Segment Information

9 Months Ended

Sep. 30, 2018

We operate under the Itron brand worldwide and manage and report under four operating segments: Electricity, Gas, Water, and Networks. Our Water operating segment includes our global water, and heat and allocation solutions. Networks became a new operating segment with the acquisition of SSNI. This structure allows each operating segment to develop its own go-to-market strategy, prioritize its marketing and research and development requirements, and focus on its strategic investments. Our sales and marketing function is managed under each operating segment. Our research and development, service delivery, and manufacturing operations are managed on a worldwide basis to promote a global perspective in our operations and processes and yet still maintain alignment with the operating segments.

We have three GAAP measures of segment performance: revenue, gross profit (margin), and operating income (margin). Intersegment revenues are minimal. Certain operating expenses are allocated to our Electricity, Gas, and Water operating segments based upon internally established allocation methodologies. We will not allocate operating expenses to our Networks operating segment until it is fully integrated and managed centrally. Corporate operating expenses, interest income, interest expense, other income (expense), and income tax provision are not allocated to the operating segments, nor are included in the measure of operating segment profit or loss. In addition, we allocate only certain production assets and intangible assets to our operating segments. We do not manage the performance of the operating segments on a balance sheet basis.

Segment Products



Electricity	Standard electricity (electromechanical and electronic) meters; smart network and data platform solutions that include one or several of the following: smart electricity meters; smart electricity communication modules; prepayment systems, including smart key, keypad, and smart card communication technologies; smart systems including handheld, mobile, and fixed network collection technologies; smart network technologies; meter data management software; knowledge application solutions; installation; implementation; and professional services including consulting and analysis.

Gas	Standard gas meters; smart network and data platform solutions that include one or several of the following: smart gas meters; smart gas communication modules; prepayment systems, including smart key, keypad, and smart card communication technologies; smart systems, including handheld, mobile, and fixed network collection technologies; smart network technologies; meter data management software; knowledge application solutions installation; implementation; and professional services including consulting and analysis.

Water	Standard water and heat meters; smart network and data platform solutions that include one or several of the following: smart water meters and communication modules; smart heat meters; smart systems including handheld, mobile, and fixed network collection technologies; meter data management software; knowledge application solutions; installation; implementation; and professional services including consulting and analysis.

Networks	Smart network and data platform solutions for electricity, gas, water and smart cities including advanced metering, distribution automation, demand-side management, and street lights. Solutions include one or several of the following: communications modules, access points, relays and bridges; network operating software, grid management, security and grid analytics managed services and SaaS; installation; implementation; and professional services including consulting and analysis.

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



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
	(in thousands)
Product revenues
Electricity	$	198,026		$	199,784		$	624,139		$	620,958
Gas	148,660			124,556			408,300			372,555
Water	106,653			109,644			350,814			327,549
Networks	72,377			—			195,487			—
Total Company	$	525,716		$	433,984		$	1,578,740		$	1,321,062

Service revenues
Electricity	$	38,816		$	40,358		$	115,686		$	108,267
Gas	8,087			7,224			23,218			22,136
Water	5,931			5,181			17,601			15,956
Networks	17,412			—			53,828			—
Total Company	$	70,246		$	52,763		$	210,333		$	146,359

Total revenues
Electricity	$	236,842		$	240,142		$	739,825		$	729,225
Gas	156,747			131,780			431,518			394,691
Water	112,584			114,825			368,415			343,505
Networks	89,789			—			249,315			—
Total Company	$	595,962		$	486,747		$	1,789,073		$	1,467,421

Gross profit
Electricity	$	74,549		$	76,492		$	221,511		$	222,387
Gas	55,812			46,529			139,826			147,880
Water	35,139			42,734			110,779			131,402
Networks	31,597			—			81,413			—
Total Company	$	197,097		$	165,755		$	553,529		$	501,669

Operating income (loss)
Electricity	$	25,853		$	17,317		$	52,082		$	52,240
Gas	31,279			20,469			18,176			59,177
Water	6,859			15,032			3,973			40,702
Networks	(15,624		)	—			(119,353		)	—
Corporate unallocated	(6,691		)	(14,592		)	(33,087		)	(45,438		)
Total Company	41,676			38,226			(78,209		)	106,681
Total other income (expense)	(16,174		)	(4,732		)	(45,193		)	(16,559		)
Income (loss) before income taxes	$	25,502		$	33,494		$	(123,402	)	$	90,122

For all periods presented, no customer represents more than 10% 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.

Revenues by region were as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
	(in thousands)
United States and Canada	$	376,676	$	259,796	$	1,080,709	$	824,630
Europe, Middle East, and Africa	177,356		171,924		564,178		493,505
Other⁽¹⁾	41,930		55,027		144,186		149,286
Total revenues	$	595,962	$	486,747	$	1,789,073	$	1,467,421


⁽¹⁾	The Other region includes our operations in Latin America and Asia Pacific.

Depreciation and amortization expense associated with our operating segments was as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
	(in thousands)
Electricity	$	6,008	$	6,687	$	18,952	$	17,772
Gas	4,363		5,084		12,819		13,831
Water	3,824		3,860		11,941		11,706
Networks	15,214		—		45,449		—
Corporate unallocated	1,040		901		3,267		2,691
Total Company	$	30,449	$	16,532	$	92,428	$	46,000

Subsequent Event

On October 1, 2018, we realigned our operational reporting segmentation from Electricity, Gas, Water, and Networks to Device Solutions, Networked Solutions, and Outcomes. We will report segment information under the new segment structure in our 2018 Annual Report on Form 10-K.