ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with our Consolidated Financial Statements and related Notes thereto included in Part II, Item 8 of this report and the "Risk Factors" section in Part I, Item 1A, as well as the other cautionary statements and risks described elsewhere in this report before deciding to purchase, hold or sell our common stock.
Overview
General
We are a provider of smart mobility infrastructure management solutions. Our solutions enable public transportation agencies, municipalities, commercial entities and other transportation infrastructure providers 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”) continues to have 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 Pandemic has materially adversely impacted global economic conditions and the uncertainties caused by these events and actions include, but are not limited to, the adverse effect of the Pandemic on the economy, our vendors, our employees and customers and customer sentiment in general. While there has been no material impact, nor any facility closures during Fiscal 2021, we did experience some work delays due to the Pandemic. Should such delays become protracted or worsen the impacts of the Pandemic could impact our business, results of operations and financial condition. The extent of the impact of the Pandemic on our business and financial results, and the 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, the distribution, rate of adoption and efficacy of vaccines, and the related impact on the financial circumstances of our customers, all of which are highly uncertain and cannot be reasonably estimated as of the date 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 our discretionary spending, reducing capital expenditures, implementing 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.
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. For more information, refer to Note 6, Income Taxes, to the Consolidated Financial Statements, including in Part II, Item 8 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 fiscal year ended March 31, 2021. Additionally, we have been able to timely file financial reports. We believe we have the right infrastructure to efficiently work remotely for the balance of 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 smart mobility infrastructure management industry in the U.S. 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.
Acquisition of the Assets of TrafficCast International, Inc.
On December 6, 2020, the Company entered into an Asset Purchase Agreement (the “TrafficCast 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 TrafficCast Purchase Agreement, the Company agreed to purchase from TrafficCast substantially all of its assets, composed of its travel information technology, applications and content (the “TrafficCast Business”). The transaction closed on December 7, 2020.
Under the TrafficCast Purchase Agreement, Iteris purchased from TrafficCast substantially all of the assets used in the conduct of the TrafficCast Business and assumed certain specified liabilities of the TrafficCast Business in exchange for a total purchase price of up to $17.7 million, with $15.0 million paid in cash on the closing date, $1.0 million held back as security for certain post-closing adjustments and post-closing indemnity obligations of TrafficCast, $1.1 million acquisition-related liability,
and a $1.0 million earn out, fair valued at $0.6 million as of March 31, 2021, that if earned, will be paid over two years based on the TrafficCast Business’ achievement of certain revenue targets. The TrafficCast Purchase Agreement also provides for customary post-closing adjustments to the purchase price tied to working capital balances of the TrafficCast Business at closing (see Note 12, Acquisitions, to the Consolidated Financial Statements).
The parties also entered into certain ancillary agreements that will provide Iteris with ongoing access to mapping and monitoring services that the TrafficCast Business uses to support its real-time and predictive travel data and associated content.
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 in cash and $1.5 million of deferred payment, of which $1.45 million has been paid by DTN at the 12-month anniversary of the closing date, and $0.05 million will be paid by DTN at the 18-month anniversary 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 AWA 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 function 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 $0.2 million in income and incurred $0.1 million in costs associated with the TSA for the fiscal year ended March 31, 2021, which was included in loss from discontinued operations before gain on sale, net of tax on the consolidated statement of operations (see Note 3, Discontinued Operations, to the Consolidated Financial Statements).
Non-GAAP Financial Measures
Adjusted income (loss) from continuing operations before interest, taxes, depreciation, amortization, stock-based compensation expense, restructuring charges, acquisition costs, non-recurring executive severance and transition costs, and fair value adjustment related to TrafficCast's opening balance inventory (“Adjusted EBITDA”) was approximately $7.5 million, $4.2 million and $0.5 million for the fiscal years ended March 31, 2021, 2020 and 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 Annual Report on Form 10-K (“Form 10-K”), 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 analytical tools, and you should not consider them 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.
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 audited consolidated financial statements contained in this Form 10-K. 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 (loss) 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 expense. 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;
•Fair value adjustment related to acquired opening balance inventories. Iteris excludes fair value adjustment related to the opening inventory balance acquired as part of its business combination because it does not believe that these costs are reflective of operating results in the period incurred. These amounts may be useful to our investors in evaluating our core operating performance.
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:
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|
Year Ended March 31,
|
|
2021
|
|
2020
|
|
2019
|
|
(In thousands)
|
Net income (loss) from continuing operations
|
$
|
491
|
|
$
|
(1,758)
|
|
$
|
(2,793)
|
|
|
|
|
|
|
Income tax expense
|
115
|
|
160
|
|
36
|
Depreciation expense
|
734
|
|
770
|
|
754
|
Amortization expense
|
2,036
|
|
1,255
|
|
629
|
Stock-based compensation
|
2,902
|
|
2,495
|
|
1,861
|
Other adjustments:
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|
|
|
|
|
Restructuring charges
|
619
|
|
—
|
|
—
|
Acquisition costs
|
417
|
|
689
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|
—
|
Executive severance and transition costs
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—
|
|
553
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|
—
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Fair value adjustment - opening balance inventories
|
136
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|
—
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—
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Total adjustments
|
6,959
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|
5,922
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|
3,280
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Adjusted EBITDA
|
$
|
7,450
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|
$
|
4,164
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|
$
|
487
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Percentage of total revenues
|
6.4
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%
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|
3.9
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%
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|
0.5
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%
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Business Segments
Our reportable segments consist of: 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. The Roadway Sensors segment also includes the public sector operations of TrafficCast beginning December 7, 2020 (see Note 12, Acquisitions, to the Consolidated Financial Statements).
The Transportation Systems segment provides engineering and specialized consulting services, cloud-enabled managed services, performance measurement and traffic analytics solutions, as well as the development of transportation management and traveler information systems for the smart mobility infrastructure management industry. The Transportation Systems segment also includes the operations of AGI beginning July 2, 2019 and the commercial operations of TrafficCast beginning December 7, 2020 (see Note 12, Acquisitions, to the Consolidated Financial Statements).
With the company’s adoption of the ClearMobility platform we have started aligning our portfolio of solutions under a common branding structure called ClearMobility. We believe this alignment to the ClearMobility Platform will drive internal synergies in our development and sales efforts, as well as increase our market recognition across our entire suite of solutions. As a result of this alignment, the Company’s chief operating decision maker (“CODM”) is evaluating our management and operating structure and as a result of this evaluation we anticipate that we will report as a single operating segment starting with our fiscal year 2022.
In the fourth quarter of the 2021 fiscal year, Iteris launched the ClearMobility Cloud, our open-architecture cloud framework for smart mobility infrastructure management. The ClearMobility Cloud’s mobility data management engine, application programming interface ("API") framework and microservices ecosystem provide standardized data ingestion, cleansing and analytics, as well as authentication and security for each component of the ClearMobility Platform. The ClearMobility Cloud sets the foundation for horizontally scalable data processing, third-party extensibility, and secure, policy-based access to public transportation agencies and commercial entities throughout the United States and internationally.
See Note 13, Business Segments, Significant Customer and Geographic Information, to the Consolidated Financial Statements, included in Part II, Item 8 of this report for further details on our reporting segments.
Critical Accounting Policies and Estimates
"Management's Discussion and Analysis of Financial Condition and Results of Operations" is based on our 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. Our significant accounting policies are summarized in Note 1 to the Consolidated Financial Statements. In preparing our consolidated financial statements in accordance with GAAP and pursuant to the rules and regulations of the SEC, we make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures of contingent assets and liabilities. We base our estimates, assumptions and judgments on historical experience and other factors that we believe are reasonable. We evaluate our estimates, assumptions and judgments on a regular basis and apply our accounting policies on a consistent basis. We believe that the estimates, assumptions and judgments involved in the accounting for revenue recognition, goodwill, and income taxes have the most potential impact on our consolidated financial statements. Historically, our estimates, assumptions and judgments relative to our critical accounting policies have not differed materially from actual results.
The following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
Revenue Recognition. Our revenue arrangements are complex in nature and require significant judgement in determining the performance obligation structure. Each contract is unique in nature and therefore is assessed individually for appropriate accounting treatment. When applicable, we estimate variable considerations at the most likely amount to which we expect to be entitled and in certain cases based on the expected value, which requires judgment. 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.
Goodwill. Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination. We test goodwill for impairment in accordance with the provisions of ASC 350, Intangibles – Goodwill and Other, (“ASC 350”). Goodwill is tested for impairment at least annually at the reporting unit level or whenever events or changes in circumstances indicate that goodwill might be impaired. ASC 350 provides that an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then additional impairment testing is not required. However, if an entity concludes otherwise, then it is required to perform an impairment test. The impairment test involves comparing the estimated fair value of a reporting unit with its book value, including goodwill. If the estimated fair value exceeds book value, goodwill is considered not to be impaired. If, however, the fair value of the reporting unit is less than book value, then an impairment loss is recognized in an amount equal to the amount that the book value of the reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to the reporting unit.
The estimates of fair value of the reporting units are computed using either an income approach, a market approach, or a combination of both. Under the income approach, we utilize the discounted cash flow method to estimate the fair value of the reporting units. Significant assumptions inherent in estimating the fair values include the estimated future cash flows, growth assumptions for future revenues (including future gross margin rates, expense rates, capital expenditures and other estimates), and a rate used to discount estimated future cash flow projections to their present value (or estimated fair value) based on estimated weighted average cost of capital (i.e., the selected discount rate). We select assumptions used in the financial forecasts by using historical data, supplemented by current and anticipated market conditions, estimated growth rates, and management’s plans. Under the market approach, fair value is derived from metrics of publicly traded companies or historically completed transactions of comparable businesses (i.e. guideline companies). The selection of comparable businesses is based on the markets in which the reporting units operate giving consideration to risk profiles, size, geography, and diversity of products and services.
Income Taxes. Significant judgment is required in determining any valuation allowance recorded against deferred tax assets. 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 the Company has sustained a cumulative pre-tax loss over the trailing three years, we considered it appropriate to maintain valuation allowances of $12.3 million and $14.2 million against our deferred tax assets at March 31, 2021 and 2020, respectively. 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
Recent Accounting Pronouncements
Refer to Note 1, Description of Business and Summary of Significant Accounting Policies, to the Consolidated Financial Statements, included in Part II, Item 8 of this report for a discussion of recent accounting pronouncements.
Analysis of Fiscal 2021 and Fiscal 2020 Results of Operations
For a comparison of the 2020 to 2019 fiscal years, see Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company's Form 10-K for the fiscal year ended March 31, 2020. Note that the filings of the 2020 and 2019 fiscal years do not reflect results of discontinued operation related activities, which are reflected in this report.
Total Revenues. Total revenues are comprised of sales from our Roadway Sensors and Transportation Systems segments. The following tables present details of total revenues for Fiscal 2021 as compared to Fiscal 2020:
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|
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Year Ended March 31,
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|
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|
|
2021
|
|
2020
|
|
$ Increase
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|
% Change
|
|
(In thousands, except percentage)
|
Product revenues
|
$
|
62,933
|
|
|
$
|
55,007
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|
|
$
|
7,926
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|
14.4
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%
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Service revenues
|
54,205
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|
|
52,396
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|
|
1,809
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|
|
3.5
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%
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Total revenues
|
$
|
117,138
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|
|
$
|
107,403
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|
|
$
|
9,735
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|
|
9.1
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%
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Product revenues primarily consist of Roadway Sensors product sales, but also include OEM products for the traffic signal markets, Transportation Systems third-party product sales for installation under certain construction-type contracts and sales from TrafficCast's public sector business. Product revenues for Fiscal 2021 increased approximately 14.4% to $62.9 million, compared to $55.0 million in Fiscal 2020, primarily due to an increase in sales of our core Roadway Sensors video detection products of approximately $6.8 million, an increase of approximately $1.3 million from Transportation Systems third-party product sales for installation under certain construction-type contracts and an addition of TrafficCast's public sector business of approximately $1.4 million, offset by a decrease of approximately $1.0 million from our distribution in Texas of certain OEM products for the traffic intersection market.
Service revenues primarily consist of Transportation Systems engineering services, but also includes service revenues generated by our Roadway Sensors segment and the TrafficCast's commercial business. Service revenues for Fiscal 2021 increased approximately 3.5% to $54.2 million, compared to $52.4 million in Fiscal 2020, primarily due to approximately $2.7 million of revenues from the operations of TrafficCast's commercial business, and offset by 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.
Roadway Sensors revenues in Fiscal 2021 included approximately $55.8 million in product revenues and approximately $0.8 million of service revenues, reflecting an increase in total revenues of approximately $7.2 million or 14.5%, compared to Fiscal 2020, primarily due to higher sales from our core video detection products of $6.6 million, an addition of approximately $1.4 million from TrafficCast public sector business, offset by a decrease of approximately $1.0 million from our distribution in Texas of certain OEM products for the traffic intersection market. 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 $57.4 million of new bookings, or potential revenue under binding agreements, during Fiscal 2021. Roadway Sensors backlog
increased to approximately $11.6 million as of March 31, 2021, compared to approximately $8.7 million as of March 31, 2020. 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 in Fiscal 2021 included approximately $53.3 million of service revenues including approximately $2.7 million of revenues from the operations of TrafficCast's commercial business, and approximately $7.3 million of sales of third-party products purchased for installation under certain construction-type contracts, reflecting an increase in total revenues of approximately $2.6 million or 4.4%, compared to Fiscal 2020, primarily due to the addition of TrafficCast's commercial business. Transportation Systems added approximately $64.4 million of new backlog during Fiscal 2021. Transportation Systems backlog increased to approximately $66.5 million as of March 31, 2021, compared to approximately $53.4 million as of March 31, 2020.
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, 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 professional services.
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 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 Fiscal 2021 compared to Fiscal 2020:
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|
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|
|
Year Ended March 31,
|
|
|
|
|
|
2021
|
|
2020
|
|
$ Increase
|
|
% Change
|
|
(In thousands,except percentage)
|
Product gross profit
|
$
|
28,000
|
|
|
$
|
24,741
|
|
|
$
|
3,259
|
|
|
13.2
|
%
|
Service gross profit
|
18,856
|
|
|
18,872
|
|
|
(16)
|
|
|
(0.1
|
%)
|
Total gross profit
|
$
|
46,856
|
|
|
$
|
43,613
|
|
|
$
|
3,243
|
|
|
7.4
|
%
|
Product gross margin as a % of product revenues
|
44.4
|
%
|
|
45.0
|
%
|
|
|
|
|
Service gross margin as a % of service revenues
|
34.9
|
%
|
|
36.0
|
%
|
|
|
|
|
Total gross margin as a % of total revenues
|
40.0
|
%
|
|
40.6
|
%
|
|
|
|
|
Our product gross margin as a percentage of product revenues for Fiscal 2021 decreased approximately 60 basis points compared to Fiscal 2020 primarily due to an increase in third-party product sales and additions of TrafficCast's public sector business, which typically yield lower gross margins.
Our service gross margin as a percentage of service revenues for Fiscal 2021 decreased 110 basis points compared to Fiscal 2020 primarily due to the completion of previously awarded contracts, the timing of certain extension contracts, the contract mix and an increase in the amount of subcontractors of such contracts. Subcontractors generally result in lower gross margins than our direct labor.
Our total gross margin as a percentage of total revenues for Fiscal 2021 decreased 60 basis points compared to Fiscal 2020 primarily as a result of the revenue mix within our Roadway Sensors and Transportation Systems segments.
Roadway Sensors gross profit can fluctuate in any specific quarter or year based on, among other factors, customer and product mix between core products and third party OEM products, competitive pricing requirements, product warranty costs and provisions for our excess and obsolete inventories, as well as shifts of engineering resources from development activities to sustaining activities, which we record as cost of goods sold.
We recognize a portion of our Transportation Systems revenues and related gross profit over time using the costs incurred input method, where revenue is recognized based on our efforts or inputs toward satisfying a performance obligation, and the underlying mix of contract activity affects the related gross profit recognized in any given period. For the Transportation Systems segment, we expect to experience gross profit variability in future periods due to our contract mix and the amount of
related sub-consulting content of such contracts, as well as factors such as our ability to efficiently utilize our internal workforce, which could cause fluctuations in our margins from period to period.
Selling, General and Administrative Expense
Selling, general and administration expense for Fiscal 2021 decreased approximately 4% to $39.2 million, compared to $40.7 million in Fiscal 2020. The decrease was 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 year compared with the prior year.
Research and Development Expense
Research and development expense for Fiscal 2021 increased approximately 19% to $5.1 million, compared to $4.3 million in Fiscal 2020. The overall increase was primarily due to continued investment in research and development activities largely focused on improving our existing software related product offerings.
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 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.
Impairment of Goodwill
Based on our goodwill impairment testing for Fiscal 2021 and 2020, we believe the carrying value of our goodwill was not impaired, as the estimated fair values of our reporting units exceeded their carrying values at the end of Fiscal 2021 and 2020. If our actual financial results, or the plans and estimates used in future goodwill impairment analyses, are lower than our original estimates used to assess impairment of our goodwill, we could incur goodwill impairment charges in the future.
Amortization of Intangible Assets
Amortization expense for intangible assets subject to amortization was approximately $2.0 million and $1.3 million for Fiscal 2021 and Fiscal 2020, respectively. Approximately $0.5 million and $0.5 million of the intangible asset amortization was recorded to cost of revenues, and approximately $1.5 million and $0.8 million was recorded to amortization expense for Fiscal 2021 and Fiscal 2020, respectively, in the consolidated statements of operations. The increase in amortization was primarily due to amortization expenses related to intangible assets acquired as part of the TrafficCast acquisition.
Interest Income, Net
Net interest income was approximately $0.1 million and $0.2 million in Fiscal 2021 and Fiscal 2020, respectively. The decrease in net interest income in the current year was primarily due to the decrease in interest earned on investments purchased and held during the current fiscal year.
Income Taxes
The following table presents our (benefit) provision for income taxes for Fiscal 2021 and Fiscal 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
March 31,
|
|
|
2021
|
|
2020
|
|
|
(In thousands,
except percentage)
|
|
Provision (benefit) for income taxes
|
$
|
115
|
|
|
$
|
160
|
|
|
Effective tax rate
|
1.8
|
%
|
|
(3.1)
|
%
|
|
For Fiscal 2021 and 2020, the difference between the statutory and the effective tax rate was primarily attributable to the valuation allowance recorded against our deferred tax assets.
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 the Company has sustained a cumulative pre-tax loss over the trailing three fiscal years, we considered it appropriate to maintain valuation allowances of $12.3 million and $14.2 million against our deferred tax assets at March 31, 2021 and 2020, respectively. We will continue to reassess the appropriateness of maintaining a valuation allowance.
As we update our estimates in future periods, adjustments to our deferred tax asset and valuation allowance may be necessary. We anticipate this will cause our future overall effective tax rate in any given period to fluctuate from prior effective tax rates and statutory tax rates. We utilize the liability method of accounting for income taxes. We record net deferred tax assets to the extent that we believe these assets will more likely than not be realized.
At March 31, 2021, we had $7.7 million of federal net operating loss carryforwards that do not expire as a result of recent tax law changes. We also had $5.9 million of state net operating loss carryforwards that begin to expire in 2031. Although the impact cannot be precisely determined at this time, we believe that our net operating loss carryforwards will provide reductions in our future income tax payments, that would otherwise be higher using statutory tax rates.
Liquidity and Capital Resources
For a comparison of the 2020 to 2019 fiscal years, see Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company's Form 10-K for the fiscal year ended March 31, 2020.
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 March 31, 2021, we had $36.7 million in working capital, which included $25.5 million in cash and cash equivalents and $3.1 million in short-term investments. This compares to working capital of $33.9 million at March 31, 2020, which included $14.4 million in cash and cash equivalents and $11.6 million in short-term investments.
The following table summarizes our cash flows from continuing operations for Fiscal 2021 and Fiscal 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
March 31,
|
|
2021
|
|
2020
|
|
(In thousands)
|
Net cash provided by (used in):
|
|
|
|
Operating activities
|
8,888
|
|
|
(462)
|
|
Investing activities
|
(7,998)
|
|
|
(16,184)
|
|
Financing activities
|
2,873
|
|
|
27,362
|
|
Operating Activities. Net cash provided by operating activities of our continuing operations for Fiscal 2021 of $8.9 million was primarily the result of $7.8 million in non-cash items, primarily for noncash lease expense, depreciation expenses, stock-based compensation, and amortization coupled with our net income from continuing operations of approximately $0.5 million, as well as approximately $0.6 million from increase in working capital. Net cash used in operating activities from discontinued operations was $2.4 million.
Net cash used by operating activities of our continuing operations for Fiscal 2020 was primarily the result of our net loss of approximately $1.8 million, coupled with approximately $4.5 million from changes in working capital, offset by approximately $5.8 million in noncash items for noncash lease expense, depreciation, stock-based compensation, and amortization. Net cash used in operating activities from discontinued operations was $3.4 million.
Investing Activities. Net cash used in investing activities of our continuing operations during Fiscal 2021 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 $0.6 million of property and equipment purchases, and approximately $0.8 million 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 $32.0 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 Fiscal 2020 was primarily the result of approximately $33.8 million purchases of short-term investments, approximately $0.4 million of property and equipment purchases and $5.6 million in net cash paid for the AGI acquisition, coupled with approximately $0.6 million 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 $24.2 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 Fiscal 2021 was primarily the result of approximately $2.6 million and $0.4 million of cash proceeds from the exercise of stock options and purchases of Employee Stock Purchase Plan ("ESPP") shares,, respectively.
Net cash provided by financing activities of our continuing operations during Fiscal 2020 was primarily the result of approximately $26.8 million of net proceeds from issuance of common stock in connection with the public offering. In addition, there was $0.3 million and $0.4 million of cash proceeds received from the exercise of stock options and purchases of ESPP shares.
Off-Balance Sheet Arrangements
We do not have any other material off-balance sheet arrangements at March 31, 2021.
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 impacted 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Iteris, Inc.
Index to Consolidated Financial Statement
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Iteris, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Iteris, Inc. and subsidiaries (the "Company") as of March 31, 2021 and 2020, the related consolidated statements of operations, stockholders' equity, and cash flows, for each of the three years in the period ended March 31, 2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of March 31, 2021, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated June 1, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.
Adoption of New Accounting Standard
As discussed in Note 8 to the consolidated financial statements, the Company changed its method of accounting for leases as of and for the year ended March 31, 2020 due to the adoption of Accounting Standards Update 2016-02, Leases.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue from Contracts with Customers – Determination of Distinct Performance Obligations Relating to Service Revenues – Refer to Note 1 of the financial statements
Critical Audit Matter Description
The Company's service revenues within the Transportation Systems (“SYS”) operating segment, primarily derives revenue from long-term engineering & consulting services and software as a service ("SaaS"). The Company accounts for individual services separately if they are distinct performance obligations, which often requires significant judgment based upon knowledge of the services, the solution provided and the structure of the sales contract. During the year ended March 31, 2021, the Company recognized service revenues from contracts with customers of $53.3 million.
We identified the determination of distinct performance obligations in contracts with customers relating to service revenues as a critical audit matter. Significant judgment is required to determine whether the performance obligations in these sales contracts
are distinct; that is, if a service is separately identifiable from other items in the sales contract and if a customer can benefit from it on its own or with other resources that are readily available to the customer. Auditing these aspects include especially challenging auditor judgment due to the nature and extent of audit effort required to address this matter.
How the Critical Audit Matter was Addressed in the Audit
Our audit procedures related to the Company’s determination of distinct performance obligations relating to service revenues for these contracts included the following, among others:
• We tested the effectiveness of controls related to management’s identification and assessment of distinct performance obligations in contracts with customers.
• We selected a sample of customer contracts to evaluate the appropriateness of management’s determination of distinct performance obligations.
• We selected a sample of invoices from the accounts receivable detail and determined whether amounts invoiced were in accordance with the related contract terms. Further, we inspected line items on the invoice to verify that all line items were included in management's evaluation of performance obligations.
• We selected a sample of customer contracts and investigated all changes in current forecasted cost to original forecasted cost to evaluate if changes in estimate are indicative of existing services known by operations personnel, but not previously considered as distinct performance obligations by management.
• We investigated offsets to revenue to determine that they represent a valid purpose and a service was not previously identified.
• We selected a sample of expenditures and determined whether the good/service represented by the selected transaction was properly identified and evaluated by management as a distinct performance obligation.
/s/ Deloitte & Touche LLP
Costa Mesa, CA
June 1, 2021
We have served as the Company's auditor since 2016.
Iteris, Inc.
Consolidated Balance Sheets
(In thousands, except par value)
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
2021
|
|
2020
|
Assets
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
25,205
|
|
|
$
|
14,217
|
|
Restricted cash
|
263
|
|
|
146
|
|
Short-term investments
|
3,100
|
|
|
11,556
|
|
Trade accounts receivable, net of allowance for doubtful accounts of $1,019 and $802 at March 31, 2021 and 2020 respectively
|
19,020
|
|
|
16,706
|
|
Unbilled accounts receivable
|
11,541
|
|
|
9,848
|
|
Inventories
|
5,066
|
|
|
3,040
|
|
Prepaid expenses and other current assets
|
5,445
|
|
|
2,040
|
|
Current assets of discontinued operations
|
—
|
|
|
1,476
|
|
Total current assets
|
69,640
|
|
|
59,029
|
|
Property and equipment, net
|
1,923
|
|
|
1,835
|
|
Right-of-use assets
|
11,353
|
|
|
12,598
|
|
Intangible assets, net
|
14,297
|
|
|
6,066
|
|
Goodwill
|
28,340
|
|
|
20,590
|
|
Other assets
|
1,238
|
|
|
1,213
|
|
Noncurrent assets of discontinued operations
|
78
|
|
|
626
|
|
Total assets
|
$
|
126,869
|
|
|
$
|
101,957
|
|
Liabilities and stockholders' equity
|
|
|
|
Current liabilities:
|
|
|
|
Trade accounts payable
|
$
|
8,935
|
|
|
$
|
8,101
|
|
Accrued payroll and related expenses
|
11,734
|
|
|
7,508
|
|
Accrued liabilities
|
4,921
|
|
|
3,665
|
|
Deferred revenue
|
7,349
|
|
|
4,413
|
|
Current liabilities of discontinued operations
|
94
|
|
|
2,828
|
|
Total current liabilities
|
33,033
|
|
|
26,515
|
|
Lease liabilities
|
10,146
|
|
|
11,638
|
|
Deferred income taxes
|
808
|
|
|
190
|
|
Unrecognized tax benefits
|
119
|
|
|
130
|
|
Other long-term liabilities
|
3,523
|
|
|
—
|
|
Noncurrent liabilities of discontinued operations
|
261
|
|
|
357
|
|
Total liabilities
|
47,890
|
|
|
38,830
|
|
Commitments and contingencies (Note 7)
|
|
|
|
Stockholders' equity:
|
|
|
|
Preferred stock, $1.00 par value:
|
|
|
|
Authorized shares—2,000 Issued and outstanding shares—0
|
—
|
|
|
—
|
|
Common stock, $0.10 par value:
|
|
|
|
Authorized shares—70,000 at March 31, 2021 and March 31, 2020 Issued and outstanding shares—41,687 at March 31, 2021 and 40,713 at March 31, 2020
|
4,170
|
|
|
4,071
|
|
Additional paid-in capital
|
181,828
|
|
|
176,209
|
|
Accumulated deficit
|
(107,019)
|
|
|
(117,153)
|
|
Total stockholders' equity
|
78,979
|
|
|
63,127
|
|
Total liabilities and stockholders' equity
|
$
|
126,869
|
|
|
$
|
101,957
|
|
See accompanying Notes to the Consolidated Financial Statements.
Iteris, Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
2021
|
|
2020
|
|
2019
|
Product revenues
|
$
|
62,933
|
|
|
$
|
55,007
|
|
|
$
|
48,227
|
|
Service revenues
|
54,205
|
|
|
52,396
|
|
|
45,080
|
|
Total revenues
|
117,138
|
|
|
107,403
|
|
|
93,307
|
|
Cost of product revenues
|
34,933
|
|
|
30,266
|
|
|
28,434
|
|
Cost of service revenues
|
35,349
|
|
|
33,524
|
|
|
29,611
|
|
Cost of revenues
|
70,282
|
|
|
63,790
|
|
|
58,045
|
|
Gross profit
|
46,856
|
|
|
43,613
|
|
|
35,262
|
|
Operating expenses:
|
|
|
|
|
|
Selling, general and administrative
|
39,164
|
|
|
40,665
|
|
|
34,166
|
|
Research and development
|
5,130
|
|
|
4,315
|
|
|
3,755
|
|
Amortization of intangible assets
|
1,504
|
|
|
757
|
|
|
275
|
|
Restructuring charges
|
619
|
|
|
—
|
|
|
—
|
|
Total operating expenses
|
46,417
|
|
|
45,737
|
|
|
38,196
|
|
Operating income (loss)
|
439
|
|
|
(2,124)
|
|
|
(2,934)
|
|
Non-operating income:
|
|
|
|
|
|
Other income, net
|
54
|
|
|
297
|
|
|
49
|
|
Interest income, net
|
113
|
|
|
229
|
|
|
128
|
|
Income (loss) from continuing operations before income taxes
|
606
|
|
|
(1,598)
|
|
|
(2,757)
|
|
Provision for income taxes
|
(115)
|
|
|
(160)
|
|
|
(36)
|
|
Net income (loss) from continuing operations
|
491
|
|
|
(1,758)
|
|
|
(2,793)
|
|
Loss from discontinued operations before gain on sale, net of tax
|
(1,654)
|
|
|
(3,852)
|
|
|
(5,023)
|
|
Gain on sale of discontinued operations, net of tax
|
11,297
|
|
|
—
|
|
|
—
|
|
Net income (loss) from discontinued operations, net of tax
|
9,643
|
|
|
(3,852)
|
|
|
(5,023)
|
|
Net income (loss)
|
$
|
10,134
|
|
|
$
|
(5,610)
|
|
|
$
|
(7,816)
|
|
|
|
|
|
|
|
Income (loss) per share - basic:
|
|
|
|
|
|
Income (loss) per share from continuing operations
|
$
|
0.01
|
|
|
$
|
(0.04)
|
|
|
$
|
(0.08)
|
|
Income (loss) per share from discontinued operations
|
$
|
0.23
|
|
|
$
|
(0.10)
|
|
|
$
|
(0.15)
|
|
Net income (loss) per share
|
$
|
0.24
|
|
|
$
|
(0.14)
|
|
|
$
|
(0.23)
|
|
|
|
|
|
|
|
Income (loss) per share - diluted:
|
|
|
|
|
|
Income (loss) per share from continuing operations
|
$
|
0.01
|
|
|
$
|
(0.04)
|
|
|
$
|
(0.08)
|
|
Income (loss) per share from discontinued operations
|
$
|
0.23
|
|
|
$
|
(0.10)
|
|
|
$
|
(0.15)
|
|
Net income (loss) per share
|
$
|
0.24
|
|
|
$
|
(0.14)
|
|
|
$
|
(0.23)
|
|
|
|
|
|
|
|
Shares used in basic per share calculations
|
41,176
|
|
|
39,012
|
|
|
33,266
|
|
Shares used in diluted per share calculations
|
41,599
|
|
|
39,012
|
|
|
33,266
|
|
See accompanying Notes to the Consolidated Financial Statements.
Iteris, Inc.
Consolidated Statements of Stockholders' Equity
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional
Paid-In
Capital
|
|
Accumulated
Deficit
|
|
Total
Stockholders'
Equity
|
|
Shares
|
|
Amount
|
|
|
|
Balance at March 31, 2018
|
33,186
|
|
|
$
|
3,318
|
|
|
$
|
139,722
|
|
|
$
|
(103,519)
|
|
|
$
|
39,521
|
|
Adoption of ASU 2014-09
|
—
|
|
|
—
|
|
|
—
|
|
|
(208)
|
|
|
(208)
|
|
Stock option exercises
|
43
|
|
|
4
|
|
|
81
|
|
|
—
|
|
|
85
|
|
Issuance of shares pursuant to Employee Stock Purchase Plan
|
92
|
|
|
10
|
|
|
355
|
|
|
—
|
|
|
365
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
2,156
|
|
|
—
|
|
|
2,156
|
|
Issuance of shares pursuant to vesting of restricted stock units, net of payroll withholding taxes
|
56
|
|
|
6
|
|
|
(54)
|
|
|
—
|
|
|
(48)
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,816)
|
|
|
(7,816)
|
|
Balance at March 31, 2019
|
33,377
|
|
|
3,338
|
|
|
142,260
|
|
|
(111,543)
|
|
|
34,055
|
|
Issuance of common stock in connection with public offering, net of costs
|
6,183
|
|
|
618
|
|
|
26,133
|
|
|
—
|
|
|
26,751
|
|
Stock option exercises
|
120
|
|
|
12
|
|
|
244
|
|
|
—
|
|
|
256
|
|
Issuance of shares pursuant to Employee Stock Purchase Plan
|
91
|
|
|
9
|
|
|
361
|
|
|
—
|
|
|
370
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
2,785
|
|
|
—
|
|
|
2,785
|
|
Issuance of shares pursuant to vesting of restricted stock units, net of payroll withholding taxes
|
73
|
|
|
7
|
|
|
(22)
|
|
|
—
|
|
|
(15)
|
|
Issuance of common stock in connection with acquisition
|
869
|
|
|
87
|
|
|
4,448
|
|
|
—
|
|
|
4,535
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,610)
|
|
|
(5,610)
|
|
Balance at March 31, 2020
|
40,713
|
|
|
4,071
|
|
|
176,209
|
|
|
(117,153)
|
|
|
63,127
|
|
Stock option exercises
|
731
|
|
|
74
|
|
|
2,559
|
|
|
—
|
|
|
2,633
|
|
Issuance of shares pursuant to Employee Stock Purchase Plan
|
97
|
|
|
10
|
|
|
438
|
|
|
—
|
|
|
448
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
2,845
|
|
|
—
|
|
|
2,845
|
|
Issuance of shares pursuant to vesting of restricted stock units, net of payroll withholding taxes
|
146
|
|
|
15
|
|
|
(223)
|
|
|
—
|
|
|
(208)
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
10,134
|
|
|
10,134
|
|
Balance at March 31, 2021
|
41,687
|
|
|
$
|
4,170
|
|
|
$
|
181,828
|
|
|
$
|
(107,019)
|
|
|
$
|
78,979
|
|
See accompanying Notes to the Consolidated Financial Statements.
Iteris, Inc.
Consolidated Statements of Cash Flows
(In thousands)
Iteris, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
2021
|
|
2020
|
|
2019
|
Cash flows from operating activities
|
|
|
|
|
|
Net income (loss)
|
$
|
10,134
|
|
|
$
|
(5,610)
|
|
|
$
|
(7,816)
|
|
Less: Net income (loss) from discontinued operations
|
9,643
|
|
|
(3,852)
|
|
|
(5,023)
|
|
Net income (loss) from continuing operations
|
491
|
|
|
(1,758)
|
|
|
(2,793)
|
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|
|
|
|
Right-of-use asset non-cash expense
|
1,438
|
|
|
1,199
|
|
|
—
|
|
Deferred income taxes
|
607
|
|
|
105
|
|
|
(18)
|
|
Depreciation of property and equipment
|
734
|
|
|
770
|
|
|
754
|
|
Stock-based compensation
|
2,902
|
|
|
2,495
|
|
|
1,861
|
|
Amortization of intangible assets
|
2,036
|
|
|
1,255
|
|
|
629
|
|
Other
|
86
|
|
|
(60)
|
|
|
—
|
|
Changes in operating assets and liabilities, net of effects of discontinued operations and acquisitions:
|
|
|
|
|
|
Trade accounts receivable
|
(227)
|
|
|
235
|
|
|
(3,773)
|
|
Unbilled accounts receivable and deferred revenue
|
903
|
|
|
(2,353)
|
|
|
601
|
|
Inventories
|
(1,085)
|
|
|
(124)
|
|
|
5
|
|
Prepaid expenses and other assets
|
(1,738)
|
|
|
(951)
|
|
|
671
|
|
Trade accounts payable and accrued expenses
|
4,168
|
|
|
(409)
|
|
|
1,868
|
|
Operating lease liabilities
|
(1,427)
|
|
|
(866)
|
|
|
—
|
|
Net cash provided by (used in) operating activities - continuing operations
|
8,888
|
|
|
(462)
|
|
|
(195)
|
|
Net cash used in operating activities - discontinued operations
|
(2,398)
|
|
|
(3,365)
|
|
|
(5,633)
|
|
Net cash provided by (used in) in operating activities
|
6,490
|
|
|
(3,827)
|
|
|
(5,828)
|
|
Cash flows from investing activities
|
|
|
|
|
|
Purchases of property and equipment
|
(601)
|
|
|
(409)
|
|
|
(486)
|
|
Purchase of short-term investments
|
(23,655)
|
|
|
(33,786)
|
|
|
(4,079)
|
|
Maturities of investments
|
32,025
|
|
|
24,225
|
|
|
7,463
|
|
Capitalized software development costs
|
(767)
|
|
|
(633)
|
|
|
(660)
|
|
Cash paid in business acquisition, net of cash acquired
|
(15,000)
|
|
|
(5,581)
|
|
|
—
|
|
Net proceeds from sale of Vehicle Sensors
|
—
|
|
|
—
|
|
|
107
|
|
Net cash provided by (used in) investing activities - continuing operations
|
(7,998)
|
|
|
(16,184)
|
|
|
2,345
|
|
Net cash provided by (used in) investing activities - discontinued operations
|
9,740
|
|
|
(59)
|
|
|
—
|
|
Net cash provided by (used in) investing activities
|
1,742
|
|
|
(16,243)
|
|
|
2,345
|
|
Cash flows from financing activities
|
|
|
|
|
|
Proceeds from stock option exercises
|
2,633
|
|
|
256
|
|
|
85
|
|
Proceeds from ESPP purchases
|
448
|
|
|
370
|
|
|
365
|
|
Tax withholding payments for net share settlements of restricted stock units
|
(208)
|
|
|
(15)
|
|
|
(48)
|
|
Proceeds from issuance of common stock, net of costs
|
—
|
|
|
26,751
|
|
|
—
|
|
Net cash provided by financing activities - continuing operations
|
2,873
|
|
|
27,362
|
|
|
402
|
|
Net cash provided by financing activities - discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
Net cash provided by financing activities
|
2,873
|
|
|
27,362
|
|
|
402
|
|
Increase (decrease) in cash, cash equivalents and restricted cash
|
11,105
|
|
|
7,292
|
|
|
(3,081)
|
|
Cash, cash equivalents and restricted cash at beginning of period
|
14,363
|
|
|
7,071
|
|
|
10,152
|
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
25,468
|
|
|
$
|
14,363
|
|
|
$
|
7,071
|
|
Supplemental cash flow information:
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
Income taxes
|
$
|
183
|
|
|
$
|
63
|
|
|
$
|
4
|
|
Supplemental schedule of non-cash investing and financing activities:
|
|
|
|
|
|
Issuance of common stock for vested restricted stock units
|
$
|
15
|
|
|
$
|
7
|
|
|
$
|
6
|
|
Lease liabilities arising from obtaining right-of-use assets
|
$
|
689
|
|
|
$
|
581
|
|
|
$
|
—
|
|
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
|
$
|
681
|
|
|
$
|
—
|
|
|
$
|
—
|
|
See accompanying Notes to the Consolidated Financial Statements.
Notes to Consolidated Financial Statements
March 31, 2021
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 solutions. Our solutions enable public transportation agencies, municipalities, commercial entities 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, advanced detection sensors, mobility and traffic data, software-as-a-service ("SaaS") offerings, specialized consulting services and end-to-end solutions delivered as cloud-enabled managed services represent a comprehensive range of smart mobility infrastructure management solutions that we distribute to customers throughout the United States ("U.S.") and internationally.
Prior to the sale of our Agriculture and Weather Analytics segment in May 2020, we combined our intellectual property with enhanced atmospheric, land surface and agronomic modeling techniques to offer smart content and analytical solutions that provide analytical support to large enterprises in the agriculture industry, such as seed and crop protection companies, integrated food companies, and agricultural equipment manufacturers and service providers.
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 our advanced detection sensors, transportation performance analytics systems, and specialized consulting services and cloud-enabled managed services in the smart mobility infrastructure management 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 twelve 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 fiscal year ended March 31, 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 the volatility of our stock price will depend largely on future developments, including the duration of the spread of the outbreak, the distribution, rate of adoption and efficacy of vaccines, 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 the date 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, to the Consolidated Financial Statements.
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
Notes to Consolidated Financial Statements (Continued)
March 31, 2021
1. Description of Business and Summary of Significant Accounting Policies (Continued)
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, to the Consolidated Financial Statements.
The Company assessed the impacts of the Pandemic on the estimates and assumptions used in preparing these audited 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.
Acquisition of the Assets of TrafficCast International, Inc.
On December 6, 2020, the Company entered into an Asset Purchase Agreement (the “TrafficCast 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 TrafficCast Purchase Agreement, the Company agreed to purchase from TrafficCast substantially all of its assets, composed of its travel information technology, applications and content (the “TrafficCast Business”). The transaction closed on December 7, 2020.
Under the TrafficCast Purchase Agreement, Iteris purchased from TrafficCast substantially all of the assets used in the conduct of the TrafficCast Business and assumed certain specified liabilities of the TrafficCast Business in exchange for a total purchase price of up to $17.7 million, with $15.0 million paid in cash on the closing date, $1.0 million held back as security for certain post-closing adjustments and post-closing indemnity obligations of TrafficCast, $1.1 million acquisition-related liability, and a $1.0 million earn out, fair valued at $0.6 million as of March 31, 2021, that if earned, will be paid over two years based on the TrafficCast Business’ achievement of certain revenue targets. The TrafficCast Purchase Agreement also provides for customary post-closing adjustments to the purchase price tied to working capital balances of the TrafficCast Business at closing (see Note 12, Acquisitions, to the Consolidated Financial Statements).
The parties also entered into certain ancillary agreements that will provide Iteris with ongoing access to mapping and monitoring services that the TrafficCast Business uses to support its real-time and predictive travel data and associated content.
Public Offering and Acquisition of Albeck Gerken, Inc.
On June 13, 2019, the Company completed an underwritten public offering of 6,182,797 shares of the Company's common stock for net proceeds to the Company of approximately $26.8 million, after deducting underwriting discounts and estimated offering expenses payable by the Company. The Company used approximately $6.2 million of the net proceeds of this offering to pay the cash portion of the purchase price in the acquisition of AGI, a privately-held professional transportation engineering services firm headquartered in Tampa, Florida (see Note 12, Acquisitions, to the Consolidated Financial Statements), and plans to use the balance of the net proceeds for general corporate purposes and possibly for other future acquisitions.
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 ("AWA") segment to DTN, LLC (“DTN”), an operating company of TBG AG, a Swiss-based holding company, pursuant to an Asset Purchase Agreement (the “AWA 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 $1.5 million of deferred payment, of which $1.45 million has been paid by DTN at the 12-month anniversary of the closing date, and $0.05 million will be paid by DTN at the 18-month anniversary of the closing date, subject to satisfactions of the conditions set forth in the AWA Purchase Agreement relating to the transition of certain customers to DTN and the collection of certain receivables by DTN. See Note 3, Discontinued Operations, to the Consolidated Financial Statements, for further details on the sale of the Agriculture and Weather Analytics segment.
Notes to Consolidated Financial Statements (Continued)
March 31, 2021
1. Description of Business and Summary of Significant Accounting Policies (Continued)
Restructuring Activities
On April 30, 2020, in connection with the sale of the Agriculture and Weather Analytics segment, the Board of Directors of the Company 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, to the Consolidated Financial Statements).
Basis of Presentation
Our consolidated financial statements include the accounts of Iteris, Inc. and all its wholly-owned subsidiaries and have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP"). All intercompany balances and transactions have been eliminated in consolidation.
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. Significant estimates made in the preparation of the consolidated financial statements include, but not limited to, recoverability of long-lived and intangible assets; fair value of acquired intangible assets and goodwill; collectability of accounts receivable and related allowance for doubtful accounts; projections of taxable income used to assess realizability of deferred tax assets; warranty reserves; costs to complete long-term contracts; indirect cost rates used in cost plus contracts; fair value of stock option awards and equity instruments; estimates of future cash flows used to assess the recoverability of the impairment of goodwill; fair value of contingent consideration and capitalization and estimated useful life of the Company's internal-use software development costs. Estimates are based on historical experience and on various assumptions that the Company believes are reasonable under current circumstances. However, future events are subject to change and best estimates and judgments may require further adjustments, therefore, actual results could differ materially from those estimates. Management periodically evaluates such estimates and they are adjusted prospectively based upon such periodic evaluation.
Revenue Recognition
Revenues are recognized when control of the promised goods or services are transferred to our customers, in a gross amount that reflects the consideration that we expect to be entitled to in exchange for those goods or services. We generate all of our revenue from contracts with customers.
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 and 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 our 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 variable consideration. However, 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 and support, extended warranty, and the use of the Company's service platforms and APIs on a subscription basis. We generate this revenue from fees for maintenance and
Notes to Consolidated Financial Statements (Continued)
March 31, 2021
1. Description of Business and Summary of Significant Accounting Policies (Continued)
support, extended warranty, monthly active user fees, software-as-a-service ("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 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 which combines the software functionality, maintenance and hosting into a single performance obligation. In product related contracts, a purchase order may contain 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
|
Extended warranty service
|
|
Over the course of the extended warranty period (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 13, Business Segments, Significant Customer and Geographic Information for further details.
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 the accompanying consolidated balance sheet 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 in the accompanying consolidated balance sheet. For example, we would record a
Notes to Consolidated Financial Statements (Continued)
March 31, 2021
1. Description of Business and Summary of Significant Accounting Policies (Continued)
contract asset if we record revenue on a professional services engagement, but are not entitled to bill until we achieve specified milestones.
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 March 31, 2021 and 2020, there was approximately $3.2 million and $1.2 million, respectively, of contract fulfillment costs which are presented in the accompanying 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 March 31, 2021 and 2020, the aggregate amount of transaction price allocated to remaining performance obligations was immaterial primarily as a result of termination provisions within our contracts which make the duration of the accounting term of the contract one year or less.
Practical Expedients and Exemptions
T&M and CPFF contracts are considered variable consideration. However, performance obligations with an underlying fee type of T&M or CPFF qualify for the "Right to Invoice" Practical Expedient under ASC 606-10-55-18. Under this practical expedient, the Company is not required to estimate such variable consideration upon inception of the contract and reassess the estimate each reporting period.
The Company utilizes the practical expedient under ASC 606-10-50-14 of not disclosing information about its remaining performance obligations for contracts with an original expected duration (i.e., contract term, determined based on the analysis of termination provisions described above) of 12 months or less.
The Company pays sales commissions on certain sales contracts. These costs are accrued in the same period that the revenues are recorded. Using the practical expedient under ASC 340-40-25-4, the Company recognizes the incremental costs of obtaining a contract as an expense when incurred since the amortization period of the asset that the Company otherwise would have recognized is one year or less.
The Company utilizes the practical expedient under ASC 606-10-25-18B to account for shipping and handling as fulfillment costs, and not a promised service (a revenue element). Shipping and handling costs are included as cost of revenues in the period during which the products ship.
The Company excludes from the transaction price all sales taxes that are assessed by a governmental authority and that are imposed on and concurrent with a specific revenue-producing transaction and collected from a customer (for example, sales, use, value added, and some excise taxes). This employs the practical expedient under ASC 606-10-32-2A. Sales taxes are presented on a net basis (excluded from revenues) in the accompanying consolidated statements of operations.
Deferred Revenue
Deferred revenue in the accompanying 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.
Notes to Consolidated Financial Statements (Continued)
March 31, 2021
1. Description of Business and Summary of Significant Accounting Policies (Continued)
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, South America and Asia. 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 fiscal years ended March 31, 2021 ("Fiscal 2021") and, March 31, 2020 ("Fiscal 2020"), no individual customer represented greater than 10% of our total revenues. For the fiscal year ended March 31, 2019 ("Fiscal 2019"), one individual customer represented approximately 24% of our total revenues. As of March 31, 2021 and 2020, no individual customer represented greater than 10% of our total accounts receivable.
Fair Values of Financial Instruments
The accounting guidance provided in ASC 820, Fair Value Measurements ("ASC 820") for fair value provides a framework for measuring fair value, clarifies the definition of fair value, and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:
Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.
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.
Level 3—Inputs that are generally unobservable and typically reflect management's estimate of assumptions that market participants would use in pricing the assets or liabilities.
A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The Company applies fair value accounting for all financial instruments on a recurring basis. The Company's financial instruments, which include cash, cash equivalents, accounts receivable and accounts payable are recorded at their carrying amounts, which approximate their fair values due to their short-term nature. All marketable securities are considered to be available-for-sale and recorded at their estimated fair values. In valuing these items, the Company uses inputs and assumptions that market participants would use to determine their fair value, utilizing valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.
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 March 31, 2021 and 2020 restricted cash was 0.3 million and 0.1 million, respectively, related to cash restricted for shares purchased under the Employee Stock Purchase Plan ("ESPP") (see Note 10 for further details on the ESPP).
Cash, cash equivalents and restricted cash presented in the accompanying statements of cash flows consist of the following (in thousands):
Notes to Consolidated Financial Statements (Continued)
March 31, 2021
1. Description of Business and Summary of Significant Accounting Policies (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
2021
|
|
2020
|
Cash and cash equivalents
|
$
|
25,205
|
|
|
$
|
14,217
|
|
Restricted cash
|
263
|
|
|
146
|
|
|
$
|
25,468
|
|
|
$
|
14,363
|
|
Investments
The Company's investments are classified as either held-to-maturity, available-for-sale or trading, in accordance with ASC 320. 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). As of March 31, 2021, all of our investments are available-for-sale.
Under 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.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded net of the allowance for doubtful accounts. The allowance for doubtful accounts is estimated based on the Company's assessment of its ability to collect on customer accounts receivable. 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. The Company writes-off accounts receivable against the allowance when a determination is made that the balance is uncollectible and collection of the receivable is no longer being actively pursued. The allowance for doubtful accounts was $1.0 million and $0.8 million as of March 31, 2021 and 2020, respectively.
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
Notes to Consolidated Financial Statements (Continued)
March 31, 2021
1. Description of Business and Summary of Significant Accounting Policies (Continued)
Property and equipment are recorded at cost and are depreciated using the straight-line method over the estimated useful life of the related assets 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. Intangible assets without determinable economic lives are carried at cost, not amortized and reviewed for impairment at least annually.
Goodwill
Goodwill represents the excess of the aggregate purchase price over the fair value of net identifiable assets acquired in a business combination. Goodwill is not amortized and is tested for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In the valuation of goodwill, management must make assumptions regarding estimated future cash flows to be derived from the Company's business. If these estimates or their related assumptions change in the future, the Company may be required to record impairment for these assets.
The Company has the option to first perform a qualitative assessment to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying value. However, the Company may elect to bypass the qualitative assessment and proceed directly to the quantitative impairment tests. The first step of the impairment test involves comparing the fair value of the reporting unit to its net book value, including goodwill. If the net book value exceeds its fair value, the Company would perform the second step of the goodwill impairment test to determine the amount of the impairment loss. We perform an annual quantitative 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 March 31, 2021 and 2020, we determined that no adjustments to the carrying value of goodwill were required.
Impairment of Long-Lived Assets
The Company evaluates its long-lived assets, including property, equipment and intangible assets (other than goodwill) for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. 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 and intangible assets. During the three months ended June 30, 2020, we recorded $0.3 million in impairment charges related to right-of-use assets and leasehold improvements directly resulting from the restructuring activities. During the fiscal years ended March 31, 2021 and 2020, there was no additional impairment to our long-lived and intangible assets.
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
Notes to Consolidated Financial Statements (Continued)
March 31, 2021
1. Description of Business and Summary of Significant Accounting Policies (Continued)
determination is made. As such, 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.
Stock-Based Compensation
We record stock-based compensation in our 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.
Shipping and Handling Costs
Shipping and handling costs are included as cost of revenues in the period during which the products ship.
Sales Taxes
Sales taxes are presented on a net basis (excluded from revenues) in the consolidated statements of operations.
Right-of-Use Assets and Lease Liabilities
We determine if an arrangement contains a lease at inception and determine the classification of the lease, as either operating or finance, at commencement.
Right-of-use assets and lease liabilities are recorded based on the present value of future lease payments which factors in certain qualifying initial direct costs incurred as well as any lease incentives received. If an implicit rate is not readily determinable, we utilize inputs from third-party lenders to determine the appropriate discount rate. Lease expense for operating lease payments are recognized on a straight-line basis over the lease term. Finance leases incur interest expense using the effective interest method in addition to amortization of the leased asset on straight-line basis, both over the applicable lease term. Lease terms may factor in options to extend or terminate the lease.
We adhere to the short-term lease recognition exemption for all classes of assets (i.e. facilities and equipment). As a result, leases with an initial term of twelve months or less are not recorded on the balance sheet and are recognized on a straight-line basis over the lease term. In addition, for certain equipment leases, we account for lease and non-lease components, such as services, as a single lease component as permitted.
Warranty
We generally provide a one to three years 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
Notes to Consolidated Financial Statements (Continued)
March 31, 2021
1. Description of Business and Summary of Significant Accounting Policies (Continued)
sales at the time revenue for that product is recognized. The accrued warranty reserve is included within accrued liabilities in the accompanying 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 Loss
The difference between net income (loss) and comprehensive income (loss) was de minimis for Fiscal 2021, Fiscal 2020 and Fiscal 2019.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This 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 consolidated financial statements.
In August 2018, the FASB issued Accounting Standards Update ("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, 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. Supplementary Financial Information
Inventories
The following table presents details regarding our inventories:
Notes to Consolidated Financial Statements (Continued)
March 31, 2021
2. Supplementary Financial Information (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
2021
|
|
2020
|
|
(In thousands)
|
Materials and supplies
|
$
|
2,714
|
|
|
$
|
1,380
|
|
Work in process
|
435
|
|
|
162
|
|
Finished goods
|
1,917
|
|
|
1,498
|
|
|
$
|
5,066
|
|
|
$
|
3,040
|
|
Property and Equipment, net
The following table presents details of our property and equipment, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
2021
|
|
2020
|
|
(In thousands)
|
Equipment
|
$
|
6,806
|
|
|
$
|
6,222
|
|
Leasehold improvements
|
3,046
|
|
|
2,911
|
|
Accumulated depreciation
|
(7,929)
|
|
|
(7,298)
|
|
|
$
|
1,923
|
|
|
$
|
1,835
|
|
Depreciation expense was approximately $0.7 million, $0.8 million and $0.8 million in Fiscal 2021, Fiscal 2020 and Fiscal 2019, respectively. Approximately $0.2 million, $0.3 million, and $0.3 million of the depreciation expense was recorded to cost of revenues, and approximately $0.5 million, $0.5 million, and $0.5 million was recorded to operating expenses in Fiscal 2021, Fiscal 2020 and Fiscal 2019, respectively, in the accompanying consolidated statements of operations.
Intangible Assets
The following table presents details regarding our intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
March 31, 2020
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Book
Value
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Book
Value
|
|
(In thousands)
|
Technology
|
$
|
4,986
|
|
|
$
|
(1,594)
|
|
|
$
|
3,392
|
|
|
$
|
1,286
|
|
|
$
|
(1,286)
|
|
|
$
|
—
|
|
Customer contracts / relationships
|
9,550
|
|
|
(1,547)
|
|
|
8,003
|
|
|
3,750
|
|
|
(688)
|
|
|
3,062
|
|
Trade names and non-compete agreements
|
782
|
|
|
(683)
|
|
|
99
|
|
|
770
|
|
|
(613)
|
|
|
157
|
|
Capitalized software development costs
|
5,177
|
|
|
(2,374)
|
|
|
2,803
|
|
|
4,423
|
|
|
(1,576)
|
|
|
2,847
|
|
Total
|
$
|
20,495
|
|
|
$
|
(6,198)
|
|
|
$
|
14,297
|
|
|
$
|
10,229
|
|
|
$
|
(4,163)
|
|
|
$
|
6,066
|
|
Amortization expense for intangible assets subject to amortization was approximately $2.0 million, $1.3 million and $0.6 million for Fiscal 2021, Fiscal 2020 and Fiscal 2019, respectively. Approximately $0.5 million, $0.5 million and $0.4 million of the intangible asset amortization was recorded to cost of revenues, and approximately $1.5 million, $0.8 million and $0.3 million was recorded to amortization expense for Fiscal 2021, Fiscal 2020 and Fiscal 2019, respectively, in the consolidated statements of operations. The weighted average remaining useful lives of the intangible assets as of March 31, 2021 is 5.1 years.
We have one indefinite useful life intangible asset, with de minimis carrying value, which was included in trade names and non-complete agreements. Our net customer contracts/relationships have a useful life of 6 years. Our net trade names and non-compete agreements have a useful life of 3 years. Our net capitalized software development costs of approximately $2.8 million and $2.9 million primarily consisted of our Oracle Enterprise Resource Planning ("ERP") system design and implementation of approximately $1.7 million and $1.9 million as of March 31, 2021 and 2020, respectively, which has a useful life of 10 years.
Notes to Consolidated Financial Statements (Continued)
March 31, 2021
2. Supplementary Financial Information (Continued)
As of March 31, 2021, the future estimated amortization expense is as follows:
|
|
|
|
|
|
Year Ending March 31,
|
|
(In thousands)
|
|
2022
|
3,216
|
|
2023
|
2,999
|
|
2024
|
2,779
|
|
2025
|
2,318
|
|
2026
|
1,257
|
|
Thereafter
|
1,716
|
|
|
$
|
14,285
|
|
The future estimated amortization expense does not include the indefinite useful life intangible asset described above.
Goodwill
The following table presents the carrying value of our goodwill by reportable segments for Fiscal 2021, Fiscal 2020 and Fiscal 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roadway
Sensors
|
|
Transportation
Systems
|
|
Total
|
|
(In thousands)
|
Balance—March 31, 2021
|
|
|
|
|
|
Goodwill
|
$
|
8,214
|
|
|
$
|
20,346
|
|
|
$
|
28,560
|
|
Acquired goodwill (see Note 12)
|
4,044
|
|
|
3,706
|
|
|
7,750
|
|
Accumulated impairment losses
|
—
|
|
(7,970)
|
|
|
(7,970)
|
|
|
$
|
12,258
|
|
|
$
|
16,082
|
|
|
$
|
28,340
|
|
Balance—March 31, 2020
|
|
|
|
|
|
Goodwill
|
$
|
8,214
|
|
|
$
|
14,906
|
|
|
$
|
23,120
|
|
Acquired goodwill (Note 12)
|
—
|
|
|
5,440
|
|
|
5,440
|
|
Accumulated impairment losses
|
—
|
|
(7,970)
|
|
|
(7,970)
|
|
|
$
|
8,214
|
|
|
$
|
12,376
|
|
|
$
|
20,590
|
|
Balance—March 31, 2019
|
|
|
|
|
|
Goodwill
|
$
|
8,214
|
|
|
$
|
14,906
|
|
|
$
|
23,120
|
|
Accumulated impairment losses
|
—
|
|
(7,970)
|
|
|
(7,970)
|
|
|
$
|
8,214
|
|
|
$
|
6,936
|
|
|
$
|
15,150
|
|
Warranty Reserve Activity
The following table presents activity with respect to the warranty reserve:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
2021
|
|
2020
|
|
2019
|
|
(In thousands)
|
Balance at beginning of fiscal year
|
$
|
416
|
|
|
$
|
463
|
|
|
$
|
403
|
|
Additions charged to cost of sales
|
508
|
|
|
649
|
|
|
647
|
|
Warranty claims
|
(355)
|
|
|
(696)
|
|
|
(587)
|
|
Balance at end of fiscal year
|
$
|
569
|
|
|
$
|
416
|
|
|
$
|
463
|
|
Notes to Consolidated Financial Statements (Continued)
March 31, 2021
2. Supplementary Financial Information (Continued)
Earnings Per Share
The following table sets forth the computation of basic and diluted loss from continuing operations per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
2021
|
|
2020
|
|
2019
|
|
(In thousands, except per
share amounts)
|
Numerator:
|
|
|
|
|
|
Net income (loss) from continuing operations
|
$
|
491
|
|
|
$
|
(1,758)
|
|
|
$
|
(2,793)
|
|
Net income (loss) from discontinued operations, net of tax
|
9,643
|
|
|
(3,852)
|
|
|
(5,023)
|
|
Net income (loss)
|
$
|
10,134
|
|
|
$
|
(5,610)
|
|
|
$
|
(7,816)
|
|
Denominator:
|
|
|
|
|
|
Weighted average common shares used in basic computation
|
41,176
|
|
|
39,012
|
|
|
33,266
|
|
Dilutive stock options
|
423
|
|
|
—
|
|
|
—
|
|
Weighted average common shares used in diluted computation
|
41,599
|
|
|
39,012
|
|
|
33,266
|
|
Basic:
|
|
|
|
|
|
Net income (loss) per share from continuing operations:
|
$
|
0.01
|
|
|
$
|
(0.04)
|
|
|
$
|
(0.08)
|
|
Net income (loss) per share from discontinued operations:
|
$
|
0.23
|
|
|
$
|
(0.10)
|
|
|
$
|
(0.15)
|
|
Net income (loss) per basic share
|
$
|
0.24
|
|
|
$
|
(0.14)
|
|
|
$
|
(0.23)
|
|
Diluted:
|
|
|
|
|
|
Net income (loss) per share from continuing operations:
|
$
|
0.01
|
|
|
$
|
(0.04)
|
|
|
$
|
(0.08)
|
|
Net income (loss) per share from discontinued operations:
|
$
|
0.23
|
|
|
$
|
(0.10)
|
|
|
$
|
(0.15)
|
|
Net income (loss) per diluted share
|
$
|
0.24
|
|
|
$
|
(0.14)
|
|
|
$
|
(0.23)
|
|
The following instruments were excluded for purposes of calculating weighted average common share equivalents in the computation of diluted loss per share from continuing operations as their effect would have been anti-dilutive for the years ended March 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
2021
|
|
2020
|
|
2019
|
|
(In thousands)
|
Stock options
|
3,935
|
|
|
6,190
|
|
|
5,056
|
|
Restricted stock units
|
126
|
|
|
110
|
|
|
12
|
|
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 AWA 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, $1.45 million has been paid by DTN at the 12-month anniversary of the closing date, and $0.05 million will be paid by DTN at the 18-month anniversary 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 AWA 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
Notes to Consolidated Financial Statements (Continued)
March 31, 2021
3. Discontinued Operations (Continued)
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 operations and business. The Company earned approximately $0.2 million in income and incurred approximately $0.1 million in costs associated with the TSA for the year ended March 31, 2021, which were included in income (loss) from discontinued operations on the accompanying consolidated statement of operations.
The related assets and liabilities of the Agriculture and Weather Analytics segment were reclassified to assets and liabilities of discontinued operations as of March 31, 2021 and March 31, 2020 on the accompanying consolidated balance sheets. The following table is a summary of major classes of assets and liabilities of discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
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 current assets of discontinued operations
|
—
|
|
|
1,476
|
|
Property and equipment, net
|
—
|
|
|
107
|
|
Right-of-use assets
|
78
|
|
|
446
|
|
Other classes of assets that are not major
|
—
|
|
|
73
|
|
Total noncurrent assets of discontinued operations
|
78
|
|
|
626
|
|
Total assets of discontinued operations
|
$
|
78
|
|
|
$
|
2,102
|
|
|
|
|
|
Liabilities
|
|
|
|
Trade accounts payable
|
$
|
—
|
|
|
$
|
254
|
|
Accrued liabilities
|
—
|
|
|
91
|
|
Accrued payroll and related expenses
|
—
|
|
|
933
|
|
Deferred revenue
|
—
|
|
|
1,550
|
|
Current Lease Liabilities
|
94
|
|
|
—
|
|
Total current liabilities of discontinued operations
|
94
|
|
|
2,828
|
|
Noncurrent Lease liabilities
|
261
|
|
|
357
|
|
Total liabilities of discontinued operations
|
$
|
355
|
|
|
$
|
3,185
|
|
The results of operations for the Agriculture and Weather Analytics segment were included in net income (loss) from discontinued operations on the accompanying consolidated statements of operations. The following table provides information regarding the results of discontinued operations:
Notes to Consolidated Financial Statements (Continued)
March 31, 2021
3. Discontinued Operations (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
2021
|
|
2020
|
|
2019
|
Service revenue
|
$
|
695
|
|
|
$
|
6,714
|
|
|
$
|
5,816
|
|
Cost of service revenues
|
350
|
|
|
2,566
|
|
|
2,472
|
|
Gross profit
|
345
|
|
|
4,148
|
|
|
3,344
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
Selling, general and administration
|
780
|
|
|
3,718
|
|
|
4,304
|
|
Research and development
|
407
|
|
|
4,282
|
|
|
4,063
|
|
Restructuring charges
|
837
|
|
|
—
|
|
|
—
|
|
Total operating expenses
|
2,024
|
|
|
8,000
|
|
|
8,367
|
|
Operating loss from discontinued operations
|
(1,679)
|
|
|
(3,852)
|
|
|
(5,023)
|
|
Other income, net
|
72
|
|
|
—
|
|
|
—
|
|
Loss from discontinued operation before income tax
|
(1,607)
|
|
|
(3,852)
|
|
|
(5,023)
|
|
Income tax expense
|
(47)
|
|
|
—
|
|
|
—
|
|
Net loss from discontinued operations
|
(1,654)
|
|
|
(3,852)
|
|
|
(5,023)
|
|
Gain on disposal of discontinued operations before income tax
|
11,315
|
|
|
—
|
|
|
—
|
|
Income tax expense on gain on disposal
|
(18)
|
|
|
—
|
|
|
—
|
|
Gain on disposal of discontinued operations after income tax
|
11,297
|
|
|
—
|
|
|
—
|
|
Net income (loss) from discontinued operations
|
$
|
9,643
|
|
|
$
|
(3,852)
|
|
|
$
|
(5,023)
|
|
The following table provides information on the gain recorded on the sale of the Agriculture and Weather Analytics segment for the year ended March 31, 2021. 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 purchase considerations
|
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.
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
Notes to Consolidated Financial Statements (Continued)
March 31, 2021
4. Restructuring Activities (Continued)
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.
The following table presents the restructuring and severance costs for our reportable segments, as well as corporate expenses, for the fiscal year ended March 31, 2021 (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 year ended March 31, 2021, approximately $0.6 million of the restructuring costs were recorded to restructuring charges in the accompanying consolidated statements of operations, and approximately $0.8 million of the restructuring costs were recorded to loss from discontinued operations in the accompanying consolidated statements of operations.
As of March 31, 2021, we have accrued approximately $0.1 million for severance and benefits related to the restructuring activities in accrued payroll and related expenses in the accompanying consolidated balance sheet. Our restructuring activities during the fiscal years ended March 31, 2021 were as follows (in thousands):
|
|
|
|
|
|
Balance at March 31, 2020
|
$
|
—
|
|
Charged to expenses
|
1,105
|
|
Cash payments
|
(1,005)
|
|
Balance at March 31, 2021
|
$
|
100
|
|
5. Fair Value Measurements
We did not have any material financial assets or liabilities measured at fair value on a recurring basis using Level 3 inputs as of March 31, 2021 or 2020, except for the contingent consideration of $0.6 million (with $0.2 million due in the next 12 months) related to the earn-out as part of the TrafficCast acquisition. Our non-financial assets, such as goodwill, intangible assets, property and equipment, and acquired assets and liabilities assumed are measured at fair value on a non-recurring basis, generally when there is a transaction involving those assets such as a purchase transaction, a business combination or an adjustment for impairment. Our non-financial assets, such as goodwill, intangible assets, property and equipment, securities held in the deferred compensation plan and the liabilities associated with the deferred compensation plan, and acquired assets and liabilities assumed are measured at fair value on a non-recurring basis, generally when there is a transaction involving those assets. In Fiscal 2021, Fiscal 2020 and Fiscal 2019, Level 3 inputs were used to evaluate the fair value of the contingent consideration and goodwill in our two reporting units that had goodwill balances. No other non-financial assets were measured at fair value as of March 31, 2021 and March 31, 2020.
The following tables present the Company's financial assets and liabilities that are recorded at fair value on a recurring basis, segregated among the appropriate levels within the fair value hierarchy:
Notes to Consolidated Financial Statements (Continued)
March 31, 2021
5. Fair Value Measurements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2021
|
|
Amortized
Cost
|
|
Gross
Unrealized
Loss
|
|
Gross
Unrealized
Gain
|
|
Estimated
Fair Value
|
Assets:
|
(In thousands)
|
Level 1:
|
|
|
|
|
|
|
|
Money market funds
|
$
|
4,676
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,676
|
|
Securities held in deferred compensation plan (1)
|
89
|
|
|
—
|
|
|
11
|
|
|
100
|
|
Subtotal
|
4,765
|
|
|
—
|
|
|
11
|
|
|
4,776
|
|
Level 2:
|
|
|
|
|
|
|
|
Commercial paper
|
4,999
|
|
|
—
|
|
|
—
|
|
|
4,999
|
|
Corporate notes and bonds
|
1,085
|
|
|
—
|
|
|
—
|
|
|
1,085
|
|
US treasuries
|
4,600
|
|
|
—
|
|
|
—
|
|
|
4,600
|
|
Subtotal
|
10,684
|
|
|
—
|
|
|
—
|
|
|
10,684
|
|
Total
|
$
|
15,449
|
|
|
$
|
—
|
|
|
$
|
11
|
|
|
$
|
15,460
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Level 1:
|
|
|
|
|
|
|
|
Deferred compensation plan liabilities (2)
|
$
|
100
|
|
|
$
|
—
|
|
|
$
|
11
|
|
|
$
|
111
|
|
Level 3:
|
|
|
|
|
|
|
|
Contingent consideration (3)
|
600
|
|
|
—
|
|
—
|
|
—
|
|
|
600
|
|
Total
|
$
|
700
|
|
|
$
|
—
|
|
|
$
|
11
|
|
|
$
|
711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2020
|
|
Amortized
Cost
|
|
Gross
Unrealized
Loss
|
|
Gross
Unrealized
Gain
|
|
Estimated
Fair Value
|
|
(In thousands)
|
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
|
|
(1) Included in prepaid expenses and other current assets on the Company’s consolidated balance sheet.
(2) Included in accrued payroll and related expenses on the Company’s consolidated balance sheet.
(3) Included in other long-term liabilities on the Company’s consolidated balance sheet.
Unrealized losses related to these 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, these investments before recovery of their cost basis. As a result, there is no other-than-temporary impairment for these investments as of March 31, 2021.
Notes to Consolidated Financial Statements (Continued)
March 31, 2021
6. Income Taxes
The components of current and deferred federal and state income tax (benefit) provision are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
2021
|
|
2020
|
|
2019
|
|
(In thousands)
|
Income (loss) from continuing operations before income taxes
|
$
|
606
|
|
|
$
|
(1,598)
|
|
|
$
|
(2,757)
|
|
Current income tax provision:
|
|
|
|
|
|
Federal
|
—
|
|
|
—
|
|
—
|
State
|
67
|
|
|
34
|
|
|
36
|
|
Total current tax provision
|
67
|
|
|
34
|
|
|
36
|
|
Deferred income tax benefit:
|
|
|
|
|
|
Federal
|
21
|
|
|
105
|
|
—
|
State
|
27
|
|
|
21
|
|
—
|
Total deferred benefit provision
|
48
|
|
|
126
|
|
—
|
|
Provision for income taxes on continued operations
|
115
|
|
|
160
|
|
|
36
|
|
Income (loss) from continuing operations, net of taxes
|
$
|
491
|
|
|
$
|
(1,758)
|
|
|
$
|
(2,793)
|
|
The reconciliation of our income tax (benefit) provision to taxes computed at U.S. federal statutory rates is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
2021
|
|
2020
|
2019
|
|
(In thousands)
|
Provision (benefit) for income taxes at statutory rates
|
$
|
90
|
|
|
$
|
(1,095)
|
|
|
$
|
(1,634)
|
|
State income taxes net of federal benefit
|
(177)
|
|
|
(198)
|
|
|
(620)
|
|
Tax credits
|
(663)
|
|
|
(658)
|
|
|
(343)
|
|
Compensation charges
|
313
|
|
|
151
|
|
|
199
|
|
Change in valuation allowance
|
523
|
|
|
1,913
|
|
|
2,385
|
|
Other
|
29
|
|
|
47
|
|
|
49
|
|
Provision for income taxes
|
$
|
115
|
|
|
$
|
160
|
|
|
$
|
36
|
|
Notes to Consolidated Financial Statements (Continued)
March 31, 2021
6. Income Taxes (Continued)
The components of deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
2021
|
|
2020
|
|
(In thousands)
|
Deferred tax assets:
|
|
|
|
Net operating losses
|
$
|
2,186
|
|
|
$
|
4,284
|
|
Capitalized R&D
|
2,282
|
|
|
3,520
|
|
Credit carry forwards
|
4,088
|
|
|
3,510
|
|
Deferred compensation and payroll
|
2,475
|
|
|
2,304
|
|
Bad debt allowance and other reserves
|
930
|
|
|
656
|
|
Operating leases
|
—
|
|
|
219
|
|
Property and equipment
|
354
|
|
|
60
|
|
Other, net
|
765
|
|
|
556
|
|
Total deferred tax assets
|
13,080
|
|
|
15,109
|
|
Valuation allowance
|
(12,349)
|
|
|
(14,163)
|
|
Total deferred tax assets, net of valuation allowance
|
731
|
|
|
946
|
|
Deferred tax liabilities:
|
|
|
|
Acquired intangibles
|
(297)
|
|
|
(596)
|
|
Goodwill
|
(672)
|
|
|
(540)
|
|
Total deferred tax liabilities
|
(969)
|
|
|
(1,136)
|
|
Net deferred tax liabilities
|
$
|
(238)
|
|
|
$
|
(190)
|
|
At March 31, 2021, we had $3.2 million in federal research credits that begin to expire in 2031 and $1.2 million in state tax credits that begin to expire in 2023. We had $7.7 million of federal net operating loss carryforwards at March 31, 2021 that do not expire as a result of recent tax law changes. We also had $5.9 million of state net operating loss carryforwards at March 31, 2021 that begin to expire in 2031.
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 the Company has sustained a cumulative pre-tax loss over the trailing three years, we considered it appropriate to maintain valuation allowances of $12.3 million and $14.2 million against our deferred tax assets at March 31, 2021 and 2020, respectively. 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.
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 currently evaluating the impact of final IRS regulations under Internal Revenue Code section 263A relating to inventory capitalization for tax purposes. The Company does not expect there to be a material impact to the financial statements.
Unrecognized Tax Benefits
Notes to Consolidated Financial Statements (Continued)
March 31, 2021
6. Income Taxes (Continued)
As of March 31, 2021 and 2020, our gross unrecognized tax benefits were approximately $1.1 million and $1.0 million, respectively, of which approximately $1.0 million and $0.9 million, respectively, are netted against certain noncurrent deferred tax assets. The amounts that would affect our effective tax rate if recognized are approximately $1.0 million and $0.8 million, respectively.
A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
2021
|
|
2020
|
|
2019
|
|
(In thousands)
|
Gross unrecognized tax benefits at beginning of year
|
$
|
952
|
|
|
$
|
687
|
|
|
$
|
586
|
|
Increases for tax positions taken in prior years
|
35
|
|
|
101
|
|
|
2
|
|
Decreases for tax positions taken in prior years
|
0
|
|
—
|
|
—
|
Increases for tax positions taken in the current year
|
104
|
|
|
180
|
|
|
116
|
|
Lapse in statute of limitations
|
(12)
|
|
|
(16)
|
|
|
(17)
|
|
Gross unrecognized tax benefits at March 31
|
$
|
1,079
|
|
|
$
|
952
|
|
|
$
|
687
|
|
We do not anticipate a significant change in gross unrecognized tax benefits within the next twelve months. We are subject to taxation in the U.S. and various state tax jurisdictions. We are subject to U.S. federal tax examination for fiscal tax years ended March 31, 2018 or later, and state and local income tax examination for fiscal tax years ended March 31, 2017 or later. However, if net operating loss carryforwards that originated in earlier tax years are utilized in the future, the amount of such NOLs from such earlier years remain subject to review by tax authorities.
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 and agricultural industries, 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 consolidated results of operations, financial position or cash flows.
8. Right-of-Use Assets and Lease Liabilities
On April 1, 2019, the Company adopted ASU 2016-02, Leases and recognized (a) an operating lease liability of $14.2 million, which represents the present value of our remaining lease payments and (b) a related right-of-use asset of $13.4 million. In addition, the Company derecognized approximately $0.8 million of deferred rent liability. The adoption of ASU 2016-02 did not have a material impact on the Company's statement of operations, cash flows, or stockholders' equity. Due to the adoption of the standard using the modified retrospective cumulative-effect adjustment method, there were no changes to our previously reported results prior to April 1, 2019.
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.
Notes to Consolidated Financial Statements (Continued)
March 31, 2021
8. Right-of-Use Assets and Lease Liabilities(Continued)
The table below presents lease-related assets and liabilities recorded on the consolidated balance sheet as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification
|
|
March 31, 2021
|
|
|
|
(In thousands)
|
Assets
|
|
|
|
Operating lease right-of-use-assets - continuing operations
|
Right-of-use assets
|
|
$
|
11,353
|
|
Operating lease right-of-use-assets - discontinued operations
|
Noncurrent assets of discontinued operations
|
|
78
|
|
Total operating lease right-of-use-assets
|
|
|
$
|
11,431
|
|
|
|
|
|
Liabilities
|
|
|
|
Operating lease liabilities (short-term) - continuing operations
|
Accrued liabilities
|
|
$
|
2,089
|
|
Operating lease liabilities (short-term) - discontinued operations
|
Current liabilities of discontinued operations
|
|
94
|
|
Total operating lease liabilities (short-term)
|
|
|
2,183
|
|
Operating lease liabilities (long-term) - continuing operations
|
Lease liabilities
|
|
10,146
|
|
Operating lease liabilities (long-term) - discontinued operations
|
Noncurrent liabilities of discontinued operations
|
|
261
|
|
Total operating lease liabilities (long-term)
|
|
|
10,407
|
|
Total operating lease liabilities
|
|
|
$
|
12,590
|
|
Lease Costs
For Fiscal 2021, Fiscal 2020 and Fiscal 2019, lease costs totaled approximately $2.7 million, $2.6 million and $1.9 million, respectively. The Company currently has no variable lease costs.
Supplemental Information
The table below presents supplemental information related to operating leases during the fiscal year ended March 31, 2021 (in thousands, except weighted average information):
|
|
|
|
|
|
Cash paid for amounts included in the measurement of operating lease liabilities
|
$
|
2,847
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities
|
$
|
689
|
|
Weighted average remaining lease term
|
6
|
Weighted average discount rate
|
5.0
|
%
|
Undiscounted Cash Flows
The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the operating lease liabilities recorded on the consolidated balance sheet as of March 31, 2021:
Notes to Consolidated Financial Statements (Continued)
March 31, 2021
8. Right-of-Use Assets and Lease Liabilities(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ending March 31,
|
|
Operating Leases
|
|
Sublease Income
|
|
Net Operating Leases
|
(In thousands)
|
|
|
|
|
|
|
2022
|
|
$
|
2,750
|
|
|
$
|
9
|
|
|
$
|
2,741
|
|
2023
|
|
2,513
|
|
|
—
|
|
|
2,513
|
|
2024
|
|
2,348
|
|
|
—
|
|
|
2,348
|
|
2025
|
|
2,076
|
|
|
—
|
|
|
2,076
|
|
2026
|
|
1,865
|
|
|
—
|
|
|
1,865
|
|
Thereafter
|
|
3,031
|
|
|
—
|
|
|
3,031
|
|
Total lease payments
|
|
14,583
|
|
|
$
|
9
|
|
|
$
|
14,574
|
|
Less imputed interest
|
|
(1,993)
|
|
|
|
|
|
Present value of future lease payments
|
|
12,590
|
|
|
|
|
|
Less current obligations under leases
|
|
(2,183)
|
|
|
|
|
|
Long-term lease obligations
|
|
$
|
10,407
|
|
|
|
|
|
9. Stockholders' Equity
Preferred Stock
Our certificate of incorporation provides for the issuance of up to 2,000,000 shares of preferred stock. Our Board of Directors is authorized to issue from time to time such authorized but unissued shares of preferred stock in one or more series and to fix or alter the designations, preferences, rights and any qualifications, limitations or restrictions of the shares of each such series, including the dividend, conversion, voting, redemption and liquidation rights. As of March 31, 2021 and 2020, there were no outstanding shares of preferred stock, and we do not currently have plans to issue any shares of preferred stock.
In August 2009, our Board of Directors adopted a stockholder rights plan, which calls for preferred stock purchase rights (each, a "Right") to be distributed, as a dividend, at the rate of one Right for each share of common stock held as of September 3, 2009. Each Right will entitle holders of common stock to buy one one-thousandth of one share of Series A Junior Participating Preferred Stock of Iteris. A further description and terms of the Rights are set forth in the Rights Agreement dated August 20, 2009 (as amended in August 2012) by and between Iteris and Computershare Trust Company, N.A. ("Computershare"), as rights agent. In connection with the stockholder rights plan, our Board of Directors approved the adoption of a Certificate of Designations, which created the Series A Junior Participating Preferred Stock, and likewise authorized the filing of a Certification of Elimination to eliminate the two series of junior participating preferred stock, which were originally created in April 1998 in connection with our previous stockholder rights plan which expired in 2008. Effective on September 28, 2018, an amendment was entered into by and between Iteris and Computershare to accelerate the expiration of the Rights from August 20, 2019 to September 28, 2018, wherein all of the Rights distributed to the holders of the Company's common stock pursuant to the Rights Agreement expired.
Common Stock Reserved for Future Issuance
The following summarizes common stock reserved for future issuance at March 31, 2021:
|
|
|
|
|
|
|
Number of Shares
|
|
(In thousands)
|
Stock options outstanding
|
5,623
|
|
Restricted stock units outstanding
|
448
|
|
Performance stock units outstanding
|
61
|
|
Authorized for future issuance under stock incentive plans
|
595
|
|
|
6,727
|
|
10. Employee Benefit Plans
Stock Incentive Plans
Notes to Consolidated Financial Statements (Continued)
March 31, 2021
10. Employee Benefit Plans (Continued)
In September 2007, our stockholders approved the 2007 Omnibus Incentive Plan (the "2007 Plan"), which provides that options to purchase shares of our unissued common stock may be granted to our employees, officers, consultants and directors at exercise prices which are equal to or greater than the market value of our common stock on the date of grant. The 2007 Plan also allows for the issuance of stock appreciation rights, restricted stock, restricted stock units ("RSUs") and other stock-based awards based on the value of our common stock. New shares are issued to satisfy stock option exercises and share issuances under the 2007 Plan. In September 2009, our stockholders approved an amendment to increase the number of shares of our common stock authorized and reserved for issuance under the 2007 Plan by 800,000 shares to a total of 1,650,000 shares. In September 2012, our stockholders approved an amendment to increase the number of shares of our common stock authorized and reserved for issuance under the 2007 Plan by 800,000 shares to a total of 2,450,000 shares. In October 2014, our stockholders approved an amendment of the 2007 Plan to increase the number of shares of common stock authorized for issuance under the 2007 Plan by an additional 1,500,000 shares to a total of 3,950,000 shares. In September 2015, our stockholders approved an amendment of the 2007 Plan to increase the number of shares of common stock authorized for issuance under the 2007 Plan by an additional 1,000,000 shares to a total of 4,950,000 shares. In December 2016, our stockholders approved the 2016 Omnibus Incentive Plan (the "2016 Plan") which allows for the issuance of stock options, stock appreciation rights, restricted stock, RSUs, cash incentive awards and other stock-based awards to our employees, officers, consultants and directors at exercise prices which are equal to or greater than the market value of our common stock on the date of grant. Options expire no more than ten years after the date of grant and generally vest at the rate of 25% on each of the first four anniversaries of the grant date. Stock appreciation rights, restricted stock, RSUs and other stock-based awards are based on the value of our common stock. New shares are issued to satisfy stock option exercises and share issuances under the 2016 Plan.
We currently maintain two stock incentive plans, the 2007 Omnibus Incentive Plan (the "2007 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, restricted stock units ("RSUs"), cash incentive awards and other stock-based awards. At March 31, 2021, there were approximately 0.6 million shares of common stock available for grant or issuance under the 2016 Plan. Total stock options vested and expected to vest were approximately 5.6 million as of March 31, 2021.
Stock Options
A summary of activity in the Omnibus Incentive Plans with respect to our stock options for Fiscal 2021 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Weighted
Average
Exercise
Price Per
Share
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Aggregate
Intrinsic
Value
|
|
(In thousands)
|
|
|
|
(Years)
|
|
(In thousands)
|
Options outstanding at March 31, 2020
|
5,934
|
|
|
$
|
3.99
|
|
|
7.2
|
|
2,095
|
|
Granted
|
831
|
|
|
4.90
|
|
|
|
|
|
Exercised
|
(743)
|
|
|
1.69
|
|
|
|
|
|
Forfeited
|
(378)
|
|
|
4.84
|
|
|
|
|
|
Expired
|
(21)
|
|
|
2.32
|
|
|
|
|
|
Options outstanding at March 31, 2021
|
5,623
|
|
|
1.99
|
|
|
6.8
|
|
11,659
|
|
As of March 31, 2021, 3,444 stock options were exercisable.
Restricted Stock Units
RSU awards are stock-based awards that entitle the holder to receive one share of our common stock for each RSU upon vesting. RSUs granted under the 2007 Plan vest at the rate of 25% on each of the first four anniversaries of the grant date provided that the holder remains in service (as defined by the 2007 Plan) as of the vesting date. RSUs granted under the 2016 Plan vest at varying terms between one and four anniversaries of the grant date provided that the holder remains in service (as defined by the 2016 Plan) as of the vesting date. The fair value per RSU is determined based on the closing market price of our common stock on the grant date.
Notes to Consolidated Financial Statements (Continued)
March 31, 2021
10. Employee Benefit Plans (Continued)
A summary of activity with respect to our RSUs for Fiscal 2021 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
# of Shares
|
|
Weighted
Average
Price Per
Share
|
|
Weighted
Average
Remaining
Life
|
|
Aggregate
Intrinsic
Value
|
|
(In thousands)
|
|
|
|
(Years)
|
|
(In thousands)
|
RSUs outstanding at March 31, 2020
|
404
|
|
|
$
|
5.16
|
|
|
2.0
|
|
1,295
|
|
Granted
|
239
|
|
|
3.13
|
|
|
|
|
|
Vested
|
(189)
|
|
|
5.13
|
|
|
|
|
|
Forfeited
|
(6)
|
|
|
5.52
|
|
|
|
|
|
RSUs outstanding at March 31, 2021
|
448
|
|
|
4.08
|
|
|
7.8
|
|
2,764
|
|
Stock-Based Compensation
The following table presents stock-based compensation expense that is included in each functional line item in our consolidated statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
2021
|
|
2020
|
|
2019
|
|
(In thousands)
|
Cost of revenues
|
$
|
209
|
|
|
$
|
143
|
|
|
$
|
122
|
|
Selling, general and administrative expense
|
2,517
|
|
|
2,271
|
|
|
1,680
|
|
Research and development expense
|
134
|
|
|
81
|
|
|
59
|
|
Restructuring activities
|
42
|
|
|
—
|
|
|
—
|
|
Loss from discontinued operations
|
(57)
|
|
|
290
|
|
|
295
|
|
Total stock-based compensation
|
$
|
2,845
|
|
|
$
|
2,785
|
|
|
$
|
2,156
|
|
At March 31, 2021, there was approximately $4.7 million, $1.6 million and $0 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 2.8 years for stock options, 1.6 years for RSUs. 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.
The grant date fair value of stock options granted was estimated using the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
2021
|
|
2020
|
|
2019
|
Expected life—years
|
6.7
|
|
6.8
|
|
5.9
|
Risk-free interest rate
|
1.0
|
%
|
|
2.2
|
%
|
|
2.7
|
%
|
Expected volatility of common stock
|
47
|
%
|
|
47
|
%
|
|
43
|
%
|
Dividend yield
|
0
|
%
|
|
0
|
%
|
|
0
|
%
|
Expected Life: The Company's expected life represents the weighted-average period that the Company's stock options are expected to be outstanding. The expected life is based on expected time to post-vesting exercise of options by employees. The Company uses historical exercise patterns of previously granted options to derive employee behavioral patterns used to forecast expected exercise patterns.
Risk-Free Interest Rate: The risk-free interest rate is based on the U.S. Treasury zero coupon yield curve in effect at the time of grant for the expected term of the option.
Expected Volatility: The Company uses historical volatility as it provides a reasonable estimate of the expected volatility. Historical volatility is based on the most recent volatility of the stock price over a period of time equivalent to the expected term of the option.
Notes to Consolidated Financial Statements (Continued)
March 31, 2021
10. Employee Benefit Plans (Continued)
A summary of certain fair value and intrinsic value information pertaining to our stock options is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
2021
|
|
2020
|
|
2019
|
|
(In thousands, except
per share amounts)
|
Weighted average grant date fair value per share of options granted
|
$
|
2.38
|
|
|
$
|
2.52
|
|
|
$
|
1.89
|
|
Intrinsic value of options exercised
|
$
|
1,494
|
|
|
$
|
378
|
|
|
$
|
114
|
|
Employee Incentive Programs
Under the terms of a Profit Sharing Plan, we may contribute to a trust fund such amounts as determined annually by the Board of Directors. No contributions were made during the fiscal years ended March 31, 2021, 2020 and 2019.
We sponsor a defined contribution 401(k) plan (the "401(k) Plan"), adopted in 1990, under which eligible employees voluntarily contribute to the plan, up to IRS maximums, through payroll deductions. We match up to 50% of contributions, up to a stated limit, with all matching contributions being fully vested after one month of service. Our matching contributions under the 401(k) Plan were approximately $1.4 million, $1.3 million and $1.2 million for Fiscal 2021, Fiscal 2020 and Fiscal 2019, respectively.
Other Stock-Based Compensation Plans
Beginning January 1, 2018, the Company adopted an ESPP which allows employees to withhold a percentage of their base compensation 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 $0.03 million annual stock value limit. During Fiscal 2021, Fiscal 2020, and Fiscal 2019, 97,000, 91,000 and 92,000 shares, respectively, were purchased. The ESPP is considered a non-compensatory plan and accordingly no compensation expense is recorded in connection with this benefit.
As of March 31, 2021, approximately $0.3 million of cash was restricted for the purchase of shares under the ESPP and is recorded as restricted cash in the accompanying consolidated balance sheets.
Deferred Compensation Plan
Effective October 1, 2020, the Company adopted the Iteris, Inc. Non Qualified Deferred Compensation Plan (the "DC Plan"). The DC Plan consists of two plans, one that is intended to be an unfunded arrangement for eligible key 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 established a rabbi trust to finance our obligations under the DC Plan with corporate-owned life insurance policies on participants, and the assets held within this trust are subject to the claims of the Company's creditors.
As of March 31, 2021, the amount invested under the DC Plan totaled $0.09 million and are classified as trading securities, which are recorded at fair market value with changes recorded as adjustments to other income. This amount is included in prepaid expenses and other current assets on the consolidated balance sheets.
As of March 31, 2021, the vested amounts under the DC Plan totaled $0.1 million and are included in accrued payroll and related expenses on the consolidated balance sheets. Changes in the deferred compensation plan liabilities are recorded as an adjustment to compensation expense.
Notes to Consolidated Financial Statements (Continued)
March 31, 2021
10. Employee Benefit Plans (Continued)
As of March 31, 2021, no equity awards were deferred and held in the rabbi trust. The shares deferred and held in the rabbi trust will be classified as treasury stock, and the liability to participating employees will be classified as deferred compensation obligations in the stockholders' equity section of the consolidated balance sheets. The number of shares needed to settle the liability for deferred compensation obligations will be included in the denominator in both the basic and diluted earnings per share calculations.
The cash surrender value of the corporate-owned insurance policies totaled $0.07 million and is included in prepaid expenses and other current assets on the consolidated balance sheets.
Employment Inducement Incentive Plan
On December 4, 2020, the Board of Directors approved the Iteris, Inc. 2020 Employment Inducement Incentive Award Plan (the “Inducement Plan”) in conjunction with the TrafficCast acquisition. 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 of Directors without stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules.
The Board of Directors 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.
During the fiscal year ended March 31, 2021, the Company granted 95,000 stock options and 84,914 restricted stock units to TCI employees under the Inducement Plan.
11. Stock Repurchase Program
In August 2011, our Board of Directors approved a stock repurchase program pursuant to which we were authorized to acquire up to $3.0 million of our outstanding common stock from time to time through August 2012. We repurchased approximately 964,000 shares under this original program for a total purchase price of $1.3 million. On August 9, 2012, our Board of Directors cancelled the initial stock repurchase program and the approximate $1.7 million of remaining funds, and 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 new program, we may repurchase shares from time to time in 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. 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 our fiscal years ended March 31, 2021, 2020, and 2019 we did not repurchase any shares. From inception of the program in August 2011 through March 31, 2021, we repurchased approximately 3,422,000 shares of our common stock for an aggregate price of approximately $5.6 million, at an average price per share of $1.63. As of March 31, 2021, all repurchased shares have been retired and returned to their status as authorized and unissued shares of our common stock. As of March 31, 2021, approximately 1.7 million remains available for the repurchase of our common stock under our current program.
12. Acquisitions
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 TrafficCast Purchase Agreement, Iteris purchased from TrafficCast substantially all of the assets used in the conduct of the TrafficCast Business and assumed certain specified liabilities of the TrafficCast Business.
Notes to Consolidated Financial Statements (Continued)
March 31, 2021
12. Acquisition (Continued)
The aggregate acquisition-date fair value of the consideration transferred totaled approximately $17.7 million, which consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
(in thousands)
|
Cash
|
|
$
|
15,000
|
|
Security hold back
|
|
1,000
|
|
Acquisition-related liabilities
|
|
1,131
|
|
Contingent consideration
|
|
600
|
|
Total
|
|
$
|
17,731
|
|
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 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 consolidated balance sheets. Contingent consideration relates to a $1.0 million earn out, that if earned, will be paid over two years based on the TrafficCast Business’ achievement of certain revenue targets. This item is included in other long-term liabilities on the 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 $2.7 million of service revenue and approximately $1.4 million of product revenue, as well as approximately $1.0 million of net loss.
The acquisition of TrafficCast has been accounted for as a business combination. We estimated the 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 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
|
941
|
|
Right-of-use assets
|
193
|
|
Property and equipment
|
233
|
|
Intangible assets
|
9,500
|
|
Goodwill
|
7,750
|
|
Other assets
|
242
|
|
Total assets acquired
|
21,542
|
|
Accounts payable
|
1,026
|
|
Deferred revenue
|
2,460
|
|
Lease liabilities
|
193
|
|
Other liabilities
|
132
|
|
Total liabilities assumed
|
3,811
|
|
Total purchase price
|
$
|
17,731
|
|
Notes to Consolidated Financial Statements (Continued)
March 31, 2021
12. Acquisition (Continued)
The fair values of the TrafficCast Business and liabilities, other than goodwill and intangible assets, 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 was 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
|
|
|
|
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 is expected to expand the Company's geographic footprint for ITS 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 were 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. We estimated the fair values of net assets acquired, and the excess of the consideration transferred over the aggregate of such fair values was recorded as goodwill.
Notes to Consolidated Financial Statements (Continued)
March 31, 2021
12. Acquisition (Continued)
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. 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. Varying discount rates were applied to the projected net cash flows and EBITDA as applicable to valuation methodology. 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
|
|
|
|
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 $0.6 million 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 fiscal years ended March 31, 2021 and 2020, the Company recorded approximately $0.7 million and $1.0 million, respectively, as stock based compensation and salaries expense to selling, general and administrative expense in the consolidated statements of operations, related to these bonuses.
Notes to Consolidated Financial Statements (Continued)
March 31, 2021
12. Acquisition (Continued)
In connection with the acquisition of AGI, the Company recorded approximately $0.7 million, in acquisition related professional fees, which was included in selling, general and administrative expense, in the consolidated statements of operations for the year ended March 31, 2020.
In connection with the acquisition of TrafficCast, the Company recorded approximately $0.4 million, in acquisition related professional fees, which was included in selling, general and administrative expense, in the consolidated statements of operations for the year ended March 31, 2021.
Pro Forma Financial Information (Unaudited)
The following pro forma information presents the consolidated results of operations of the Company, AGI and TrafficCast for the fiscal years ended March 31, 2021, 2020 and 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 unaudited 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 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 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
2021
|
|
2020
|
|
2019
|
Proforma revenue
|
|
$
|
117,138
|
|
|
$
|
124,156
|
|
|
$
|
101,233
|
|
Proforma net income (loss) from continuing operations
|
|
$
|
491
|
|
|
$
|
(5,262)
|
|
|
$
|
(2,084)
|
|
Pro forma income (loss) per common stock
|
|
|
|
|
|
|
Basic
|
|
$
|
0.02
|
|
|
$
|
(0.13)
|
|
|
$
|
(0.06)
|
|
Diluted
|
|
$
|
0.02
|
|
|
$
|
(0.13)
|
|
|
$
|
(0.06)
|
|
13. Business Segments, Significant Customer and Geographic Information
Business Segments
We operate in two reportable segments: Roadway Sensors and Transportation Systems.
The Roadway Sensors segment provides 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 12, Acquisitions, to the consolidated financial statements for further details).
The Transportation Systems segment provides engineering and specialized consulting services, cloud-enabled managed services, transportation performance measurement and traffic analytics solutions, as well as the development of transportation management and traveler information systems for the smart mobility infrastructure management 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:the Iteris Signal Performance Measures ("Iteris SPM") and iPeMS traffic signal performance and traffic analytics software suites, the capabilities and customers of which have now respectively been incorporated into and migrated to ClearGuide, our comprehensive mobility intelligence and transportation performance measures solution; our advanced traveler
Notes to Consolidated Financial Statements (Continued)
March 31, 2021
13. Business Segments, Significant Customer and Geographic Information (Continued)
information system ("ATIS") solution for public transportation agencies, ClearRoute; our ATIS solution for the enterprise and commercial sector, TrafficCarma; and our commercial vehicle operations and vehicle safety compliance platforms known as ClearFleet, 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 12, Acquisitions, to the consolidated financial statements for further details)..
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, to the consolidated financial statements). 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 segments in his resource allocation, and therefore, assets by segments are not disclosed below.
The following table sets forth selected consolidated financial information for our reportable segments for the fiscal years ended March 31, 2021, March 31, 2020 and March 31, 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roadway
Sensors
|
|
Transportation
Systems
|
|
Total
|
|
|
(In thousands)
|
Year Ended March 31, 2021
|
|
|
|
|
|
|
Product revenues
|
|
$
|
55,665
|
|
|
$
|
7,268
|
|
|
$
|
62,933
|
|
Service revenues
|
|
884
|
|
|
53,321
|
|
|
54,205
|
|
Total revenues
|
|
$
|
56,549
|
|
|
$
|
60,589
|
|
|
$
|
117,138
|
|
Segment income
|
|
$
|
11,554
|
|
|
$
|
8,689
|
|
|
$
|
20,243
|
|
Year Ended March 31, 2020
|
|
|
|
|
|
|
Product revenues
|
|
$
|
49,082
|
|
|
$
|
5,925
|
|
|
$
|
55,007
|
|
Service revenues
|
|
288
|
|
|
52,108
|
|
|
52,396
|
|
Total revenues
|
|
$
|
49,370
|
|
|
$
|
58,033
|
|
|
$
|
107,403
|
|
Segment income
|
|
$
|
7,787
|
|
|
$
|
10,556
|
|
|
$
|
18,343
|
|
Year Ended March 31, 2019
|
|
|
|
|
|
|
Product revenues
|
|
$
|
43,253
|
|
|
$
|
4,974
|
|
|
$
|
48,227
|
|
Service revenues
|
|
239
|
|
|
44,841
|
|
|
45,080
|
|
Total revenues
|
|
$
|
43,492
|
|
|
$
|
49,815
|
|
|
$
|
93,307
|
|
Segment income
|
|
$
|
7,011
|
|
|
$
|
5,907
|
|
|
$
|
12,918
|
|
The following table reconciles total segment income to consolidated operating income (loss) from continuing operations:
Notes to Consolidated Financial Statements (Continued)
March 31, 2021
13. Business Segments, Significant Customer and Geographic Information (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
2021
|
|
2020
|
|
2019
|
|
|
(In thousands)
|
Segment income:
|
|
|
|
|
|
|
Total income from reportable segments
|
|
$
|
20,243
|
|
|
$
|
18,343
|
|
|
$
|
12,918
|
|
Unallocated amounts:
|
|
|
|
|
|
|
Corporate expenses
|
|
$
|
(17,264)
|
|
|
$
|
(19,021)
|
|
|
$
|
(15,577)
|
|
Amortization of intangible assets
|
|
(1,504)
|
|
|
(757)
|
|
|
(275)
|
|
Restructuring activities
|
|
(619)
|
|
|
—
|
|
|
—
|
|
Acquisition costs
|
|
(417)
|
|
|
(689)
|
|
|
—
|
|
Operating income (loss)
|
|
$
|
439
|
|
|
$
|
(2,124)
|
|
|
$
|
(2,934)
|
|
Significant Customer and Geographic Information
No individual customer or government agency had a receivable balance greater than 10% of our total trade accounts receivable balances as of March 31, 2021 and 2020.
The following table sets forth the percentages of our revenues, by geographic region, derived from shipments to, or contract, service and other revenues from, external customers located outside the U.S.:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
2021
|
|
2020
|
|
2019
|
Canada
|
|
1
|
%
|
|
—
|
%
|
|
1
|
%
|
Europe
|
|
—
|
|
|
1
|
|
|
1
|
|
|
|
1
|
%
|
|
1
|
%
|
|
2
|
%
|
Substantially all of our long-lived assets are held in the U.S.
14. Quarterly Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended:
|
|
Revenues
|
|
Gross
Profit
|
|
Net (Loss)
Income from continuing operations
|
|
Basic Net
Income (Loss)
per Share from continuing operations
|
|
Diluted Net
Income (Loss)
per Share from continuing operations
|
|
|
(In thousands, except per share amounts)
|
June 30, 2020
|
|
$
|
28,000
|
|
|
$
|
10,868
|
|
|
$
|
418
|
|
|
$
|
0.01
|
|
|
$
|
0.01
|
|
September 30, 2020
|
|
29,256
|
|
|
11,358
|
|
|
719
|
|
|
0.02
|
|
|
0.02
|
|
December 31, 2020
|
|
28,170
|
|
|
11,650
|
|
|
(261)
|
|
|
(0.01)
|
|
|
(0.01)
|
|
March 31, 2021
|
|
31,712
|
|
|
12,980
|
|
|
(385)
|
|
|
(0.01)
|
|
|
(0.01)
|
|
|
|
$
|
117,138
|
|
|
$
|
46,856
|
|
|
$
|
491
|
|
|
$
|
0.01
|
|
*
|
$
|
0.01
|
|
June 30, 2019
|
|
$
|
25,167
|
|
|
$
|
9,584
|
|
|
$
|
(537)
|
|
|
$
|
(0.02)
|
|
|
$
|
(0.02)
|
|
September 30, 2019
|
|
26,586
|
|
|
10,678
|
|
|
(1,051)
|
|
|
(0.03)
|
|
|
(0.03)
|
|
December 31, 2019
|
|
26,737
|
|
|
10,633
|
|
|
(1,252)
|
|
|
(0.03)
|
|
|
(0.03)
|
|
March 31, 2020
|
|
28,913
|
|
|
12,718
|
|
|
1,082
|
|
|
0.03
|
|
|
0.03
|
|
|
|
$
|
107,403
|
|
|
$
|
43,613
|
|
|
$
|
(1,758)
|
|
|
$
|
(0.05)
|
|
*
|
$
|
(0.05)
|
|
___________________________________________
*Annual per share amounts may not agree to the sum of the quarterly per share amounts due to differences between average shares outstanding during the periods