Earnings Per Share

3 Months Ended

Mar. 31, 2021

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


	Three Months Ended March 31,
In thousands, except per share data		2021		2020
Net income available to common shareholders		$	12,603	$	8,684

Weighted average common shares outstanding - Basic		41,526		40,043
Dilutive effect of stock-based awards		438		431
Dilutive effect of convertible notes		—		—
Weighted average common shares outstanding - Diluted		41,964		40,474
Net income per common share - Basic		$	0.30	$	0.22
Net income per common share - Diluted		$	0.30	$	0.21

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 0.1 million and 0.3 million stock-based awards were excluded from the calculation of diluted EPS for the three months ended March 31, 2021 and 2020 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

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.