Segment Information

12 Months Ended

Dec. 31, 2018

Through September 30, 2018, we operated under the Itron brand worldwide and managed and reported under four operating segments: Electricity, Gas, Water, and Networks. Our Water operating segment included our global water, and heat and allocation solutions. Networks became a new operating segment with the acquisition of SSNI in January 2018. Our sales and marketing function was managed under each operating segment. Our research and development, service delivery, and manufacturing operations were managed on a worldwide basis to promote a global perspective in our operations and processes and yet still maintained alignment with the operating segments.

Effective October 1, 2018, we reorganized our operational reporting segmentation from Electricity, Gas, Water, and Networks to Device Solutions, Networked Solutions, and Outcomes. Prior period segment results have been recast to conform to the new segment structure. As part of our reorganization, we actively integrated our recent acquisitions and are making investment decisions and implementing an organizational structure that aligns with these new segments. In conjunction with the rollout of our new operating segments, we unified our go-to-market strategy with a single, global, sales force that sells the full portfolio of Itron solutions, products and services. We continue to manage our product development, service delivery, supply chain, and manufacturing operations on a worldwide basis to promote global, integrated oversight of our operations and to ensure consistency and interoperability between our operating segments.

With this reorganization, we will continue to operate under the Itron brand worldwide and will manage and report under the three operating segments: Device Solutions, Networked Solutions, and Outcomes.

We have three GAAP measures of segment performance: revenues, gross profit (gross margin), and operating income (operating margin). Intersegment revenues are minimal. Certain operating expenses are allocated to the operating segments based upon internally established allocation methodologies. Corporate operating expenses, interest income, interest expense, other income (expense), and income tax provision are neither allocated to the segments, nor are they included in the measure of 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 segments on a balance sheet basis.

Segment Products



Device Solutions	Device Solutions - 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., products where Itron is not offering the complete "end-to-end" solution, but only the hardware elements. Examples of the Device Solutions portfolio include basic meters that are shipped without Itron communications, such as our standard gas meters, electricity IEC meters, and water meters, in addition to our heat and allocation products; communicating meters that are not a part of an Itron solution such as the Linky meter; and the implementation and installation of non-communicating devices, such as gas regulators.

Networked Solutions	Networked Solutions - includes a combination of communicating devices (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, into one operating segment, the majority of the assets from the recently acquired SSNI organization with our legacy Itron networking products and software and the implementation and installation of communicating devices into one segment. This includes: 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. 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 smart city solutions.

Outcomes	Outcomes - includes our value-added, enhanced software and services operating segment 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 of these offerings include our meter data management and analytics offerings; our managed service solutions including network-as-a-service and platform-as-a-service, forecasting software and services; and any consulting-based engagement. Within the Outcomes segment, we also identify new business models, including performance-based contracting, to drive broader portfolio offerings across utilities and cities.

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



	Year Ended December 31,
	2018			2017			2016

	(in thousands)
Product revenues
Device Solutions	$	916,809		$	866,028		$	894,583
Networked Solutions	1,133,919			881,042			882,097
Outcomes	44,730			66,855			53,390
Total Company	$	2,095,458		$	1,813,925		$	1,830,070

Service revenues
Device Solutions	$	16,556		$	16,868		$	18,938
Networked Solutions	90,225			66,342			57,584
Outcomes	173,878			121,062			106,594
Total Company	$	280,659		$	204,272		$	183,116

Total revenues
Device Solutions	$	933,365		$	882,896		$	913,521
Networked Solutions	1,224,144			947,384			939,681
Outcomes	218,608			187,917			159,984
Total Company	$	2,376,117		$	2,018,197		$	2,013,186

Gross profit
Device Solutions	$	187,254		$	216,631		$	232,896
Networked Solutions	482,471			412,375			378,382
Outcomes	60,594			47,745			51,254
Total Company	$	730,319		$	676,751		$	662,532

Operating income
Device Solutions	$	130,988		$	159,641		$	178,161
Networked Solutions	360,779			322,367			291,235
Outcomes	16,634			4,915			16,239
Corporate unallocated	(558,093		)	(332,046		)	(384,642		)
Total Company	(49,692		)	154,877			100,993
Total other income (expense)	(59,459		)	(20,302		)	(16,366		)
Income (loss) before income taxes	$	(109,151	)	$	134,575		$	84,627

During the year ended December 31, 2017, we recognized an insurance recovery associated with warranty expenses previously recognized as a result of our 2015 product replacement notification. As a result, gross profit increased $8.0 million for the year ended December 31, 2017. After adjusting for the tax impact, the recovery resulted in an increase of $0.13 and $0.12 for basic and diluted EPS, respectively, for the year ended December 31, 2017.

For all periods presented, no single customer represents more than 10% of total Company.

Revenues by region were as follows:



	Year Ended December 31,
	2018		2017		2016

	(in thousands)
United States and Canada	$	1,442,792	$	1,137,508	$	1,126,787
Europe, Middle East, and Africa (EMEA)	733,732		672,942		698,106
Other	199,593		207,747		188,293
Total Company	$	2,376,117	$	2,018,197	$	2,013,186

Regional revenues as reported are based on the location of the selling entity.

Property, plant, and equipment, net, by geographic area were as follows:



	At December 31,
	2018		2017

	(in thousands)
United States	$	93,034	$	67,764
Outside United States	133,517		133,004
Total Company	$	226,551	$	200,768

Depreciation expense is allocated to the operating segments based upon each segments use of the assets. All amortization expense is included in Corporate unallocated. Depreciation and amortization expense was as follows:



	Year Ended December 31,
	2018		2017		2016

	(in thousands)
Device Solutions	$	25,022	$	25,757	$	25,158
Networked Solutions	12,671		7,758		9,137
Outcomes	6,572		3,826		3,041
Corporate unallocated	78,232		25,874		30,982
Total Company	$	122,497	$	63,215	$	68,318