~40.4%~~41.6%, compared with ~~39.4%~~40.0% in ~~2019~~2020.

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

Table of Contents

Operating Expenses

The actual results of and effects of changes in foreign currency exchange rates on operating expenses were as follows:


											Effect of Changes in Foreign Currency Exchange Rates		Constant Currency Change			Total Change
			Three Months Ended June 30,
In thousands					2020			2019
Total Company

		Sales, general and administrative	$	69,538		$	88,259		$	(1,048)	$	(17,673)	$	(18,721)
		Research and development	48,994			49,449			(212)		(243)		(455)
		Amortization of intangible assets	11,140			16,117			(87)		(4,890)		(4,977)
		Restructuring	(2,683)			(6,169)			(22)		3,508		3,486
		Loss on sale of business	56,915			—			—		56,915		56,915
		Total Operating expenses	$	183,904		$	147,656		$	(1,369)	$	37,617	$	36,248

											Effect of Changes in Foreign Currency Exchange Rates		Constant Currency Change			Total Change								Effect of Changes in Foreign Currency Exchange Rates			Constant Currency Change			Total Change
			Six Months Ended June 30,																				Three Months Ended March 31,			Effect of Changes in Foreign Currency Exchange Rates			Constant Currency Change		Total Change
In thousands	In thousands				2020			2019												In thousands	2021											Total Change
Total Company	Total Company															Total Company
		Sales, general and administrative	$	150,036		$	180,974		$	(2,277)	$	(28,661)	$	(30,938)	Sales, general and administrative		$	75,992	$	80,498	$	2,827		$	(7,333)		$	(4,506)
		Research and development	102,775			99,939			(343)		3,179		2,836		Research and development		51,727		53,781		949			(3,003)			(2,054)
		Amortization of intangible assets	22,305			32,090			(151)		(9,634)		(9,785)		Amortization of intangible assets		8,973		11,165		150			(2,342)			(2,192)
		Restructuring	(2,931)			1,093			(181)		(3,843)		(4,024)		Restructuring		(1,980)		(248)		(27)			(1,705)			(1,732)
		Loss on sale of business	56,915			—			—		56,915		56,915		Loss on sale of business		1,392		—		—			1,392			1,392
		Total Operating expenses	$	329,100		$	314,096		$	(2,952)	$	17,956	$	15,004	Total Operating expenses		$	136,104	$	145,196	$	3,899		$	(12,991)		$	(9,092)

Operating expenses ~~increased $36.2~~decreased $9.1 million for the ~~second quarter of 2020~~three months ended March 31, 2021 as compared with the same period in ~~2019.~~2020. This was primarily the result of ~~the $56.9 million loss on sale of business due to the recent Latin America divestiture. The increase was partially offset by~~ decreases of ~~$18.7~~$4.3 million in ~~sales, general and administrative expenses due to lower medical and~~ travel ~~expenses, and $5.0~~expense, $1.4 million in facility costs, $2.2 million in amortization of intangible assets, ~~compared with the 2019 period. Acquisition~~$1.7 million in restructuring, and $1.6 million in acquisition and integration ~~costs, which are~~expenses classified within sales, general and ~~administrative expenses, decreased by $8.9 million compared with the same period in 2019.~~

~~Table of Contents~~

Operating expenses increased $15.0 million for the six months ended June 30, 2020 as compared with the same period in 2019. This was primarily the result of the $56.9 million loss on sale of business due to the recent Latin America divestiture.administrative. The ~~increase~~overall decrease was partially offset by ~~decreases of $30.9~~a $3.0 million increase in sales, general and administrative expenses due to lower medical and travel expenses, and $9.8 million in amortization of intangible assets. Acquisition and integration costs, which are classified within sales, general and administrative expenses, decreased by $19.1 million compared with the same period in 2019.information technology expenses.

Other Income (Expense)

The following table shows the components of other income (expense):


		Three Months Ended June 30,					% Change			Six Months Ended June 30,							% Change							Three Months Ended March 31,				% Change
In thousands	In thousands	2020		2019					2020			2019			% Change	In thousands				2021				2020		% Change
Interest income	Interest income	$	1,258	$	534	136%	$	1,811		$	862		110%	Interest income				$	542			$	553
Interest expense	Interest expense	(10,678)		(12,294)		(13)%	(20,948)			(24,629)			(15)%	Interest expense						(7,780)				(10,270)			(24)%
Amortization of prepaid debt fees	Amortization of prepaid debt fees	(1,006)		(1,202)		(16)%	(2,013)			(2,402)			(16)%	Amortization of prepaid debt fees						(2,695)				(1,007)			168%
Other income (expense), net	Other income (expense), net	(1,873)		(2,060)		(9)%	(807)			(3,704)			(78)%	Other income (expense), net						(2,766)				1,066			(359)%
Total other income (expense)	Total other income (expense)	$	(12,299)	$	(15,022)	(18)%	$	(21,957)		$	(29,873)		(26)%	Total other income (expense)						$	(12,699)			$	(9,658)		31%

Total other income (expense) for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 was a net expense of ~~$12.3 million and $22.0~~$12.7 million, compared with net expense of ~~$15.0 million and $29.9~~$9.7 million in the same ~~periods~~period in ~~2019.~~2020.

The ~~lower~~higher total expense for the three months ended ~~June 30, 2020,~~March 31, 2021, as compared with the same period in ~~2019,~~2020, was primarily driven ~~primarily~~ by ~~$2.3~~$1.7 million in ~~lower interest expense for~~higher debt fee amortization, $1.7 million related to the ~~credit facility.~~

~~The decrease~~extinguishment of debt in other income (expense) ~~for the six months ended June 30, 2020, as compared with the same period in 2019, was primarily driven by $4.8~~, and $1.0 million ~~in lower interest expense for the credit facility and lower~~due to higher foreign currency exchange losses resulting from transactions denominated in a currency other than the reporting entity's functional currency. The increase was partially offset by a decrease of $2.4 million in interest expense for the term loan.

Income Tax Provision

For the three ~~and six~~ months ended ~~June 30, 2020,~~March 31, 2021, our income tax expense was ~~$4.8 million and $12.4~~$4.7 million compared with income tax expense of ~~$8.4 million and $14.5~~$7.6 million for the same ~~periods~~period in ~~2019.~~2020. Our tax rate for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 of ~~(8)% and (30)%~~26%, ~~respectively,~~ differed from the federal statutory rate of 21% primarily due to a significant loss recognized in the second quarter for the divestiture of the majority of our Latin American business activities. This loss was recognized for tax as a discrete item and resulted in no tax benefit. Other rate drivers include losses ~~experienced~~ in jurisdictions ~~with~~for which no benefit is recognized because of valuation allowances on deferred tax assets, the forecasted mix of earnings in domestic and international jurisdictions, a benefit related to ~~excess~~ stock-based compensation, and uncertain tax positions. Our tax rate for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 of ~~30% and 42%, respectively,~~45% differed from the federal statutory rate of 21% primarily due to losses in jurisdictions for which no benefit is recognized because of valuation allowances on deferred tax assets as well as the forecasted mix of earnings in domestic and international jurisdictions, a benefit related to ~~excess~~ stock-based compensation, and uncertain tax positions.

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

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Operating Segment Results

For a description of our operating segments, refer to Item 1: ~~"Financial~~Financial Statements (Unaudited), Note 15: Segment ~~Information".~~Information included in this Quarterly Report on Form 10-Q. The following tables and discussion highlight significant changes in trends or components of each operating segment:


		Three Months Ended June 30,									Six Months Ended June 30,									Three Months Ended March 31,
In thousands	In thousands	2020		2019		% Change			2020		2019		% Change			In thousands		2021		2020		% Change
Segment Revenues
Segment revenues																Segment revenues
Device Solutions	Device Solutions	$	129,165	$	217,723	(41)%			$	331,444	$	439,478	(25)%			Device Solutions		$	172,781	$	202,279	(15)%
Networked Solutions	Networked Solutions	324,480		355,916		(9)%			665,325		692,343		(4)%			Networked Solutions		288,314		340,845		(15)%
Outcomes	Outcomes	55,949		61,398		(9)%			111,240		117,792		(6)%			Outcomes		58,479		55,291		6%
Total revenues	Total revenues	$	509,594	$	635,037	(20)%			$	1,108,009	$	1,249,613	(11)%			Total revenues		$	519,574	$	598,415	(13)%

		Three Months Ended June 30,													Six Months Ended June 30,									Three Months Ended March 31,
		2020						2019					2020				2019					2021			2020
In thousands	In thousands	Gross Profit		Gross Margin		Gross Profit		Gross Margin	Gross Profit		Gross Margin		Gross Profit		Gross Margin	In thousands		Gross Profit		Gross Margin		Gross Profit		Gross Margin
Segment Gross Profit and Margin
Segment gross profit and margin																Segment gross profit and margin
Device Solutions	Device Solutions	$	11,948	9.3%		$	41,590	19.1%	$	44,315	13.4%		$	81,506	18.5%	Device Solutions		$	32,296	18.7%		$	32,367	16.0%
Networked Solutions	Networked Solutions	108,323		33.4%		126,243		35.5%	230,073		34.6%		253,311		36.6%	Networked Solutions		112,759		39.1%		121,750		35.7%
Outcomes	Outcomes	18,246		32.6%		23,381		38.1%	35,695		32.1%		43,660		37.1%	Outcomes		21,989		37.6%		17,449		31.6%
Total gross profit and margin	Total gross profit and margin	$	138,517	27.2%		$	191,214	30.1%	$	310,083	28.0%		$	378,477	30.3%	Total gross profit and margin		$	167,044	32.2%		$	171,566	28.7%

		Three Months Ended June 30,									Six Months Ended June 30,									Three Months Ended March 31,
In thousands	In thousands	2020		2019		% Change			2020		2019		% Change			In thousands		2021		2020		% Change
Segment Operating Expenses
Segment operating expenses																Segment operating expenses
Device Solutions	Device Solutions	$	13,068	$	13,235	(1)%			$	27,237	$	27,694	(2)%			Device Solutions		$	10,595	$	14,169	(25)%
Networked Solutions	Networked Solutions	30,941		28,208		10%			64,011		59,954		7%			Networked Solutions		33,468		33,070		1%
Outcomes	Outcomes	9,020		9,014		—%			18,271		18,883		(3)%			Outcomes		11,653		9,251		26%
Corporate unallocated	Corporate unallocated	130,875		97,199		35%			219,581		207,565		6%			Corporate unallocated		80,388		88,706		(9)%
Total operating expenses	Total operating expenses	$	183,904	$	147,656	25%			$	329,100	$	314,096	5%			Total operating expenses		$	136,104	$	145,196	(6)%

		Three Months Ended June 30,													Six Months Ended June 30,									Three Months Ended March 31,
		2020						2019					2020				2019					2021			2020
In thousands	In thousands	Operating Income (Loss)		Operating Margin		Operating Income (Loss)		Operating Margin	Operating Income (Loss)		Operating Margin		Operating Income (Loss)		Operating Margin	In thousands		Operating Income (Loss)		Operating Margin		Operating Income (Loss)		Operating Margin
Segment Operating Income (Loss) and Operating Margin
Segment operating income (loss) and operating margin																Segment operating income (loss) and operating margin
Device Solutions	Device Solutions	$	(1,120)	(0.9)%		$	28,355	13.0%	$	17,078	5.2%		$	53,812	12.2%	Device Solutions		$	21,701	12.6%		$	18,198	9.0%
Networked Solutions	Networked Solutions	77,382		23.8%		98,035		27.5%	166,062		25.0%		193,357		27.9%	Networked Solutions		79,291		27.5%		88,680		26.0%
Outcomes	Outcomes	9,226		16.5%		14,367		23.4%	17,424		15.7%		24,777		21.0%	Outcomes		10,336		17.7%		8,198		14.8%
Corporate unallocated	Corporate unallocated	(130,875)		(25.7)%		(97,199)		(15.3)%	(219,581)		(19.8)%		(207,565)		(16.6)%	Corporate unallocated		(80,388)		NM		(88,706)		NM
Total operating income (loss) and operating margin	Total operating income (loss) and operating margin	$	(45,387)	(8.9)%		$	43,558	6.9%	$	(19,017)	(1.7)%		$	64,381	5.2%	Total operating income (loss) and operating margin		$	30,940	6.0%		$	26,370	4.4%

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Device Solutions

The effects of changes in foreign currency exchange rates and the constant currency changes in certain Device Solutions segment financial results were as follows:


											Effect of Changes in Foreign Currency Exchange Rates		Constant Currency Change			Total Change
			Three Months Ended June 30,
In thousands					2020			2019
Device Solutions Segment

		Revenues	$	129,165		$	217,723		$	(9,078)	$	(79,480)	$	(88,558)
		Gross profit	11,948			41,590			(1,961)		(27,681)		(29,642)
		Operating expenses	13,068			13,235			(95)		(72)		(167)

											Effect of Changes in Foreign Currency Exchange Rates		Constant Currency Change			Total Change								Effect of Changes in Foreign Currency Exchange Rates			Constant Currency Change			Total Change
			Six Months Ended June 30,																				Three Months Ended March 31,			Effect of Changes in Foreign Currency Exchange Rates			Constant Currency Change		Total Change
In thousands	In thousands				2020			2019												In thousands	2021											Total Change
Device Solutions Segment	Device Solutions Segment															Device Solutions Segment
		Revenues	$	331,444		$	439,478		$	(16,711)	$	(91,323)	$	(108,034)	Revenues		$	172,781	$	202,279	$	13,425		$	(42,923)		$	(29,498)
		Gross profit	44,315			81,506			(3,466)		(33,725)		(37,191)		Gross profit		32,296		32,367		1,616			(1,687)			(71)
		Operating expenses	27,237			27,694			(206)		(251)		(457)		Operating expenses		10,595		14,169		358			(3,932)			(3,574)

Revenues - Three months ended ~~June 30, 2020~~March 31, 2021 vs. Three months ended ~~June 30, 2019~~March 31, 2020

Revenues decreased ~~$88.6~~$29.5 million, or ~~41%.~~15%, for the first three months of 2021 compared with the same period in 2020. Changes in foreign currency exchange rates ~~unfavorably~~favorably impacted revenues by ~~$9.1 million, and we had~~$13.4 million. Revenue decreased due to lower shipments ~~due~~ to ~~COVID-19 related factory closures in~~ Europe, Middle East and Africa, ~~(EMEA).~~

~~Revenues - Six months ended June 30, 2020 vs. Six months ended June 30, 2019~~

~~Revenues decreased $108.0~~COVID related delays and a decrease of $9.0 million ~~or 25%. Changes~~ in ~~foreign currency exchange rates unfavorably impacted revenues by $16.7 million, and we had lower shipments~~the Latin America region primarily due to ~~COVID-19.~~the sale of the business in June 2020.

Gross Margin - Three months ended ~~June 30, 2020~~March 31, 2021 vs. Three months ended ~~June 30, 2019~~March 31, 2020

For the three months ended ~~June 30, 2020,~~March 31, 2021, gross margin was ~~9.3%~~18.7%, compared with ~~19.1%~~16.0% for the same period in ~~2019.~~2020. The ~~980~~270 basis point ~~reduction~~increase over the prior year was primarily due to ~~manufacturing inefficiencies.~~

~~Gross Margin - Six months ended June 30, 2020 vs. Six months ended June 30, 2019~~

For the six months ended June 30, 2020, gross margin was 13.4%, compared with 18.5% for the same period in 2019. The 510 basis point reduction over the prior year was primarily due to $10.1 million of unfavorablefavorable product mix and ~~manufacturing~~reduced operating inefficiencies ~~partially offset by lower warranty expense~~related to COVID-19 compared with the first quarter of ~~$0.8 million.~~2020.

Operating Expenses - Three months ended ~~June 30, 2020~~March 31, 2021 vs. Three months ended ~~June 30, 2019~~March 31, 2020

Operating expenses decreased ~~$0.2~~$3.6 million, or ~~1%, compared with 2019. The decrease was primarily related to lower sales and marketing expense of $0.4 million, partially offset by an increase of $0.2 million in research and development expense.~~

~~Operating Expenses - Six months ended June 30, 2020 vs. Six months ended June 30, 2019~~

~~Operating expenses decreased $0.5 million, or 2%~~25%, for the first ~~half~~three months of ~~2020,~~2021 compared with the same period in ~~2019.~~2020. The decrease was primarily a result of ~~$0.3 million lower sales and marketing expense and $0.2 million~~ lower research and development ~~expense.~~costs.

~~Table of Contents~~

Networked Solutions

The effects of changes in foreign currency exchange rates and the constant currency changes in certain Networked Solutions segment financial results were as follows:


									Effect of Changes in Foreign Currency Exchange Rates		Constant Currency Change		Total Change
			Three Months Ended June 30,
In thousands					2020			2019
Networked Solutions Segment

		Revenues	$	324,480		$	355,916		$	(1,102)	$	(30,334)	$	(31,436)
		Gross profit	108,323			126,243			(380)		(17,540)		(17,920)
		Operating expenses	30,941			28,208			(16)		2,749		2,733

									Effect of Changes in Foreign Currency Exchange Rates		Constant Currency Change		Total Change								Effect of Changes in Foreign Currency Exchange Rates			Constant Currency Change		Total Change
			Six Months Ended June 30,																	Three Months Ended March 31,			Effect of Changes in Foreign Currency Exchange Rates					Constant Currency Change	Total Change
In thousands	In thousands				2020			2019											In thousands											Constant Currency Change	Total Change
Networked Solutions Segment	Networked Solutions Segment																Networked Solutions Segment
		Revenues	$	665,325		$	692,343		$	(1,491)	$	(25,527)	$	(27,018)	Revenues	$	288,314	$	340,845		$	2,963		$	(55,494)	$	(52,531)
		Gross profit	230,073			253,311			(537)		(22,701)		(23,238)		Gross profit	112,759		121,750			946			(9,937)		(8,991)
		Operating expenses	64,011			59,954			(38)		4,095		4,057		Operating expenses	33,468		33,070			84			314		398

Revenues - Three months ended ~~June 30, 2020~~March 31, 2021 vs. Three months ended ~~June 30, 2019~~March 31, 2020

Revenues decreased ~~$31.4~~$52.5 million, or 9%15%, ~~in 2020~~for the first three months of 2021 compared with ~~2019.~~the same period in 2020. The change was primarily due to ~~delayed~~the timing of project completion and the impact of COVID-19 on new deployments, ~~driven by COVID-19, with lower~~Lower product revenue of ~~$33.1~~$56.7 million was partially offset by higher maintenance service revenue of ~~$1.6 million.~~

~~Revenues - Six months ended June 30, 2020 vs. Six months ended June 30, 2019~~

Revenues decreased $27.0 million, or 4%, for the first half of 2020 compared with the same period in 2019. The change was primarily due to delayed deployments driven by COVID-19, with lower product revenue of $32.0 million partially offset by higher maintenance service revenue of $5.0$4.2 million.

Gross Margin - Three months ended ~~June 30, 2020~~March 31, 2021 vs. Three months ended ~~June 30, 2019~~March 31, 2020

Gross margin was ~~33.4%~~39.1% for the 2021 period, ~~ending June 30, 2020,~~ compared with ~~35.5%~~35.7% in ~~2019.~~2020. The ~~210~~340 basis point ~~decrease~~increase was primarily related to ~~higher supply chain costs.~~

~~Gross Margin - Six months ended June 30, 2020 vs. Six months ended June 30, 2019~~

~~Gross margin was 34.6% for the 2020 period,~~favorable product mix and reduced operating inefficiencies related to COVID-19 compared with ~~36.6% in 2019. The 200 basis point decrease was primarily related to higher supply chain costs.~~the first quarter of 2020.

Operating Expenses - Three months ended ~~June 30, 2020~~March 31, 2021 vs. Three months ended ~~June 30, 2019~~March 31, 2020

Operating expenses increased ~~$2.7~~$0.4 million, or ~~10%~~1%, for the ~~quarter in 2020,~~first three months of 2021, compared with the same period in ~~2019.~~2020. The increase was primarily ~~related to higher~~driven by increased investment in research and ~~development expenses of $3.1 million, partially offset by a decrease of $0.4 million in sales and marketing expenses.~~

~~Operating Expenses - Six months ended June 30, 2020 vs. Six months ended June 30, 2019~~

Operating expenses increased $4.1 million, or 7%, for the first half of 2020, compared with the same period in 2019. The increase was primarily related to higher research and development expenses of $4.9 million, partially offset by a decrease of $0.8 million in sales and marketing expenses.development.

Table of Contents

Outcomes

The effects of changes in foreign currency exchange rates and the constant currency changes in certain Outcomes segment financial results were as follows:


											Effect of Changes in Foreign Currency Exchange Rates		Constant Currency Change			Total Change
			Three Months Ended June 30,
In thousands					2020			2019
Outcomes Segment

		Revenues	$	55,949		$	61,398		$	(587)	$	(4,862)	$	(5,449)
		Gross profit	18,246			23,381			(283)		(4,852)		(5,135)
		Operating expenses	9,020			9,014			(12)		18		6

											Effect of Changes in Foreign Currency Exchange Rates		Constant Currency Change			Total Change								Effect of Changes in Foreign Currency Exchange Rates			Constant Currency Change			Total Change
			Six Months Ended June 30,																				Three Months Ended March 31,			Effect of Changes in Foreign Currency Exchange Rates			Constant Currency Change		Total Change
In thousands	In thousands				2020			2019												In thousands	2021											Total Change
Outcomes Segment	Outcomes Segment															Outcomes Segment
		Revenues	$	111,240		$	117,792		$	(979)	$	(5,573)	$	(6,552)	Revenues		$	58,479	$	55,291	$	1,303		$	1,885		$	3,188
		Gross profit	35,695			43,660			(486)		(7,479)		(7,965)		Gross profit		21,989		17,449		451			4,089			4,540
		Operating expenses	18,271			18,883			(33)		(579)		(612)		Operating expenses		11,653		9,251		28			2,374			2,402

Revenues - Three months ended ~~June 30, 2020~~March 31, 2021 vs. Three months ended ~~June 30, 2019~~

~~For the~~March 31, 2020 ~~period, revenues decreased $5.4 million, or 9%, compared with the 2019 period. This decline was driven by a decrease in software license sales.~~

Revenues ~~- Six months ended June 30, 2020 vs. Six months ended June 30, 2019~~

~~Revenues decreased $6.6~~increased $3.2 million, or 6%, for the first ~~half~~three months of ~~2020,~~2021 compared with ~~2019.~~the same period in 2020. This ~~decline~~increase was driven by ~~a decrease~~an increase in ~~hardware and~~ software license sales, professional services, and ~~professional services.~~maintenance.

Gross Margin - Three months ended ~~June 30, 2020~~March 31, 2021 vs. Three months ended ~~June 30, 2019~~March 31, 2020

Gross margin ~~decreased~~increased to ~~32.6% for the second quarter of 2020, compared with 38.1% for the same period last year. The 550 basis point decrease was driven by a less favorable product mix.~~

~~Gross Margin - Six months ended June 30, 2020 vs. Six months ended June 30, 2019~~

~~Gross margin decreased to 32.1%~~37.6% for the period ending in ~~2020,~~2021, compared with ~~37.1%~~31.6% for last year. The ~~500~~600 basis point ~~decrease~~increase was driven by ~~product~~favorable mix, ~~and infrastructure investments.~~driven by higher one-time software license sales.

Operating Expenses - Three months ended ~~June 30, 2020~~March 31, 2021 vs. Three months ended ~~June 30, 2019~~

~~Operating expenses for the~~March 31, 2020 ~~period were substantially flat, compared with the same period last year, with a $0.1 million increase in research and development expense offset by lower product marketing expense.~~

~~Operating Expenses - Six months ended June 30, 2020 vs. Six months ended June 30, 2019~~

Operating expenses for the first ~~half~~three months of ~~2020 decreased $0.6~~2021 increased $2.4 million, or 3%26%, compared with the same period last year. This increase was primarily related to ~~lower~~increased research and development investment of $1.7 million and higher product marketing expenses of ~~$0.5 million and lower research and development expenses of $0.1~~$0.7 million.

Corporate Unallocated

Corporate Unallocated Expenses - Three months ended ~~June 30, 2020~~March 31, 2021 vs. Three months ended ~~June 30, 2019~~March 31, 2020

Operating expenses not directly associated with an operating segment are classified as ~~"Corporate unallocated". These~~Corporate unallocated. For the first three months of 2021, Corporate unallocated expenses ~~increased $33.7~~decreased $8.3 million, or ~~35%~~9%, ~~for the three months ended June 30, 2020~~as compared with the same period in ~~2019.~~2020. This was primarily the result of ~~a $56.9 million loss on sale~~decreases of ~~business due to the Latin America divestiture. Partially offsetting the increase were $17.8~~$3.5 million in ~~reduced sales, general and administrative expenses due to lower medical and~~ travel ~~expenses, and a $5~~expense, $2.2 million ~~reduction~~ in amortization of intangible ~~assets. Acquisition~~assets, $1.7 million in restructuring, and $1.6 million in acquisition and integration ~~costs, which are~~expenses classified within sales, general and ~~administrative expenses, decreased by $8.9 million compared with the same period in 2019.~~

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~~Corporate Unallocated Expenses - Six months ended June 30, 2020 vs. Six months ended June 30, 2019~~

~~For the first half of 2020, corporate unallocated expenses increased $12.0 million, or 6%, compared with the 2019 period. This~~administrative. The overall decrease was ~~primarily the result of a $56.9 million loss on sale of business due to the Latin America divestiture. The increase was~~partially offset by ~~$29.3~~a $3.0 million increase in reduced sales, general and administrative expenses due to lower medical and travel expenses, and $9.8 million in lower amortization of intangible assets. Acquisition and integration costs, which are classified within sales, general and administrative expenses, decreased by $19.1 million compared with the same period in 2019.

information technology expenses.

Bookings and Backlog of Orders

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

Quarter Ended Quarterly
Bookings Ending
Total
Backlog Ending
12-Month
Backlog
In millions
June 30, 2020 $ 390 $ 2,895 $ 1,291
March 31, 2020 418 3,020 1,319
December 31, 2019 767 3,207 1,499
September 30, 2019 609 3,063 1,361
June 30, 2019 702 3,090 1,403

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Quarter Ended	Quarterly Bookings		Ending Total Backlog		Ending 12-Month Backlog
In millions
March 31, 2021	$	688	$	3,421	$	1,293
December 31, 2020	973		3,259		1,204
September 30, 2020	432		2,795		1,107
June 30, 2020	390		2,895		1,291
March 31, 2020	418		3,020		1,319

Financial Condition

Cash Flow Information


		Six Months Ended June 30,							Three Months Ended March 31,
In thousands	In thousands	2020		2019		In thousands	2021		2020
Cash provided by operating activities	Cash provided by operating activities	$	25,786	$	78,063	Cash provided by operating activities	$	49,955	$	18,894
Cash used in investing activities	Cash used in investing activities	(29,159)		(16,738)		Cash used in investing activities	(5,806)		(9,257)
Cash provided by (used in) financing activities		401,963		(46,527)
Effect of exchange rates on cash, cash equivalents, and restricted cash		(3,671)		727
Increase in cash, cash equivalents, and restricted cash		$	394,919	$	15,525
Cash provided by financing activities						Cash provided by financing activities	324,581		401,737
Effect of exchange rates on cash and cash equivalents						Effect of exchange rates on cash and cash equivalents	(1,071)		(6,758)
Increase in cash and cash equivalents						Increase in cash and cash equivalents	$	367,659	$	404,616

Cash and cash equivalents ~~and restricted cash~~ was ~~$544.8~~$574.6 million at ~~June 30, 2020,~~March 31, 2021, compared with ~~$149.9~~$206.9 million at December 31, ~~2019.~~2020. The ~~$394.9~~$367.7 million increase in cash and cash equivalents ~~and restricted cash~~ in the ~~2020~~2021 period was primarily the result of ~~a $400 million draw~~proceeds from ~~our credit facility~~convertible senior note and equity offering in March ~~2020,~~2021, along with cash flows from operating activities, partially offset by purchases of equity classified derivative contracts, repayment of term loan, and acquisitions of property, plant, and equipment.

Operating activities

Cash provided by operating activities during the ~~six~~three months in ~~2020~~2021 was ~~$25.8~~$50.0 million compared with ~~$78.1~~$18.9 million during the same period in ~~2019.~~2020. The ~~decrease~~increase was primarily due to lower ~~net income and increased cash used for working capital, including increased~~ variable compensation payouts.

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Investing activities

Cash used in investing activities during ~~2020~~the three months in 2021 was ~~$12.4~~$3.5 million ~~higher~~lower than in ~~2019.~~2020. This ~~increase~~decrease in use of cash was primarily related to the net cash ~~outflow for~~inflow related to the working capital note from the sale of our Latin America ~~operations,~~operation, and a ~~$2.5~~decrease of $1.2 million ~~greater~~in investment inof property, plant, and equipment.

Financing activities

Net cash provided by financing activities during the ~~six~~three months in ~~2020~~2021 was ~~$402.0~~$324.6 million, compared with net cash ~~used~~provided of ~~$46.5~~$401.7 million for the same period in ~~2019.~~2020. In March ~~2020,~~2021, we ~~drew on our revolver~~entered into a convertible senior note with proceeds used to pay off a portion of the term loan, which resulted in ~~the amount~~net repayment of ~~$400~~$15.0 million ~~to increase our cash position and preserve future financial flexibility. In 2019, we repurchased $25~~of debt. We also received $389.4 million ~~in shares~~from issuance of ~~our~~ common stock related to our equity offering, after deducting underwriters’ discounts of the offering, and ~~had net repayments~~purchased $38.8 million of equity classified derivative contacts. Cash payments for prepaid debt ~~of $22.2~~fees was $11.7 million.

Effect of exchange rates on cash and cash equivalents

The effect of exchange rates on the cash balances of currencies held in foreign denominations at ~~June 30, 2020~~March 31, 2021 was a decrease of ~~$3.7~~$1.1 million, compared with ~~an increase~~a decrease of ~~$0.7~~$6.8 million for the same period in ~~2019.~~2020. Our foreign currency exposure relates to non-U.S. dollar denominated balances in our international subsidiary operations.

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Free cash flow (Non-GAAP)

To supplement our Consolidated Statements of Cash Flows presented on a GAAP basis, we use the non-GAAP measure of free cash flow to analyze cash flows generated from our operations. The presentation of non-GAAP free cash flow is not meant to be considered in isolation or as an alternative to net income as an indicator of our performance, or as an alternative to cash flows from operating activities as a measure of liquidity. We calculate free cash flows, using amounts from our Consolidated Statements of Cash Flows, as follows:


		Six Months Ended June 30,							Three Months Ended March 31,
In thousands	In thousands	2020		2019		In thousands	2021		2020
Cash provided by operating activities	Cash provided by operating activities	$	25,786	$	78,063	Cash provided by operating activities	$	49,955	$	18,894
Acquisitions of property, plant, and equipment	Acquisitions of property, plant, and equipment	(29,049)		(26,511)		Acquisitions of property, plant, and equipment	(11,412)		(12,602)
Free cash flow	Free cash flow	$	(3,263)	$	51,552	Free cash flow	$	38,543	$	6,292

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

Off-balance sheet arrangements

We have no off-balance sheet financing agreements or guarantees as defined by Item 303 of Regulation S-K at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 that we believe could reasonably likely have a current or future effect on our financial condition, results of operations, or cash flows.

Liquidity and Capital Resources

Our principal sources of liquidity are cash flows from operations, borrowings, and the sale of our common stock. Cash flows may fluctuate and are sensitive to many factors including changes in working capital and the timing and magnitude of capital expenditures and payments of debt. Working capital, which represents current assets less current liabilities, continues to be in a net favorable position.

Financing Activity

On March 12, 2021, we closed the sale of 4,472,222 shares of our common stock in a public offering, resulting in net proceeds to us of approximately $389.4 million, after deducting underwriters’ discounts of the offering, as well as the sale of the Convertible Notes in a private placement to qualified institutional buyers, resulting in net proceeds to us of approximately $448.5 million after deducting initial purchasers’ discounts of the offering. Concurrently with the issuance of the Convertible Notes, we entered into the Convertible Note Hedge Transactions and Warrant Transactions. For further description of these transactions, refer to Item 1: Financial Statements (Unaudited), Note 6: Debt and Item 1: Financial Statements (Unaudited), Note 7: Derivative Financial Instruments included in this Quarterly Report on Form 10-Q.

Borrowings

On October 18, 2019 we amended our credit facility that was initially entered on January 5, 2018 (together with the amendment, the "2018 credit facility"). The 2018 credit facility provides for committed credit facilities in the amount of $1.2 billion U.S. dollars. The 2018 credit facility consists of a $650 million U.S. dollar term loan (the term loan) and a multicurrency revolving line of credit (the revolver) with a principal amount of up to $500 million. The revolver also contains a $300 million standby letter of credit sub-facility and a $50 million swingline sub-facility. The October 18, 2019, amendment extended the maturity date to October 18, 2024 and re-amortized the term loan based on the new balance as of the amendment date.

~~We drew $400 million in U.S. dollars under~~On October 19, 2020, we completed a second amendment to our 2018 credit facility. This amendment adjusts the ~~revolving line~~maximum total net leverage ratio thresholds for the period beginning with the fourth quarter of ~~credit within~~2020 through the fourth quarter of 2021 to allow for increased operational flexibility. The maximum leverage ratio is increased to 4.75:1 for the fourth quarter of 2020 and the first quarter of 2021 and 4.50:1 for the second quarter through the fourth quarter of 2021. An additional level of pricing was added to the existing pricing grid and is effective throughout the remaining term of the 2018 credit ~~facility in March 2020. In light~~facility. Beginning with the fourth quarter of 2020, the ~~current uncertain environment, we deemed it prudent~~commitment fee ranges from 0.15% to ~~increase our cash position~~0.30% and ~~preserve future financial flexibility. The Total Net Leverage Ratio,~~drawn amounts are subject to a margin ranging from 1.00% to 2.00%. Debt fees of approximately $1.4 million were incurred for the amendment, as ~~defined in~~well as other legal and advisory fees. Both the ~~amended 2018 credit facility agreement, is unchanged by this drawing.~~term loan and the revolver can be repaid without penalty. Amounts repaid on the term loan may not be reborrowed, and amounts borrowed under the revolver may be repaid and reborrowed until the revolver's maturity, at which time all outstanding loans together with all accrued and unpaid interest must be repaid.

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~~In December 2017~~On March 8, 2021, we entered into a third amendment to our 2018 credit facility, which modified provisions to permit cash settlement upon the conversion of the Convertible Notes, the Convertible Senior Note Hedge Transactions and ~~January 2018,~~Warrant Transactions and also to adjust certain settlement provisions for convertible indebtedness. See Item 1: Financial Statements (Unaudited), Note 7: Derivative Financial Instruments for further details of the Convertible Note Hedge Transactions and Warrant Transactions.

On March 9, 2021, we ~~issued~~submitted a ~~combined $400~~Notice of Redemption to the trustee to redeem all outstanding Senior Notes at a redemption price of 102.50%, in accordance with the indenture governing the Senior Notes, totaling $410 million. As of April 8, 2021 the Senior Notes have been fully discharged, and no principal or unpaid interest remains outstanding. The 2.5%, or $10 million, early redemption premium and write off of $11.1 million prepaid debt fees will be recognized in ~~aggregate principal amount~~the second quarter of ~~5.00% senior notes maturing January 15, 2026 (Senior Notes).~~2021.

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 approximately $448.5 million after deducting initial purchasers’ discounts of the offering. The proceeds were used to ~~refinance existing indebtedness related~~enter into the Convertible Hedge Transactions (which was partially offset by the proceeds from the Warrant Transactions) and, together with cash on hand, to redeem the ~~acquisition of SSNI, pay related fees and expenses, and for general corporate purposes. Interest on the~~outstanding Senior Notes ~~is payable semi-annually in arrears on January 15 and July 15, commencing on July 15, 2018. The $10 million interest payment due on July 15, 2020 was paid~~ as ~~of June 30, 2020. The Senior Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by each of our subsidiaries that guarantee the 2018 credit facility.~~

Prior to maturity, we may redeem some or all of the Senior Notes, together with accrued and unpaid interest, if any, plus a "make-whole" premium. On or after January 15, 2021, we may redeem some or all of the Senior Notes at any time at declining redemption prices equal to 102.50% beginning on January 15, 2021, 101.25% beginning on January 15, 2022 and 100.00% beginning on January 15, 2023 and thereafter to the applicable redemption date. In addition, before January 15, 2021, and subject to certain conditions, we may redeem up to 35% of the aggregate principal amount of Senior Notes with the net proceeds of certain equity offerings at 105.00% of the principal amount thereof to the date of redemption; provided that (i) at least 65% of the aggregate principal amount of Senior Notes remains outstanding after such redemption and (ii) the redemption occurs within 60 days of the closing of any such equity offering.described above.

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

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

Silver Spring Networks, Inc. Acquisition

As part of the acquisition of SSNI, we ~~announced an integration plan to obtain~~achieved approximately $50 million of annualized savings by the end of 2020. For the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, we paid out ~~$9.8~~$0.8 million and we have approximately $5$4 million to ~~$10~~$8 million of estimated cash payments remaining on the integration plan, the majority of which is expected to be paid out in the next 12 months. ~~We have recognized $0.3 million of acquisition and integration related expenses during the second quarter of 2020.~~

Restructuring

On September 17, 2020, our Board of Directors approved a restructuring plan (the 2020 Projects). The 2020 Projects include activities that continue our efforts to optimize its global supply chain and manufacturing operations, sales and marketing organizations, and other overhead. These projects are scheduled to be substantially complete by the end of 2022. We estimate pre-tax restructuring charges of $55 million to $65 million. Of the total estimated charge, approximately $35 million to $45 million will result in cash expenditures, and the remainder relates to non-cash charges.

For the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, we paid out a net ~~$7.4~~$5.9 million related to ~~the~~all our restructuring projects. As of ~~June 30, 2020, $44.7~~March 31, 2021, $60.6 million was accrued for these restructuring projects, of which ~~$15.6~~$30.2 million is expected to be paid ~~over~~within the next 12 months.

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

Other Liquidity Considerations

We have tax credits and net operating loss carryforwards in various jurisdictions that are available to reduce cash taxes. However, utilization of tax credits and net operating losses are limited in certain jurisdictions. Based on current projections, we expect to pay, net of refunds, approximately $1 million in U.S. federal taxes, $2 million in state taxes, and approximately $7 million in local and foreign taxes during ~~2020. We expect to receive approximately $7 million in U.S. federal tax refunds.~~2021. For a discussion of our tax provision and unrecognized tax benefits, see Item 1: ~~"Financial~~Financial Statements (Unaudited), Note 10: Income ~~Taxes".~~Taxes included in this Quarterly Report on Form 10-Q.

~~At June 30, 2020,~~As of March 31, 2021, we are under examination by certain tax authorities. We believe we have appropriately accrued for the expected outcome of all tax matters and do not currently anticipate that the ultimate resolution of these examinations will have a material adverse effect on our financial condition, future results of operations, or liquidity.

As of ~~June 30, 2020,~~March 31, 2021, there was ~~$38.4~~$56.7 million of cash and short-term investments held by certain foreign subsidiaries in which we are permanently reinvested for tax purposes. As a result of recent changes in U.S. tax legislation, any repatriation in the future would not result in U.S. federal income tax. Accordingly, there is no provision for U.S. deferred taxes on this cash. If this cash were repatriated to fund U.S. operations, additional withholding tax costs may be incurred. Tax is only one of the many factors that we consider in the management of global cash. Accordingly, the amount of taxes that we would need to accrue and pay to repatriate foreign cash could vary significantly.

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In several of our consolidated international subsidiaries, we have joint venture partners, who are minority shareholders. Although these entities are not wholly-owned by Itron, Inc., we consolidate them because we have a greater than 50% ownership interest and/or because we exercise control over the operations. The noncontrolling interest balance in our Consolidated Balance Sheets represents the proportional share of the equity of the joint venture entities, which is attributable to

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the minority shareholders. At ~~June 30, 2020, $3.0~~March 31, 2021, $19.0 million of our consolidated cash balance iswas held in our joint venture entities. As a result, the minority shareholders of these entities have rights to their proportional share of this cash balance, and there may be limitations on our ability to repatriate cash to the United States from these entities.

General Liquidity Overview

Notwithstanding the expected short to mid-term impacts of the COVID-19 pandemic, we expect to grow through a combination of internal new research and development, licensing technology from and to others, distribution agreements, partnering arrangements, and acquisitions of technology or other companies. We expect these activities to be funded with existing cash, cash flow from operations, borrowings, or the sale of our common stock or other securities. We believe existing sources of liquidity will be sufficient to fund our existing operations and obligations for the next 12 months and into the foreseeable future, but offer no assurances. Our liquidity could be affected by the stability of the electricity, gas, and water utility industries, competitive pressures, our dependence on certain key vendors and components, changes in estimated liabilities for product warranties and/or litigation, duration of the COVID-19 pandemic, future business combinations, capital market fluctuations, international risks, and other factors described under ~~"Risk Factors"~~Risk Factors within Item 1A of Part I of our ~~2019~~2020 Annual Report, as well as ~~"Quantitative~~Quantitative and Qualitative Disclosures About Market ~~Risk"~~Risk within Item 3 of Part I included in this Quarterly Report on Form 10-Q.

Contingencies

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

Critical Accounting Estimates and Policies

Our consolidated financial statements and accompanying notes are prepared in accordance with ~~U.S.~~ GAAP. Preparing consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. These estimates and assumptions are ~~based on historical experience and on various other assumptions management believes to be reasonable. Actual results could differ from the amounts reported and disclosed herein.~~affected by management's application of accounting policies. Our critical accounting policies that require the use of estimates and assumptions were discussed in detail in the ~~2019~~2020 Annual Report and have not changed materially.

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

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Non-GAAP Measures

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

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

Non-GAAP operating expenses and non-GAAP operating income – We define non-GAAP operating expenses as operating expenses excluding certain expenses related to the amortization of intangible assets, restructuring, loss on sale of business, corporate transition cost, and acquisition and ~~integration, and goodwill impairment.~~integration. We define non-GAAP operating income as operating income excluding the expenses related to the amortization of intangible assets, restructuring, loss on sale of business, corporate transition cost, and acquisition and ~~integration, and goodwill impairment.~~integration. Acquisition and integration related expenses

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

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

For interim periods ~~beginning the first quarter of 2019,~~ the budgeted annual effective tax rate (AETR) is used, adjusted for any discrete items, as defined in ~~ASC~~Accounting Standards Codification (ASC) 740 - Income Taxes. The budgeted AETR is determined at the beginning of the fiscal year. The AETR is revised throughout the year based on changes to our full-year forecast. If the revised AETR increases or decreases by 200 basis points or more from the budgeted AETR due to changes in the full-year forecast during the year, the revised AETR is used in place of the budgeted AETR beginning with the quarter the 200 basis point threshold is exceeded and going forward for all subsequent interim quarters in the year. We continue to assess the AETR based on latest forecast

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throughout the year and use the most recent AETR anytime it increases or decreases by 200 basis points or more from the prior interim period.

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

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

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

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Reconciliations of Non-GAAP Financial Measures to the Most Directly Comparable GAAP Financial Measures

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

TOTAL COMPANY RECONCILIATIONS Three Months Ended June 30, Six Months Ended June 30,
In thousands, except per share data 2020 2019 2020 2019
NON-GAAP OPERATING EXPENSES
GAAP operating expenses $ 183,904 $ 147,656 $ 329,100 $ 314,096
Amortization of intangible assets (11,140) (16,117) (22,305) (32,090)
Restructuring 2,683 6,169 2,931 (1,093)
Loss on sale of business (56,915) — (56,915) —
Corporate transition cost (7) (473) 33 (1,556)
Acquisition and integration related expense (338) (9,194) (1,610) (20,759)
Non-GAAP operating expenses $ 118,187 $ 128,041 $ 251,234 $ 258,598
NON-GAAP OPERATING INCOME
GAAP operating income (loss) $ (45,387) $ 43,558 $ (19,017) $ 64,381
Amortization of intangible assets 11,140 16,117 22,305 32,090
Restructuring (2,683) (6,169) (2,931) 1,093
Loss on sale of business 56,915 — 56,915 —
Corporate transition cost 7 473 (33) 1,556
Acquisition and integration related expense 338 9,194 1,610 20,759
Non-GAAP operating income $ 20,330 $ 63,173 $ 58,849 $ 119,879
NON-GAAP NET INCOME & DILUTED EPS
GAAP net income (loss) attributable to Itron, Inc. $ (62,802) $ 19,446 $ (54,118) $ 17,539
Amortization of intangible assets 11,140 16,117 22,305 32,090
Amortization of debt placement fees 963 1,159 1,926 2,315
Restructuring (2,683) (6,169) (2,931) 1,093
Loss on sale of business 56,915 — 56,915 —
Corporate transition cost 7 473 (33) 1,556
Acquisition and integration related expense 338 9,194 1,610 20,759
Income tax effect of non-GAAP adjustments (2,552) (5,620) (1,379) (12,862)
Non-GAAP net income attributable to Itron, Inc. $ 1,326 $ 34,600 $ 24,295 $ 62,490
Non-GAAP diluted EPS $ 0.03 $ 0.87 $ 0.60 $ 1.57
Non-GAAP weighted average common shares outstanding - Diluted 40,488 39,686 40,481 39,875
ADJUSTED EBITDA
GAAP net income (loss) attributable to Itron, Inc. $ (62,802) $ 19,446 $ (54,118) $ 17,539
Interest income (1,258) (534) (1,811) (862)
Interest expense 11,684 13,496 22,961 27,031
Income tax provision 4,801 8,419 12,351 14,540
Depreciation and amortization 24,199 28,641 48,230 57,068
Restructuring (2,683) (6,169) (2,931) 1,093
Loss on sale of business 56,915 — 56,915 —
Corporate transition cost 7 473 (33) 1,556
Acquisition and integration related expense 338 9,194 1,610 20,759
Adjusted EBITDA $ 31,201 $ 72,966 $ 83,174 $ 138,724
FREE CASH FLOW
Net cash provided by operating activities $ 6,892 $ 53,139 $ 25,786 $ 78,063
Acquisitions of property, plant, and equipment (16,447) (15,096) (29,049) (26,511)
Free Cash Flow $ (9,555) $ 38,043 $ (3,263) $ 51,552


TOTAL COMPANY RECONCILIATIONS				Three Months Ended March 31,
	In thousands, except per share data				2021		2020
	NON-GAAP OPERATING EXPENSES
		GAAP operating expenses			$	136,104	$	145,196
			Amortization of intangible assets		(8,973)		(11,165)
			Restructuring		1,980		248
			Loss on sale of business		(1,392)		—
			Corporate transition cost		—		40
			Acquisition and integration related expense		377		(1,272)
		Non-GAAP operating expenses			$	128,096	$	133,047

	NON-GAAP OPERATING INCOME
		GAAP operating income			$	30,940	$	26,370
			Amortization of intangible assets		8,973		11,165
			Restructuring		(1,980)		(248)
			Loss on sale of business		1,392		—
			Corporate transition cost		—		(40)
			Acquisition and integration related expense		(377)		1,272
		Non-GAAP operating income			$	38,948	$	38,519

	NON-GAAP NET INCOME & DILUTED EPS
		GAAP net income attributable to Itron, Inc.			$	12,603	$	8,684
			Amortization of intangible assets		8,973		11,165
			Amortization of debt placement fees		2,652		963
			Debt extinguishment		1,681		—
			Restructuring		(1,980)		(248)
			Loss on sale of business		1,392		—
			Corporate transition cost		—		(40)
			Acquisition and integration related expense		(377)		1,272
			Income tax effect of non-GAAP adjustments		(2,997)		1,173
		Non-GAAP net income attributable to Itron, Inc.			$	21,947	$	22,969

		Non-GAAP diluted EPS			$	0.52	$	0.57

		Non-GAAP weighted average common shares outstanding - Diluted			41,964		40,474

	ADJUSTED EBITDA
		GAAP net income attributable to Itron, Inc.			$	12,603	$	8,684
			Interest income		(542)		(553)
			Interest expense		10,475		11,277
			Income tax provision		4,661		7,550
			Debt extinguishment		1,681		—
			Depreciation and amortization		21,810		24,031
			Restructuring		(1,980)		(248)
			Loss on sale of business		1,392		—
			Corporate transition cost		—		(40)
			Acquisition and integration related expense		(377)		1,272
		Adjusted EBITDA			$	49,723	$	51,973

	FREE CASH FLOW
			Net cash provided by operating activities		$	49,955	$	18,894
			Acquisitions of property, plant, and equipment		(11,412)		(12,602)
		Free Cash Flow			$	38,543	$	6,292

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Item 3: Quantitative and Qualitative Disclosures about Market Risk

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

Interest Rate Risk

We are exposed to interest rate risk through our variable rate debt instruments. In March 2020, we entered into an interest rate swap, which is effective from June 30, 2020 to June 30, 2023, and converts $240 million of our LIBOR-based debt from a floating LIBOR interest rate to a fixed interest rate of 0.617% (excluding the applicable margin). The notional balance ~~will amortize~~amortizes to maturity at the same rate of the originally required ~~amortizations~~amortization on our term loan. On March 17, 2021, we paid a fee of $1.68 million to terminate the interest rate swap since the likelihood of LIBOR based interest payments were no longer probable of occurring. At ~~June 30, 2020,~~March 31, 2021, our LIBOR-based debt balance was ~~$950.2~~$61.1 million.

In April 2018, we entered into a cross-currency swap, which converts $56.0 million of floating rate LIBOR-based U.S. dollar denominated debt into 1.38% fixed rate euro denominated debt. This cross-currency swap matures on April 30, 2021 and mitigates the risk associated with fluctuations in interest and currency rates impacting cash flows related to a U.S. dollar denominated debt in a euro functional currency entity.

The table below provides information about our financial instruments that are sensitive to changes in interest rates and the scheduled minimum repayment of principal and the weighted average interest rates at ~~June 30, 2020.~~March 31, 2021. Weighted average variable rates in the table are based on implied forward rates in the Reuters U.S. dollar yield curve as of ~~June 30, 2020~~March 31, 2021 and our estimated leverage ratio, which determines our additional interest rate margin at ~~June 30, 2020.~~March 31, 2021.


Dollars in thousands	Dollars in thousands	2020			2021			2022			2023			2024			Total		Fair Value		Dollars in thousands	2021			2022			2023			2024			Total		Fair Value
Variable Rate Debt	Variable Rate Debt																				Variable Rate Debt
Principal: U.S. dollar term loan	Principal: U.S. dollar term loan	$	—		$	32,422		$	44,063		$	44,063		$	429,608		$	550,156	$	532,090	Principal: U.S. dollar term loan	$	—		$	—		$	—		$	61,094		$	61,094	$	59,749
Weighted average interest rate	Weighted average interest rate	1.67		%	1.63		%	1.62		%	1.69		%	1.82		%					Weighted average interest rate	1.88		%	1.95		%	2.33		%	2.80		%

Principal: Multicurrency revolving line of credit	Principal: Multicurrency revolving line of credit	$	—		$	—		$	—		$	—		$	400,000		$	400,000	$	385,272	Principal: Multicurrency revolving line of credit	$	—		$	—		$	—		$	—		$	—	$	—
Weighted average interest rate	Weighted average interest rate	1.67		%	1.63		%	1.62		%	1.69		%	1.82		%					Weighted average interest rate	1.88		%	1.95		%	2.33		%	2.80		%

Interest rate swap
Weighted average interest rate (pay) Fixed		0.62		%	0.62		%	0.62		%	0.62		%
Weighted average interest rate (receive) Floating LIBOR		0.17		%	0.13		%	0.12		%	0.15		%

Cross currency swap	Cross currency swap																				Cross currency swap
Weighted average interest rate (pay) Fixed - EURIBOR	Weighted average interest rate (pay) Fixed - EURIBOR	1.38		%	1.38		%														Weighted average interest rate (pay) Fixed - EURIBOR	1.38		%
Weighted average interest rate (receive) Floating - LIBOR	Weighted average interest rate (receive) Floating - LIBOR	0.17		%	0.17		%														Weighted average interest rate (receive) Floating - LIBOR	0.11		%

Based on a sensitivity analysis as of ~~June 30, 2020,~~March 31, 2021, we estimate that, if market interest rates average one percentage point higher in ~~2020~~2021 than in the table above, our financial results in ~~2020~~2021 would not be materially impacted.

We continually monitor and assess our interest rate risk and may institute additional interest rate swaps or other derivative instruments to manage such risk in the future.

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Foreign Currency Exchange Rate Risk

We conduct business in a number of countries. ~~As a result, approximately half of our revenues and operating expenses are~~Revenues denominated in ~~foreign~~functional currencies ~~which~~other than the U.S. dollar were 40% of total revenues for the three months ended March 31, 2021 compared with 39% for the same respective periods in 2020. These transactions expose our account balances to movements in foreign currency exchange rates that could have a material effect on our financial results. Our primary foreign currency exposure relates to non-U.S. dollar denominated transactions in our international subsidiary operations, the most significant of which is the euro. Revenues denominated in functional currencies other than the U.S. dollar were 31% and 35% of total revenues for the three and six months ended June 30, 2020 compared with 36% and 37% for the same respective periods in 2019.

We are also exposed to foreign exchange risk when we enter into non-functional currency transactions, both intercompany and ~~third party.~~third-party. At each period-end, non-functional currency monetary assets and liabilities are revalued with the change recognized to

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within other income ~~and expense.~~(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 ~~June 30, 2020,~~March 31, 2021, a total of 5040 contracts were offsetting our exposures from the euro, Pound sterling, Canadian dollar, Chinese ~~yuan, Mexican peso, Pound Sterling~~Yuan, Australian dollar and various other currencies, with notional amounts ranging from ~~$111,000~~$93,300 to $26.4 million. Based on a sensitivity analysis as of ~~June 30, 2020,~~March 31, 2021, we estimate that, if foreign currency exchange rates average ten percentage points higher in ~~2020~~2021 for these financial instruments, our financial results in ~~2020~~2021 would not be materially impacted.

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

Item 4: Controls and Procedures

Evaluation of disclosure controls and procedures

An evaluation was performed under the supervision and with the participation of our Company's management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e)) under the Securities Exchange Act of 1934 as amended. Based on that evaluation, the Company's management, including the Chief Executive Officer and Chief Financial Officer, concluded that as of ~~June 30, 2020,~~March 31, 2021, the Company's disclosure controls and procedures were effective to ensure the information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

Changes in internal controls over financial reporting

There have been no changes in our internal control over financial reporting during the three months ended ~~June 30, 2020~~March 31, 2021 that materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

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PART II: OTHER INFORMATION

Item 1: Legal Proceedings

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

Item 1A: Risk Factors

For a complete list of Risk Factors, refer to Part I, Item 1A: ~~"Risk Factors" of Part I~~Risk Factors of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019,~~2020, which was filed with the Securities and Exchange Commission on February ~~27, 2020.~~24, 2021.

We have been and will continue to be affected by the ongoing COVID-19 pandemic, and such effects could have an adverse effect on our business operations, results of operations, cash flows, and financial condition.

We have experienced disruptions to our business from the ongoing COVID-19 pandemic, and the full impact of the COVID-19 pandemic on all aspects of our business and geographic markets is highly uncertain and cannot be predicted with confidence. This includes how it may impact our customers, employees, vendors, strategic partners, managed services, and manufacturing operations. The COVID-19 pandemic has created significant volatility, uncertainty, and economic disruption, which may materially and adversely affect our business operations, cash flows, and financial condition.

The impact of the virus on third parties on which we rely, such as our suppliers, contract manufacturers, distributors, and strategic partners, cannot be fully known or controlled by us. As a result, we may experience difficulties sourcing components and other critical inventory. The impact of the COVID-19 pandemic on our customers and demand for our products is also uncertain. Due to resulting financial constraints, illness within their organizations, quarantine and travel restrictions placed upon our customers’ employees, as well as individual actions our customers may take in response to the spread of COVID-19, our customers may have difficulty in making timely payments to us or may have an inability or unwillingness to purchase our products and services. Also, certain of our projects require regulatory approvals, and our customers may experience delays in regulatory approvals. Any of these effects may materially and adversely affect us.

Our company is also taking measures, both voluntary and as a result of government directives and guidance, to mitigate the effects of the COVID-19 pandemic on us and others. These measures include, among others, restrictions on our employees' access to our physical work locations and the purchase of personal protective equipment. Additionally, we may implement the temporary closure or reduction in operations of certain of our manufacturing facilities, which is disruptive to our operations. We have also implemented measures to allow certain employees to work remotely, which may place a burden on our IT systems and may expose us to increased vulnerability to cyber-attack and other cyber-disruption. Many of these measures may result in incremental costs to us, and such costs may not be recoverable or adequately covered by our insurance. Further, any focus by our management on mitigating COVID-19 effects has required, and will continue to require, a large investment of time and resources, which may delay other value-add initiatives.

As a company with global operations, we are subject to numerous government jurisdictions at all levels that are addressing COVID-19 differently. The guidance and directives provided by these governmental authorities is difficult to predict, may be unclear in their application, and are unknown in duration. This includes uncertainty in governmental authorities’ assessments of our business as “essential”. If governmental authorities were to reverse their designation of our business as “essential”, it could have a material effect on our results of operations and cash flows.

The full extent to which the COVID-19 pandemic impacts us depends on numerous evolving factors and future developments that we are not able to predict at this time, including: medical advancements to treat or stop the virus, governmental, business, and other actions (which could include limitations on our operations to provide products or services); the duration of the outbreak and the related limitations on our ability to conduct business; or the length of time and velocity at which we will return to more normalized operations. In addition, we cannot predict the impact that COVID-19 will have on our customers, vendors, strategic partners, and other business partners, and each of their financial conditions; however, any material effect on these parties could materially and adversely impact us. The impact of COVID-19 may also include possible impairment or other charges and may exacerbate other risks discussed in Item 1A: Risk Factors in our Annual Report on Form 10-K, any of which could have a material effect on us. This situation is changing rapidly and additional impacts may arise that we are not aware of currently.

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

(a)Not applicable.

(b)Not applicable.

(c)Issuer Repurchase of Equity Securities

Period
Total Number of
Shares Purchased ⁽¹⁾
Average Price Paid per Share ⁽²⁾
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
In thousands
April 1, 2020 through April 30, 2020 — $ — — $ —
May 1, 2020 through May 31, 2020 9,045 62.63 — —
June 1, 2020 through June 30, 2020 — — — —
Total 9,045 —


Period	Total Number of Shares Purchased (1)	Average Price Paid per Share (2)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
					In thousands
January 1, 2021 through January 31, 2021	—	$	—	—	$	—
February 1, 2021 through February 28, 2021	4,308	102.18		—	—
March 1, 2021 through March 31, 2021	150	110.92		—	—
Total	4,458			—

⁽¹⁾Shares repurchased represent shares transferred to us by certain employees who vested in restricted stock units and used shares to pay all, or a portion of, the related taxes.

⁽²⁾Includes commissions.

Item 5: Other Information

(a)No information was required to be disclosed in a report on Form 8-K during the ~~second~~first quarter of ~~2020~~2021 that was not reported.

(b)Not applicable.

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Item 6: Exhibits



Exhibit Number						Description of Exhibits

4.1						Indenture, dated as of March 12, 2021, by and between Itron, Inc. and U.S. Bank National Association, as trustee (Previously filed as an Exhibit to the Company’s Current Report on Form 8-K (File 000-22418), filed on March 12, 2021).

4.2						Form of 0.00% Convertible Senior Note due 2026 (included in Exhibit 4.1) (Previously filed as an Exhibit to the Company’s Current Report on Form 8-K (File No. 000-22418), filed on March 12, 2021).

10.1						Form of Convertible Note Hedge (Previously filed as an Exhibit to the Company’s Current Report on Form 8-K (File No. 000-22418), filed on March 12, 2021).

10.2						Form of Warrant Confirmation (Previously filed as an Exhibit to the Company’s Current Report on Form 8-K (File No. 000-22418), filed on March 12, 2021).

10.3						Amendment No. 3, dated March 8, 2021, to the Credit Agreement, dated January 5, 2018 among Itron, Inc. and certain foreign borrowers, guarantors, lenders and issuing parties thereto, and Wells Fargo Bank, National Association, as administrative agent (Previously filed as an Exhibit to the Company’s Current Report on Form 8-K (File No. 000-22418), filed on March 12, 2021).

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

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

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

101						The following financial information from Itron, Inc.'s Quarterly Report on Form 10-Q for the quarter ended ~~June 30, 2020~~March 31, 2021 formatted in Inline XBRL (Extensible Business Reporting Language) includes: (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of Comprehensive Income (Loss), (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Equity, (v) the Consolidated Statements of Cash Flows, and (vi) Notes to the Consolidated Financial Statements.

104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the ~~Registrant~~registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ITRON, INC.

~~August~~May 3, ~~2020~~2021

By:

/s/ JOAN S. HOOPER

Date

Joan S. Hooper

Senior Vice President and Chief Financial Officer



			Page
PART I: FINANCIAL INFORMATION

Item 1: Financial Statements (Unaudited)

Consolidated Statements of Operations			1

Consolidated Statements of Comprehensive Income (Loss)			2

Consolidated Balance Sheets			3

Consolidated Statements of Equity			4

Consolidated Statements of Cash Flows			5

Notes to Consolidated Financial Statements			6

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations			2628

Item 3: Quantitative and Qualitative Disclosures About Market Risk			4445

Item 4: Controls and Procedures			4546


PART II: OTHER INFORMATION

Item 1: Legal Proceedings			4647

Item 1A: Risk Factors			4647

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds			47

Item 5: Other Information			47

Item 6: Exhibits			48


SIGNATURE			49


Period	Total Number of Shares Purchased ⁽¹⁾	Average Price Paid per Share ⁽²⁾		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
					In thousands
April 1, 2020 through April 30, 2020	—	$	—	—	$	—
May 1, 2020 through May 31, 2020	9,045	62.63		—	—
June 1, 2020 through June 30, 2020	—	—		—	—
Total	9,045			—