Iteris(ITI) - 2024 Q4 - Annual Report

PART I ITEM 1. BUSINESS Iteris, Inc. provides smart mobility infrastructure management solutions, leveraging ITS technology, advanced sensors, SaaS offerings, mobility data, and consulting services to enhance safety, efficiency, and sustainability in transportation. The company has made significant investments in technology and is exploring strategic alternatives. Recent business impacts include managing supply chain disruptions from COVID-19 and restructuring activities to improve profitability - Iteris, Inc. is a provider of smart mobility infrastructure management solutions, utilizing cloud-enabled technologies to help public transportation agencies, municipalities, and commercial entities optimize mobility infrastructure for safety, efficiency, and sustainability[14] - The company's offerings include intelligent transportation systems (ITS) technology, advanced detection sensors, mobility and traffic data, software-as-a-service (SaaS) offerings, mobility consulting services, and managed services, distributed across the U.S. and internationally[15] - Iteris continues to invest significantly in enhancing its advanced detection sensors, SaaS portfolio, mobility data sets, and consulting/managed services, while also evaluating strategic alternatives to optimize company value[17] - To mitigate global supply chain issues, particularly during the COVID-19 pandemic, Iteris redesigned circuit boards for more readily available computer chips and accumulated inventory in Fiscal 2023, though it does not expect to accumulate inventory at the same magnitude in future periods[20][21] - Restructuring activities were approved on May 12, 2022, to offset supply chain cost increases and better position the company for increased profitability and growth, resulting in employee separation costs[22] Description of Business This section provides a detailed overview of Iteris's business operations and strategic focus Developments Impacting our Business This section outlines recent events and trends that have significantly influenced the company's business environment and operations Products and Services This section details the range of products and services offered by the company to its customers Software Solutions This section describes the company's software offerings, including cloud-enabled platforms and applications Mobility Data Sets This section covers the company's provision of comprehensive mobility and traffic data for various applications Advanced Sensors This section details the company's advanced detection sensor technologies for intelligent transportation systems Managed Services This section describes the managed services provided by the company to support mobility infrastructure Traffic Engineering and Mobility Consulting This section outlines the company's expertise in traffic engineering and mobility consulting services ClearMobility Platform This section introduces the company's integrated ClearMobility Platform, combining various solutions Market Conditions This section analyzes the current market environment and trends affecting the company's operations and growth Sales and Marketing This section describes the company's strategies and activities for sales generation and market outreach Manufacturing and Materials This section details the company's manufacturing processes and its management of material sourcing and supply chain Customer Support and Services This section outlines the company's approach to providing support and services to its customer base Backlog This section provides information on the company's order backlog, indicating future revenue potential Product Development This section describes the company's ongoing efforts and investments in developing new products and enhancing existing ones Competition This section analyzes the competitive landscape and the company's position within its industry Intellectual Property and Proprietary Rights This section discusses the company's intellectual property assets and strategies for protecting its proprietary rights Employees This section provides information regarding the company's workforce and human capital management Government Regulation This section outlines the governmental regulations and compliance requirements impacting the company's business operations ITEM 1A. RISK FACTORS Iteris faces various risks, including significant dependence on government contracts and funding, which are subject to budgetary changes and fixed-price contract challenges. Operational risks include maintaining workforce utilization, cybersecurity threats, and challenges associated with acquisitions and software development. The company also highlights risks from rapid technological changes, the need for future capital, intense competition, inability to secure/renew contracts, difficulty attracting key personnel, industry consolidation, international conflicts, climate change, data availability restrictions, activist stockholders, and stock repurchase program impacts. Legal and regulatory risks encompass intellectual property protection, traffic-related litigation, and evolving AI laws. Financial and market risks include potential for inconsistent profitability, revenue declines, reliance on accounting estimates, internal control effectiveness, quarterly operating result fluctuations, supply chain disruptions, international business challenges, and stock price volatility - A significant portion of Iteris's revenues comes from government contracts, exposing the company to risks such as funding delays, budgetary constraints, changes in procurement policies, and the challenges of fixed-price contracts[62][65][66] - Cybersecurity threats, including data breaches and system failures, pose a risk to sales, expenses, reputation, and stock price, particularly given the company's reliance on SaaS platforms for key business systems[71][72] - The company operates in markets characterized by rapid technological advances, evolving industry standards, and intense competition, requiring continuous investment in R&D and timely introduction of new products to remain competitive[77][79][85] - Iteris's profitability and future growth are subject to factors like governmental budgetary constraints, economic instability, supply chain issues, and the ability to manage expenses relative to revenue, with a GAAP net income of $3.1 million in Fiscal 2024 compared to a net loss of $14.9 million in Fiscal 2023[106] - The company faces risks from supply shortages, production gaps, and increased component costs, which could materially impact sales and financial results, despite multi-sourcing strategies[115] - International business expansion exposes Iteris to political, social, and economic instability, currency fluctuations, regulatory changes, and increased competition from local entities[116][117][119] ITEM 1B. UNRESOLVED STAFF COMMENTS There are no unresolved staff comments from the SEC - No unresolved staff comments were reported[123] ITEM 1C. CYBERSECURITY Iteris has a comprehensive Cybersecurity Program, based on the Critical Security Controls framework, to assess, identify, and manage cybersecurity risks. This program includes ongoing threat identification, protective measures, an incident management plan, and organization-wide training. The Board of Directors, through the Audit Committee, oversees the program, with day-to-day management by the Information Security team and CTO. As of March 31, 2024, no material cybersecurity incidents have been identified - Iteris maintains a Cybersecurity Program based on the Critical Security Controls framework, involving ongoing threat identification, protective measures, an incident management and response program, and organization-wide training[124][125][126] - The company engages external experts and uses specialized third-party software tools to enhance its cybersecurity risk management and addresses risks associated with third-party service providers through diligence and control requirements[127][128] - The Board of Directors, via the Audit Committee, oversees the enterprise risk management program, including cybersecurity risks, receiving quarterly updates from the CFO who, with the CTO, manages the Information Security Team[130][131] - As of March 31, 2024, Iteris has not identified any cybersecurity threats that have materially affected or are reasonably likely to materially affect the company's business strategy, results of operations, or financial condition[129] ITEM 2. PROPERTIES Iteris's primary facility is located in Santa Ana, CA, encompassing approximately 47,000 square feet for office, manufacturing, and warehouse operations, with its lease expiring in March 2027 - Iteris's largest facility is in Santa Ana, CA, leasing approximately 47,000 square feet for office, manufacturing, and warehouse space, with the lease terminating in March 2027[133] ITEM 3. LEGAL PROCEEDINGS Information regarding legal proceedings is incorporated by reference from Note 6, Commitments and Contingencies, to the Financial Statements - Legal proceedings information is detailed under 'Litigation and Other Contingencies' in Note 6 to the Financial Statements[134] ITEM 4. MINE SAFETY DISCLOSURES Mine safety disclosures are not applicable to Iteris, Inc - Mine safety disclosures are not applicable[135] PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Iteris's common stock trades on the Nasdaq Capital Market under the symbol 'ITI'. As of June 11, 2024, there were 266 holders of record. The company has never paid cash dividends and intends to retain earnings for working capital and investments. No shares were purchased by the company during the three months ended March 31, 2024 - Iteris's common stock has traded on the Nasdaq Capital Market under the symbol 'ITI' since February 8, 2016[137] - As of June 11, 2024, there were 266 holders of record of the company's common stock[138] - The company has never paid or declared cash dividends on its common stock and has no current plans to do so, intending to retain earnings for working capital, investment, and general corporate purposes[139] - No shares were purchased by the company under its stock repurchase program during the three months ended March 31, 2024[142] ITEM 6. RESERVED This item is reserved and contains no information ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides an overview of Iteris's financial condition and operational results for Fiscal 2024 and Fiscal 2023. It highlights the company's smart mobility solutions, the ongoing impact of COVID-19 on supply chains, and its commitment to sustainability. Key financial metrics, including non-GAAP measures like Adjusted EBITDA and Adjusted Net Income (Loss), show a significant improvement in profitability from a loss in Fiscal 2023 to a profit in Fiscal 2024. Revenue growth was driven by strong demand for sensors and increased consulting services. The discussion also covers critical accounting policies, operating expenses, and liquidity, noting an increase in cash from operating activities Adjusted EBITDA (in thousands) | Year Ended March 31, | 2024 | 2023 | | :------------------- | :--- | :--- | | Net income (loss) | $3,131 | $(14,855) | | Adjusted EBITDA | $12,894 | $(6,624) | | Percentage of total revenues | 7.5 % | (4.2)% | Adjusted Net Income (Loss) and Adjusted EPS (in thousands, except per share amounts) | Year Ended March 31, | 2024 | 2023 | | :------------------- | :--- | :--- | | Net income (loss) | $3,131 | $(14,855) | | Adjusted Net Income (Loss) | $12,717 | $(7,005) | | Basic Adjusted EPS | $0.30 | $(0.17) | | Diluted Adjusted EPS | $0.29 | $(0.17) | Total Revenues (in thousands) | Category | 2024 | 2023 | $ Increase | % Change | | :--------------- | :---------- | :---------- | :--------- | :------- | | Product revenues | $91,781 | $85,097 | $6,684 | 7.9 % | | Service revenues | $80,206 | $70,955 | $9,251 | 13.0 % | | Total revenues | $171,987 | $156,052 | $15,935 | 10.2 % | Gross Profit (in thousands) | Category | 2024 | 2023 | $ Increase | % Change | | :--------------- | :---------- | :---------- | :--------- | :------- | | Product gross profit | $41,234 | $22,084 | $19,150 | 86.7 % | | Service gross profit | $23,352 | $19,934 | $3,418 | 17.1 % | | Total gross profit | $64,586 | $42,018 | $22,568 | 53.7 % | | Product gross margin % | 44.9 % | 26.0 % | | | | Service gross margin % | 29.1 % | 28.1 % | | | | Total gross margin % | 37.6 % | 26.9 % | | | - Total backlog increased by 8.4% to approximately $123.8 million as of March 31, 2024, from $114.2 million as of March 31, 2023, driven by strong demand and timing of large contracts[46][177] Cash Flows from Continuing Operations (in thousands) | Activity | 2024 | 2023 | | :----------------- | :---------- | :---------- | | Operating activities | $11,378 | $(4,507) | | Investing activities | $(3,035) | $(1,874) | | Financing activities | $905 | $(372) | Overview This section provides a general introduction to the company's financial performance and strategic direction Non-GAAP Financial Measures This section explains the non-GAAP financial metrics used by management to assess performance and provides reconciliations to GAAP measures Key Business Metrics This section highlights the essential operational and financial indicators used to track the company's performance and progress Critical Accounting Policies and Estimates This section discusses the significant accounting policies and estimates that require management's judgment and can materially impact financial results Analysis of Fiscal 2024 and Fiscal 2023 Results of Operations This section provides a detailed comparison and analysis of the company's financial performance for the fiscal years 2024 and 2023 Liquidity and Capital Resources This section examines the company's ability to generate and manage cash flow, its capital structure, and its capacity to meet financial obligations ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company, Iteris is not required to provide quantitative and qualitative disclosures about market risk - Iteris is a smaller reporting company and is exempt from providing quantitative and qualitative disclosures about market risk[206] ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA This section presents Iteris's audited financial statements for the fiscal years ended March 31, 2024 and 2023, including balance sheets, statements of operations, stockholders' equity, and cash flows, along with comprehensive notes. The independent registered public accounting firm, Deloitte & Touche LLP, issued an unqualified opinion on both the financial statements and the effectiveness of internal control over financial reporting. Key financial highlights include a shift from net loss to net income, improved gross margins, and increased cash from operating activities. The notes provide detailed information on accounting policies, supplementary financial data, and specific items like goodwill, intangible assets, and stock-based compensation - Deloitte & Touche LLP, the independent registered public accounting firm, expressed an unqualified opinion on Iteris's financial statements as of and for the two years ended March 31, 2024, and 2023, confirming conformity with GAAP[210] - The auditors also issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of March 31, 2024[211] - A critical audit matter identified was the determination of distinct performance obligations relating to service revenues, requiring significant judgment due to the nature of services and contract structures[215][216] Balance Sheet Highlights (in thousands) | Item | March 31, 2024 | March 31, 2023 | | :------------------------ | :------------- | :------------- | | Total current assets | $75,931 | $62,854 | | Total assets | $123,445 | $111,794 | | Total current liabilities | $43,330 | $38,039 | | Total liabilities | $53,538 | $48,888 | | Total stockholders' equity | $69,907 | $62,906 | Statements of Operations Highlights (in thousands, except per share amounts) | Item | 2024 | 2023 | | :------------------------ | :---------- | :---------- | | Total revenues | $171,987 | $156,052 | | Gross profit | $64,586 | $42,018 | | Operating income (loss) | $2,819 | $(14,515) | | Net income (loss) | $3,131 | $(14,855) | | Net income (loss) per basic share | $0.07 | $(0.35) | | Net income (loss) per diluted share | $0.07 | $(0.35) | Cash Flows from Operating Activities (in thousands) | Item | 2024 | 2023 | | :---------------------------------------- | :---------- | :---------- | | Net cash provided by (used in) operating activities - continuing operations | $11,378 | $(4,507) | Report of Independent Registered Public Accounting Firm This section contains the auditor's opinion on the fairness of the financial statements and the effectiveness of internal control over financial reporting Balance Sheets This section presents the company's financial position at specific points in time, detailing assets, liabilities, and equity Statements of Operations This section reports the company's revenues, expenses, gains, and losses over a period, leading to net income or loss Statements of Stockholders' Equity This section details changes in the equity accounts of the company's stockholders over a period Statements of Cash Flows This section summarizes the cash inflows and outflows from operating, investing, and financing activities over a period Notes to Financial Statements This section provides additional information and explanations for the figures presented in the primary financial statements 1. Description of Business and Summary of Significant Accounting Policies This section outlines the company's business operations and the key accounting principles applied in preparing the financial statements 2. Supplementary Financial Information This section provides additional financial data and disclosures that complement the main financial statements 3. Restructuring Activities This section details the financial impact and nature of any significant restructuring initiatives undertaken by the company 4. Fair Value Measurements This section describes the methodologies and assumptions used to determine the fair value of financial instruments and other assets/liabilities 5. Income Taxes This section provides information on the company's income tax expense, deferred taxes, and effective tax rates 6. Commitments and Contingencies This section discloses the company's contractual obligations, legal proceedings, and other potential future liabilities 7. Right-of-Use Assets and Lease Liabilities This section details the accounting for lease agreements, including the recognition of right-of-use assets and corresponding lease liabilities 8. Stockholders' Equity This section provides a breakdown of the components of stockholders' equity, including common stock, additional paid-in capital, and retained earnings 9. Employee Benefit Plans This section describes the company's various employee benefit programs, such as retirement plans and stock-based compensation 10. Stock Repurchase Program This section provides information on any programs initiated by the company to repurchase its own common stock 11. Business Segments, Significant Customer and Geographic Information This section presents financial data segmented by business operations, major customers, and geographical regions ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no changes in or disagreements with accountants on accounting and financial disclosure matters - No changes in or disagreements with accountants on accounting and financial disclosure were reported[358] ITEM 9A. CONTROLS AND PROCEDURES Management, with CEO and CFO participation, concluded that Iteris's disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2024. There were no significant changes in internal controls over financial reporting during the fourth quarter of Fiscal 2024. Management also reported that internal control over financial reporting was effective, a conclusion independently audited and affirmed by Deloitte & Touche LLP - Management, including the CEO and CFO, concluded that Iteris's disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2024[359][360] - No significant changes in internal controls over financial reporting occurred during the fourth quarter of Fiscal 2024[361] - Management's assessment that internal control over financial reporting was effective as of March 31, 2024, was audited and confirmed by Deloitte & Touche LLP[364][365][367] ITEM 9B. OTHER INFORMATION During the three months ended March 31, 2024, no directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements, except for Joe Bergera who terminated his Rule 10b5-1 plan - During the three months ended March 31, 2024, no directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements, with the exception of Joe Bergera who terminated his previously adopted Rule 10b5-1 plan[373] ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS This item is not applicable to Iteris, Inc - Disclosure regarding foreign jurisdictions that prevent inspections is not applicable[375] PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information for this item will be included in an amendment to this Form 10-K or incorporated by reference from the company's definitive proxy statement for the 2024 Annual Meeting of Stockholders - Information for this item will be provided in a Form 10-K Amendment or incorporated by reference from the 2024 Proxy Statement[377] ITEM 11. EXECUTIVE COMPENSATION Information for this item will be included in an amendment to this Form 10-K or incorporated by reference from the company's definitive proxy statement for the 2024 Annual Meeting of Stockholders - Information for this item will be provided in a Form 10-K Amendment or incorporated by reference from the 2024 Proxy Statement[378] ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Information for this item will be included in an amendment to this Form 10-K or incorporated by reference from the company's definitive proxy statement for the 2024 Annual Meeting of Stockholders - Information for this item will be provided in a Form 10-K Amendment or incorporated by reference from the 2024 Proxy Statement[378] ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Information for this item will be included in an amendment to this Form 10-K or incorporated by reference from the company's definitive proxy statement for the 2024 Annual Meeting of Stockholders - Information for this item will be provided in a Form 10-K Amendment or incorporated by reference from the 2024 Proxy Statement[379] ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Information for this item will be included in an amendment to this Form 10-K or incorporated by reference from the company's definitive proxy statement for the 2024 Annual Meeting of Stockholders - Information for this item will be provided in a Form 10-K Amendment or incorporated by reference from the 2024 Proxy Statement[379] PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES This section lists all documents filed as part of the report, including financial statements, financial statement schedules (which are omitted as not required or applicable), and a comprehensive exhibit index. The exhibit index details various agreements, plans, and certifications, with references to their original SEC filings - The report includes financial statements listed in the 'Index to Financial Statements' under Part II, Item 8[382] - All financial statement schedules have been omitted as they are not required, not applicable, or the information is already presented in the financial statements or notes[382] - A comprehensive Exhibit Index is provided, detailing various agreements, plans, and certifications, with references to their original SEC filings[383][384][385][386] ITEM 16. FORM 10-K SUMMARY This item indicates that no Form 10-K summary is provided - No Form 10-K summary is included[388] SIGNATURES The report is duly signed on behalf of Iteris, Inc. by its authorized officers and directors, including the Chief Executive Officer and Chief Financial Officer, as required by the Securities Exchange Act of 1934 - The report is signed by the registrant's Chief Executive Officer, Chief Financial Officer, and other directors, affirming compliance with the Securities Exchange Act of 1934[390][391][393]