Segment Information

9 Months Ended

Sep. 30, 2019

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 research and 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 continue to operate under the Itron brand worldwide and 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 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	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 standard endpoints 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 operating segments were as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
In thousands	2019			2018			2019			2018
Product revenues
Device Solutions	$	211,096		$	216,371		$	644,254		$	693,544
Networked Solutions	330,487			297,726			978,259			852,819
Outcomes	11,314			11,619			41,281			32,377
Total Company	$	552,897		$	525,716		$	1,663,794		$	1,578,740

Service revenues
Device Solutions	$	2,253		$	3,879		$	8,573		$	12,219
Networked Solutions	25,734			22,782			70,305			66,193
Outcomes	43,590			43,585			131,415			131,921
Total Company	$	71,577		$	70,246		$	210,293		$	210,333

Total revenues
Device Solutions	$	213,349		$	220,250		$	652,827		$	705,763
Networked Solutions	356,221			320,508			1,048,564			919,012
Outcomes	54,904			55,204			172,696			164,298
Total Company	$	624,474		$	595,962		$	1,874,087		$	1,789,073

Gross profit
Device Solutions	$	40,945		$	46,484		$	122,451		$	148,831
Networked Solutions	135,406			133,057			388,717			359,588
Outcomes	20,053			17,556			63,713			45,110
Total Company	$	196,404		$	197,097		$	574,881		$	553,529

Operating income (loss)
Device Solutions	$	27,905		$	33,019		$	81,717		$	105,721
Networked Solutions	105,637			103,998			298,994			265,882
Outcomes	10,843			6,372			35,620			9,966
Corporate unallocated	(104,946		)	(101,713		)	(312,511		)	(459,778		)
Total Company	39,439			41,676			103,820			(78,209		)
Total other income (expense)	(15,110		)	(16,174		)	(44,983		)	(45,193		)
Income (loss) before income taxes	$	24,329		$	25,502		$	58,837		$	(123,402	)

For the three months ended September 30, 2019, one customer represented 10% of total company revenues. For the nine months ended September 30, 2019, the same customer represented 11% of total company revenues. For the three and nine months ended September 30, 2018, no customer represented 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,
In thousands	2019		2018		2019		2018
United States and Canada	$	405,973	$	376,676	$	1,221,448	$	1,080,709
Europe, Middle East, and Africa	157,159		177,356		495,715		564,178
Other⁽¹⁾	61,342		41,930		156,924		144,186
Total revenues	$	624,474	$	595,962	$	1,874,087	$	1,789,073


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

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



	Three Months Ended September 30,				Nine Months Ended September 30,
In thousands	2019		2018		2019		2018
Device Solutions	$	6,373	$	6,127	$	19,155	$	19,043
Networked Solutions	3,077		3,152		9,530		9,467
Outcomes	1,408		1,621		3,995		4,968
Corporate unallocated	17,765		19,549		53,011		58,950
Total Company	$	28,623	$	30,449	$	85,691	$	92,428