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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________________________________________
Form 10-Q
(Mark One)
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period ended December 31, 2020
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the transition period from to
Commission file number: 001-08762
ITERIS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
1700 Carnegie Avenue, Suite 100
Santa Ana, California
(Address of principal executive office)
95-2588496
(I.R.S. Employer
Identification No.)
92705
(Zip Code)
(949) 270-9400
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
| Common Stock, $0.10 par value | ITI | The Nasdaq Stock Market LLC | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☒ | Non-accelerated filer | ☐ | Smaller reporting company | ☒ | |||||||||||||||||||||||||
| Emerging growth company | ☐ | |||||||||||||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
As of January 31, 2021, there were 41,640,592 shares of our common stock outstanding.
ITERIS, INC.
Quarterly Report on Form 10-Q
Table of Contents
|
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 2020 AND MARCH 31, 2020
|
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|
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE- AND NINE- MONTH PERIODS ENDED DECEMBER 31, 2020 AND 2019
|
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|
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED DECEMBER 31, 2020 AND 2019
|
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|
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE THREE- AND NINE- MONTH PERIODS ENDED DECEMBER 31, 2020 AND 2019
|
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Unless otherwise indicated in this report, the "Company," "we," "us" and "our" refer to Iteris, Inc. and its wholly-owned subsidiaries, ClearAg, Inc., Albeck Gerken, Inc., CheckPoint™, ClearGuide™, ClearFleet™, ClearMobility™, ClearRoute™, ClearPath 511®, CVIEW-Plus™, Edge®, EdgeConnect™, inspect™, iPeMS®, Iteris®, Iteris SPM™, Next®, P10™, P100™, P-Series™, PedTrax®, Pegasus™, Reverse 511®, SmartCycle®, SmartCycle Bike Indicator®, SmartSpan®, SPM™ (logo), UCRLink™, Vantage®, VantageLive!®, Vantage Next®, VantagePegasus®, VantageRadius®, Vantage Vector®, Velocity® and VersiCam™ are among, but not all of, the trademarks of Iteris, Inc. Any other trademarks or trade names mentioned herein are the property of their respective owners.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Iteris, Inc.
Unaudited Condensed Consolidated Balance Sheets
(In thousands, except par values)
|
December 31,
2020 |
March 31,
2020 |
||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 14,398 | $ | 14,217 | |||||||
| Restricted cash | 263 | 146 | |||||||||
| Short-term investments | 8,140 | 11,556 | |||||||||
|
Trade accounts receivable, net of allowance for doubtful accounts of $1,049 and $802 at December 31, 2020 and March 31, 2020, respectively
|
20,962 | 16,706 | |||||||||
| Unbilled accounts receivable | 9,515 | 9,848 | |||||||||
| Inventories | 4,607 | 3,040 | |||||||||
| Prepaid expenses and other current assets | 4,542 | 2,040 | |||||||||
| Assets held for sale, current portion | 44 | 1,476 | |||||||||
| Total current assets | 62,471 | 59,029 | |||||||||
| Property and equipment, net | 1,900 | 1,835 | |||||||||
| Right-of-use assets | 11,760 | 12,598 | |||||||||
| Intangible assets, net | 14,922 | 6,066 | |||||||||
| Goodwill | 28,348 | 20,590 | |||||||||
| Other assets | 1,576 | 1,213 | |||||||||
| Assets held for sale, noncurrent portion | 96 | 626 | |||||||||
| Total assets | $ | 121,073 | $ | 101,957 | |||||||
| Liabilities and stockholders’ equity | |||||||||||
| Current liabilities: | |||||||||||
| Trade accounts payable | $ | 6,698 | $ | 8,101 | |||||||
| Accrued payroll and related expenses | 9,819 | 7,508 | |||||||||
| Accrued liabilities | 5,448 | 3,665 | |||||||||
| Deferred revenue | 7,019 | 4,413 | |||||||||
| Liabilities held for sale, current portion | 883 | 2,828 | |||||||||
| Total current liabilities | 29,867 | 26,515 | |||||||||
| Lease liabilities | 10,507 | 11,638 | |||||||||
| Deferred income taxes | 214 | 190 | |||||||||
| Unrecognized tax benefits | 117 | 130 | |||||||||
| Other long-term liabilities | 2,846 | — | |||||||||
| Liabilities held for sale, noncurrent portion | 310 | 357 | |||||||||
| Total liabilities | 43,861 | 38,830 | |||||||||
| Commitments and contingencies (Note 7) | |||||||||||
| Stockholders’ equity: | |||||||||||
|
Preferred stock, $1.00 par value:
|
|||||||||||
|
Authorized shares — 2,000
|
|||||||||||
|
Issued and outstanding shares — none
|
— | — | |||||||||
|
Common stock, $0.10 par value:
|
|||||||||||
|
Authorized shares - 70,000 at December 31, 2020 and March 31, 2020
|
|||||||||||
|
Issued and outstanding shares — 41,347 at December 31, 2020 and 40,713 at March 31, 2020
|
4,134 | 4,071 | |||||||||
| Additional paid-in capital | 179,682 | 176,209 | |||||||||
| Accumulated deficit | (106,604) | (117,153) | |||||||||
| Total stockholders' equity | 77,212 | 63,127 | |||||||||
| Total liabilities and stockholders' equity | $ | 121,073 | $ | 101,957 | |||||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
1
Iteris, Inc.
Unaudited Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
|
Three Months Ended
December 31, |
Nine Months Ended
December 31, |
||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Product revenues | $ | 16,380 | $ | 12,960 | $ | 47,039 | $ | 41,272 | |||||||||||||||
| Service revenues | 11,790 | 13,777 | 38,387 | 37,218 | |||||||||||||||||||
| Total revenues | 28,170 | 26,737 | 85,426 | 78,490 | |||||||||||||||||||
| Cost of product revenues | 8,413 | 6,580 | 25,826 | 22,626 | |||||||||||||||||||
| Cost of service revenues | 8,107 | 9,524 | 25,724 | 24,969 | |||||||||||||||||||
| Cost of revenues | 16,520 | 16,104 | 51,550 | 47,595 | |||||||||||||||||||
| Gross profit | 11,650 | 10,633 | 33,876 | 30,895 | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Selling, general and administrative | 10,148 | 10,543 | 28,117 | 30,356 | |||||||||||||||||||
| Research and development | 1,435 | 1,213 | 3,483 | 3,115 | |||||||||||||||||||
| Amortization of intangible assets | 376 | 230 | 836 | 527 | |||||||||||||||||||
| Restructuring charges | — | — | 619 | — | |||||||||||||||||||
| Total operating expenses | 11,959 | 11,986 | 33,055 | 33,998 | |||||||||||||||||||
| Operating income (loss) | (309) | (1,353) | 821 | (3,103) | |||||||||||||||||||
| Non-operating income (expense): | |||||||||||||||||||||||
| Other income, net | 30 | 43 | 2 | 150 | |||||||||||||||||||
| Interest income, net | 11 | 67 | 108 | 148 | |||||||||||||||||||
| Income (loss) from continuing operations before income taxes | (268) | (1,243) | 931 | (2,805) | |||||||||||||||||||
| (Provision) benefit for income taxes | 7 | (9) | (55) | (35) | |||||||||||||||||||
| Net income (loss) from continuing operations | (261) | (1,252) | 876 | (2,840) | |||||||||||||||||||
| Income (loss) from discontinued operations before gain on sale, net of tax | 18 | (816) | (1,646) | (2,987) | |||||||||||||||||||
| Gain on sale of discontinued operations, net of tax | 31 | — | 11,319 | — | |||||||||||||||||||
| Net income (loss) from discontinued operations, net of tax | 49 | (816) | 9,673 | (2,987) | |||||||||||||||||||
| Net income (loss) | $ | (212) | $ | (2,068) | $ | 10,549 | $ | (5,827) | |||||||||||||||
| Income (loss) per share - basic: | |||||||||||||||||||||||
| Income (loss) per share from continuing operations | $ | (0.01) | $ | (0.03) | $ | 0.02 | $ | (0.07) | |||||||||||||||
| Income (loss) per share from discontinued operations | $ | 0.00 | $ | (0.02) | $ | 0.24 | $ | (0.08) | |||||||||||||||
| Net income (loss) per share | $ | (0.01) | $ | (0.05) | $ | 0.26 | $ | (0.15) | |||||||||||||||
| Income (loss) per share - diluted: | |||||||||||||||||||||||
| Income (loss) per share from continuing operations | $ | (0.01) | $ | (0.03) | $ | 0.02 | $ | (0.07) | |||||||||||||||
| Income (loss) per share from discontinued operations | $ | 0.00 | $ | (0.02) | $ | 0.23 | $ | (0.08) | |||||||||||||||
| Net income (loss) per share | $ | (0.01) | $ | (0.05) | $ | 0.25 | $ | (0.15) | |||||||||||||||
| Shares used in basic per share calculations | 41,212 | 40,593 | 40,978 | 38,466 | |||||||||||||||||||
| Shares used in diluted per share calculations | 41,212 | 40,593 | 41,543 | 38,466 | |||||||||||||||||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
2
Iteris, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)
|
Nine Months Ended
December 31, |
|||||||||||
| 2020 | 2019 | ||||||||||
| Cash flows from operating activities | |||||||||||
| Net income (loss) | $ | 10,549 | $ | (5,827) | |||||||
| Less: Net income (loss) from discontinued operations | 9,673 | (2,987) | |||||||||
| Net income (loss) from continuing operations | 876 | (2,840) | |||||||||
| Adjustments to reconcile net income (loss) from continuing operations to net cash provided by (used in) operating activities: | |||||||||||
| Right-of-use asset non-cash expense | 1,031 | 1,594 | |||||||||
| Deferred income taxes | 11 | (14) | |||||||||
| Depreciation of property and equipment | 551 | 576 | |||||||||
| Stock-based compensation | 2,071 | 1,779 | |||||||||
| Amortization of intangible assets | 1,236 | 872 | |||||||||
| Other | 71 | — | |||||||||
| Changes in operating assets and liabilities, net of effects of discontinued operation and acquisition: | |||||||||||
| Trade accounts receivable | (2,169) | 155 | |||||||||
| Unbilled accounts receivable and deferred revenue | 2,321 | 645 | |||||||||
| Inventories | (671) | (807) | |||||||||
| Prepaid expenses and other assets | (1,123) | (1,345) | |||||||||
| Trade accounts payable and accrued expenses | 163 | 978 | |||||||||
| Operating lease liabilities | (1,048) | (1,159) | |||||||||
| Net cash provided by operating activities - continuing operations | 3,320 | 434 | |||||||||
| Net cash used in operating activities - discontinued operations | (1,592) | (2,795) | |||||||||
| Net cash provided by (used in) operating activities | 1,728 | (2,361) | |||||||||
| Cash flows from investing activities | |||||||||||
| Purchases of property and equipment | (395) | (335) | |||||||||
| Purchase of short-term investments | (23,655) | (26,864) | |||||||||
| Maturities of investments | 27,000 | 11,675 | |||||||||
| Capitalized software development costs | (592) | (548) | |||||||||
| Cash paid in business acquisition, net of cash acquired | (15,000) | (5,581) | |||||||||
| Net cash used in investing activities - continuing operations | (12,642) | (21,653) | |||||||||
| Net cash provided by (used in) investing activities - discontinued operations | 9,690 | (30) | |||||||||
| Net cash used in investing activities | (2,952) | (21,683) | |||||||||
| Cash flows from financing activities | |||||||||||
| Proceeds from stock option exercises | 1,334 | 90 | |||||||||
| Proceeds from ESPP purchases | 188 | 376 | |||||||||
| Tax withholding payments for net share settlements of restricted stock units | — | (16) | |||||||||
| Proceeds from issuance of common stock, net of costs | — | 26,751 | |||||||||
| Net cash provided by financing activities - continuing operations | 1,522 | 27,201 | |||||||||
| Net cash provided by financing activities - discontinued operations | — | — | |||||||||
| Net cash provided by financing activities | 1,522 | 27,201 | |||||||||
| Increase in cash, cash equivalents and restricted cash | 298 | 3,157 | |||||||||
| Cash, cash equivalents and restricted cash at beginning of period | 14,363 | 7,071 | |||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 14,661 | $ | 10,228 | |||||||
| Supplemental cash flow information: | |||||||||||
| Cash paid during the year for: | |||||||||||
| Income taxes | $ | 102 | $ | 62 | |||||||
| Supplemental schedule of non-cash investing and financing activities: | |||||||||||
| Lease liabilities arising from obtaining right-of-use assets | $ | 533 | $ | 157 | |||||||
| Deferred purchase price receivable | $ | 1,500 | $ | — | |||||||
| Issuance of common stock in connection with acquisition | $ | — | $ | 4,535 | |||||||
| Deferred consideration related to TrafficCast acquisition | $ | 2,050 | $ | — | |||||||
| Working capital adjustment related to TrafficCast acquisition | $ | 625 | $ | — | |||||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
3
Iteris, Inc.
Unaudited Condensed Consolidated Statements of Stockholders’ Equity
(In thousands)
| Common Stock |
Additional
Paid-In Capital |
Accumulated
Deficit |
Total
Stockholders' Equity |
||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||
| Balance at March 31, 2020 | 40,713 | $ | 4,071 | $ | 176,209 | $ | (117,153) | $ | 63,127 | ||||||||||||||||||||
| Stock option exercises | 27 | 3 | 71 | — | 74 | ||||||||||||||||||||||||
| Stock-based compensation | — | — | 607 | — | 607 | ||||||||||||||||||||||||
| Issuance of shares pursuant to vesting of restricted stock units, net of payroll withholding taxes | 12 | 1 | (1) | — | — | ||||||||||||||||||||||||
| Net income | — | — | — | 10,348 | 10,348 | ||||||||||||||||||||||||
| Balance at June 30, 2020 | 40,752 | $ | 4,075 | $ | 176,886 | $ | (106,805) | $ | 74,156 | ||||||||||||||||||||
| Stock option exercises | 239 | 24 | 598 | — | 622 | ||||||||||||||||||||||||
| Issuance of shares pursuant to Employee Stock Purchase Plan | 42 | 4 | 184 | — | 188 | ||||||||||||||||||||||||
| Stock-based compensation | — | — | 667 | — | 667 | ||||||||||||||||||||||||
| Issuance of shares pursuant to vesting of restricted stock units, net of payroll withholding taxes | 77 | 8 | (8) | — | — | ||||||||||||||||||||||||
| Net income | — | 413 | 413 | ||||||||||||||||||||||||||
| Balance at September 30, 2020 | 41,110 | $ | 4,111 | $ | 178,327 | $ | (106,392) | $ | 76,046 | ||||||||||||||||||||
| Stock option exercises | 196 | 19 | 619 | — | 638 | ||||||||||||||||||||||||
| Stock-based compensation | — | — | 740 | — | 740 | ||||||||||||||||||||||||
| Issuance of shares pursuant to vesting of restricted stock units, net of payroll withholding taxes | 41 | 4 | (4) | — | — | ||||||||||||||||||||||||
| Net loss | — | — | — | (212) | (212) | ||||||||||||||||||||||||
| Balance at December 31, 2020 | 41,347 | $ | 4,134 | $ | 179,682 | $ | (106,604) | $ | 77,212 | ||||||||||||||||||||
| Common Stock |
Additional
Paid-In Capital |
Accumulated
Deficit |
Total
Stockholders' Equity |
||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||
| Balance at March 31, 2019 | 33,377 | $ | 3,338 | $ | 142,260 | $ | (111,543) | $ | 34,055 | ||||||||||||||||||||
| Stock option exercises | 10 | 1 | 13 | — | 14 | ||||||||||||||||||||||||
| Issuance of shares pursuant to Employee Stock Purchase Plan | 48 | 5 | 167 | — | 172 | ||||||||||||||||||||||||
| Stock-based compensation | — | — | 602 | — | 602 | ||||||||||||||||||||||||
| Issuance of shares pursuant to vesting of restricted stock units, net of payroll withholding taxes | 2 | — | — | — | — | ||||||||||||||||||||||||
| Issuance of common stock in connection with public offering | 6,183 | 618 | 26,133 | — | 26,751 | ||||||||||||||||||||||||
| Net loss | — | — | — | (1,572) | (1,572) | ||||||||||||||||||||||||
| Balance at June 30, 2019 | 39,620 | $ | 3,962 | $ | 169,175 | $ | (113,115) | $ | 60,022 | ||||||||||||||||||||
| Stock option exercises | 23 | 2 | 65 | — | 67 | ||||||||||||||||||||||||
| Stock-based compensation | — | — | 793 | — | 793 | ||||||||||||||||||||||||
| Issuance of shares pursuant to vesting of restricted stock units, net of payroll withholding taxes | 59 | 6 | (6) | — | — | ||||||||||||||||||||||||
| Issuance of common stock in connection with acquisition | 869 | 87 | 4,448 | — | 4,535 | ||||||||||||||||||||||||
| Net loss | — | — | — | (2,187) | (2,187) | ||||||||||||||||||||||||
| Balance at September 30, 2019 | 40,571 | $ | 4,057 | $ | 174,475 | $ | (115,302) | $ | 63,230 | ||||||||||||||||||||
| Stock option exercises | 5 | 1 | 8 | — | 9 | ||||||||||||||||||||||||
| Stock-based compensation | — | — | 654 | — | 654 | ||||||||||||||||||||||||
| Issuance of shares pursuant to Employee Stock Purchase Plan | 43 | 4 | 200 | — | 204 | ||||||||||||||||||||||||
| Issuance of shares pursuant to vesting of restricted stock units, net of payroll withholding taxes | 5 | — | (16) | — | (16) | ||||||||||||||||||||||||
| Net loss | — | — | — | (2,068) | (2,068) | ||||||||||||||||||||||||
| Balance at December 31, 2019 | 40,624 | $ | 4,062 | $ | 175,321 | $ | (117,370) | $ | 62,013 | ||||||||||||||||||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
4
Iteris, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
December 31, 2020
1.Description of Business and Summary of Significant Accounting Policies
Description of Business
Iteris, Inc. (referred to collectively with its wholly-owned subsidiaries, ClearAg, Inc., and Albeck Gerken, Inc. ("AGI"), in this report as "Iteris," the "Company," "we," "our," and "us") is a provider of smart mobility infrastructure management solutions. Our solutions enable municipalities, transportation agencies, and other transportation infrastructure providers to monitor, visualize, and optimize mobility infrastructure to help ensure roads are safe, travel is efficient, and communities thrive. As a pioneer in intelligent transportation systems ("ITS") technology, our intellectual property, products and software-as-a-service ("SaaS") offerings represent a comprehensive range of ITS solutions that we distribute to customers throughout the U.S. and internationally. We believe our products, solutions and services increase safety and decrease congestion within our communities, while also minimizing environmental impact. We continue to make significant investments to leverage our existing technologies and further expand both our advanced detection sensors and performance analytics systems in the transportation infrastructure market and we are always exploring strategic alternatives intended to optimize the value of our Company. Iteris was incorporated in Delaware in 1987 and has operated in its current form since 2004.
Recent Developments
COVID-19 Update
The COVID-19 pandemic (the “Pandemic”) has materially adversely impacted global economic conditions. More than nine months into the Pandemic, COVID-19 continues to have an unpredictable and unprecedented impact on the U.S. economy as federal, state and local governments react to this public health crisis with travel restrictions, quarantines and "stay-at-home" orders. The uncertainties caused by the Pandemic include, but are not limited to, supply chain disruptions, workplace dislocations, economic contraction, and downward pressure on some customer budgets and customer sentiment in general. While there has been no material impact to our business during the first three quarters of the fiscal year ending March 31, 2021 (“Fiscal 2021”), we did experience some work delays due to the Pandemic. Should such conditions become protracted or worsen or should longer term budgets or priorities of our clients be impacted, the Pandemic could negatively affect our business, results of operations and financial condition. The extent of the impact of the Pandemic on our business and financial results and volatility of our stock price will depend largely on future developments, including the duration of the spread of the outbreak, the impact on capital and financial markets and the related impact on the budgets and financial circumstances of our customers, all of which are highly uncertain and cannot be reasonably estimated as of this report.
Given the uncertainties surrounding the impacts of the Pandemic on the Company's future financial condition and results of operations, the Company has taken certain actions to preserve its liquidity, manage cash flow and strengthen its financial flexibility. Such actions include, but are not limited to, reducing discretionary spending, reducing capital expenditures, implementing restructuring activities, and reducing payroll costs, including employee furloughs, pay freezes and pay cuts. Refer to Note 4, Restructuring Activities, for more information.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was signed into law in the United States. The CARES Act provides relief to U.S. corporations through financial assistance programs and modifications to certain income tax provisions. The Company is applying certain beneficial provisions of the CARES Act, including the payroll tax deferral and the alternative minimum tax acceleration. Refer to Note 6, Income Taxes, for more information.
The Company assessed the impacts of the Pandemic on the estimates and assumptions used in preparing these unaudited condensed consolidated financial statements. The estimates and assumptions used in these assessments were based on management’s judgment and may be subject to change as new events occur and additional information is obtained. In particular, there is significant uncertainty about the duration and extent of the impact of the Pandemic and its resulting impact on global economic conditions. If economic conditions caused by the Pandemic do not recover as currently estimated by management, the Company’s financial condition, cash flows and results of operations may be materially impacted. See below for areas that required more judgments and estimates as a result of the Pandemic. The Company will continue to assess the effect on its operations by monitoring the spread of the Pandemic and the actions implemented to combat the virus throughout the world and its assessment of the impact of the Pandemic may change.
5
Inventory Valuation
The Company values inventory at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method. Net realizable value is determined by estimated expected selling prices based on anticipated recovery rates for slow-moving and obsolete inventory and other factors, such as market conditions, expected channel of distribution and current consumer demand and preferences.
Accounts Receivable
Accounts receivable are recorded net of an allowance for doubtful accounts. The Company estimates the allowance for doubtful accounts based on an analysis of the aging of accounts receivable, assessment of collectability, including any known or anticipated bankruptcies, customer-specific circumstances and an evaluation of current economic conditions.
Goodwill and Other Long-Lived Assets
The Company reviews its goodwill and other long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may be impaired. Impairment losses are measured and recorded for the excess of carrying value over its fair value, estimated based on expected future cash flows and other quantitative and qualitative factors. The Company performed a qualitative assessment of its goodwill to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying value and noted no indicators of impairment at December 31, 2020. The Company also reviewed its other long-lived assets and noted no indicators of impairment related to the Pandemic.
Sale of Agriculture and Weather Analytics Segment
On May 5, 2020, the Company completed the sale of substantially all of our assets used in connection with our Agriculture and Weather Analytics segment to DTN, LLC (“DTN”), an operating company of TBG AG, a Swiss-based holding company, pursuant to an Asset Purchase Agreement (the “Purchase Agreement”) signed on May 2, 2020, in exchange for a total purchase consideration of $12.0 million in cash, subject to working capital adjustments. Upon closing on May 5, 2020, the Company received $10.5 million in cash and $1.45 million and $50,000 will be paid by DTN at the 12-month and 18-month anniversaries of the closing date, respectively, subject to satisfactions of the conditions set forth in the Purchase Agreement relating to the transition of certain customers to DTN and the collection of certain receivables by DTN. See Note 3, Discontinued Operations, for further details on the sale of the Agriculture and Weather Analytics segment.
Restructuring Activities
On April 30, 2020, in connection with the sale of the Agriculture and Weather Analytics segment, the Board of Directors of Iteris, Inc. approved restructuring activities to better position the Company for increased profitability and growth. Restructuring charges of approximately $1.5 million were incurred for separation costs for certain employees who did not transition to DTN, additional positions that were eliminated to right-size the cost structure of the Company, and the impairment of certain lease-related assets. See Note 4, Restructuring Activities, for further details on the restructuring activities.
Acquisition of the Assets of TrafficCast International, Inc.
On December 6, 2020, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with TrafficCast International, Inc. (“TrafficCast”), a privately held company headquartered in Madison, Wisconsin that provides travel information technology, applications and content to customers throughout North America in the media, mobile technology, automotive and public sectors. Under the Purchase Agreement, the Company agreed to purchase from TrafficCast substantially all of its assets, composed of its travel information technology, applications and content (the “Business”). The transaction closed on December 7, 2020.
Under the Purchase Agreement, Iteris purchased from TrafficCast substantially all of the assets used in the conduct of the Business and assumed certain specified liabilities of the Business in exchange for a total purchase price of up to $17,000,000, with $15,000,000 paid in cash on the closing date, $1,000,000 held back as security for certain post-closing adjustments and post-closing indemnity obligations of TrafficCast, and a $1,000,000 earn out, that if earned, will be paid over two years based on the Business’ achievement of certain revenue targets. The Purchase Agreement also provides for customary post-closing adjustments to the purchase price tied to working capital balances of the Business at closing (see Note 11, Acquisitions).
The parties also entered into certain ancillary agreements that will provide Iteris with ongoing access to mapping and monitoring services that the Business uses to support its real-time and predictive travel data and associated content.
6
Basis of Presentation
Our unaudited condensed consolidated financial statements include the accounts of Iteris, Inc. and its subsidiaries, and have been prepared in accordance with the rules of the U.S. Securities and Exchange Commission (“SEC”) for interim reporting, which permit certain footnotes or other financial information that are normally required by generally accepted accounting principles in the U.S. (“GAAP”) to be condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in its Annual Report on Form 10-K for the fiscal year ended March 31, 2020 (“Fiscal 2020”), filed with the SEC on June 9, 2020. All intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three- and nine- month periods ended December 31, 2020 are not necessarily indicative of the results to be expected for Fiscal 2021 or any other periods.
During the first quarter of Fiscal 2021, the Company completed the sale of its Agriculture and Weather Analytics segment for total cash consideration of $12.0 million, subject to certain working capital adjustments and transaction costs. The Agriculture and Weather Analytics segment’s results of operations and related cash flows have been reclassified to net income (loss) from discontinued operations, respectively, for all periods presented. The assets and liabilities of the Agriculture and Weather Analytics segment have been reclassified to assets held for sale and liabilities held for sale, respectively, in the unaudited condensed consolidated balance sheet as of March 31, 2020. See Note 3, Discontinued Operations, for further information.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires our management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates made in the preparation of the consolidated financial statements include the collectability of accounts receivable and related allowance for doubtful accounts, projections of taxable income used to assess realizability of deferred tax assets, warranty reserves and other contingencies, costs to complete long-term contracts, indirect cost rates used in cost plus contracts, the valuation of inventories, the valuation of purchased intangible assets and goodwill, the valuation of investments, estimates of future cash flows used to assess the recoverability of long-lived assets and the impairment of goodwill, and fair value of our stock option awards used to calculate stock-based compensation.
Revenue Recognition
Product revenue related contracts with customers begin when we acknowledge a purchase order for a specific customer order of product to be delivered in the near term. These purchase orders are short-term in nature. Product revenue is recognized at a point in time upon shipment or upon customer receipt of the product, depending on shipping terms. The Company determined that this method best represents the transfer of goods as transfer of control typically occurs upon shipment or upon customer receipt of the product.
Service revenues, primarily derived from the Transportation Systems segment, are primarily from long-term engineering and consulting service contracts with governmental agencies. These contracts generally include performance obligations in which control is transferred over time. We recognize revenue on fixed fee contracts, over time, using the proportion of actual costs incurred to the total costs expected to complete the contract performance obligation. The Company determined that this method best represents the transfer of services as the proportion closely depicts the efforts or inputs completed towards the satisfaction of a fixed fee contract performance obligation. Time & Materials (“T&M”) and Cost Plus Fixed Fee (“CPFF”) contracts are considered to involve variable consideration. However, contractual performance obligations with these fee types qualify for the “Right to Invoice” practical expedient. Under this practical expedient, the Company is allowed to recognize revenue, over time, in the amount to which the Company has a right to invoice. In addition, the Company is not required to estimate such variable consideration upon inception of the contract and reassess the estimate each reporting period. The Company determined that this method best represents the transfer of services as, upon billing, the Company has a right to consideration from a customer in an amount that directly corresponds with the value to the customer of the Company’s performance completed to date.
Service revenues also consist of revenues derived from maintenance support and the use of the Company’s service platforms and APIs on a subscription basis. We generate this revenue from fees for maintenance and support, monthly active user fees, SaaS fees, and hosting and storage fees. In most cases, the subscription or transaction arrangement is a single performance obligation comprised of a series of distinct services that are substantially the same and that have the same pattern
7
of transfer (i.e., distinct days of service). The Company applies a time-based measure of progress to the total transaction price, which results in ratable recognition over the term of the contract. The Company determined that this method best represents the transfer of services as the customer obtains equal benefit from the service throughout the service period.
The Company accounts for individual goods and services separately if they are distinct performance obligations, which often requires significant judgment based upon knowledge of the products and/or services, the solution provided and the structure of the sales contract. In SaaS agreements, we provide a service to the customer that combines the software functionality, maintenance and hosting into a single performance obligation. In product-related contracts, a purchase order may cover different products, each constituting a separate performance obligation.
We generally estimate variable consideration at the most likely amount to which we expect to be entitled and in certain cases based on the expected value, which requires judgment. We include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us. We review and update these estimates on a quarterly basis.
The Company’s typical performance obligations include the following:
| Performance Obligation |
When Performance
Obligation is Typically Satisfied |
When Payment is
Typically Due |
How Standalone
Selling Price is Typically Estimated |
|||||||||||||||||
| Product Revenues | ||||||||||||||||||||
| Standard purchase orders for delivery of a tangible product | Upon shipment (point in time) | Within 30 days of delivery | Observable transactions | |||||||||||||||||
| Engineering services where the deliverable is considered a product | As work is performed (over time) | Within 30 days of services being invoiced | Estimated using a cost-plus margin approach | |||||||||||||||||
| Service Revenues | ||||||||||||||||||||
| Engineering and consulting services | As work is performed (over time) | Within 30 days of services being invoiced | Estimated using a cost-plus margin approach | |||||||||||||||||
| SaaS | Over the course of the SaaS service once the system is available for use (over time) | At the beginning of the contract period | Estimated using a cost-plus margin approach | |||||||||||||||||
Disaggregation of Revenue
The Company disaggregates revenue from contracts with customers into reportable segments and the nature of the products and services. See Note 12, Business Segment Information, for our revenue by reportable segments.
Trade Accounts Receivable and Contract Balances
We classify our right to consideration in exchange for goods and services as either a receivable or a contract asset. A receivable is a right to consideration that is unconditional (i.e. only the passage of time is required before payment is due). We present such receivables in trade accounts receivable, net, in our unaudited condensed consolidated balance sheets at their net estimated realizable value.
The Company maintains an allowance for doubtful accounts to provide for the estimated amount of receivables that will not be collected. If warranted, the allowance is increased by the Company’s provision for doubtful accounts, which is charged against income. All recoveries on receivables previously charged off are included in income, while direct charge-offs of receivables are deducted from the allowance.
A contract asset is a right to consideration that is conditional upon factors other than the passage of time. Contract assets are presented as unbilled accounts receivable on the accompanying unaudited condensed consolidated balance sheets. For example, we would record a contract asset if we record revenue on a professional services engagement, but are not entitled to bill until we achieve specified milestones.
8
Our contract assets and refund liabilities are reported in a net position on a contract basis at the end of each reporting period. Refund liabilities are consideration received in advance of the satisfaction of performance obligations.
Contract Fulfillment Costs
The Company evaluates whether or not we should capitalize the costs of fulfilling a contract. Such costs would be capitalized when they are not within the scope of other standards and: (1) are directly related to a contract; (2) generate or enhance resources that will be used to satisfy performance obligations; and (3) are expected to be recovered. As of December 31, 2020 and March 31, 2020, there was approximately $2,522,000 and $1,236,000, respectively, of contract fulfillment costs, which are presented in the accompanying unaudited condensed consolidated balance sheets as prepaid and other current assets. These costs primarily relate to the satisfaction of performance obligations related to the set up of SaaS platforms. These costs are amortized on a straight-line basis over the estimated useful life of the SaaS platform.
Transaction Price Allocated to the Remaining Performance Obligations
As of December 31, 2020 and March 31, 2020, the aggregate amount of transaction price allocated to remaining performance obligations was immaterial, primarily as a result of the termination provisions within our contracts, which make the duration of the accounting term of the contract one year or less.
Deferred Revenue
Deferred revenue in the accompanying unaudited condensed consolidated balance sheets is comprised of refund liabilities related to billings and consideration received in advance of the satisfaction of performance obligations.
Concentration of Credit Risk
Financial instruments that potentially subject us to a concentration of credit risk consist principally of cash and cash equivalents and trade accounts receivable.
Cash and cash equivalents consist primarily of demand deposits and money market funds maintained with several financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with high quality financial institutions, and therefore are believed to have minimal credit risk.
Our accounts receivable are primarily derived from billings with customers located throughout North America, as well as in Europe and South America. We generally do not require collateral or other security from our domestic customers. We maintain an allowance for doubtful accounts for potential credit losses, which losses have historically been within management’s expectations.
We currently have, and historically have had, a diverse customer base. For the three- and nine- month periods ended December 31, 2020 and 2019, no individual customer represented greater than 10% of our total revenues. As of December 31, 2020 and March 31, 2020, no individual customer represented greater than 10% of our total accounts receivable.
Fair Values of Financial Instruments
The fair value of cash equivalents, receivables, accounts payable and accrued expenses approximate carrying value because of the short period of time to maturity. Our investments are measured at fair value on a recurring basis.
The framework for measuring fair value and related disclosure requirements about fair value measurements are provided in Financial Accounting Standard Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurements (“ASC 820”). This pronouncement defines fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy prescribed by ASC 820 contains three levels as follows:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs other than quoted prices in active markets for identical assets or liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
9
Level 3—Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents consist of cash and short-term investments with initial maturities of 90 days or less.
As of December 31, 2020 and March 31, 2020, restricted cash was $263,000 and $146,000, respectively, related to cash restricted for shares purchased under the Employee Stock Purchase Plan ("ESPP") (see Note 9, Stock-Based Compensation, for further details on the ESPP).
Cash, cash equivalents and restricted cash presented in the accompanying unaudited condensed consolidated statements of cash flows consist of the following (in thousands):
|
December 31,
2020 |
March 31,
2020 |
||||||||||
| Cash and cash equivalents | $ | 14,398 | $ | 14,217 | |||||||
| Restricted cash | 263 | 146 | |||||||||
| $ | 14,661 | $ | 14,363 | ||||||||
Investments
The Company’s investments are classified as either held-to-maturity, available-for-sale or trading, in accordance with FASB ASC 320 – Investments – Debt and Equity Securities. Held-to-maturity securities are those securities that the Company has the positive intent and ability to hold until maturity. Trading securities are those securities that the Company intends to sell in the near term. All other securities not included in the held-to-maturity or trading category are classified as available-for-sale. Held-to-maturity securities are recorded at amortized cost, which approximates fair market value. Trading securities are carried at fair value with unrealized gains and losses charged to earnings. Available-for-sale securities are carried at fair value with unrealized gains and losses recorded within accumulated other comprehensive loss as a separate component of stockholders’ equity. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs, where available (see Note 5, Fair Value Measurements). As of December 31, 2020 and March 31, 2020, all of our investments are available-for-sale. Under FASB ASC 320-10-35, a security is considered to be other-than-temporarily impaired if the present value of cash flows expected to be collected are less than the security’s amortized cost basis (the difference being defined as the “Credit Loss”) or if the fair value of the security is less than the security’s amortized cost basis and the investor intends, or will be required, to sell the security before recovery of the security’s amortized cost basis. If an other-than-temporary impairment exists, the charge to earnings is limited to the amount of Credit Loss if the investor does not intend to sell the security, and will not be required to sell the security, before recovery of the security’s amortized cost basis. Any remaining difference between fair value and amortized cost is recognized in other comprehensive loss, net of applicable taxes. The Company evaluates whether the decline in fair value of its investments is other-than-temporary at each quarter-end. This evaluation consists of a review by management, and includes market pricing information and maturity dates for the securities held, market and economic trends in the industry and information on the issuer’s financial condition and, if applicable, information on the guarantors’ financial condition. Factors considered in determining whether a loss is temporary include the length of time and extent to which the investment’s fair value has been less than its cost basis, the financial condition and near-term prospects of the issuer and guarantors, including any specific events which may influence the operations of the issuer and the Company’s intent and ability to retain the investment for a reasonable period of time sufficient to allow for any anticipated recovery of fair value.
Allowance for Doubtful Accounts
The collectability of our accounts receivable is evaluated through review of outstanding invoices and ongoing credit evaluations of our customers’ financial condition. In cases where we are aware of circumstances that may impair a specific customer’s ability to meet its financial obligations subsequent to the original sale, we will record an allowance against amounts due, and thereby reduce the net recognized accounts receivable to the amount we reasonably believe will be collected. We also maintain an allowance based on our historical collections experience. When we determine that collection is not likely, we write off accounts receivable against the allowance for doubtful accounts.
10
Inventories
Inventories consist of finished goods, work-in-process and raw materials and are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method.
Property and Equipment
Property and equipment are recorded at cost and are depreciated using the straight-line method over the estimated useful life ranging from three to eight years. Leasehold improvements are depreciated over the term of the related lease or the estimated useful life of the improvement, whichever is shorter.
Intangible Assets
Intangible assets with determinable economic lives are carried at cost, less accumulated amortization. Amortization is computed over the estimated useful life of each asset on a straight-line basis. The Company determines the useful lives of identifiable intangible assets after considering the specific facts and circumstances related to each intangible asset. Factors the Company considers when determining useful lives include the contractual term of any agreement related to the asset, the historical performance of the asset, the Company's long-term strategy for using the asset, any laws or other local regulations which could impact the useful life of the asset and other economic factors, including competition and specific market conditions.
Goodwill and Long-Lived Assets
We perform an annual qualitative assessment of our goodwill during the fourth fiscal quarter, or more frequently, to determine if any events or circumstances exist, such as an adverse change in business climate or a decline in overall industry demand, that would indicate that it would more likely than not reduce the fair value of a reporting unit below its carrying amount, including goodwill. If events or circumstances do not indicate that the fair value of a reporting unit is below its carrying amount, then goodwill is not considered to be impaired and no further testing is required; if otherwise, we compare the fair value of our reporting unit to its carrying value, including goodwill. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, the amount by which the carrying value of the goodwill exceeds its implied fair value, if any, is recognized as an impairment loss. We monitor the indicators for goodwill impairment testing between annual tests. As of December 31, 2020, there were no indicators of goodwill impairment.
We test long-lived assets and purchased intangible assets (other than goodwill) for impairment if we believe indicators of impairment exist. We determine whether the carrying value of an asset or asset group is recoverable, based on comparisons to undiscounted expected future cash flows the asset or asset group is expected to generate. If an asset is not recoverable, we record an impairment loss equal to the amount by which the carrying value of the asset exceeds its fair value. We primarily use the income valuation approach to determine the fair value of our long-lived assets and purchased intangible assets. During the three months ended June 30, 2020, we recorded $313,000 in impairment charges related to right-of-use assets and leasehold improvements directly resulting from the restructuring activities. There were no additional impairment or restructuring charges during the nine months ended December 31, 2020. See Note 4, Restructuring Activities, for further details on the restructuring activities.
Income Taxes
We utilize the asset and liability method of accounting for income taxes, under which deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded when it is more-likely-than-not that some or all of the deferred tax assets will not be realized, which increases our income tax expense in the period such determination is made. As such, as of December 31, 2020, we determined it was appropriate to record a full valuation allowance against our deferred tax assets. We will continuously reassess the appropriateness of maintaining a valuation allowance.
Income tax positions must meet a more-likely-than-not recognition threshold to be recognized. Income tax positions that previously failed to meet the more-likely-than-not threshold are recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not threshold are derecognized in the first subsequent financial reporting period in which that threshold is no longer met.
11
Stock-Based Compensation
We record stock-based compensation in our unaudited condensed consolidated statements of operations as an expense, based on the estimated grant date fair value of our stock-based awards, whereby such fair values are amortized over the requisite service period. Our stock-based awards are currently comprised of common stock options, restricted stock units and performance stock units. The fair value of our common stock option awards is estimated on the grant date using the Black-Scholes-Merton option-pricing formula. The fair value of our performance stock unit awards is estimated on the grant date using a Monte Carlo simulation model. While the use of these models meets established requirements, the estimated fair values generated by the models may not be indicative of the actual fair values of our awards as it does not consider certain factors important to those awards to employees, such as continued employment and periodic vesting requirements, as well as limited transferability. The fair value of our restricted stock units is based on the closing market price of our common stock on the grant date. If there are any modifications or cancellations of the underlying unvested stock-based awards, we may be required to accelerate, increase or cancel any remaining unearned stock-based compensation expense.
Research and Development Expenditures
Research and development expenditures are charged to expense in the period incurred.
Warranty
We generally provide a one- to three-year warranty from the original invoice date on all products, materials and workmanship. Products sold to various original equipment manufacturer customers sometimes carry longer warranties. Defective products will be either repaired or replaced, usually at our option, upon meeting certain criteria. We accrue a provision for the estimated costs that may be incurred for product warranties relating to a product as a component of cost of sales at the time revenue for that product is recognized. The accrued warranty reserve is included within accrued liabilities in the accompanying unaudited condensed consolidated balance sheets. We do not provide any service-type warranties.
Repair and Maintenance Costs
We incur repair and maintenance costs in the normal course of business. Should the repair or maintenance result in a permanent improvement to one of our leased facilities, the cost is capitalized as a leasehold improvement and amortized over its useful life or the remainder of the lease period, whichever is shorter. Non-permanent repair and maintenance costs are charged to expense as incurred.
Comprehensive Income (Loss)
The difference between net income and comprehensive income for the three- and nine- month periods ended December 31, 2020 and between net loss and comprehensive loss for the three- and nine- month periods ended December 31, 2019 was de minimis.
Recent Accounting Pronouncements
In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This standard update requires that certain financial assets be measured at amortized cost net of an allowance for estimated credit losses such that the net receivable represents the present value of expected cash collection. In addition, this standard update requires that certain financial assets be measured at amortized cost reflecting an allowance for estimated credit losses expected to occur over the life of the assets. The estimate of credit losses must be based on all relevant information including historical information, current conditions and reasonable and supportable forecasts that affect the collectability of the amounts. In November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842): Effective Dates, which defers the effective date of ASU 2016-13 to fiscal years beginning after December 15, 2022 for all entities except SEC reporting companies that are not smaller reporting companies. As a smaller reporting company, ASU 2016-13 will now be effective for our fiscal year 2024 beginning April 1, 2023; however, early adoption is permitted. We are currently evaluating the timing and impact of adopting ASU 2016-13 on our unaudited condensed consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirement for Fair Value Measurements (“ASU 2018-13”), which modifies the disclosure requirements on fair value measurements. This update is effective for fiscal years, and interim periods within those years,
12
beginning after December 15, 2019, and early adoption is permitted. The Company adopted this update effective April 2020. The adoption of this ASU did not have a material impact on the Company’s financial statements.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal Use Software (subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract ("ASU 2018-15"), which clarifies the accounting for implementation costs in cloud computing arrangements. This update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019, and early adoption is permitted. The Company adopted this update effective April 2020. The adoption of this ASU did not have a material impact on the Company’s financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes. The ASU removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This ASU is effective for fiscal years beginning after December 15, 2020, including interim periods within that fiscal year, with early adoption permitted. The Company early adopted this update effective July 2020. The adoption of this ASU did not have a material impact on the Company’s financial statements.
2.Supplemental Financial Information
Inventories
The following table presents details of our inventories:
|
December 31,
2020 |
March 31,
2020 |
||||||||||
| (In thousands) | |||||||||||
| Materials and supplies | $ | 2,726 | $ | 1,380 | |||||||
| Work in process | 107 | 162 | |||||||||
| Finished goods | 1,774 | 1,498 | |||||||||
| $ | 4,607 | $ | 3,040 | ||||||||
Property and Equipment.
The following table presents details of our property and equipment, net:
|
December 31,
2020 |
March 31,
2020 |
||||||||||
| (In thousands) | |||||||||||
| Equipment | $ | 6,760 | $ | 6,222 | |||||||
| Leasehold improvements | 3,046 | 2,911 | |||||||||
| Accumulated depreciation | (7,906) | (7,298) | |||||||||
| $ | 1,900 | $ | 1,835 | ||||||||
Depreciation expense was approximately $183,000 and $551,000 for the three- and nine- month periods ended December 31, 2020, respectively, and $197,000 and $576,000 for the three- and nine- month periods ended December 31, 2019, respectively. Approximately $50,000 and $168,000 of the depreciation expense was recorded to cost of revenues, and approximately $133,000 and $383,000 was recorded to operating expenses, respectively, in the unaudited condensed consolidated statements of operations for the three- and nine- month periods ended December 31, 2020. Approximately $62,000 and $191,000 of the depreciation expense was recorded to cost of revenues, and approximately $135,000 and $385,000 was recorded to operating expenses, respectively, in the unaudited condensed consolidated statements of operations for the three- and nine- month periods ended December 31, 2019.
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Intangible Assets
There are no indefinite lived intangible assets on our unaudited condensed consolidated balance sheets. The following table presents details of our net intangible assets:
| December 31, 2020 | March 31, 2020 | ||||||||||||||||||||||||||||||||||
|
Gross
Carrying Amount |
Accumulated
Amortization |
Net Book
Value |
Gross
Carrying Amount |
Accumulated
Amortization |
Net Book
Value |
||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||
| Technology | $ | 4,986 | $ | (1,357) | $ | 3,629 | $ | 1,286 | $ | (1,286) | $ | — | |||||||||||||||||||||||
| Customer contracts / relationships | 9,550 | (1,200) | 8,350 | 3,750 | (688) | 3,062 | |||||||||||||||||||||||||||||
| Trade names and non-compete agreements | 770 | (665) | 105 | 770 | (613) | 157 | |||||||||||||||||||||||||||||
| Capitalized software development costs | 5,014 | (2,176) | 2,838 | 4,423 | (1,576) | 2,847 | |||||||||||||||||||||||||||||
| Total | $ | 20,320 | $ | (5,398) | $ | 14,922 | $ | 10,229 | $ | (4,163) | $ | 6,066 | |||||||||||||||||||||||
Amortization expense for intangible assets subject to amortization was approximately $512,000 and $1,236,000 for the three- and nine- month periods ended December 31, 2020, respectively, and $373,000 and $872,000 for the three- and nine- month periods ended December 31, 2019, respectively. Approximately $136,000 and $400,000 of the intangible asset amortization was recorded to cost of revenues and approximately $376,000 and $836,000, was recorded to amortization expense for the three- and nine- month periods ended December 31, 2020, respectively, in the unaudited condensed consolidated statements of operations. Approximately $143,000 and $345,000 of the intangible asset amortization was recorded to cost of revenues and approximately $230,000 and $527,000 was recorded to amortization expense for the three- and nine- month periods ended December 31, 2019, respectively, in the unaudited condensed consolidated statements of operations.
As of December 31, 2020, future estimated amortization expense is as follows:
| Year Ending March 31, | ||||||||
| (In thousands) | ||||||||
| 2021 | $ | 796 | ||||||
| 2022 | 3,186 | |||||||
| 2023 | 2,961 | |||||||
| 2024 | 2,731 | |||||||
| 2025 | 2,294 | |||||||
| Thereafter | 2,954 | |||||||
| $ | 14,922 | |||||||
Warranty Reserve Activity
Warranty reserve is recorded as accrued liabilities in the accompanying unaudited condensed consolidated balance sheets. The following table presents activity related to the warranty reserve:
|
Nine Months Ended
December 31, |
|||||||||||
| 2020 | 2019 | ||||||||||
| (In thousands) | |||||||||||
| Balance at beginning of fiscal year | $ | 416 | $ | 461 | |||||||
| Additions charged to cost of sales | 438 | 460 | |||||||||
| Warranty claims | (284) | (436) | |||||||||
| Balance at end of reporting period | $ | 570 | $ | 485 | |||||||
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Earnings Per Share
The following table sets forth the computation of basic and diluted net income (loss) per share:
|
Three Months Ended
December 31, |
Nine Months Ended
December 31, |
||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| (In thousands, except per share amounts) | (In thousands, except per share amounts) | ||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income (loss) from continuing operations | $ | (261) | $ | (1,252) | $ | 876 | $ | (2,840) | |||||||||||||||
| Net income (loss) from discontinued operations, net of tax | 49 | (816) | 9,673 | (2,987) | |||||||||||||||||||
| Net income (loss) | $ | (212) | $ | (2,068) | $ | 10,549 | $ | (5,827) | |||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted average common shares used in basic computation | 41,212 | 40,593 | 40,978 | 38,466 | |||||||||||||||||||
| Dilutive stock options | — | — | 565 | — | |||||||||||||||||||
| Weighted average common shares used in diluted computation | 41,212 | 40,593 | 41,543 | 38,466 | |||||||||||||||||||
| Basic: | |||||||||||||||||||||||
| Net income (loss) per share from continuing operations: | $ | (0.01) | $ | (0.03) | $ | 0.02 | $ | (0.07) | |||||||||||||||
| Net income (loss) per share from discontinued operations: | $ | 0.00 | $ | (0.02) | $ | 0.24 | $ | (0.08) | |||||||||||||||
| Net income (loss) per basic share | $ | (0.01) | $ | (0.05) | $ | 0.26 | $ | (0.15) | |||||||||||||||
| Diluted: | |||||||||||||||||||||||
| Net income (loss) per share from continuing operations: | $ | (0.01) | $ | (0.03) | $ | 0.02 | $ | (0.07) | |||||||||||||||
| Net income (loss) per share from discontinued operations: | $ | 0.00 | $ | (0.02) | $ | 0.23 | $ | (0.08) | |||||||||||||||
| Net income (loss) per diluted share | $ | (0.01) | $ | (0.05) | $ | 0.25 | $ | (0.15) | |||||||||||||||
The following instruments were excluded for purposes of calculating weighted average common share equivalents in the computation of diluted net income (loss) per share as their effect would have been anti-dilutive:
|
Three Months Ended
December 31, |
Nine Months Ended
December 31, |
||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||||
| Stock options | 3,478 | 6,196 | 3,085 | 5,432 | |||||||||||||||||||
| Restricted stock units | 126 | 419 | 147 | 327 | |||||||||||||||||||
3.Discontinued Operations
On May 5, 2020, the Company completed the sale of substantially all of our assets used in connection with our Agriculture and Weather Analytics segment to DTN, LLC (“DTN”), an operating company of TBG AG, a Swiss-based holding company, pursuant to the Purchase Agreement signed on May 2, 2020, in exchange for a total purchase consideration of $12.0 million in cash, subject to working capital adjustments. Upon closing on May 5, 2020, the Company received $10.5 million. The deferred payments of the purchase price of $1.45 million and $50,000, which were included in prepaid expenses and other current assets, and other assets on the unaudited condensed consolidated balance sheets, respectively, will be paid by DTN at the 12-month and 18-month anniversaries of the closing date, subject to satisfaction of the conditions set forth in the Purchase Agreement relating to the transition of certain customers to DTN and the collection of certain receivables by DTN. The Purchase Agreement also provides for customary post-closing adjustments to the purchase price related to working capital at closing. The parties also entered into certain ancillary agreements at the closing of the transaction that will provide Iteris with ongoing access to weather and pavement data that it integrates into its transportation software products, and a joint development agreement under which the parties agreed to pursue future joint opportunities in the global transportation market.
The sale of the Agriculture and Weather Analytics segment was a result of the Company’s shift in strategy to focus on its smart mobility infrastructure management solutions and to capitalize on the potential for a future partnership upon the sale of this business component to DTN. We have determined that the Agriculture and Weather Analytics segment, which constituted one of our operating segments, qualifies as a discontinued operation in accordance with the criteria set forth in ASC 205-20, Presentation of Financial Statements – Discontinued Operations.
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On May 5, 2020, the Company also entered into a transition services agreement (“TSA”) with DTN, pursuant to which the Company agreed to support the information technology and accounting functions of the Agriculture and Weather Analytics segment for a period up to 12 months and DTN agreed to provide the contract administration/account management services for certain contracts of the Company and other transition services. Either party may make any reasonable request to extend the period of time the other party shall provide a transition service beyond the initial service period or access to additional services that are necessary for the transition of the operations and business. The Company earned approximately $46,000 and $130,000 in income and incurred approximately $20,000 and $47,000 in costs associated with the TSA for the three- and nine- month periods ended December 31, 2020, respectively, which were included in income (loss) from discontinued operations on the unaudited condensed consolidated statement of operations.
The related assets and liabilities of the Agriculture and Weather Analytics segment were reclassified to assets held for sale and liabilities held for sale, respectively, as of March 31, 2020 on the unaudited condensed consolidated balance sheets. The following table is a summary of major classes of assets and liabilities held for sale:
|
March 31,
2020 |
|||||
| (In thousands) | |||||
| Assets | |||||
| Trade accounts receivable, net of allowance for doubtful accounts | $ | 863 | |||
| Unbilled accounts receivable | 504 | ||||
| Prepaid expenses and other current assets | 109 | ||||
| Total assets held for sale, current portion | 1,476 | ||||
| Property and equipment, net | 107 | ||||
| Right-of-use assets | 446 | ||||
| Other classes of assets that are not major | 73 | ||||
| Total assets held for sale, noncurrent | 626 | ||||
| Total assets held for sale | $ | 2,102 | |||
| Liabilities | |||||
| Trade accounts payable | $ | 254 | |||
| Accrued liabilities | 91 | ||||
| Accrued payroll and related expenses | 933 | ||||
| Deferred revenue | 1,550 | ||||
| Total liabilities held for sale, current position | 2,828 | ||||
| Lease liabilities | 357 | ||||
| Total liabilities held for sale | $ | 3,185 | |||
16
The results of operations for the Agriculture and Weather Analytics segment were included in net income (loss) from discontinued operations on the Company's unaudited condensed consolidated statements of operations. The following table provides information regarding the results of discontinued operations:
|
Three Months Ended
December 31, |
Nine Months Ended
December 31, |
||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Service revenue | $ | — | $ | 1,997 | $ | 695 | $ | 4,732 | |||||||||||||||
| Cost of service revenues | — | 691 | 349 | 1,898 | |||||||||||||||||||
| Gross profit | — | 1,306 | 346 | 2,834 | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Selling, general and administration | 6 | 907 | 752 | 2,679 | |||||||||||||||||||
| Research and development | — | 1,215 | 407 | 3,142 | |||||||||||||||||||
| Restructuring charges | — | — | 837 | — | |||||||||||||||||||
| Total operating expenses | 6 | 2,122 | 1,996 | 5,821 | |||||||||||||||||||
| Operating loss from discontinued operations | (6) | (816) | (1,650) | (2,987) | |||||||||||||||||||
| Other income, net | 24 | — | 51 | — | |||||||||||||||||||
| Income (loss) from discontinued operation before income tax | 18 | (816) | (1,599) | (2,987) | |||||||||||||||||||
| Income tax (benefit) expense | 47 | — | (47) | — | |||||||||||||||||||
| Net income (loss) from discontinued operations | 65 | (816) | (1,646) | (2,987) | |||||||||||||||||||
| Gain on disposal of discontinued operations before income tax | — | — | 11,315 | — | |||||||||||||||||||
| Income tax expense (benefit) on gain on disposal | (16) | — | 4 | — | |||||||||||||||||||
| Gain on disposal of discontinued operations after income tax | (16) | — | 11,319 | — | |||||||||||||||||||
| Net income (loss) from discontinued operations | $ | 49 | $ | (816) | $ | 9,673 | $ | (2,987) | |||||||||||||||
The following table provides information on the gain recorded on the sale of the Agriculture and Weather Analytics segment for the three- and nine- month periods ended December 31, 2020. These amounts reflect the closing balance sheet of the Agriculture and Weather Analytics segment upon the closing of the sale on May 5, 2020 (in thousands).
| Initial proceeds from sale, net of transaction costs | $ | 9,440 | |||
| Closing working capital adjustment | 250 | ||||
| Deferred payments of purchase price | 1,500 | ||||
| Total consideration, net of transaction costs | 11,190 | ||||
| Trade accounts receivable, net of allowance for doubtful accounts | 1,060 | ||||
| Unbilled accounts receivable | 488 | ||||
| Other classes of assets that are not major | 194 | ||||
| Total Agriculture and Weather Analytics segment assets | 1,742 | ||||
| Trade accounts payable | 349 | ||||
| Deferred revenue | 1,518 | ||||
| Total Agriculture and Weather Analytics segment liabilities | 1,867 | ||||
| Gain on sale of Agriculture and Weather Analytics segment | $ | 11,315 | |||
The initial proceeds were net of transaction costs of approximately $1.1 million.
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4.Restructuring Activities
On April 30, 2020, in connection with the sale of the Agriculture and Weather Analytics segment, the Board of Directors of Iteris, Inc. approved restructuring activities to better position the Company for increased profitability and growth, and the Company incurred total restructuring charges of approximately $1.5 million, primarily resulting from a separation for certain employees who did not transition to DTN, additional positions that were eliminated to right-size the cost structure of the Company and lease impairment related to our Grand Forks, North Dakota facility.
There were no restructuring and severance costs for the three months ended December 31, 2020. The following table presents the restructuring and severance costs for our reportable segments, as well as corporate expenses, for the nine months ended December 31, 2020. (in thousands):
|
Roadway
Sensors |
Transportation
Systems |
Agriculture and
Weather Analytics |
Corporate | Total | |||||||||||||||||||||||||
| Severance and benefits | $ | 110 | $ | 43 | $ | 524 | $ | 428 | $ | 1,105 | |||||||||||||||||||
| Lease impairment and other costs | — | — | 313 | 38 | 351 | ||||||||||||||||||||||||
| Total restructuring and severance costs | $ | 110 | $ | 43 | $ | 837 | $ | 466 | $ | 1,456 | |||||||||||||||||||
During the nine months ended December 31, 2020, approximately $619,000 of the restructuring costs were recorded to restructuring charges in the unaudited condensed consolidated statements of operations, and approximately $837,000 of the restructuring costs were recorded to loss from discontinued operations in the unaudited condensed consolidated statements of operations.
As of December 31, 2020, we have accrued approximately $168,000 for severance and benefits related to the restructuring activities in accrued payroll and related expenses on the unaudited condensed consolidated balance sheet. Our restructuring activities during the three- and nine- month periods ended December 31, 2020 were as follows (in thousands):
| Balance at March 31, 2020 | $ | — | |||
| Charged to expenses | 1,105 | ||||
| Cash payments | (661) | ||||
| Balance at June 30, 2020 | $ | 444 | |||
| Cash payments | (197) | ||||
| Balance at September 30, 2020 | $ | 247 | |||
| Cash payments | (79) | ||||
| Balance at December 31, 2020 | $ | 168 | |||
5.Fair Value Measurements
We measure fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Fair value measurements are based on a three tier hierarchy that prioritizes the inputs used to measure fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets and liabilities; Level 2, defined as observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities or prices quoted in inactive markets; and Level 3, defined as unobservable inputs that are significant to the fair value of the asset or liability, and for which little or no market data exists, therefore requiring management to utilize its own assumptions to provide its best estimate of what market participants would use in valuing the asset or liability.
We did not have any material financial assets or liabilities measured at fair value on a recurring basis using Level 3 inputs as of December 31, 2020 or March 31, 2020. Our non-financial assets, such as goodwill, intangible assets and property and equipment, are measured at fair value on a nonrecurring basis, generally when there is a transaction involving those assets such as a purchase transaction, a business combination or an adjustment for impairment. No non-financial assets were measured at fair value at December 31, 2020 and March 31, 2020.
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The following tables present the Company’s financial assets that are recorded at fair value on a recurring basis, segregated among the appropriate levels within the fair value hierarchy:
| As of December 31, 2020 | ||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||
|
Amortized
Cost |
Gross
Unrealized Loss |
Gross
Unrealized Gain |
Estimated Fair
Value |
|||||||||||||||||||||||
| Level 1: | ||||||||||||||||||||||||||
| Money market funds | $ | 7,218 | $ | — | $ | — | $ | 7,218 | ||||||||||||||||||
| Subtotal | 7,218 | — | — | 7,218 | ||||||||||||||||||||||
| Level 2: | ||||||||||||||||||||||||||
| Commercial paper | 1,200 | — | — | 1,200 | ||||||||||||||||||||||
| Corporate notes and bonds | 1,241 | — | — | 1,241 | ||||||||||||||||||||||
| US Treasuries | 5,699 | — | — | 5,699 | ||||||||||||||||||||||
| Subtotal | 8,140 | — | — | 8,140 | ||||||||||||||||||||||
| Total | $ | 15,358 | $ | — | $ | — | $ | 15,358 | ||||||||||||||||||
| As of March 31, 2020 | ||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||
|
Amortized
Cost |
Gross
Unrealized Loss |
Gross
Unrealized Gain |
Estimated Fair
Value |
|||||||||||||||||||||||
| Level 1: | ||||||||||||||||||||||||||
| Money market funds | $ | 10,576 | $ | (1) | $ | — | $ | 10,575 | ||||||||||||||||||
| Subtotal | 10,576 | (1) | — | 10,575 | ||||||||||||||||||||||
| Level 2: | ||||||||||||||||||||||||||
| Commercial paper | 1,495 | (1) | — | 1,494 | ||||||||||||||||||||||
| Corporate notes and bonds | 6,044 | (22) | — | 6,022 | ||||||||||||||||||||||
| US Treasuries | 3,013 | — | 20 | 3,033 | ||||||||||||||||||||||
| US Government agencies | 1,007 | — | — | 1,007 | ||||||||||||||||||||||
| Subtotal | 11,559 | (23) | 20 | 11,556 | ||||||||||||||||||||||
| Total | $ | 22,135 | $ | (24) | $ | 20 | $ | 22,131 | ||||||||||||||||||
Unrealized losses related to investments are due to interest rate fluctuations as opposed to credit quality. In addition, we do not intend to sell, and it is not more likely than not that, we would be required to sell, any of our investments before recovery of their cost basis. As a result, there is no other-than-temporary impairment for these investments as of December 31, 2020.
6.Income Taxes
The effective tax rate used for interim periods is the estimated annual effective tax rate, based on current estimate of full year results, except that taxes related to specific events, if any, are recorded in the interim period in which they occur.
Income tax (benefit) expense for the three- and nine- month periods ended December 31, 2020 was approximately $(7,000) and $55,000, or (4.5)% and 5.3%, respectively, of pre-tax income as compared with an expense of approximately $9,000 and $35,000, or 0.4% and 0.6% of pre-tax loss for the three- and nine- month periods ended December 31, 2019, respectively.
In assessing the realizability of our deferred tax assets, we review all available positive and negative evidence, including reversal of deferred tax liabilities, potential carrybacks, projected future taxable income, tax planning strategies and recent financial performance. As we have experienced a cumulative pre-tax loss over the trailing three years, we continue to maintain a valuation allowance against our deferred tax assets. We intend to continue maintaining a full valuation allowance on our deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. However, given our current earnings and anticipated future earnings, we believe that there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to allow us to reach a conclusion that a significant portion of the valuation allowance will no longer be needed. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded. However, the exact
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timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that we are able to actually achieve.
On March 27, 2020, the CARES Act was enacted in response to the Pandemic. The CARES Act contains numerous income tax provisions, such as relaxing limitations on the deductibility of interest and the use of net operating losses arising in taxable years beginning after December 31, 2017. The income tax provisions of the CARES Act had an immaterial impact on our current taxes, deferred taxes, and uncertain tax positions of the Company in the year ended March 31, 2020. The CARES Act also allows for the deferral of payroll taxes, as well as the immediate refund of federal Alternative Minimum Tax credits, which had previously been made refundable over a period of four years by the Tax Cuts and Jobs Act of 2017. The Company is utilizing the provision of the CARES Act allowing for the deferral of payroll taxes as of December 31, 2020.
7.Commitments and Contingencies
Litigation and Other Contingencies
As a provider of traffic engineering services, hardware products, software and other various solutions for the traffic industry, the Company is, and may in the future from time to time, be involved in litigation relating to claims arising out of its operations in the normal course of business. While the Company cannot accurately predict the outcome of any such litigation, the Company is not a party to any legal proceeding, the outcome of which, in management’s opinion, individually or in the aggregate, would have a material effect on the Company’s unaudited condensed consolidated results of operations, financial position or cash flows.
8.Right-of-Use Assets and Lease Liabilities
We have various operating leases for our offices, office equipment and vehicles in the United States. These leases expire at various times through 2029. Certain lease agreements contain renewal options from 1 to 5 years, rent abatement, and escalation clauses that are factored into our determination of lease payments when appropriate.
As a result of the restructuring activities and the sale of Agriculture and Weather Analytics segment, the Company vacated the Grand Forks lease facility and has subleased the space to DTN, which expires on May 4, 2021. The Company recorded an impairment of $294,000 during the quarter ended June 30, 2020, representing the total expected shortfall in sublease income and estimated lease buyout as compared to its required payments for the lease under the remainder of the original lease term. Sublease income will be recognized on a straight-line basis over the term of the sublease.
The table below presents lease-related assets and liabilities recorded on the unaudited condensed consolidated balance sheet as follows:
| Classification | December 31, 2020 | |||||||||||||
| (In thousands) | ||||||||||||||
| Assets | ||||||||||||||
| Operating lease right-of-use-assets - continuing operations | Right-of-use assets | $ | 11,760 | |||||||||||
| Operating lease right-of-use-assets - discontinued operation | Asset held for sales - noncurrent | 96 | ||||||||||||
| Total operating lease right-of-use-assets | $ | 11,856 | ||||||||||||
| Liabilities | ||||||||||||||
| Operating lease liabilities (short-term) - continuing operations | Accrued liabilities | $ | 2,107 | |||||||||||
| Operating lease liabilities (short-term) - discontinued operation | Liabilities held for sales - current | 98 | ||||||||||||
| $ | 2,205 | |||||||||||||
| Operating lease liabilities (long-term) - continuing operations | Lease liabilities | 10,507 | ||||||||||||
| Operating lease liabilities (long-term) - discontinued operation | Liabilities held for sales - noncurrent | 310 | ||||||||||||
| 10,817 | ||||||||||||||
| Total lease liabilities | $ | 13,022 | ||||||||||||
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Lease Costs
We recorded approximately $688,000 and $2.0 million of lease costs in on our unaudited condensed consolidated statements of operations for the three- and nine- month periods ended December 31, 2020 as compared to approximately $654,000 and $1.9 million for the three- and nine- month periods ended December 31, 2019, respectively. The Company currently has no variable lease costs. The Company recorded $27,000 and $74,000 of sublease income for the three- and nine- month periods ended December 31, 2020, respectively, which was included in loss from discontinued operations on the unaudited condensed consolidated statement of operations.
Supplemental Information
The table below presents supplemental information related to operating leases during the nine months ended December 31, 2020 (in thousands, except weighted average information):
| Cash paid for amounts included in the measurement of operating lease liabilities | $ | 2,079 | |||
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 533 | |||
| Weighted average remaining lease term (in years) | 6.2 | ||||
| Weighted average discount rate | 5.0 | % | |||
Maturities of Lease Liabilities
Maturities of lease liabilities as of December 31, 2020 were as follows:
| Fiscal Year Ending March 31, | Operating Leases | Sublease Income | Net Operating Lease | |||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| 2021 | $ | 745 | $ | 28 | $ | 717 | ||||||||||||||
| 2022 | 2,700 | 9 | 2,691 | |||||||||||||||||
| 2023 | 2,457 | 2,457 | ||||||||||||||||||
| 2024 | 2,290 | 2,290 | ||||||||||||||||||
| 2025 | 2,072 | 2,072 | ||||||||||||||||||
| Thereafter | 4,896 | 4,896 | ||||||||||||||||||
| Total lease payments | 15,160 | $ | 37 | $ | 15,123 | |||||||||||||||
| Less imputed interest | (2,138) | |||||||||||||||||||
| Present value of future lease payments | 13,022 | |||||||||||||||||||
| Less current obligations under leases | (2,205) | |||||||||||||||||||
| Long-term lease obligations | $ | 10,817 | ||||||||||||||||||
9.Stock-Based Compensation
We currently maintain two stock incentive plans, the 2007 Omnibus Incentive Plan and the 2016 Omnibus Incentive Plan (the “2016 Plan”). Of these plans, we may only grant future awards from the 2016 Plan. The 2016 Plan allows for the issuance of stock options, stock appreciation rights, restricted stock, time-restricted stock units (“RSUs"), performance-based restricted stock units ("PSUs”), cash incentive awards and other stock-based awards. At December 31, 2020, there were approximately 842,000 shares of common stock available for grant or issuance under the 2016 Plan. Total stock options vested and expected to vest were approximately 5.8 million as of December 31, 2020.
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Stock Options
A summary of activity with respect to our stock options for the nine months ended December 31, 2020 is as follows:
| Options |
Weighted
Average Exercise Price Per Share |
||||||||||
| (In thousands) | |||||||||||
| Options outstanding at March 31, 2020 | 5,934 | $ | 3.99 | ||||||||
| Granted | 736 | 4.80 | |||||||||
| Exercised | (462) | 2.80 | |||||||||
| Forfeited | (381) | 4.85 | |||||||||
| Options outstanding at December 31, 2020 | 5,827 | 4.11 | |||||||||
Restricted Stock Units
A summary of activity with respect to our RSUs, which entitle the holder to receive one share of our common stock for each RSU upon vesting, for the nine months ended December 31, 2020 is as follows:
| # of Shares |
Weighted
Average Price Per Share |
||||||||||
| (In thousands) | |||||||||||
| RSUs outstanding at March 31, 2020 | 404 | $ | 5.16 | ||||||||
| Granted | 147 | 4.56 | |||||||||
| Vested | (123) | 5.18 | |||||||||
| Forfeited | (6) | 5.52 | |||||||||
| RSUs outstanding at December 31, 2020 | 422 | 4.94 | |||||||||
Performance Stock Units
On June 30, 2020, the Company granted a total "target" number of 61,000 PSUs to our executive officers. Between 0% and 160% of the PSUs will be eligible to vest based on average annual performance during the three-year performance period relative to the revenues per share and cash flow from operations objectives to be established by the Compensation Committee at the beginning of each year. In addition, the final PSU vesting based on the revenues per share and cash flow from operations performance will be subject to a modifier between .75x-1.25x based on the Company's total shareholder return relative to the Russell 2000 during the performance period, for a maximum achievement percentage of 200% of the "target" number of PSUs. The PSUs are amortized over a derived service period of 3 years. The value and the derived service period of the PSUs were estimated using the Monte-Carlo simulation model. The following table summarizes the details of the performance stock units:
| # of Shares | Weighted Average Price Per Share | ||||||||||
| (In thousands) | |||||||||||
| PSUs outstanding at March 31, 2020 | — | $ | — | ||||||||
| Granted | 61 | 5.47 | |||||||||
| PSUs outstanding at December 31, 2020 | 61 | 5.47 | |||||||||
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Stock-Based Compensation Expense
The following table presents stock-based compensation expense that is included in each line item on our unaudited condensed consolidated statements of operations:
|
Three Months Ended
December 31, |
Nine Months Ended
December 31, |
||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||||
| Cost of revenues | $ | 55 | $ | 29 | $ | 148 | $ | 96 | |||||||||||||||
| Selling, general and administrative expense | 656 | 512 | 1,803 | 1,627 | |||||||||||||||||||
| Research and development expense | 29 | 20 | 78 | 56 | |||||||||||||||||||
| Restructuring costs | — | — | 42 | — | |||||||||||||||||||
| Income (loss) from discontinued operations before gain on sale, net of tax | — | 93 | (57) | 270 | |||||||||||||||||||
| Total stock-based compensation | $ | 740 | $ | 654 | $ | 2,014 | $ | 2,049 | |||||||||||||||
As of December 31, 2020, there was approximately $4.9 million, $1.4 million and $37,000 of unrecognized compensation expense related to unvested stock options, RSUs and PSUs, respectively. This expense is currently expected to be recognized over a weighted average period of approximately 2.9 years for stock options, 2.1 years for RSUs and 0.2 years for PSUs. If there are any modifications or cancellations of the underlying unvested awards, we may be required to accelerate, increase or cancel any remaining unearned stock-based compensation expense. Future stock-based compensation expense and unearned stock-based compensation will increase to the extent that we grant additional stock options, RSUs or other stock-based awards.
Other Stock-Based Compensation Plans
We currently maintain an Employee Stock Purchase Plan (“ESPP”) which allows employees to have a percentage of their base compensation withheld to purchase the Company’s common stock at 95% of the lower of the fair market at the beginning of the offering period and on the last trading day of the offering period. There are two offering periods during a calendar year, which consist of the six months beginning each January 1 and July 1. Employees may contribute 1-15% of their eligible gross pay up to a $25,000 annual stock value limit. During the three months ended December 31, 2020 and 2019, 0 and 42,944 shares were purchased, respectively. During the nine months ended December 31, 2020 and 2019, 41,679 and 91,383 shares were purchased, respectively. The ESPP is considered a non-compensatory plan and accordingly, no compensation expense is recorded in connection with this benefit.
Deferred Compensation Plan
Effective October 1, 2020, the Company adopted the Iteris, Inc. Deferred Compensation Plan (the "DC Plan"). The DC Plan consists of two plans, one that is intended to be an unfunded arrangement for eligible employees who are part of a select group of management or highly compensated employees of the Company within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA, and one for the benefit of non-employee members of our board of directors. Key employees, including our executive officers, and our non-employee directors who are notified regarding their eligibility to participate and delivered the DC Plan enrollment materials are eligible to participate in the DC Plan. Under the DC Plan, we will provide participants with the opportunity to make annual elections to defer a percentage of their eligible cash compensation and equity awards. A participant is always 100% vested in his or her own elective cash deferrals and any earnings thereon. Elective deferrals of equity awards are credited to a bookkeeping account established in the name of the participant with respect to an equivalent number of shares of our common stock, and such credited shares are subject to the same vesting conditions as are applicable to the equity award subject to the election. The Company will establish a rabbi trust to finance our obligations under the DC Plan with corporate-owned life insurance policies on participants.
Employment Inducement Incentive Award Plan
On December 4, 2020, the Board of Directors (the “Board”) of the Company approved the Iteris, Inc. 2020 Employment Inducement Incentive Award Plan (the “Inducement Plan”). The terms of the Inducement Plan are substantially similar to the terms of the Company’s 2016 Omnibus Incentive Plan with the exception that incentive stock options may not be granted under the Inducement Plan. The Inducement Plan was adopted by the Board without stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules.
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The Board has initially reserved 300,000 shares of the Company’s common stock for issuance pursuant to awards granted under the Inducement Plan. In accordance with Rule 5635(c)(4) of the Nasdaq Listing Rules, awards under the Inducement Plan may only be made to an employee who has not previously been an employee or member of the board of directors of the Company or any parent or subsidiary, or following a bona fide period of non-employment by the Company or a parent or subsidiary, and only if he or she is granted such award in connection with his or her commencement of employment with the Company or a subsidiary and such grant is an inducement material to his or her entering into employment with the Company or such subsidiary.
There were no awards granted under the Inducement Plan during the three months ended December 31, 2020.
10.Stock Repurchase Program
On August 9, 2012, our Board of Directors approved a new stock repurchase program pursuant to which we may acquire up to $3.0 million of our outstanding common stock for an unspecified length of time. Under the program, we may repurchase shares from time to time in the open market and privately negotiated transactions and block trades, and may also repurchase shares pursuant to a 10b5-1 trading plan during our closed trading windows, to the extent such a 10b5-1 plan is in place. There is no guarantee as to the exact number of shares that will be repurchased. We may modify or terminate the repurchase program at any time without prior notice. On November 6, 2014, our Board of Directors approved a $3.0 million increase to the Company’s existing stock repurchase program, pursuant to which the Company may continue to acquire shares of its outstanding common stock from time to time for an unspecified length of time. For the three- and nine- month periods ended December 31, 2020 and 2019, we did not repurchase any shares. From inception of the 2012 stock repurchase program through December 31, 2020, we repurchased approximately 2,458,000 shares of our common stock for an aggregate price of approximately $4.3 million, at an average price per share of $1.73. As of December 31, 2020, all repurchased shares have been retired and resumed their status as authorized and unissued shares of our common stock. As of December 31, 2020, approximately $1.7 million remains available for the repurchase of our common stock under our current program.
11.Acquisitions
AGI Acquisition
On July 2, 2019, the Company completed the acquisition of AGI, a privately-held professional transportation engineering services firm headquartered in Tampa, Florida, with offices in Orlando (FL), Virginia Beach (VA) and Chadds Ford (PA). AGI assists municipalities in maximizing the effectiveness of their existing transportation networks through a collection of traffic management services to cost effectively improve the performance of roadway systems and address increased traffic demands, traffic congestion and delay. With a foundation of arterial timing plan development, AGI has expanded its services into active arterial monitoring and management with multiple public sector clients. AGI expanded the Company’s geographic footprint for smart mobility infrastructure management services in Florida, as well as in the Midwest and Mid-Atlantic region. AGI’s typical contracts are for traffic operations professional engineering services focused on transportation systems management and operations.
Pursuant to a Stock Purchase Agreement dated June 10, 2019 among the Company, AGI and the stockholders of AGI (the “Selling Shareholders”), the Company acquired all of the outstanding capital stock of AGI from the Selling Shareholders for an aggregate purchase price of $10.8 million, after working capital adjustments, payable in cash and stock, of which 114,943 shares are being held in escrow for 18 months to secure performance of indemnification and other post-closing obligations of the Selling Shareholders.
The acquisition of AGI has been accounted for as a business combination. The fair value of the net assets acquired, and the excess of the consideration transferred over the aggregate of such fair values was recorded as goodwill.
24
The following tables summarize the purchase price allocation (in thousands) as of July 2, 2019:
| Cash | $ | 664 | |||
| Trade accounts receivable | 905 | ||||
| Unbilled accounts receivable | 347 | ||||
| Right-of-use assets | 863 | ||||
| Property and equipment | 357 | ||||
| Intangible assets | 3,710 | ||||
| Goodwill | 5,440 | ||||
| Other assets | 161 | ||||
| Total assets acquired | 12,447 | ||||
| Accounts payable | (378) | ||||
| Accrued payroll and related expenses | (426) | ||||
| Lease liabilities | (863) | ||||
| Total liabilities assumed | (1,667) | ||||
| Total purchase price | $ | 10,780 | |||
The fair values of the remaining AGI assets and liabilities noted above approximate their carrying values at July 2, 2019. There was no difference between the fair value of trade accounts receivables and the gross contractual value of those receivables. There are no contractual cash flows related to these receivables that are not expected to be collected. The Company believes the goodwill related to the acquisition was a result of the ability of the Company to leverage its technology in the broader market, as well as offering cross-selling market exposure opportunities. Goodwill from the acquisition of AGI is included within the Company’s Transportation Systems reporting unit and will be included in the annual review for impairment. The goodwill is fully deductible for tax purposes. The significant intangible assets identified in the purchase price allocation include customer relationships and non-compete agreements, which are amortized over their respective useful lives on a straight line basis which approximates the underlying cash flows. To value the customer relationships, the Company utilized the income approach, specifically a discounted cash-flow method known as the excess earnings method. The Company utilized the with and without method to derive the fair value of the non-compete agreement. The fair value estimates are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions. We believe the assumptions are representative of those a market participant would use in estimating fair value.
The following table presents the fair values and useful lives of the identifiable intangible assets acquired:
| Amount |
Weighted Average
Useful Life |
||||||||||
| (in thousands) | (in years) | ||||||||||
| Customer relationships | $ | 3,500 | 6 | ||||||||
| Non-compete agreement | 210 | 3 | |||||||||
| Total intangible assets assumed | $ | 3,710 | |||||||||
TrafficCast Acquisition
On December 7, 2020, the Company completed the acquisition of the assets of TrafficCast, a privately held company headquartered in Madison, Wisconsin that provides travel information technology, applications and content to media, mobile technology, automotive and public sector customers throughout North America. Under the Purchase Agreement, Iteris purchased from TrafficCast substantially all of the assets used in the conduct of the Business and assumed certain specified liabilities of the Business.
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The aggregate acquisition-date fair value of the consideration transferred totaled approximately $17.7 million, which consisted of the following:
| Consideration Transferred | Fair Value | |||||||
| (in thousands) | ||||||||
| Cash | $ | 15,000 | ||||||
| Security hold back | 1,000 | |||||||
| Acquisition-related liabilities | 1,075 | |||||||
| Contingent consideration | 600 | |||||||
| Total | $ | 17,675 | ||||||
The security hold back relates to amounts held back as security for certain post-closing adjustments and post-closing indemnity obligations of TrafficCast, and is included in other long-term liabilities on the unaudited condensed consolidated balance sheets. Acquisition-related liabilities include customary post-closing adjustments, as well as short term liabilities related to certain ancillary agreements that will provide Iteris with ongoing access to mapping and monitoring services. These items are included in accrued liabilities on the unaudited condensed consolidated balance sheets. Contingent consideration relates to a $1,000,000 earn out, that if earned, will be paid over two years based on the Business’ achievement of certain revenue targets. This item is included in other long-term liabilities on the unaudited condensed consolidated balance sheets.
TrafficCast operates two lines of business – commercial and public sector – each of which contributes about 50% of total revenue. Its commercial line of business develops software that collects, filters, and models real-time traveler information and traffic incident data for global media companies and other commercial customers. Its public sector line of business provides sensors and related software that help state and local agencies measure, visualize, and manage traffic flow. The management team has deep experience in traffic management systems, traffic flow theory and probe data technologies, as well as mobile services, digital content and media marketing. The commercial line of business is presented in the results of the Transportation Systems segment, while the public sector line of business is presented in the results of the Roadway Sensors segment. Since the date of acquisition, TrafficCast contributed approximately $659,000 of service revenue and approximately $141,000 of product revenue, as well as approximately $151,000 of net loss.
The acquisition of TrafficCast has been accounted for as a business combination. We estimated the preliminary fair values of net assets acquired, and the excess of the consideration transferred over the aggregate of such fair values was recorded as goodwill. The fair values of net assets acquired were based upon preliminary valuations. Given the timing of the acquisition, specifically its close proximity to quarter end, we are still finalizing the fair value estimates for certain intangible assets. Our estimates and assumptions reflected in such preliminary valuations are subject to change within the measurement period (up to one year from the acquisition date). We expect to continue to obtain information to assist in determining the fair values of the net assets and deferred income taxes acquired during the measurement period.
The following tables summarize the preliminary purchase price allocation (in thousands) as of December 7, 2020:
| Trade accounts receivable | $ | 2,087 | |||
| Unbilled accounts receivable | 596 | ||||
| Inventories | 896 | ||||
| Right-of-use assets | 193 | ||||
| Property and equipment | 233 | ||||
| Intangible assets | 9,500 | ||||
| Goodwill | 7,758 | ||||
| Other assets | 242 | ||||
| Total assets acquired | 21,505 | ||||
| Accounts payable | 1,045 | ||||
| Deferred revenue | 2,460 | ||||
| Lease liabilities | 193 | ||||
| Other liabilities | 132 | ||||
| Total liabilities assumed | 3,830 | ||||
| Total purchase price | $ | 17,675 | |||
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The fair values of the TrafficCast assets and liabilities noted above approximate their carrying values at December 7, 2020. There was no difference between the fair value of trade accounts receivables and the gross contractual value of those receivables. There are no contractual cash flows related to these receivables that are not expected to be collected. The Company believes the goodwill related to the acquisition was a result of the ability of the Company to leverage its technology in the broader market, as well as offering cross-selling market exposure opportunities. Goodwill from the acquisition of TrafficCast is included within the Company’s Roadway Sensors and Transportation Systems reporting units and will be included in the annual review for impairment. The goodwill is fully deductible for tax purposes. The significant intangible assets identified in the purchase price allocation include customer relationship and developed technology, which are amortized over their respective useful lives on a straight line basis which approximates the underlying cash flows. To value the customer relationships, the Company utilized the income approach, specifically a discounted cash-flow method known as the excess earnings method. The Company used the replacement cost method with consideration of opportunity costs to estimate the fair value of the technology. The fair value estimates are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions. We believe the assumptions are representative of those a market participant would use in estimating fair value.
The following table presents the fair values and useful lives of the identifiable intangible assets acquired:
| Amount |
Weighted Average
Useful Life |
||||||||||
| (in thousands) | (in years) | ||||||||||
| Customer relationships | $ | 5,800 | 7 | ||||||||
| Technology | 3,700 | 4 | |||||||||
| Total intangible assets assumed | $ | 9,500 | |||||||||
Acquisition-Related Costs
In connection with the acquisition of AGI, the Company agreed to grant $1.7 million in retention bonuses to the Selling Shareholders and other employees payable in the form of restricted stock units at $5.22 per share, and $570,000 in retention bonuses payable in cash, each vesting and payable over three years following the closing, provided such employees remain in our service on the first, second and third anniversary of the closing of the acquisition. For the three- and nine- month periods ended December 31, 2020, the Company recorded approximately $174,000 and $526,000, as compared to $328,000 and $653,000 for three- and nine- month periods ended December 31, 2019, respectively, as stock-based compensation and salaries expense to selling, general and administrative expense in the unaudited condensed consolidated statements of operations, related to these bonuses.
In connection with the acquisition of TrafficCast, the Company recorded approximately $285,000 for the three- and nine- month periods ended December 31, 2020 of acquisition related professional fees recorded to selling, general and administrative expense, in the unaudited condensed consolidated statements of operations.
Pro Forma Financial Information
The following pro forma information presents the consolidated results of operations of the Company, AGI and TrafficCast for the three- and nine- month periods ended December 31, 2020 and three- and nine- months ended December 31, 2019, as if the acquisition of AGI had been completed on April 1, 2018 and the acquisition of TrafficCast had been completed on April 1, 2019. These pro forma condensed consolidated financial results have been prepared for comparative purposes only and include certain adjustments that reflect pro forma results of operations, such as increased amortization for the fair value of acquired intangible assets and increased salaries expense related to the retention bonuses. The unaudited pro forma results do not reflect any operating efficiencies or potential cost savings that may result from the consolidation of the operations of the Company, AGI and TrafficCast. Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of the results of operations that actually would have been achieved had the acquisition of AGI occurred as of April 1, 2018 and the acquisition of TrafficCast occurred as of April 1, 2019, nor are they intended to represent or be indicative of future results of operations:
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|
Three Months Ended
December 31, 2020 |
Three Months Ended
December 31, 2019 |
Nine Months Ended
December 31, 2020 |
Nine Months Ended
December 31, 2019 |
||||||||||||||||||||
| (In thousands, except per share amounts) | |||||||||||||||||||||||
| Pro forma revenue | $ | 30,537 | $ | 30,881 | $ | 94,770 | $ | 91,738 | |||||||||||||||
| Pro forma net income (loss) from continuing operations | $ | (461) | $ | (2,238) | $ | 417 | $ | (5,668) | |||||||||||||||
| Pro forma net income (loss) per share from continuing operations: | |||||||||||||||||||||||
| Basic | $ | (0.01) | $ | (0.06) | $ | 0.01 | $ | (0.15) | |||||||||||||||
| Diluted | $ | (0.01) | $ | (0.06) | $ | 0.01 | $ | (0.15) | |||||||||||||||
12.Business Segment Information
We currently operate in two reportable segments: Roadway Sensors and Transportation Systems.
The Roadway Sensors segment provides various advanced detection sensors and systems for traffic intersection management, communication systems and roadway traffic data collection applications. The Roadway Sensors product line uses advanced image processing technology and other techniques to capture and analyze sensor data through sophisticated algorithms, enabling vehicle, bicycle and pedestrian detection, as well as the transmission of both video images and data using various communication technologies. Our Roadway Sensors products include, among others, the Vantage, VantageLive!, Vantage Next, VantagePegasus, VantageRadius, Vantage Vector, Velocity, SmartCycle, SmartCycle Bike Indicator, SmartSpan, VersiCam, PedTrax and P-Series products. Our Roadway Sensors segment also includes the sale of original equipment manufacturer (“OEM”) products for the traffic intersection markets, which include, among other things, traffic signal controllers and traffic signal equipment cabinets. The Roadway Sensors segment also includes the public sector operations of TrafficCast beginning December 7, 2020 (see Note 11, Acquisitions).
The Transportation Systems segment provides engineering and consulting services, managed services, performance measurement and traffic analytics solutions, as well as the development of transportation management and traveler information systems for the ITS industry. Our Transportation Systems services include planning, design, implementation, operation and management of surface transportation infrastructure systems. We perform analysis and study goods movement and commercial vehicle operations, as well as provide travel demand forecasting and systems engineering, and identify mitigation measures to reduce traffic congestion. Our Transportation Systems product line includes: Iteris Signal Performance Measures ("SPM"); our advanced traveler information system solution ClearRoute, our performance analytics solution ClearGuide; and our commercial vehicle operations and vehicle safety compliance platforms known as CVIEW-Plus, CheckPoint, UCRLink and inspect. The Transportation Systems segment also includes the operations of AGI beginning July 2, 2019 as well as the commercial operations of TrafficCast beginning December 7, 2020 (see Note 11, Acquisitions).
The accounting policies of our reportable segments are the same as those described in the summary of significant accounting policies (Note 1, Description of Business and Summary of Significant Accounting Policies). Certain corporate general and administrative expenses, including general overhead functions such as information systems, accounting, human resources, marketing, compliance costs and certain administrative expenses, as well as interest and amortization of intangible assets, are not allocated to the segments. The reportable segments are each managed separately because they manufacture and distribute distinct products or provide services with different processes. All reported segment revenues are derived from external customers. Our Chief Executive Officer, who is our chief operating decision maker (“CODM”), reviews financial information at the operating segment level. Our CODM does not review assets by segment in his resource allocation, and therefore, assets by segment are not disclosed below.
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The following table sets forth selected unaudited condensed consolidated financial information for our reportable segments for the three- and nine- month periods ended December 31, 2020 and 2019:
|
Roadway
Sensors |
Transportation
Systems |
Total | ||||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Three Months Ended December 31, 2020 | ||||||||||||||||||||
| Product revenues | $ | 13,966 | $ | 2,414 | $ | 16,380 | ||||||||||||||
| Service revenues | 97 | 11,693 | 11,790 | |||||||||||||||||
| Total revenues | 14,063 | 14,107 | 28,170 | |||||||||||||||||
| Segment income | 2,702 | 1,979 | 4,681 | |||||||||||||||||
| Three Months Ended December 31, 2019 | ||||||||||||||||||||
| Product revenues | 11,351 | 1,609 | 12,960 | |||||||||||||||||
| Service revenues | 72 | 13,705 | 13,777 | |||||||||||||||||
| Total revenues | 11,423 | 15,314 | 26,737 | |||||||||||||||||
| Segment income | 1,487 | 2,669 | 4,156 | |||||||||||||||||
|
Roadway
Sensors |
Transportation
Systems |
Total | ||||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Nine Months Ended December 31, 2020 | ||||||||||||||||||||
| Product revenues | $ | 41,252 | $ | 5,787 | $ | 47,039 | ||||||||||||||
| Service revenues | 337 | 38,050 | 38,387 | |||||||||||||||||
| Total revenues | 41,589 | 43,837 | 85,426 | |||||||||||||||||
| Segment income | 8,896 | 6,538 | 15,434 | |||||||||||||||||
| Nine Months Ended December 31, 2019 | ||||||||||||||||||||
| Product revenues | 36,602 | 4,670 | 41,272 | |||||||||||||||||
| Service revenues | 184 | 37,034 | 37,218 | |||||||||||||||||
| Total revenues | 36,786 | 41,704 | 78,490 | |||||||||||||||||
| Segment income | 6,043 | 6,177 | 12,220 | |||||||||||||||||
The following table reconciles total segment income to unaudited condensed consolidated operating income (loss) from continuing operations before income taxes:
|
Three Months Ended
December 31, |
Nine Months Ended
December 31, |
||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||||
| Segment income: | |||||||||||||||||||||||
| Total income from reportable segments | $ | 4,681 | $ | 4,156 | $ | 15,434 | $ | 12,220 | |||||||||||||||
| Unallocated amounts: | |||||||||||||||||||||||
| Corporate expenses | (4,329) | (5,208) | (12,873) | (14,129) | |||||||||||||||||||
| Amortization of intangible assets | (376) | (230) | (836) | (527) | |||||||||||||||||||
| Restructuring charges | — | — | (619) | — | |||||||||||||||||||
| Acquisition costs | (285) | (71) | (285) | (667) | |||||||||||||||||||
| Operating (loss) income | $ | (309) | $ | (1,353) | $ | 821 | $ | (3,103) | |||||||||||||||
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This report, including the following discussion and analysis, contains forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) that are based on our current expectations, estimates and projections about our business and our industry, and reflect management’s beliefs and certain assumptions made by us based upon information available to us as of the date of this report. When used in this report and the information incorporated herein by reference, the words “expect(s),” “feel(s),” “believe(s),” “intend(s),” “plan(s),” “should,” “will,” “may,” “anticipate(s),” “estimate(s),” “could,” “should,” and similar expressions or variations of these words are intended to identify forward-looking statements. These forward-looking statements include, but are not limited to, statements regarding our anticipated growth, sales, revenue, expenses, profitability, capital needs, backlog, manufacturing capabilities, the market acceptance of our products and services, competition, the impact of any current or future litigation, the impact of recent accounting pronouncements, the applications for and acceptance of our products and services, the status of our facilities and product development, the impact of the acquisition of Albeck Gerken, Inc., the impact of the sale of our Agriculture and Weather Analytics segment, and the impact of the acquisition of substantially all of the assets of TrafficCast International, Inc. These statements are not guarantees of future performance and are subject to certain risks and uncertainties that could cause our actual results to differ materially from those projected. You should not place undue reliance on these forward-looking statements that speak only as of the date hereof. We encourage you to carefully review and consider the various disclosures made by us which describe certain factors which could affect our business, including in “Risk Factors” set forth in Part II. Item 1A of this report, before deciding to invest in our company or to maintain or increase your investment. We undertake no obligation to revise or update publicly any forward-looking statement for any reason, including to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
Overview
General
We are a provider of smart mobility infrastructure management solutions. Municipalities, government agencies, and other transportation infrastructure providers use our solutions to monitor, visualize, and optimize mobility infrastructure to help ensure roads are safe, travel is efficient, and communities thrive.
Recent Developments
Impact of COVID-19 on Our Business
The COVID-19 pandemic (the “Pandemic”) has materially adversely impacted global economic conditions. More than nine months into the Pandemic, COVID-19 continues to have an unpredictable and unprecedented impact on the U.S. economy as federal, state and local governments react to this public health crisis with travel restrictions, quarantines and "stay-at-home" orders. The uncertainties caused by the Pandemic include, but are not limited to, supply chain disruptions, workplace dislocations, economic contraction, and downward pressure on some customer budgets and customer sentiment in general. While there has been no material impact to our business, nor any facility closures, during the first nine months of Fiscal 2021, we did experience some work delays due to the Pandemic. Should such delays become protracted or worsen or should longer term budgets or priorities of our clients be impacted, the Pandemic could materially impact our business, results of operations and financial condition. The extent of the impact of the Pandemic on our business and financial results and volatility of our stock price will depend largely on future developments, including the duration of the spread of the outbreak, the responses of governments, the impact on capital and financial markets and the related impact on the financial circumstances of our customers, all of which are highly uncertain and cannot be reasonably estimated as of this report.
Given the uncertainties surrounding the impacts of the Pandemic on our future financial condition and results of operations, we have taken certain actions to preserve our liquidity, manage cash flow and strengthen our financial flexibility. Such actions included, reducing our discretionary spending, reducing capital expenditures, implementing restructuring activities that we expect would lead to approximately $1.2 million to $1.3 million in annualized savings, and reducing payroll costs, including employee furloughs, pay freezes and pay cuts.
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On March 27, 2020, the CARES Act was signed into law in the United States. The CARES Act provides relief to U.S. corporations through financial assistance programs and modifications to certain income tax provisions. The Company is applying certain beneficial provisions of the CARES Act, including the payroll tax deferral and the alternative minimum tax acceleration. For more information, refer to Note 6, Income Taxes, to our Unaudited Condensed Consolidated Financial Statements, including in Part I, Item 1 of this report.
The Pandemic has had an impact on the Company’s human capital. While our main Santa Ana facility has remained open as our business is considered essential under the criteria specified by the State of California, “stay-at-home” orders and Pandemic restrictions imposed by local and state authorities have forced the majority of our employees to work remotely. The Company’s information technology infrastructure has proven sufficiently flexible to minimize disruptions in required duties and responsibilities. We believe that our system of internal control over financial reporting has not been fundamentally altered and that the effectiveness of the design and operation of internal controls remained materially consistent during the three- and nine- month periods ended December 31, 2020. Additionally, we have been able to timely file financial reports. We believe we have the infrastructure to efficiently work remotely during the Pandemic. We do not expect to incur significant costs to safely reopen our facilities to all our employees.
Despite the Pandemic, we believe that the ITS industry in the US should continue to provide new opportunities for the Company although, in the near term, the pace of new opportunities emerging may be restrained and the start dates of awarded projects may be delayed. We believe that our expectations are valid and that our plans for the future continue to be based on reasonable assumptions.
Sale of Agriculture and Weather Analytics Segment
On May 5, 2020, the Company completed the sale of substantially all of our assets used in connection with our Agriculture and Weather Analytics segment to DTN, LLC (“DTN”), an operating company of TBG AG, a Swiss-based holding company, pursuant to the Purchase Agreement signed on May 2, 2020, in exchange for a total purchase consideration of $12.0 million in cash, subject to working capital adjustments. Upon closing on May 5, 2020, the Company received $10.5 million and deferred payments of $1.45 million and $50,000, which were included in prepaid expenses and other current assets, and other assets on the unaudited condensed consolidated balance sheets, respectively, will be paid by DTN at the 12-month and 18-month anniversaries of the closing date, subject to satisfactions of the conditions set forth in the Purchase Agreement relating to the transition of certain customers to DTN and the collection of certain receivables by DTN. The Purchase Agreement also provides for customary post-closing adjustments to the purchase price related to working capital at closing. The parties also entered into certain ancillary agreements at the closing of the transaction that will provide Iteris with ongoing access to weather and pavement data that it integrates into its transportation software products, and a joint development agreement under which the parties agreed to pursue future joint opportunities in the global transportation market.
The sale of the Agriculture and Weather Analytics segment was a result of the Company’s shift in strategy to focus on its mobility infrastructure management solutions and to capitalize on the potential for a future partnership upon the sale of this business component to DTN. We have determined that the Agriculture and Weather Analytics segment, which constituted one of our operating segments, qualifies as a discontinued operation in accordance with the criteria set forth in ASC 205-20, Presentation of Financial Statements – Discontinued Operations.
On May 5, 2020, the Company also entered into a transition services agreement (“TSA”) with DTN, pursuant to which the Company agreed to support the information technology and accounting functions of the Agriculture and Weather Analytics segment for a period up to 12 months and DTN agreed to provide the contract administration/account management services for certain contracts of the Company and other transition services. Either party may make any reasonable request to extend the period of time the other party shall provide a transition service beyond the initial service period or access to additional services that are necessary for the transition of the business operations. The Company earned $46,000 and $130,000 in income and incurred $20,000 and $47,000 in costs associated with the TSA for the three- and nine- month periods ended December 31, 2020, respectively, which was included in loss from discontinued operations on the unaudited condensed consolidated statement of operations.
Acquisition of the Assets of TrafficCast International, Inc.
On December 6, 2020, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with TrafficCast International, Inc. (“TrafficCast” or "TCI"), a privately held company headquartered in Madison, Wisconsin that provides travel information technology, applications and content to customers throughout North America in the media, mobile technology, automotive and public sectors. Under the Purchase Agreement, the Company agreed to purchase from TrafficCast
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substantially all of its assets, composed of its travel information technology, applications and content (the “Business”). The transaction closed on December 7, 2020.
Under the Purchase Agreement, Iteris purchased from TrafficCast substantially all of the assets used in the conduct of the Business and assumed certain specified liabilities of the Business in exchange for a total purchase price of up to $17,000,000, with $15,000,000 paid in cash on the closing date, $1,000,000 held back as security for certain post-closing adjustments and post-closing indemnity obligations of TrafficCast, and a $1,000,000 earn out, that if earned, will be paid over two years based on the Business’ achievement of certain revenue targets. The Purchase Agreement also provides for customary post-closing adjustments to the purchase price tied to working capital balances of the Business at closing (see Note 11, Acquisitions).
The parties also entered into certain ancillary agreements that will provide Iteris with ongoing access to mapping and monitoring services that the Business uses to support its real-time and predictive travel data and associated content.
TrafficCast operates two lines of business – commercial and public sector – each of which contributes about 50% of total revenue. Its commercial line of business develops software that collects, filters, and models real-time traveler information and traffic incident data for global media companies and other commercial customers. Its public sector line of business provides sensors and related software that help state and local agencies measure, visualize, and manage traffic flow. The commercial line of business is presented in the results of the Transportation Systems segment, while the public sector line of business is presented in the results of the Roadway Sensors segment. Once integrated in early fiscal year 2022, TrafficCast’s market-leading software and IoT devices, as well as its data ingestion, data science and analytics solutions, will enhance Iteris’ suite of smart mobility infrastructure management solutions.
Non-GAAP Financial Measures
Adjusted income (loss) from continuing operations before interest, taxes, depreciation, amortization, stock-based compensation expense, and restructuring charges (“Adjusted EBITDA”) was approximately $1.5 million and $5.7 million for the three- and nine- month periods ended December 31, 2020 as compared to approximately $512,000 and $1.6 million for the three- and nine- month periods ended December 31, 2019, respectively.
When viewed with our financial results prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) and accompanying reconciliations, we believe Adjusted EBITDA provides additional useful information to clarify and enhance the understanding of the factors and trends affecting our past performance and future prospects. We define these measures, explain how they are calculated and provide reconciliations of these measures to the most comparable GAAP measure in the table below. Adjusted EBITDA and the related financial ratios, as presented in this Quarterly Report on Form 10-Q (“Form 10-Q”), are supplemental measures of our performance that are not required by or presented in accordance with GAAP. They are not a measurement of our financial performance under GAAP and should not be considered as alternatives to net income or any other performance measures derived in accordance with GAAP, or as an alternative to net cash provided by operating activities as measures of our liquidity. The presentation of these measures should not be interpreted to mean that our future results will be unaffected by unusual or nonrecurring items.
We use Adjusted EBITDA non-GAAP operating performance measures internally as complementary financial measures to evaluate the performance and trends of our businesses. We present Adjusted EBITDA and the related financial ratios, as applicable, because we believe that measures such as these provide useful information with respect to our ability to meet our operating commitments.
Adjusted EBITDA and the related financial ratios have limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations include:
•They do not reflect our cash expenditures, future requirements for capital expenditures or contractual commitments;
•They do not reflect changes in, or cash requirements for, our working capital needs;
•Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;
•They are not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows;
•They do not reflect the impact on earnings of charges resulting from matters unrelated to our ongoing operations; and
•Other companies in our industry may calculate Adjusted EBITDA differently than we do, whereby limiting its usefulness as comparative measures.
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Because of these limitations, Adjusted EBITDA and the related financial ratios should not be considered as measures of discretionary cash available to us to invest in the growth of our business or as a measure of cash that will be available to us to meet our obligations. You should compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only as supplemental information. See our unaudited condensed consolidated financial statements contained in this Form 10-Q. However, in spite of the above limitations, we believe that Adjusted EBITDA and the related financial ratios are useful to an investor in evaluating our results of operations because these measures:
•Are widely used by investors to measure a company’s operating performance without regard to items excluded from the calculation of such terms, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired, among other factors;
•Help investors to evaluate and compare the results of our operations from period to period by removing the effect of our capital structure from our operating performance; and
•Are used by our management team for various other purposes in presentations to our Board of Directors as a basis for strategic planning and forecasting.
The following financial items have been added back to or subtracted from our net income when calculating Adjusted EBITDA:
•Interest expense. Iteris excludes interest expense because it does not believe this item is reflective of ongoing business and operating results. This amount may be useful to investors for determining current cash flow.
•Income tax. This amount may be useful to investors because it represents the taxes which may be payable for the period and the change in deferred taxes during the period, and may reduce cash flow available for use in our business.
•Depreciation. Iteris excludes depreciation expense primarily because it is a non-cash expense. These amounts may be useful to investors because it generally represents the wear and tear on our property and equipment used in our operations.
•Amortization. Iteris incurs amortization of intangible assets in connection with acquisitions. Iteris also incurs amortization related to capitalized software development costs. Iteris excludes these items because it does not believe that these expenses are reflective of ongoing operating results in the period incurred. These amounts may be useful to investors because it represents the estimated attrition of our acquired customer base and the diminishing value of product rights.
•Stock-based compensation. These expenses consist primarily of expenses from employee and director equity based compensation plans Iteris excludes stock-based compensation primarily because they are non-cash expenses and Iteris believes that it is useful to investors to understand the impact of stock-based compensation to its results of operations and current cash flow.
•Restructuring charges. These expenses consist primarily of employee separation expenses, facility termination costs, and other expenses associated with Company restructuring activities. Iteris excludes these expenses as it does not believe that these expenses are reflective of ongoing operating results in the period incurred. These amounts may be useful to our investors in evaluating our core operating performance.
•Acquisition costs. In connection with its business combinations, Iteris incurs professional service fees, changes to the fair value of contingent consideration, and other direct expenses. Iteris excludes such items as they are related to acquisitions and have no direct correlation to the operation of Iteris’ business. These amounts may be useful to our investors in evaluating our core operating performance.
•Executive severance and transition costs. Iteris excludes executive severance and transition costs because it does not believe that these expenses are reflective of ongoing operating results in the period incurred. These amounts may be useful to our investors in evaluating our core operating performance.
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Reconciliations of net income (loss) from continuing operations to Adjusted EBITDA and the presentation of Adjusted EBITDA as a percentage of total revenues were as follows:
|
Three Months Ended
December 31, |
Nine Months Ended
December 31, |
||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| (In Thousands) | (In Thousands) | ||||||||||||||||||||||
| Net (loss) income from continuing operations | $ | (261) | $ | (1,252) | $ | 876 | $ | (2,840) | |||||||||||||||
| Income tax (benefit) expense | (7) | 9 | 55 | 35 | |||||||||||||||||||
| Depreciation expense | 183 | 197 | 551 | 576 | |||||||||||||||||||
| Amortization expense | 512 | 373 | 1,236 | 872 | |||||||||||||||||||
| Stock-based compensation | 740 | 561 | 2,071 | 1,779 | |||||||||||||||||||
| Other adjustments: | |||||||||||||||||||||||
| Restructuring charges | — | — | 619 | — | |||||||||||||||||||
| Acquisition costs | 285 | 71 | 285 | 667 | |||||||||||||||||||
| Executive severance and transition costs | $ | — | $ | 553 | $ | — | $ | 553 | |||||||||||||||
| Adjusted EBITDA | $ | 1,452 | $ | 512 | $ | 5,693 | $ | 1,642 | |||||||||||||||
| Percentage of total revenues | 5.2 | % | 1.9 | % | 6.7 | % | 2.1 | % | |||||||||||||||
Business Segments
We currently operate in two reportable segments: Roadway Sensors and Transportation Systems.
The Roadway Sensors segment provides advanced detection sensors and systems for traffic intersection management, that collectively comprise our family of Vantage sensors, as well as communication systems and roadway traffic data collection applications that complement our Vantage sensor products. The Vantage product line uses advanced image processing technology and other techniques to capture and analyze sensor data through sophisticated algorithms, enabling vehicle, bicycle and pedestrian detection, as well as the transmission of both video images and data using various communication technologies. Our Roadway Sensors products include, among others, Vantage, VantageLive!, Vantage Next, VantagePegasus, VantageRadius, Vantage Vector, Velocity, SmartCycle, SmartCycle Bike Indicator, SmartSpan, VersiCam, PedTrax and P-Series products. In select territories, our Roadway Sensors segment also sells OEM products for the traffic intersection markets, which include, among other things, traffic signal controllers and traffic signal equipment cabinets. The Roadway Sensors segment also includes the public sector operations of TrafficCast beginning December 7, 2020 (see Note 11, Acquisitions, to our Unaudited Condensed Consolidated Financial Statements, included in Part I, Item 1 of this report for further details on the acquisition of TrafficCast).
The Transportation Systems segment includes engineering and consulting services, managed services, performance measurement and traffic analytics solutions, as well as the development of transportation management and traveler information systems for the ITS industry. Our Transportation Systems services include planning, design, development and implementation of software and hardware-based ITS systems that integrate sensors, video surveillance, computers and advanced communications equipment to enable public agencies to monitor, control and direct traffic flow, assist in the quick dispatch of emergency crews, and distribute real-time information about traffic conditions. Our services include planning, design, implementation, operation and management of surface transportation infrastructure systems. We perform analysis and study goods movement and commercial vehicle operations, as well as provide travel demand forecasting and systems engineering, and identify mitigation measures to reduce traffic congestion. The Transportation Systems segment also includes the operations of AGI beginning July 2, 2019 as well as the commercial operations of TrafficCast beginning December 7, 2020 (see Note 11, Acquisitions, to our Unaudited Condensed Consolidated Financial Statements, included in Part I, Item 1 of this report for further details on the acquisitions of AGI and TrafficCast). The Transportations Systems segment product line includes: Iteris Signal Performance Measures ("SPM"), Iteris ClearGuide, our performance measurement and analytics solution; our advanced traveler information system solution ClearRoute; and our commercial vehicle operations and vehicle safety compliance platforms known as ClearFleet, CVIEW-Plus, CheckPoint, UCRLink and Inspect.
See Note 12, Business Segment Information, to our Unaudited Condensed Consolidated Financial Statements, included in Part I, Item 1 of this report, for further details on our reportable segments.
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Critical Accounting Policies and Estimates
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” is based on our unaudited condensed consolidated financial statements included herein, which have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate these estimates and assumptions, including those related to revenue recognition, the collectability of accounts receivable and related allowance for doubtful accounts, projections of taxable income used to assess realizability of deferred tax assets, warranty reserves and other contingencies, costs to complete long-term contracts, indirect cost rates used in cost plus contracts, the valuation of inventories, the valuation of purchased intangible assets and goodwill, the valuation of investments, estimates of future cash flows used to assess the recoverability of long-lived assets and the impairment of goodwill, and fair value of our stock option awards used to calculate stock-based compensation. We base these estimates on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. These estimates and assumptions by their nature involve risks and uncertainties, and may prove to be inaccurate. In the event that any of our estimates or assumptions are inaccurate in any material respect, it could have a material adverse effect on our reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Recent Accounting Pronouncements
Refer to Note 1, Description of Business and Summary of Significant Accounting Policies, to our Unaudited Condensed Consolidated Financial Statements, included in Part I, Item 1 of this report for a discussion of applicable recent accounting pronouncements.
Analysis of Quarterly Results from Continuing Operations
Total Revenues. Total revenues are comprised of sales from our Roadway Sensors and Transportation Systems segments.
The following tables present our total revenues for the three- and nine- month periods ended December 31, 2020 and 2019:
| Three Months Ended December 31, |
$
Increase (decrease) |
%
Change |
|||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||||
| (In thousands, except percentages) | |||||||||||||||||||||||
| Product revenues | $ | 16,380 | $ | 12,960 | $ | 3,420 | 26.4 | % | |||||||||||||||
| Service revenues | 11,790 | 13,777 | (1,987) | (14.4) | % | ||||||||||||||||||
| Total revenues | $ | 28,170 | $ | 26,737 | $ | 1,433 | 5.4 | % | |||||||||||||||
| Nine Months Ended December 31, |
$
Increase (decrease) |
%
Change |
|||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||||
| (In thousands, except percentages) | |||||||||||||||||||||||
| Product revenues | $ | 47,039 | $ | 41,272 | $ | 5,767 | 14.0 | % | |||||||||||||||
| Service revenues | 38,387 | 37,218 | 1,169 | 3.1 | % | ||||||||||||||||||
| Total revenues | $ | 85,426 | $ | 78,490 | $ | 6,936 | 8.8 | % | |||||||||||||||
Product revenues primarily consist of Roadway Sensors product sales, but also include OEM products for the traffic signal markets, as well as Transportation Systems third-party product sales for installation under certain construction-type contracts. Product revenues for the three months ended December 31, 2020 increased 26.4% to $16.4 million, as compared to $13.0 million in the corresponding period in the prior year, primarily due to an increase of approximately $2.4 million in the sales of our core Roadway Sensors video detection products, an increase of approximately $746,000 in Transportation Systems third-party product sales for installation under certain construction-type contracts and the addition of TrafficCast public sector product sales.
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Service revenues primarily consist of Transportation Systems engineering services, but also includes service revenues generated by our Roadway Sensors segment. Service revenues for the three months ended December 31, 2020 decreased 14.4% to $11.8 million, compared to $13.8 million in the corresponding period in the prior year, due to an approximately $2.4 million reduction in subcontractor revenue in our Transportation Systems segment. This reduction was primarily due to supply chain and logistic issues attributable to the Pandemic, experienced by a group of third-party subcontractors. This reduction was partially offset by the addition of revenues from the TrafficCast commercial business.
Total revenues for the three months ended December 31, 2020 increased 5.4% to $28.2 million, compared to $26.7 million in the corresponding period in the prior year. The increase in total revenues was primarily due to an approximate 23.1% increase in Roadway Sensors revenues, offset by approximately 7.9% decrease in Transportation Systems revenues.
Product revenues for the nine months ended December 31, 2020 increased 14% to $47 million, as compared to $41.3 million in the corresponding period in the prior year, primarily due to an increase in the core Roadway Sensor product sales, an increase in Transportation System third-party product sales for installation under certain construction-type contracts as well as the addition of TrafficCast public sector product sales. These increases were partially offset by a decrease in unit sales from our distribution in Texas of certain OEM products for the traffic intersection market.
Service revenues for the nine months ended December 31, 2020 increased 3.1% to $38.4 million, compared to $37.2 million in the corresponding period in the prior year, primarily due to an increase of approximately $1.5 million in revenues from our Florida market as well as revenue from the TrafficCast commercial business.
Total revenues for the nine months ended December 31, 2020 increased 8.8% to $85.4 million, compared to $78.5 million in the corresponding period in the prior year. The increase in total revenues was primarily due to an approximate 5.1% increase in Transportation Systems revenues, an approximate 13.1% increase in Roadway Sensors revenues.
Roadway Sensors revenues for the three months ended December 31, 2020 increased approximately $2.6 million or 23.1% to $14.1 million, compared to $11.4 million in the corresponding period in the prior year, primarily due to higher sales from our core video detection products, slightly higher unit sales from our distribution in Texas of certain OEM products for the traffic intersection market by approximately $42,000 or 3.5%, to approximately $1.3 million, and the addition of revenues from the TrafficCast public sector business.
Roadway Sensors revenues for the nine months ended December 31, 2020 increased approximately $4.8 million or 13.1% to $41.6 million, compared to $36.8 million in the corresponding period in the prior year, primarily due to an increase of approximately $5.4 million in sales from our core video detection products, as well as the addition of revenues from the TrafficCast public sector business, offset by lower unit sales from our distribution in Texas of certain OEM products for the traffic intersection market, which decreased by approximately $807,000 or 18.4%, to approximately $3.6 million. While OEM products generally have lower gross margins than our core video detection products, we believe the offering of OEM products can benefit sales of our core products in Texas by providing a more comprehensive suite of traffic solutions for our customers. Roadway Sensors added approximately $13.7 million and $43.7 million of new bookings, or potential revenue under binding agreements, during the three- and nine- months ended December 31, 2020. Roadway Sensors backlog increased to approximately $12.9 million as of December 31, 2020, compared to approximately $6.7 million as of December 31, 2019. Going forward, we plan to grow revenues by focusing on our core domestic traffic intersection market, and refine and deliver products that address the needs of this market, primarily our Vantage processors and camera systems and our Vantage Vector video/radar hybrid sensor, as well as our SmartCycle, Velocity, PedTrax and SmartSpan products.
Transportation Systems revenues for the three months ended December 31, 2020 decreased approximately $1.2 million or 7.9% to $14.1 million, compared to $15.3 million in the corresponding period in the prior year, due to an approximately $2.4 million reduction in subcontractor revenue. This reduction was primarily due to supply chain and logistic issues attributable to the Pandemic, experienced by a group of third-party subcontractors. This reduction was partially offset by the addition of revenues from the TrafficCast commercial business.
Transportation Systems revenues for the nine months ended December 31, 2020 increased approximately $2.1 million or 5.1% to $43.8 million, compared to $41.7 million in the corresponding period in the prior year, primarily due to an increase of approximately $1.5 million in revenues from our Florida market as well as revenues from the TrafficCast commercial business. Transportation Systems added approximately $6.8 million and $45.1 million of new bookings during the three- and nine- months ended December 31, 2020. Transportation Systems backlog increased to approximately $64.0 million as of December 31, 2020, compared to approximately $56.1 million as of December 31, 2019. We plan to continue to focus on securing new contracts and to extend and/or continue our existing relationships with key agencies related to projects in their final project phases. While we believe our ability to obtain additional large contracts will contribute to overall revenue growth,
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the mix of subcontractor revenue and third-party product sales will likely affect the related total gross profit from period to period, as total revenues derived from subcontractors and third-party product sales generally have lower gross margins than revenues generated by our own direct labor.
Backlog is an operational measure representing future unearned revenue amounts believed to be firm that are to be earned under our existing agreements and are not included in deferred revenue on our unaudited condensed consolidated balance sheets. Backlog includes new bookings but does not include announced orders for which definitive contracts have not been executed. We believe backlog is a useful metric for investors, given its relevance to total orders, but there can be no assurances we will recognize revenue from bookings or backlog timely or ever.
Gross Profit
The following tables present details of our gross profit for the three- and nine- months ended December 31, 2020 and 2019:
| Three Months Ended December 31, |
$
Increase |
%
Change |
||||||||||||||||||||||||
| 2020 | 2019 | |||||||||||||||||||||||||
| (In thousands, except percentages) | ||||||||||||||||||||||||||
| Product gross profit | $ | 7,967 | $ | 6,380 | $ | 1,587 | 24.9 | % | ||||||||||||||||||
| Service gross profit | 3,683 | 4,253 | (570) | (13.4) | % | |||||||||||||||||||||
| Total gross profit | $ | 11,650 | $ | 10,633 | $ | 1,017 | 9.6 | % | ||||||||||||||||||
| Product gross margin as a % of product revenues | 48.6 | % | 49.2 | % | ||||||||||||||||||||||
| Service gross margin as a % of service revenues | 31.2 | % | 30.9 | % | ||||||||||||||||||||||
| Total gross margin as a % of total revenues | 41.4 | % | 39.8 | % | ||||||||||||||||||||||
| Nine Months Ended December 31, |
$
Increase |
%
Change |
||||||||||||||||||||||||
| 2020 | 2019 | |||||||||||||||||||||||||
| (In thousands, except percentages) | ||||||||||||||||||||||||||
| Product gross profit | $ | 21,213 | $ | 18,646 | $ | 2,567 | 13.8 | % | ||||||||||||||||||
| Service gross profit | 12,663 | 12,249 | 414 | 3.4 | % | |||||||||||||||||||||
| Total gross profit | $ | 33,876 | $ | 30,895 | $ | 2,981 | 9.6 | % | ||||||||||||||||||
| Product gross margin as a % of product revenues | 45.1 | % | 45.2 | % | ||||||||||||||||||||||
| Service gross margin as a % of service revenues | 33.0 | % | 32.9 | % | ||||||||||||||||||||||
| Total gross margin as a % of total revenues | 39.7 | % | 39.4 | % | ||||||||||||||||||||||
Our product gross margin for the three months ended December 31, 2020 decreased approximately 60 basis points, as compared to the corresponding period in the prior year, primarily due to lower margin from our Transportation System third party product sales for installation under certain construction-type contracts that we classify as product sales. Our product gross margin for the nine months ended December 31, 2020 was consistent with the corresponding period in the prior year.
Our service gross margin for the three months ended December 31, 2020 increased approximately 30 basis points as compared to the corresponding period in the prior year, primarily due to the decrease in subcontractor revenue mix in our Transportation Systems segment as less of these services were incurred during the period. Subcontractor services and products generally result in lower gross margins than our own direct labor. Our service gross margin for the nine months ended December 31, 2020 was consistent with the corresponding period in the prior year.
Our total gross margin for the three- and nine- months ended December 31, 2020 increased approximately 160 and 30 basis points, respectively, as compared to the corresponding periods in the prior year, primarily as a result of the revenue mix between our segments.
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Selling, General and Administrative Expense
Selling, general and administration expense for the three months ended December 31, 2020 decreased approximately 3.7% to $10.1 million, compared to $10.5 million for the three months ended December 31, 2019. Selling, general and administration expense for the nine months ended December 31, 2020 decreased approximately 7.4% to $28.1 million, compared to $30.4 million for the nine months ended December 31, 2019. The decrease in both periods is primarily due to a decrease in bid and proposal activities in the Transportations Systems segment driven by the timing and size of certain opportunities in the current period compared with the same period a year ago.
Research and Development Expense
Research and development expense for the three months ended December 31, 2020 was approximately $1.4 million, which was relatively consistent with the prior period expense of $1.2 million for the three months ended December 31, 2019. Research and development expense for the nine months ended December 31, 2020 increased approximately 11.8% to $3.5 million, compared to $3.1 million for the nine months ended December 31, 2019.
We plan to continue to invest in the development of further enhancements and functionality of our Iteris ClearMobility Platform which includes among other things the software offerings in our Transportation Systems segment, as well as our Vantage products family in our Roadway Sensors segment.
Certain development costs were capitalized into intangible assets in the unaudited condensed consolidated balance sheets; in both the current and prior year periods; however, certain costs did not meet the criteria for capitalization under GAAP and are included in research and development expense. Going forward, we expect to continue to invest in our software solutions. This continued investment may result in increases in research and development costs, as well as additional capitalized software in future periods.
Amortization of Intangible Assets
Amortization of intangible assets was approximately $376,000 and $230,000 for the three months ended December 31, 2020 and 2019, respectively. Amortization of intangible assets was approximately $836,000 and $527,000 for the nine months ended December 31, 2020 and 2019, respectively. The increase was primarily due to amortization related to intangible assets acquired as part of the AGI and TrafficCast acquisitions.
Interest Income
Interest income was approximately $11,000 and $67,000 for the three months ended December 31, 2020 and 2019, respectively. Interest income was approximately $108,000 and $148,000 for the nine months ended December 31, 2020 and 2019, respectively.
Income Taxes
The effective tax rate used for interim periods is the estimated annual effective tax rate, based on current estimate of full year results, except that taxes related to specific events, if any, are recorded in the interim period in which they occur.
Income tax (benefit) expense for the three- and nine- months ended December 31, 2020 was approximately $(7,000) and $55,000, or (4.5)% and 5.3%, respectively, of pre-tax income as compared with an expense of approximately $9,000 and $35,000, or 0.4% and 0.6% of pre-tax loss for the three- and nine- months ended December 31, 2019, respectively.
In assessing the realizability of our deferred tax assets, we review all available positive and negative evidence, including reversal of deferred tax liabilities, potential carrybacks, projected future taxable income, tax planning strategies and recent financial performance. As we have experienced a cumulative pre-tax loss over the trailing three years, we continue to maintain a valuation allowance against our deferred tax assets. We intend to continue maintaining a full valuation allowance on our deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. However, given our current earnings and anticipated future earnings, we believe that there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to allow us to reach a conclusion that a significant portion of the valuation allowance will no longer be needed. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that we are able to actually achieve.
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On March 27, 2020, the CARES Act was enacted in response to the Pandemic. The CARES Act contains numerous income tax provisions, such as relaxing limitations on the deductibility of interest and the use of net operating losses arising in taxable years beginning after December 31, 2017. The income tax provisions of the CARES Act had an immaterial impact on our current taxes, deferred taxes, and uncertain tax positions of the Company in the year ended March 31, 2020. The CARES Act also allows for the deferral of payroll taxes, as well as the immediate refund of federal Alternative Minimum Tax credits, which had previously been made refundable over a period of four years by the Tax Cuts and Jobs Act of 2017. The Company is utilizing the provision of the CARES Act allowing for the deferral of payroll taxes as of December 31, 2020.
Liquidity and Capital Resources
Liquidity Outlook
We believe we will have adequate liquidity over the next 12 months to operate our business and to meet our cash requirements. As of December 31, 2020, we had cash and cash equivalents totaling approximately $14.4 million, and short-term investments of $8.1 million, resulting in a total liquidity position of approximately $22.5 million. We do not have a revolving credit facility. Our cash position will also be impacted by any capital expenditures or acquisitions we complete in the future.
As a result of the Pandemic, we have taken and will continue to take action to reduce costs, preserve liquidity and manage our cash flow. Such actions include, but are not limited to reducing our discretionary spending, reducing capital expenditures, implementing our restructuring activities that will lead to approximately $1.2 million to $1.3 million in annualized savings, and reducing payroll costs, including employee furloughs, pay freezes and pay cuts.
While the impact and duration of the Pandemic on our business is currently uncertain, the situation is expected to be temporary. In the longer term, we remain committed to increasing total shareholder returns through our investments in opportunities and initiatives to grow our business organically and through acquisitions that support our current strategies.
Cash Flows
We have historically financed our operations with a combination of cash flows from operations and the sale of equity securities. We expect to continue to rely on cash flows from operations and our cash reserves to fund our operations, which we believe to be sufficient to fund our operations for at least the next twelve months. However, we may need or choose to raise additional capital to fund potential future acquisitions and our future growth. We may raise such funds by selling equity or debt securities to the public or to selected investors or by borrowing money from financial institutions. If we raise additional funds by issuing equity or convertible debt securities, our existing stockholders may experience significant dilution, and any equity securities that may be issued may have rights senior to our existing stockholders. There is no assurance that we will be able to secure additional funding on a timely basis, on terms acceptable to us, or at all.
At December 31, 2020, we had $33.4 million in working capital, excluding current assets and liabilities held for sale, which included $14.7 million in cash, cash equivalents and restricted cash, as well as $8.1 million in short-term investments. This compares to working capital of $33.9 million at March 31, 2020, excluding current assets and liabilities held for sale, which included $14.4 million in cash, cash equivalents and restricted cash, as well as $11.6 million in short-term investments.
Operating Activities. Net cash provided by operating activities of our continuing operations for the nine months ended December 31, 2020 of $3.3 million was primarily the result of $5.0 million in non-cash items, primarily for noncash lease expense, deferred income taxes, depreciation, stock-based compensation, and amortization coupled with our net income from continuing operations of approximately $0.9 million. This was offset by approximately $2.5 million from changes in working capital. Net cash used in operating activities from discontinued operations was $1.6 million.
Net cash provided by operating activities of our continuing operations for the nine months ended December 31, 2019 was primarily the result of our net loss of approximately $2.8 million, coupled with approximately $1.5 million from changes in working capital, offset by approximately $4.8 million in noncash items for noncash lease expense, deferred income taxes, depreciation, stock-based compensation, and amortization. Net cash used in operating activities from discontinued operations was $2.8 million.
Investing Activities. Net cash used in investing activities of our continuing operations during the nine months ended December 31, 2020 was primarily the result of purchases of approximately $23.7 million of short-term investments, approximately $15.0 million in cash paid for the TrafficCast acquisition, approximately $395,000 of property and equipment purchases, and approximately $592,000 of capitalized software development costs, primarily in the Roadway Sensors and Transportation Systems business segments related to VantageLive! and ClearGuide, respectively. These investments were
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partially offset by approximately $27.0 million in proceeds from the sale and maturity of short-term investments. Net cash provided by investing activities from discontinued operations was $9.7 million.
Net cash used in investing activities of our continuing operations during the nine months ended December 31, 2019 was primarily the result of approximately $26.9 million purchases of short-term investments and approximately $335,000 of property and equipment purchases as well as $5.6 million in net cash paid for the AGI acquisition, coupled with approximately $548,000 of capitalized software development costs, primarily in the Roadway Sensors and Transportation Systems business segments related to VantageLive! and ClearGuide, respectively. These investments were partially offset by approximately $11.7 million in proceeds from the sale and maturity of short-term investments.
Financing Activities. Net cash provided by financing activities of our continuing operations during the nine months ended December 31, 2020 was the result of approximately $1,334,000 and $188,000 of cash proceeds from the exercises of stock options and purchase of ESPP shares, respectively.
Net cash provided by financing activities of our continuing operations during the nine months ended December 31, 2019 was the result of approximately $26.8 million of net proceeds from the issuance of common stock in connection with the public offering. In addition, there was $376,000 of cash proceeds from the purchase of ESPP shares and approximately $90,000 of cash proceeds from the exercises of stock options.
Off Balance Sheet Arrangements
We did not have any material off balance sheet arrangements at December 31, 2020.
Seasonality
We have historically experienced seasonality, particularly with respect to our Roadway Sensors segment, which adversely affects such sales in our third and fourth fiscal quarters due to a reduction in intersection construction and repairs during the winter months due to inclement weather conditions, with the third fiscal quarter generally affected the most by inclement weather. We have also experienced seasonality, particularly with respect to our Transportation Systems segment, which adversely impacts our third fiscal quarter due to the increased number of holidays, causing a reduction in available billable hours.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
As a smaller reporting company, we are not required to provide the information required by Item 305 of Regulations S-K.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Exchange Act Rules 13a-15(e) and 15d-15(e). The Company acquired substantially all the assets of TrafficCast International, Inc. on December 7, 2020. Management excluded TrafficCast from its evaluation as of the end of the period covered by this report. TrafficCast's total assets excluded from this evaluation was approximately $3.0 million, representing 2% of the Company's
consolidated total assets as of December 31, 2020, and TrafficCast's total revenue of approximately $800,000 represented 1% of the Company's consolidated revenue for the nine month period ended December 31, 2020.
Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized
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that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Our management was required to apply its judgment in evaluating the cost-benefit relationship of such controls and procedures.
Changes in Internal Controls
During the fiscal quarter covered by this report, there has been no change in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting
Inherent Limitations on Internal Controls
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of management override or improper acts, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple errors. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to management override, error or improper acts may occur and not be detected. Any resulting misstatement or loss may have an adverse and material effect on our business, financial condition and results of operations.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information set forth in Note 7, Commitments and Contingencies, under the heading “Litigation and Other Contingencies” to our Unaudited Condensed Consolidated Financial Statements, included in Part I, Item 1 of this report, is incorporated herein by reference.
ITEM 1A. RISK FACTORS
The reader is referred to Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended March 31, 2020, as filed with the U.S. Securities and Exchange Commission on June 9, 2020, for a discussion of factors that could materially affect our business, financial condition, results of operations, or future results in addition to the risk factors below:
The recent coronavirus outbreak has affected and could result in material harm to our business.
In March 2020, a global pandemic was declared by the World Health Organization related to the rapidly growing outbreak of COVID-19 (the “Pandemic”). The Pandemic is having an unprecedented impact on the U.S. economy as federal, state and local governments react to this public health crisis with travel restrictions, quarantines and “stay-at-home” orders. The uncertainties caused by the Pandemic include, but are not limited to, supply chain disruptions, workplace dislocations, economic contraction, and downward pressure on some customer budgets and customer sentiment in general. Continued impacts of the Pandemic have materially adversely impacted global economic conditions. The Pandemic could also affect government budgets and purchases of our products and services, as well as our suppliers, and delay material deliveries to and by us. Although we have taken steps to preserve liquidity, manage cash flows and strengthen financial flexibility, we cannot assure you that these steps will be successful, that these actions will not limit our growth or that we will not need to take further actions. The extent of the impact of the Pandemic on our business and financial results and volatility of our stock price will depend largely on future developments, including the duration of the spread of the outbreak, the impact on capital and financial markets and the related impact on the financial circumstances of our customers, all of which are highly uncertain and cannot be predicted. This situation is changing rapidly, and additional impacts may arise that we are not aware of currently.
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Acquisitions of companies or technologies, including our acquisition of AGI and our acquisition of substantially all of the assets of TCI, may require us to undertake significant capital infusions and could result in disruptions of our business and diversion of resources and management attention.
We completed the acquisition of AGI in July 2019 and completed the acquisition of substantially of the assets of TrafficCast on December 7, 2020. We plan to continue to explore acquiring additional complementary businesses, products, services, and technologies. Acquisitions may require significant capital infusions and, in general, acquisitions also involve a number of special risks, including:
• potential disruption of our ongoing business and the diversion of our resources and management’s attention;
• the failure to retain or integrate key acquired personnel;
• the challenge of assimilating diverse business cultures, and the difficulties in integrating the operations,
technologies and information system of the acquired companies;
• increased costs to improve managerial, operational, financial and administrative systems and to eliminate
duplicative services;
• the incurrence of unforeseen obligations or liabilities;
• potential impairment of relationships with employees or customers as a result of changes in management; and
• increased interest expense and amortization of acquired intangible assets, as well as unanticipated accounting charges.
Our competitors are also soliciting potential acquisition candidates, which could both increase the price of any acquisition targets and decrease the number of attractive companies available for acquisition. Acquisitions may also materially and adversely affect our operating results due to large write-offs, contingent liabilities, substantial depreciation, deferred compensation charges or intangible asset amortization, or other adverse tax or accounting consequences. We cannot assure you that we will be able to identify or consummate any additional acquisitions, successfully integrate any acquisitions or realize the benefits and opportunities anticipated from any acquisition.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On August 9, 2012, our Board of Directors approved a new stock repurchase program pursuant to which we may acquire up to $3 million of our outstanding common stock for an unspecified length of time. Under the program, we may repurchase shares from time to time in the open market and privately negotiated transactions and block trades, and may also repurchase shares pursuant to a 10b5-1 trading plan during our closed trading windows, to the extent such a 10b5-1 plan is in place. There is no guarantee as to the exact number of shares that will be repurchased. We may modify or terminate the repurchase program at any time without prior notice. On November 6, 2014, our Board of Directors approved a $3.0 million increase to the Company’s existing stock repurchase program, pursuant to which the Company may continue to acquire shares of its outstanding common stock from time to time for an unspecified length of time.
For the three- and nine- month periods ended December 31, 2020, the Company did not repurchase any shares. From inception of the 2012 program in August 2012 through December 31, 2020, we repurchased approximately 2,458,000 shares of our common stock for an aggregate price of approximately $4.3 million, at an average price per share of $1.73. As of December 31, 2020, all repurchased shares have been retired and returned to their status as authorized and unissued shares of our common stock. As of December 31, 2020, approximately $1.7 million remains available for the repurchase of our common stock under our current program.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
The following exhibits are filed or furnished herewith or are incorporated by reference to the location indicated.
|
Exhibit
Number |
Description | Where Located | ||||||||||||
| 2.1 | Exhibit 2.1 to the registrant’s Current Report on Form 8-K as filed with the SEC on May 6, 2020 | |||||||||||||
| 10.1 |
Exhibit 10.1 to the registrant’s Current Report on Form 8-K as filed with the SEC on December 7, 2020
|
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| 10.2 |
Exhibit 10.2 to the registrant’s Current Report on Form 8-K as filed with the SEC on December 7, 2020
|
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| 10.3 |
Exhibit 10.3 to the registrant’s Current Report on Form 8-K as filed with the SEC on December 7, 2020
|
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| 10.4 |
Exhibit 10.4 to the registrant’s Current Report on Form 8-K as filed with the SEC on December 7, 2020
|
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| 10.5 | Filed herewith | |||||||||||||
| 10.6 | Filed herewith | |||||||||||||
| 31.1 | Filed herewith | |||||||||||||
| 31.2 | Filed herewith | |||||||||||||
| 32.1 | Furnished herewith | |||||||||||||
| 32.2 | Furnished herewith | |||||||||||||
| 101.INS | Inline XBRL Instance Document – The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. | Filed herewith | ||||||||||||
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| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | Filed herewith | ||||||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | Filed herewith | ||||||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | Filed herewith | ||||||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | Filed herewith | ||||||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | Filed herewith | ||||||||||||
| 104.1 | Cover Page Interactive Data File – The cover page interactive data file does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document | Filed herewith | ||||||||||||
___________________________________
* Pursuant to Item 601(a)(5) of Regulation S-K, certain exhibits and schedules have been omitted. The registrant hereby agrees to furnish supplementally a copy of any omitted exhibit or schedule to the SEC upon request.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Date: February 2, 2021 | ITERIS, INC. | |||||||
| (Registrant) | ||||||||
| By | /s/ JOE BERGERA | |||||||
| Joe Bergera | ||||||||
| Chief Executive Officer | ||||||||
| (Principal Executive Officer) | ||||||||
| By | /s/ DOUGLAS L. GROVES | |||||||
| Douglas L. Groves | ||||||||
| Senior Vice President and Chief Financial Officer | ||||||||
| (Principal Financial Officer) | ||||||||
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