Segment Information

12 Months Ended

Dec. 31, 2019

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

We have three GAAP measures of segment performance: revenues, gross profit (gross margin), and operating income (operating margin). Intersegment revenues are minimal. Certain operating expenses are allocated to the operating segments based upon internally established allocation methodologies. Corporate operating expenses, interest income, interest expense, other income (expense), and the income tax provision (benefit) are neither allocated to the segments, nor are they included in the measure of segment performance. 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 to our heat and allocation products; communicating meters that are not a part of an Itron 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 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 products and software and the implementation and installation of communicating devices into one operating segment. 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 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 – 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 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,
In thousands	2019		2018		2017
Product revenues
Device Solutions	$	847,580	$	916,809	$	866,028
Networked Solutions	1,322,382		1,133,919		881,042
Outcomes	50,433		44,730		66,855
Total Company	$	2,220,395	$	2,095,458	$	1,813,925

Service revenues
Device Solutions	$	11,301	$	16,556	$	16,868
Networked Solutions	94,872		90,225		66,342
Outcomes	175,902		173,878		121,062
Total Company	$	282,075	$	280,659	$	204,272

Total revenues
Device Solutions	$	858,881	$	933,365	$	882,896
Networked Solutions	1,417,254		1,224,144		947,384
Outcomes	226,335		218,608		187,917
Total Company	$	2,502,470	$	2,376,117	$	2,018,197

Gross profit
Device Solutions	$	152,562	$	187,254	$	216,631
Networked Solutions	518,749		482,471		412,375
Outcomes	81,008		60,594		47,745
Total Company	$	752,319	$	730,319	$	676,751

Operating income
Device Solutions	$	97,753	$	130,988	$	159,641
Networked Solutions	397,325		360,779		322,367
Outcomes	43,803		16,634		4,915
Corporate unallocated	(406,198)		(558,093)		(332,046)
Total Company	132,683		(49,692)		154,877
Total other income (expense)	(59,651)		(59,459)		(20,302)
Income (loss) before income taxes	$	73,032	$	(109,151)	$	134,575

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.

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:


	Year Ended December 31,
In thousands	2019		2018		2017
United States and Canada	$	1,629,742	$	1,442,792	$	1,137,508
Europe, Middle East, and Africa (EMEA)	663,851		733,732		672,942
Latin America and Asia Pacific	208,877		199,593		207,747
Total Company	$	2,502,470	$	2,376,117	$	2,018,197

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


	At December 31,
In thousands	2019		2018
United States	$	99,615	$	93,034
Outside United States	133,613		133,517
Total Company	$	233,228	$	226,551

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


	Year Ended December 31,
In thousands	2019		2018		2017
Device Solutions	$	25,542	$	25,022	$	25,757
Networked Solutions	13,004		12,671		7,758
Outcomes	5,363		6,572		3,826
Corporate unallocated	70,491		78,232		25,874
Total Company	$	114,400	$	122,497	$	63,215