UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~December 31, 2021~~June 30, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-08762

ITERIS, INC.

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of

incorporation or organization)

1250 S. Capital of Texas Hwy., Building 1, Suite 330

Austin, Texas

(Address of principal executive office)

95-2588496

(I.R.S. Employer

Identification No.)

78746

(Zip Code)

(512) 716-0808

(Registrant’s telephone number, including area code)

(Former address, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.10 par value

ITI

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

As of ~~February 2,~~August 1, 2022, there were ~~42,410,783~~42,577,415 shares of our common stock outstanding.

Table of Contents

Table of Contents

ITERIS, INC.

Quarterly Report on Form 10-Q

Table of Contents


PART I.	FINANCIAL INFORMATION	1

ITEM 1.	FINANCIAL STATEMENTS	1

	UNAUDITED CONDENSED ~~CONSOLIDATED~~ BALANCE SHEETS AT ~~DECEMBER 31, 2021~~JUNE 30, 2022 AND MARCH 31, ~~2021~~2022	1

	UNAUDITED CONDENSED ~~CONSOLIDATED~~ STATEMENTS OF OPERATIONS FOR THE THREE ~~AND NINE~~ MONTH PERIODS ENDED ~~DECEMBER 31,~~JUNE 30, 2022 AND 2021 ~~AND 2020~~	2

	UNAUDITED CONDENSED ~~CONSOLIDATED~~ STATEMENTS OF CASH FLOWS FOR THE ~~NINE~~THREE MONTHS ENDED ~~DECEMBER 31,~~JUNE 30, 2022 AND 2021 ~~AND 2020~~	3

	UNAUDITED CONDENSED ~~CONSOLIDATED~~ STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE THREE ~~AND NINE~~ MONTH PERIODS ENDED ~~DECEMBER 31,~~JUNE 30, 2022 AND 2021 ~~AND 2020~~	4

	NOTES TO UNAUDITED CONDENSED ~~CONSOLIDATED~~ FINANCIAL STATEMENTS	5

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	2822

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	3730

ITEM 4.	CONTROLS AND PROCEDURES	3730

PART II.	OTHER INFORMATION	3831

ITEM 1.	LEGAL PROCEEDINGS	3831

ITEM 1A.	RISK FACTORS	3831

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	3831

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	3832

ITEM 4.	MINE SAFETY DISCLOSURES	3832

ITEM 5.	OTHER INFORMATION	3832

ITEM 6.	EXHIBITS	3832

Unless otherwise indicated in this report, the "Company," "we," "us" and "our" refer to Iteris, ~~Inc. and its wholly-owned subsidiaries, including ClearAg, Inc. and Albeck Gerken,~~ Inc. ClearGuide®, ClearMobility™, Iteris®, Vantage® and VantageLive!® are among, but not all of, the trademarks of Iteris, Inc. Any other trademarks or trade names mentioned herein are the property of their respective owners.

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Iteris, Inc.

Unaudited Condensed ~~Consolidated~~ Balance Sheets

(In thousands, except par values)


		December 31, 2021		March 31, 2021			June 30, 2022		March 31, 2022
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	27,474	$	25,205	Cash and cash equivalents	$	14,844	$	23,689
Restricted cash	Restricted cash	199		263		Restricted cash	241		120
Short-term investments		—		3,100
Trade accounts receivable, net of allowance for doubtful accounts of $849 and $1,019 at December 31, 2021 and March 31, 2021, respectively		20,446		19,020
Trade accounts receivable, net of allowance for doubtful accounts of $1,089 and $903 at June 30, 2022 and March 31, 2022, respectively						Trade accounts receivable, net of allowance for doubtful accounts of $1,089 and $903 at June 30, 2022 and March 31, 2022, respectively	24,894		25,628
Unbilled accounts receivable	Unbilled accounts receivable	12,405		11,541		Unbilled accounts receivable	10,195		10,870
Inventories	Inventories	6,884		5,066		Inventories	13,326		7,980
Prepaid expenses and other current assets	Prepaid expenses and other current assets	3,147		5,445		Prepaid expenses and other current assets	5,191		4,076
Current assets of discontinued operations		27		—
Total current assets	Total current assets	70,582		69,640		Total current assets	68,691		72,363
Property and equipment, net	Property and equipment, net	1,510		1,923		Property and equipment, net	1,421		1,392
Right-of-use assets	Right-of-use assets	11,934		11,353		Right-of-use assets	10,950		11,382
Intangible assets, net	Intangible assets, net	12,296		14,297		Intangible assets, net	11,291		11,780
Goodwill	Goodwill	28,340		28,340		Goodwill	28,340		28,340
Other assets	Other assets	555		1,238		Other assets	1,335		1,120
Noncurrent assets of discontinued operations	Noncurrent assets of discontinued operations	24		78		Noncurrent assets of discontinued operations	—		6
Total assets	Total assets	$	125,241	$	126,869	Total assets	$	122,028	$	126,383
Liabilities and stockholders’ equity	Liabilities and stockholders’ equity					Liabilities and stockholders’ equity
Current liabilities:	Current liabilities:					Current liabilities:
Trade accounts payable	Trade accounts payable	$	8,208	$	8,935	Trade accounts payable	$	13,494	$	11,926
Accrued payroll and related expenses	Accrued payroll and related expenses	11,103		11,734		Accrued payroll and related expenses	11,961		11,409
Accrued liabilities	Accrued liabilities	4,960		4,921		Accrued liabilities	5,052		5,623
Deferred revenue	Deferred revenue	7,320		7,349		Deferred revenue	6,146		6,566
Current liabilities of discontinued operations	Current liabilities of discontinued operations	154		94		Current liabilities of discontinued operations	100		163
Total current liabilities	Total current liabilities	31,745		33,033		Total current liabilities	36,753		35,687
Lease liabilities	Lease liabilities	11,380		10,146		Lease liabilities	10,268		10,763
Deferred income taxes	Deferred income taxes	298		808		Deferred income taxes	357		337
Unrecognized tax benefits	Unrecognized tax benefits	104		119		Unrecognized tax benefits	104		105
Other long-term liabilities	Other long-term liabilities	2,718		3,523		Other long-term liabilities	2,413		2,456
Noncurrent liabilities of discontinued operations	Noncurrent liabilities of discontinued operations	197		261		Noncurrent liabilities of discontinued operations	146		172
Total liabilities	Total liabilities	46,442		47,890		Total liabilities	50,041		49,520
Commitments and contingencies (Note 7)		0		0
Commitments and contingencies (Note 6)						Commitments and contingencies (Note 6)	0		0
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Preferred stock, $1.00 par value:	Preferred stock, $1.00 par value:					Preferred stock, $1.00 par value:
Authorized shares — 2,000	Authorized shares — 2,000					Authorized shares — 2,000
Issued and outstanding shares — none	Issued and outstanding shares — none	—		—		Issued and outstanding shares — none	—		—
Common stock, $0.10 par value:	Common stock, $0.10 par value:					Common stock, $0.10 par value:
Authorized shares - 70,000 at December 31, 2021 and March 31, 2021
Issued and outstanding shares — 42,334 at December 31, 2021 and 41,687 at March 31, 2021		4,234		4,170
Authorized shares - 70,000 at June 30, 2022 and March 31, 2022						Authorized shares - 70,000 at June 30, 2022 and March 31, 2022
Issued and outstanding shares — 42,421 at June 30, 2022 and 42,416 at March 31, 2022						Issued and outstanding shares — 42,421 at June 30, 2022 and 42,416 at March 31, 2022	4,242		4,242
Treasury Stock						Treasury Stock	(884)		—
Additional paid-in capital	Additional paid-in capital	185,550		181,828		Additional paid-in capital	187,593		186,720
Accumulated deficit	Accumulated deficit	(110,985)		(107,019)		Accumulated deficit	(118,964)		(114,099)
Total stockholders' equity	Total stockholders' equity	78,799		78,979		Total stockholders' equity	71,987		76,863
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	125,241	$	126,869	Total liabilities and stockholders' equity	$	122,028	$	126,383

See accompanying Notes to Unaudited Condensed ~~Consolidated~~ Financial Statements

Table of Contents

Iteris, Inc.

Unaudited Condensed ~~Consolidated~~ Statements of Operations

(In thousands, except per share amounts)


		Three Months Ended December 31,				Nine Months Ended December 31,					Three Months Ended June 30,
		2021		2020		2021		2020			2022		2021

Product revenues	Product revenues	$	15,870	$	16,380	$	51,632	$	47,039	Product revenues	$	16,381	$	18,026
Service revenues	Service revenues	16,134		11,790		47,704		38,387		Service revenues	17,286		16,059
Total revenues	Total revenues	32,004		28,170		99,336		85,426		Total revenues	33,667		34,085
Cost of product revenues	Cost of product revenues	10,389		8,413		28,929		25,826		Cost of product revenues	11,657		9,557
Cost of service revenues	Cost of service revenues	10,521		8,107		34,090		25,724		Cost of service revenues	11,851		10,435
Cost of revenues	Cost of revenues	20,910		16,520		63,019		51,550		Cost of revenues	23,508		19,992
Gross profit	Gross profit	11,094		11,650		36,317		33,876		Gross profit	10,159		14,093
Operating expenses:	Operating expenses:									Operating expenses:
General and administrative	General and administrative	5,936		6,277		18,433		17,517		General and administrative	6,412		6,390
Sales and marketing	Sales and marketing	4,637		3,871		14,119		10,600		Sales and marketing	5,198		4,587
Research and development	Research and development	1,851		1,435		5,445		3,483		Research and development	2,136		1,765
Amortization of intangible assets	Amortization of intangible assets	668		376		2,004		836		Amortization of intangible assets	668		668
Restructuring charges	Restructuring charges	—		—		—		619		Restructuring charges	707		—
Total operating expenses	Total operating expenses	13,092		11,959		40,001		33,055		Total operating expenses	15,121		13,410
Operating income (loss)	Operating income (loss)	(1,998)		(309)		(3,684)		821		Operating income (loss)	(4,962)		683
Non-operating income (expense):	Non-operating income (expense):									Non-operating income (expense):
Other income (expense), net	Other income (expense), net	(33)		30		15		2		Other income (expense), net	(23)		18
Interest income, net		4		11		8		108
Interest income (expense), net										Interest income (expense), net	(32)		3
Income (loss) from continuing operations before income taxes	Income (loss) from continuing operations before income taxes	(2,027)		(268)		(3,661)		931		Income (loss) from continuing operations before income taxes	(5,017)		704
(Provision) benefit for income taxes	(Provision) benefit for income taxes	(375)		7		(201)		(55)		(Provision) benefit for income taxes	167		(75)
Net income (loss) from continuing operations	Net income (loss) from continuing operations	(2,402)		(261)		(3,862)		876		Net income (loss) from continuing operations	(4,850)		629
Income (loss) from discontinued operations before gain on sale, net of tax		(28)		18		(104)		(1,646)
Gain on sale of discontinued operations, net of tax		—		31		—		11,319
Net income (loss) from discontinued operations, net of tax		(28)		49		(104)		9,673
Loss from discontinued operations before gain on sale, net of tax										Loss from discontinued operations before gain on sale, net of tax	(15)		(18)
Net loss from discontinued operations, net of tax										Net loss from discontinued operations, net of tax	(15)		(18)
Net income (loss)	Net income (loss)	$	(2,430)	$	(212)	$	(3,966)	$	10,549	Net income (loss)	$	(4,865)	$	611

Income (loss) per share - basic:	Income (loss) per share - basic:									Income (loss) per share - basic:
Income (loss) per share from continuing operations	Income (loss) per share from continuing operations	$	(0.06)	$	(0.01)	$	(0.09)	$	0.02	Income (loss) per share from continuing operations	$	(0.11)	$	0.02
Income per share from discontinued operations	Income per share from discontinued operations	$	0.00	$	0.00	$	0.00	$	0.24	Income per share from discontinued operations	—		—
Net income (loss) per share	Net income (loss) per share	$	(0.06)	$	(0.01)	$	(0.09)	$	0.26	Net income (loss) per share	$	(0.11)	$	0.02

Income (loss) per share - diluted:	Income (loss) per share - diluted:									Income (loss) per share - diluted:
Income (loss) per share from continuing operations	Income (loss) per share from continuing operations	$	(0.06)	$	(0.01)	$	(0.09)	$	0.02	Income (loss) per share from continuing operations	$	(0.11)	$	0.01
Income per share from discontinued operations	Income per share from discontinued operations	$	0.00	$	0.00	$	0.00	$	0.23	Income per share from discontinued operations	—		—
Net income (loss) per share	Net income (loss) per share	$	(0.06)	$	(0.01)	$	(0.09)	$	0.25	Net income (loss) per share	$	(0.11)	$	0.01

Shares used in basic per share calculations	Shares used in basic per share calculations	42,333		41,212		42,164		40,978		Shares used in basic per share calculations	42,380		41,875
Shares used in diluted per share calculations	Shares used in diluted per share calculations	42,333		41,212		42,164		41,543		Shares used in diluted per share calculations	42,380		43,380

See accompanying Notes to Unaudited Condensed ~~Consolidated~~ Financial Statements

Table of Contents

Iteris, Inc.

Unaudited Condensed ~~Consolidated~~ Statements of Cash Flows

(In thousands)


		Nine Months Ended December 31,					Three Months Ended June 30,
		2021		2020			2022		2021
Cash flows from operating activities	Cash flows from operating activities					Cash flows from operating activities
Net income (loss)	Net income (loss)	$	(3,966)	$	10,549	Net income (loss)	$	(4,865)	$	611
Less: Net income (loss) from discontinued operations		(104)		9,673
Less: Net loss from discontinued operations						Less: Net loss from discontinued operations	(15)		(18)
Net income (loss) from continuing operations	Net income (loss) from continuing operations	(3,862)		876		Net income (loss) from continuing operations	(4,850)		629

Adjustments to reconcile net income (loss) from continuing operations to net cash provided by (used in) operating activities:	Adjustments to reconcile net income (loss) from continuing operations to net cash provided by (used in) operating activities:					Adjustments to reconcile net income (loss) from continuing operations to net cash provided by (used in) operating activities:
Project Loss		3,394		—
Right-of-use asset non-cash expense	Right-of-use asset non-cash expense	1,871		1,031		Right-of-use asset non-cash expense	538		7
Deferred income taxes	Deferred income taxes	(525)		11		Deferred income taxes	19		(170)
Depreciation of property and equipment	Depreciation of property and equipment	629		551		Depreciation of property and equipment	159		232
Stock-based compensation	Stock-based compensation	2,396		2,071		Stock-based compensation	848		794
Amortization of intangible assets	Amortization of intangible assets	2,428		1,236		Amortization of intangible assets	822		803
Other		—		71
Loss on disposal of equipment	Loss on disposal of equipment	120		—		Loss on disposal of equipment	—		7
Changes in operating assets and liabilities, net of effects of discontinued operation and acquisition:	Changes in operating assets and liabilities, net of effects of discontinued operation and acquisition:					Changes in operating assets and liabilities, net of effects of discontinued operation and acquisition:
Trade accounts receivable	Trade accounts receivable	(1,426)		(2,169)		Trade accounts receivable	734		(3,806)
Unbilled accounts receivable and deferred revenue	Unbilled accounts receivable and deferred revenue	(555)		2,321		Unbilled accounts receivable and deferred revenue	212		1,025
Inventories	Inventories	(1,818)		(671)		Inventories	(5,346)		(115)
Prepaid expenses and other assets	Prepaid expenses and other assets	(1,001)		(1,123)		Prepaid expenses and other assets	(1,330)		(185)
Trade accounts payable and accrued expenses	Trade accounts payable and accrued expenses	(1,758)		163		Trade accounts payable and accrued expenses	1,137		2,055
Operating lease liabilities	Operating lease liabilities	(1,922)		(1,048)		Operating lease liabilities	(189)		(52)
Net cash provided by (used in) operating activities - continuing operations	Net cash provided by (used in) operating activities - continuing operations	(2,029)		3,320		Net cash provided by (used in) operating activities - continuing operations	(7,246)		1,224
Net cash used in operating activities - discontinued operations	Net cash used in operating activities - discontinued operations	(81)		(1,592)		Net cash used in operating activities - discontinued operations	(98)		(100)
Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities	(2,110)		1,728		Net cash provided by (used in) operating activities	(7,344)		1,124
Cash flows from investing activities	Cash flows from investing activities					Cash flows from investing activities
Purchases of property and equipment	Purchases of property and equipment	(336)		(395)		Purchases of property and equipment	(188)		(67)
Purchase of short-term investments		—		(23,655)
Maturities of investments	Maturities of investments	3,100		27,000		Maturities of investments	—		3,100
Capitalized software development costs	Capitalized software development costs	(1,339)		(592)		Capitalized software development costs	(333)		(1,076)
Cash paid in business acquisition, net of cash acquired		—		(15,000)
Net cash provided by (used in) investing activities - continuing operations	Net cash provided by (used in) investing activities - continuing operations	1,425		(12,642)		Net cash provided by (used in) investing activities - continuing operations	(521)		1,957
Net cash provided by investing activities - discontinued operations	Net cash provided by investing activities - discontinued operations	1,500		9,690		Net cash provided by investing activities - discontinued operations	—		1,450
Net cash provided by (used in) investing activities	Net cash provided by (used in) investing activities	2,925		(2,952)		Net cash provided by (used in) investing activities	(521)		3,407
Cash flows from financing activities	Cash flows from financing activities					Cash flows from financing activities
Proceeds from stock option exercises	Proceeds from stock option exercises	1,330		1,334		Proceeds from stock option exercises	1		1,375
Proceeds from ESPP purchases		239		188
Tax withholding payments for net share settlements of restricted stock units	Tax withholding payments for net share settlements of restricted stock units	(179)		—		Tax withholding payments for net share settlements of restricted stock units	24		—
Net cash provided by financing activities - continuing operations		1,390		1,522
Net cash provided by financing activities - discontinued operations		—		—
Net cash provided by financing activities		1,390		1,522
Increase in cash, cash equivalents and restricted cash		2,205		298
Repurchases of common stock						Repurchases of common stock	(884)		—
Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	(859)		1,375
Increase (decrease) in cash, cash equivalents and restricted cash						Increase (decrease) in cash, cash equivalents and restricted cash	(8,724)		5,906
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	25,468		14,363		Cash, cash equivalents and restricted cash at beginning of period	23,809		25,468
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	27,673	$	14,661	Cash, cash equivalents and restricted cash at end of period	$	15,085	$	31,374
Supplemental cash flow information:	Supplemental cash flow information:					Supplemental cash flow information:
Cash paid during the year for:	Cash paid during the year for:					Cash paid during the year for:
Income taxes	Income taxes	$	165	$	102	Income taxes	$	—	$	1
Supplemental schedule of non-cash investing and financing activities:	Supplemental schedule of non-cash investing and financing activities:					Supplemental schedule of non-cash investing and financing activities:
Deferred payment of purchase price receivable	Deferred payment of purchase price receivable	$	—	$	1,500	Deferred payment of purchase price receivable	$	—	$	50
Lease liabilities arising from obtaining right-of-use assets	Lease liabilities arising from obtaining right-of-use assets	$	2,452	$	533	Lease liabilities arising from obtaining right-of-use assets	$	106	$	—
Deferred consideration related to TrafficCast acquisition		$	—	$	2,050
Working capital adjustment related to TrafficCast acquisition		$	—	$	625

See accompanying Notes to Unaudited Condensed ~~Consolidated~~ Financial Statements

Table of Contents

Iteris, Inc.

Unaudited Condensed ~~Consolidated~~ Statements of Stockholders’ Equity

(In thousands)

THREE AND NINE MONTH PERIODS ENDED DECEMBER 31, 2021
Common Stock Additional
Paid-In
Capital Accumulated
Deficit Total
Stockholders'
Equity
Shares Amount
Balance at March 31, 2021 41,687 $ 4,170 $ 181,828 $ (107,019) $ 78,979
Stock option exercises 473 47 1,328 — 1,375
Stock-based compensation — — 794 — 794
Net income — — — 611 611
Balance at June 30, 2021 42,160 $ 4,217 $ 183,950 $ (106,408) $ 81,759
Stock option exercises 15 1 31 — 32
Issuance of shares pursuant to Employee Stock Purchase Plan 44 4 235 — 239
Stock-based compensation — — 834 — 834
Issuance of shares pursuant to vesting of restricted stock units, net of payroll withholding taxes 114 12 (191) — (179)
Net loss — — — (2,147) (2,147)
Balance at September 30, 2021 42,333 $ 4,234 $ 184,859 $ (108,555) $ 80,538
Stock option exercises and related adjustments 1 — (77) — (77)
Stock-based compensation — — 768 — 768
Net income — — — (2,430) (2,430)
Balance at December 31, 2021 42,334 $ 4,234 $ 185,550 $ (110,985) $ 78,799


	THREE MONTH PERIOD ENDED JUNE 30, 2022
	Common Stock			Treasury Stock		Additional Paid-In Capital		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount		Shares	Amount
Balance at March 31, 2022	42,416	$	4,242	—	—	$	186,720	$	(114,099)	$	76,863
Stock option exercises	1	—		—	—	1		—		1
Issuance of shares pursuant to vesting of restricted stock units, net of payroll withholding taxes	4	—		—	—	24		—		24
Stock-based compensation	—	—		—	—	848		—		848
Treasury stock purchases	—	—		300	(884)	—		—		(884)
Net loss	—	—		—	—	—		(4,865)		(4,865)
Balance at June 30, 2022	42,421	$	4,242	300	(884)	$	187,593	$	(118,964)	$	71,987

THREE AND NINE MONTH PERIODS ENDED DECEMBER 31, 2020
Common Stock Additional
Paid-In
Capital Accumulated
Deficit Total
Stockholders'
Equity
Shares Amount
Balance at March 31, 2020 40,713 $ 4,071 $ 176,209 $ (117,153) $ 63,127
Stock option exercises 27 3 71 — 74
Stock-based compensation — — 607 — 607
Issuance of shares pursuant to vesting of restricted stock units, net of payroll withholding taxes 12 1 (1) — —
Net income — — — 10,348 10,348
Balance at Balance at June 30, 2020 40,752 $ 4,075 $ 176,886 $ (106,805) $ 74,156
Stock option exercises 239 24 598 — 622
Issuance of shares pursuant to Employee Stock Purchase Plan 42 4 184 — 188
Stock-based compensation — — 667 — 667
Issuance of shares pursuant to vesting of restricted stock units, net of payroll withholding taxes 77 8 (8) — —
Net income — — — 413 413
Balance at September 30, 2020 41,110 $ 4,111 $ 178,327 $ (106,392) $ 76,046
Stock option exercises 196 19 619 — 638
Stock-based compensation — — 740 — 740
Issuance of shares pursuant to vesting of restricted stock units, net of payroll withholding taxes 41 4 (4) — —
Net loss — — — (212) (212)
Balance at December 31, 2020 41,347 $ 4,134 $ 179,682 $ (106,604) $ 77,212


	THREE MONTH PERIOD ENDED JUNE 30, 2021
	Common Stock			Treasury Stock		Additional Paid-In Capital		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount		Shares	Amount
Balance at March 31, 2021	41,687	$	4,170	—	—	$	181,828	$	(107,019)	$	78,979
Stock option exercises	473	47		—	—	1,328		—		1,375
Stock-based compensation	—	—		—	—	794		—		794
Net income	—	—		—	—	—		611		611
Balance at June 30, 2021	42,160	$	4,217	—	—	$	183,950	$	(106,408)	$	81,759

See accompanying Notes to Unaudited Condensed ~~Consolidated~~ Financial Statements

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Iteris, Inc.

Notes to Unaudited Condensed ~~Consolidated~~ Financial Statements

~~December 31, 2021~~June 30, 2022

1.Description of Business and Summary of Significant Accounting Policies

Description of Business

Iteris, Inc. (referred to collectively ~~with its wholly-owned subsidiaries, ClearAg, Inc., and Albeck Gerken, Inc. ("AGI"),~~ in this report as "Iteris," the "Company," "we," "our," and "us") is a provider of smart mobility infrastructure management solutions. Our cloud-enabled end-to-end solutions ~~enable municipalities,~~help public transportation agencies, municipalities, commercial entities and other transportation infrastructure providers to monitor, visualize, and optimize mobility infrastructure to ~~help ensure roads are~~make mobility safe, ~~travel is~~ efficient and communities thrive. Additionally, we provide mobility data to automobile OEMs, media companies, insurance companies, and other commercial entities, whose products and services have a high dependency on the performance and/or condition of mobility infrastructure.sustainable for everyone. As a pioneer in intelligent transportation systems ("ITS") technology, our intellectual property, products and software-as-a-service ("SaaS") offerings represent a comprehensive range of ITS solutions that we distribute to customers throughout the U.S. and internationally. We believe our products, solutions and services increase safety and decrease congestion within our communities, while also ~~minimizing~~reducing urban emissions and other negative environmental ~~impact.~~conditions. We continue to make significant investments to leverage our existing technologies and further expand both our advanced detection sensors and performance analytics systems in the transportation infrastructure market and we are always exploring strategic alternatives intended to optimize the value of our Company. Iteris was incorporated in Delaware in 1987 and has operated in its current form since 2004.

Recent Developments

COVID-19 Update

The COVID-19 pandemic (the “Pandemic”) has materially adversely impacted global economic conditions. More than ~~eighteen~~24 months into the Pandemic, COVID-19 continues to have an unpredictable and unprecedented impact on the ~~U.S. economy~~global economy. Though there has been a trend in increasing availability of COVID-19 vaccines, as well as an easing of restrictions on social, business, travel and government activities and functions, infection rates continue to fluctuate and federal, state and local ~~governments react~~government regulations continue to ~~this public health crisis with travel restrictions, quarantines and "stay-at-home" orders.~~rapidly change. 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. ~~Due~~We have not had any facility closures due to the Pandemic, but we have experienced supply chain and work delays on certain projects. Should such ~~conditions~~delays become protracted or worsen or should ~~longer term~~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,~~Pandemic, new and potentially more contagious variants, such as the Delta and Omicron variants, the impact on capital and financial markets, the distribution, rate of adoption and efficacy of vaccines, and the related impact on the budgets and financial circumstances of our customers and suppliers, 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~~we have taken certain actions to preserve ~~its~~our liquidity, manage cash flow and strengthen ~~its~~our financial flexibility. Such actions include, but are not limited to, reducing our discretionary spending, reducing capital expenditures, and implementing restructuring ~~activities, and reducing payroll costs, including employee furloughs, pay freezes and pay cuts.~~activities. Refer to Note 4,3, Restructuring Activities, for more information.

Our products require specialized parts which have become more difficult to ~~source~~source. In some cases, we have had to purchase such parts from third-party brokers at substantially higher prices. Additionally, to mitigate for component shortages, we have begun to increase inventory levels and have become subject to substantially increased prices as a result of the supply chain interruptions caused by the Pandemic. In anticipation of these shipment lead times as well as the fluctuation in prices, we may continue to ~~build~~do so for an extended period. In the event demand doesn't materialize, we may need to hold excess inventory for ~~anticipated periods~~several quarters. Alternatively, we may be unable to source sufficient components, even from third-party brokers, to meet customer demand, resulting in high levels of growth, may build inventory anticipating demand that does not materialize, or may build inventory to serve what we believe is pent-up demand. We may remain supply-constrained beyond the fiscal year ending March 31, 2022 ("Fiscal 2022").unshippable backlog. We have placed non-cancellable inventory orders for certain products in advance of our normal lead times to secure normal and incremental future supply and capacity and may need to continue to do so in the future. The $5 million operating loss in the current quarter was mainly due to costs associated with global supply chain constraints and restructuring charges. The Company expended over $5 million during Q1FY23 which was a planned increase in inventory as part of the Company's supply chain strategy. Despite the increased spending level, the Company still maintained working capital of over $31 million as of June 30, 2022. The cash flow used in operating activities of our continuing operations was approximately $7.2 million which was primarily driven by a planned increase in inventory as part of the Company’s supply chain strategy to help assure the Company has product and raw materials to satisfy customer demand. Although the Company's tactic to mitigate the current global supply chain issues by accumulating inventory in the current period resulted in a significant usage of cash in the current period, the Company does not expect to apply the same course of action, in the same magnitude, in future periods. Still, we may remain supply-constrained beyond the fiscal quarter ended June 30, 2022.

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On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was signed into law in the United States. The CARES Act provides relief to U.S. corporations through financial assistance programs and modifications to certain income tax provisions. The Company is applying certain beneficial provisions of the CARES Act, including the payroll tax deferral and the alternative minimum tax acceleration. Refer to Note 6,5, Income Taxes, for more information.

~~Table~~The Pandemic has had an impact on the Company’s human capital. While our Santa Ana product and commercial operations facility has remained open, easing of ~~Contents~~

Pandemic restrictions imposed by local and state authorities have allowed a portion of our workforce to return to our various facilities while others continue to work remotely. The Company’s information technology infrastructure has proven sufficiently flexible to minimize disruptions in required duties and responsibilities. Additionally, we have been able to timely file financial reports. We believe we have the infrastructure to efficiently work remotely during the Pandemic. We do not expect to incur significant costs to safely reopen our facilities to all our employees.

The Company assessed the impacts of the Pandemic on the estimates and assumptions used in preparing ~~these~~our unaudited condensed ~~consolidated~~ financial statements. The estimates and assumptions used in ~~these~~our 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~~world. As a result, our assessment of the impact of the Pandemic may change.

Sale of Agriculture and Weather Analytics Business

On May 5, 2020, the Company completed the sale of substantially all of our assets used in connection with our Agriculture and Weather Analytics business to DTN, LLC (“DTN”), an operating company of TBG AG, a Swiss-based holding company, pursuant to an Asset Purchase Agreement (the ~~“DTN~~“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, the Company received $10.5 million in cash and $1.5 million of the payment was deferred. DTN paid the Company $1.45 million on the 12-month anniversary of the closing date, and $0.05 million at the 18-month anniversary of the closing date. ~~See Note 3, Discontinued Operations, for further details on the sale of the Agriculture and Weather Analytics business.~~

Restructuring Activities

On April 30, 2020, in connection with the sale of the Agriculture and Weather Analytics business, the Board of Directors of Iteris, Inc. (the "Board") 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~~

To help offset recent increases in supply chain costs, on May 12, 2022, the Board of Directors of Iteris, Inc. approved additional restructuring activities to better position the Company for increased profitability and growth. During the three months ended June 30, 2022, the Company incurred approximately $0.7 million related to employee separation costs in relation to these activities which were included in restructuring charges on the unaudited condensed statement of operations. Refer to Note 4,3, Restructuring Activities, for ~~further details on the restructuring activities.~~

~~Acquisition of the Assets of TrafficCast International, Inc.~~

On December 6, 2020, the Company entered into an Asset Purchase Agreement (the “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 “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 Business and assumed certain specified liabilities of the Business incurring $1.7 million in certain obligations in addition to the total consideration of $16 million, with $15 million paid in cash on the closing date, $1 million held back as security for certain post-closing adjustments and post-closing indemnity obligations of TrafficCast, and a $1 million earn out, that if earned, will be paid over two years based on the 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 Business at closing (see Note 11, Acquisitions).

The parties also entered into certain ancillary agreements that will provide Iteris with ongoing access to mapping and monitoring services that the Business uses to support its real-time and predictive travel data and associated content.more information.

Basis of Presentation

Our unaudited condensed ~~consolidated~~ financial statements ~~include the accounts of Iteris, Inc. and its subsidiaries, and~~ have been prepared in accordance with the rules of the U.S. Securities and Exchange Commission (“SEC”) for interim reporting, which permit certain footnotes or other financial information that are normally required by generally accepted accounting principles in the U.S. (“GAAP”) to be condensed or omitted. These unaudited condensed ~~consolidated~~ financial statements should be read in conjunction with the Company’s audited ~~consolidated~~ financial statements and related notes included in its Annual Report on Form 10-K ~~and Form 10-K/A~~ for the fiscal year ended March 31, ~~2021~~2022 (“Fiscal ~~2021”~~2022”), filed with the SEC on June 1, ~~2021 and June 7, 2021, respectively.~~2022. All intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three ~~and nine~~ month ~~periods~~period ended ~~December 31, 2021~~June 30, 2022 are not necessarily indicative of the results to be expected for Fiscal ~~2022~~2023 or any other periods.

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As noted above, during the first quarter of Fiscal 2021, the Company completed the sale of its Agriculture and Weather Analytics segment. The Agriculture and Weather Analytics segment’s results of operations and related cash flows have been reclassified to net income (loss) from discontinued operations, respectively, for all periods presented. The assets and liabilities

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of the Agriculture and Weather Analytics segment have been reclassified to assets of discontinued operations and liabilities of discontinued operations, respectively, in the unaudited condensed ~~consolidated~~ balance sheet as of ~~December 31, 2021. See Note 3, Discontinued Operations, for further information.~~June 30, 2022.

Use of Estimates

The preparation of ~~consolidated~~ financial statements in conformity with GAAP requires our management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates made in the preparation of the consolidated financial statements include costs to complete long term contracts. Due to delays in the completion of a software development contract with a customer, the Company modified some of the financial terms of the contract which resulted in a one-time pretax charge of $0 and $3.4 million to cost of service revenues, respectively, for the three and nine months ended December 31, 2021.

Other significant estimates include the collectability of accounts receivable and related allowance for doubtful accounts, projections of taxable income used to assess realizability of deferred tax assets, warranty reserves and other contingencies, costs to complete long-term contracts, indirect cost rates used in cost plus contracts, the valuation of inventories, the valuation of purchased intangible assets and goodwill, the valuation of investments, estimates of future cash flows used to assess the recoverability of long-lived assets and the impairment of goodwill, and fair value of our stock option awards used to calculate stock-based compensation.

Revenue Recognition

Product revenue related contracts with customers begin when we acknowledge a purchase order for a specific customer order of product to be delivered in the near term. These purchase orders are short-term in nature. Product revenue is recognized at a point in time upon shipment or upon customer receipt of the product, depending on shipping terms. The Company determined that this method best represents the transfer of goods as transfer of control typically occurs upon shipment or upon customer receipt of the product.

Service revenues consist of revenues derived from maintenance support and the use of the Company’s service platforms and Application Programming Interfaces ("API's") on a subscription basis. We generate this revenue from fees for maintenance and support, monthly active user fees, SaaS fees, and hosting and storage fees. In most cases, the subscription or transaction arrangement is a single performance obligation comprised of a series of distinct services that are ~~primarily~~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.

Service revenues are also derived from long-term engineering and consulting service contracts with governmental agencies. These contracts generally include performance obligations in which control is transferred over time. We recognize revenue on fixed fee contracts, over time, using the proportion of actual costs incurred to the total costs expected to complete the contract performance obligation. The Company determined that this method best represents the transfer of services as the proportion closely depicts the efforts or inputs completed towards the satisfaction of a fixed fee contract performance obligation. Time & Materials (“T&M”) and Cost Plus Fixed Fee (“CPFF”) contracts are considered to involve variable consideration. However, contractual performance obligations with these fee types qualify for the “Right to Invoice” practical expedient. Under this practical expedient, the Company is allowed to recognize revenue, over time, in the amount to which the Company has a right to invoice. In addition, the Company is not required to estimate such variable consideration upon inception of the contract and reassess the estimate each reporting period. The Company determined that this method best represents the transfer of services as, upon billing, the Company has a right to consideration from a customer in an amount that directly corresponds with the value to the customer of the Company’s performance completed to date.

Service revenues also consist of revenues derived from maintenance support and the use of the Company’s service platforms and APIs on a subscription basis. We generate this revenue from fees for maintenance and support, monthly active user fees, SaaS fees, and hosting and storage fees. In most cases, the subscription or transaction arrangement is a single performance obligation comprised of a series of distinct services that are substantially the same and that have the same pattern of transfer (i.e., distinct days of service). The Company applies a time-based measure of progress to the total transaction price, which results in ratable recognition over the term of the contract. The Company determined that this method best represents the transfer of services as the customer obtains equal benefit from the service throughout the service period.

The Company accounts for individual goods and services separately if they are distinct performance obligations, which often requires significant judgment based upon knowledge of the products and/or services, the solution provided and the structure of the sales contract. In SaaS agreements, we provide a service to the customer that combines the software functionality, maintenance and hosting into a single performance obligation. In product-related contracts, a purchase order may cover different products, each constituting a separate performance obligation.

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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.

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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 services, managed services, and consulting services

As work is performed (over time)

Within 30 days of services being invoiced

Estimated using a cost-plus margin approach

SaaS services

Over the course of the SaaS service once the system is available for use (over time)

At the beginning of the contract period

Estimated using a cost-plus margin approach

Disaggregation of Revenue

The Company disaggregates revenue from contracts with customers into product revenues and services revenues.

Trade Accounts Receivable and Contract Balances

We classify our right to consideration in exchange for goods and services as either a receivable or a contract asset. A receivable is a right to consideration that is unconditional (i.e., only the passage of time is required before payment is due). We present such receivables in trade accounts receivable, net, in our unaudited condensed ~~consolidated~~ balance sheets at their net estimated realizable value.

The Company maintains an allowance for doubtful accounts to provide for the estimated amount of receivables that will not be collected. If warranted, the allowance is increased by the Company’s provision for doubtful accounts, which is charged against income. All recoveries on receivables previously charged off are included in income, while direct charge-offs of receivables are deducted from the allowance.

A contract asset is a right to consideration that is conditional upon factors other than the passage of time. Contract assets are presented as unbilled accounts receivable on the accompanying unaudited condensed ~~consolidated~~ balance sheets. For example, we would record a contract asset if we record revenue on a professional services engagement, but are not entitled to bill until we achieve specified milestones.

Our contract assets and refund liabilities are reported in a net position on a contract basis at the end of each reporting period. Refund liabilities are consideration received in advance of the satisfaction of performance obligations.

Contract Fulfillment Costs

The Company evaluates whether or not we should capitalize the costs of fulfilling a contract. Such costs would be capitalized when they are not within the scope of other standards and: (1) are directly related to a contract; (2) generate or enhance resources that will be used to satisfy performance obligations; and (3) are expected to be recovered. As of ~~December 31, 2021~~June 30, 2022 and March 31, ~~2021,~~2022, there was approximately ~~$0.6~~$0.5 million and ~~$3.2~~$0.6 million, respectively, of contract fulfillment costs, which are presented in the accompanying unaudited condensed ~~consolidated~~ balance sheets as prepaid and

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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.

Due to delays in the completion of a software development contract with a customer, the Company recorded an estimated loss on the contract. During the three and nine months ended December 31, 2021, the Company has recorded approximately $0 and $3.4 million, respectively, charged to cost of sales, of which approximately $0.9 million related to previously capitalized software development costs and the remainder reduced the balance of the related contract fulfillment costs. The estimates and assumptions used in these assessments were based upon management's judgment and may be subject to change as new events occur and additional information is obtained. In particular, there remains uncertainty with regards to the additional costs required to fulfill the Company's obligations with regards to the contract. If the future estimated costs to fulfill this contract exceed current estimates, the Company's financial condition, cash flows, and results of operations may be materially impacted.

Transaction Price Allocated to the Remaining Performance Obligations

As of ~~December 31, 2021~~June 30, 2022 and March 31, ~~2021,~~2022, the aggregate amount of transaction price allocated to remaining performance obligations was immaterial, primarily as a result of the termination provisions within our contracts, which make the duration of the accounting term of the contract one year or less.

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Deferred Revenue

Deferred revenue in the accompanying unaudited condensed ~~consolidated~~ balance sheets is comprised of refund liabilities related to billings and consideration received in advance of the satisfaction of performance obligations.

Concentration of Credit Risk

Financial instruments that potentially subject us to a concentration of credit risk consist principally of cash and cash equivalents and trade accounts receivable.

Cash and cash equivalents consist primarily of demand deposits and money market funds maintained with several financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with high quality financial institutions, and therefore are believed to have minimal credit risk.

Our accounts receivable are primarily derived from billings with customers located throughout North America, as well as in Europe and South America. We generally do not require collateral or other security from our domestic customers. We maintain an allowance for doubtful accounts for potential credit losses, which losses have historically been within management’s expectations.

We currently have, and historically have had, a diverse customer base. For the three ~~and nine~~ month periods ended ~~December 31,~~June 30, 2022 and 2021, ~~and 2020,~~ no individual customer represented greater than 10% of our total revenues. As of ~~December 31, 2021~~June 30, 2022 and March 31, ~~2021,~~2022, no individual customer represented greater than 10% of our total accounts receivable.

Fair Values of Financial Instruments

The fair value of cash equivalents, receivables, accounts payable and accrued expenses approximate carrying value because of the short period of time to maturity. Our investments are measured at fair value on a recurring basis.

The framework for measuring fair value and related disclosure requirements about fair value measurements are provided in Financial Accounting Standard Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurements (“ASC 820”). This pronouncement defines fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy prescribed by ASC 820 contains three levels as follows:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Observable inputs other than quoted prices in active markets for identical assets or liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

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Level 3—Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents consist of cash and short-term investments with initial maturities of 90 days or less.

As of each of ~~December 31, 2021~~June 30, 2022 and March 31, ~~2021,~~2022, restricted cash was $0.2 million and ~~$0.3~~$0.1 million, respectively, consisting of cash restricted for shares purchased under the Employee Stock Purchase Plan ("ESPP") (See Note 9,8, Stock-Based Compensation, for further details on the ESPP).

Cash, cash equivalents and restricted cash presented in the accompanying unaudited condensed ~~consolidated~~ statements of cash flows consist of the following (in thousands):

December 31,
2021 March 31,
2021
Cash and cash equivalents $ 27,474 $ 25,205
Restricted cash 199 263
$ 27,673 $ 25,468

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~~Investments~~

The Company’s investments are classified as either held-to-maturity, available-for-sale or trading, in accordance with FASB ASC 320 – Investments – Debt and Equity Securities. Held-to-maturity securities are those securities that the Company has the positive intent and ability to hold until maturity. Trading securities are those securities that the Company intends to sell in the near term. All other securities not included in the held-to-maturity or trading category are classified as available-for-sale. Held-to-maturity securities are recorded at amortized cost, which approximates fair market value. Trading securities are carried at fair value with unrealized gains and losses charged to earnings. Available-for-sale securities are carried at fair value with unrealized gains and losses recorded within accumulated other comprehensive loss as a separate component of stockholders’ equity. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs, where available (see Note 5, Fair Value Measurements). The Company had no investments as of December 31, 2021. As of March 31, 2021, all of our investments were available-for-sale. Under FASB ASC 320-10-35, a security is considered to be other-than-temporarily impaired if the present value of cash flows expected to be collected are less than the security’s amortized cost basis (the difference being defined as the “Credit Loss”) or if the fair value of the security is less than the security’s amortized cost basis and the investor intends, or will be required, to sell the security before recovery of the security’s amortized cost basis. If an other-than-temporary impairment exists, the charge to earnings is limited to the amount of Credit Loss if the investor does not intend to sell the security, and will not be required to sell the security, before recovery of the security’s amortized cost basis. Any remaining difference between fair value and amortized cost is recognized in other comprehensive loss, net of applicable taxes. The Company evaluates whether the decline in fair value of its investments is other-than-temporary at each quarter-end. This evaluation consists of a review by management, and includes market pricing information and maturity dates for the securities held, market and economic trends in the industry and information on the issuer’s financial condition and, if applicable, information on the guarantors’ financial condition. Factors considered in determining whether a loss is temporary include the length of time and extent to which the investment’s fair value has been less than its cost basis, the financial condition and near-term prospects of the issuer and guarantors, including any specific events which may influence the operations of the issuer and the Company’s intent and ability to retain the investment for a reasonable period of time sufficient to allow for any anticipated recovery of fair value.


	June 30, 2022		March 31, 2022
Cash and cash equivalents	$	14,844	$	23,689
Restricted cash	241		120
	$	15,085	$	23,809

Allowance for Doubtful Accounts

The collectability of our accounts receivable is evaluated through review of outstanding invoices and ongoing credit evaluations of our customers’ financial condition. In cases where we are aware of circumstances that may impair a specific customer’s ability to meet its financial obligations subsequent to the original sale, we will record an allowance against amounts due, and thereby reduce the net recognized accounts receivable to the amount we reasonably believe will be collected. We also maintain an allowance based on our historical collections experience. When we determine that collection is not likely, we write off accounts receivable against the allowance for doubtful accounts.

Inventories

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Inventories consist of ~~finished goods,~~raw materials, work-in-process, and ~~raw materials~~finished goods and are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method.

Property and Equipment

Property and equipment are recorded at cost and are depreciated using the straight-line method over the estimated useful life ranging from three to eight years. Leasehold improvements are depreciated over the term of the related lease or the estimated useful life of the improvement, whichever is shorter.

Intangible Assets

Intangible assets with determinable economic lives are carried at cost, less accumulated amortization. Amortization is computed over the estimated useful life of each asset on a straight-line basis. The Company determines the useful lives of identifiable intangible assets after considering the specific facts and circumstances related to each intangible asset. Factors the Company considers when determining useful lives include the contractual term of any agreement related to the asset, the historical performance of the asset, the Company's long-term strategy for using the asset, any laws or other local regulations which could impact the useful life of the asset and other economic factors, including competition and specific market conditions.

Goodwill and Long-Lived Assets

We perform an annual qualitative assessment of our goodwill during the fourth fiscal quarter, or more frequently, to determine if any events or circumstances exist, such as an adverse change in business climate or a decline in overall industry demand, that would indicate that it would more likely than not reduce the fair value of a reporting unit below its carrying amount, including goodwill. If events or circumstances do not indicate that the fair value of a reporting unit is below its carrying amount, then goodwill is not considered to be impaired and no further testing is required; if otherwise, we compare the fair value of our reporting unit to its carrying value, including goodwill. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, the amount by which the carrying value of the goodwill exceeds its implied fair value, if any, is recognized as an impairment loss. We monitor the indicators for goodwill impairment testing between annual tests. In prior years the Company had 2 operating and reportable segments, Roadway Sensors ("RWS") and Transportation Systems ("SYS"), which also represented the reporting units for purposes of goodwill impairment testing. In conjunction with the change in segments described in Note ~~12,~~10, Business Segments, the Company also reassessed the reporting unit conclusion and determined that there are ~~now~~ 3 reporting units and a single operating and reportable segment. As of ~~December 31, 2021,~~June 30, 2022, there were no indicators of goodwill impairment.

We test long-lived assets and purchased intangible assets (other than goodwill) for impairment if we believe indicators of impairment exist. We determine whether the carrying value of an asset or asset group is recoverable, based on comparisons to undiscounted expected future cash flows the asset or asset group is expected to generate. If an asset is not recoverable, we record an impairment loss equal to the amount by which the carrying value of the asset exceeds its fair value. We primarily use the income valuation approach to determine the fair value of our long-lived assets and purchased intangible assets. During the three months ended June 30, 2020, we recorded $0.3 million in impairment charges related to right-of-use assets and leasehold improvements directly resulting from the restructuring activities. There were no additional restructuring charges during the nine months ended December 31, 2021. See Note 4, Restructuring Activities, for further details on the restructuring activities. During the nine months ended December 31, 2021, approximately $0.9 million

Table of previously capitalized software development costs was charged to cost of sales due to the expected modification of a contract with a customer. See discussion on contract fulfillment costs for further details.Contents

Income Taxes

We utilize the asset and liability method of accounting for income taxes, under which deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded when it is more-likely-than-not that some or all of the deferred tax assets will not be realized, which increases our income tax expense in the period such determination is made. As such, as of ~~December 31, 2021,~~June 30, 2022, 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

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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 unaudited condensed ~~consolidated~~ statements of operations as an expense, based on the estimated grant date fair value of our stock-based awards, whereby such fair values are amortized over the requisite service period. Our stock-based awards are currently comprised of common stock options, restricted stock units and performance stock units. The fair value of our common stock option awards is estimated on the grant date using the Black-Scholes-Merton option-pricing formula. The fair value of our performance stock unit awards is estimated on the grant date using a Monte Carlo simulation model. While the use of these models meets established requirements, the estimated fair values generated by the models may not be indicative of the actual fair values of our awards as it does not consider certain factors important to those awards to employees, such as continued employment and periodic vesting requirements, as well as limited transferability. The fair value of our restricted stock units is based on the closing market price of our common stock on the grant date. If there are any modifications or cancellations of the underlying unvested stock-based awards, we may be required to accelerate, increase or cancel any remaining unearned stock-based compensation expense.

Research and Development Expenditures

Research and development expenditures are charged to expense in the period incurred.

Warranty

We generally provide a one- to three-year warranty from the original invoice date on all products, materials and workmanship. Products sold to various original equipment manufacturer customers sometimes carry longer warranties. Defective products will be either repaired or replaced, usually at our option, upon meeting certain criteria. We accrue a provision for the estimated costs that may be incurred for product warranties relating to a product as a component of cost of sales at the time revenue for that product is recognized. The accrued warranty reserve is included within accrued liabilities in the accompanying unaudited condensed ~~consolidated~~ balance sheets. We do not provide any service-type warranties.

Repair and Maintenance Costs

We incur repair and maintenance costs in the normal course of business. Should the repair or maintenance result in a permanent improvement to one of our leased facilities, the cost is capitalized as a leasehold improvement and amortized over its useful life or the remainder of the lease period, whichever is shorter. Non-permanent repair and maintenance costs are charged to expense as incurred.

Comprehensive Income (Loss)

The difference between net income (loss) and comprehensive income (loss) was de minimis for the three ~~and nine~~ months ended ~~December 31, 2021~~June 30, 2022 and ~~December 31, 2020.~~June 30, 2021.

Recent Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This standard update requires that certain financial assets be measured at amortized cost net of an allowance for estimated credit losses such that the net receivable represents the present

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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. We are currently evaluating the timing and impact of adopting ASU 2016-13 on our unaudited condensed ~~consolidated~~ financial statements.

2.Supplemental Financial Information

Inventories

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The following table presents details of our inventories:


		December 31, 2021		March 31, 2021			June 30, 2022		March 31, 2022
		(In thousands)					(In thousands)
Raw materials	Raw materials	$	5,365	$	2,714	Raw materials	$	10,893	$	5,680
Work in process	Work in process	234		435		Work in process	95		200
Finished goods	Finished goods	1,285		1,917		Finished goods	2,338		2,100
		$	6,884	$	5,066		$	13,326	$	7,980

Property and ~~Equipment.~~Equipment

The following table presents details of our property and equipment, net:


		December 31, 2021		March 31, 2021			June 30, 2022		March 31, 2022
		(In thousands)					(In thousands)
Equipment	Equipment	$	6,908	$	6,806	Equipment	$	7,013	$	6,825
Leasehold improvements	Leasehold improvements	3,089		3,046		Leasehold improvements	3,117		3,117
Accumulated depreciation	Accumulated depreciation	(8,487)		(7,929)		Accumulated depreciation	(8,709)		(8,550)
		$	1,510	$	1,923		$	1,421	$	1,392

Depreciation expense was approximately $0.2 million and ~~$0.6~~$0.2 million for the three month periods ended June 30, 2022 and ~~nine months ended December 31,~~ 2021, ~~respectively, and $0.2 million and $0.6 million for the three and nine months ended December 31, 2020,~~ respectively. Approximately $0.1 million and ~~$0.2~~$0.1 million of the depreciation expense was recorded to cost of revenues in each period, and approximately $0.1 million and ~~$0.4~~$0.2 million was recorded to operating expenses ~~respectively,~~ in the unaudited condensed ~~consolidated~~ statements of operations for the three ~~and nine~~ month periods ended ~~December 31, 2021. Approximately $0.1 million~~June 30, 2022 and $0.2 million of the depreciation expense was recorded to cost of revenues, and approximately $0.1 million and $0.4 million was recorded to operating expenses, respectively, in the unaudited condensed consolidated statements of operations for the three and nine month periods ended December 31, 2020.2021, respectively.

Intangible Assets

The following table presents details of our net intangible assets:


		December 31, 2021						March 31, 2021							June 30, 2022						March 31, 2022
		Gross Carrying Amount		Accumulated Amortization		Net Book Value		Gross Carrying Amount		Accumulated Amortization		Net Book Value			Gross Carrying Amount		Accumulated Amortization		Net Book Value		Gross Carrying Amount		Accumulated Amortization		Net Book Value
		(In thousands)													(In thousands)
Technology	Technology	$	4,986	$	(2,288)	$	2,698	$	4,986	$	(1,594)	$	3,392	Technology	$	4,986	$	(2,751)	$	2,235	$	4,986	$	(2,519)	$	2,467
Customer contracts / relationships	Customer contracts / relationships	9,550		(2,606)		6,944		9,550		(1,547)		8,003		Customer contracts / relationships	9,550		(3,312)		6,238		9,550		(2,959)		6,591
Trade names and non-compete agreements	Trade names and non-compete agreements	782		(735)		47		782		(683)		99		Trade names and non-compete agreements	782		(770)		12		782		(753)		29
Capitalized software development costs	Capitalized software development costs	5,604		(2,997)		2,607		5,177		(2,374)		2,803		Capitalized software development costs	6,233		(3,427)		2,806		5,900		(3,207)		2,693
Total	Total	$	20,922	$	(8,626)	$	12,296	$	20,495	$	(6,198)	$	14,297	Total	$	21,551	$	(10,260)	$	11,291	$	21,218	$	(9,438)	$	11,780

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Amortization expense for intangible assets subject to amortization was approximately $0.8 million and ~~$2.4~~$0.8 million for the three ~~and nine~~ month periods ended ~~December 31,~~June 30, 2022 and 2021, ~~respectively, and $0.5 million and $1.2 million for the three and nine month periods ended December 31, 2020,~~ respectively. Approximately $0.1 million and ~~$0.4~~$0.1 million of the intangible asset amortization was recorded to cost of revenues and approximately $0.7 million and ~~$2.0~~$0.7 million, was recorded to amortization expense for the three months ended June 30, 2022 and 2021, respectively, in the unaudited condensed ~~consolidated~~ statements of operations for the three and nine months ended December 31, 2021. Approximately $0.1 million and $0.4 million of the intangible asset amortization was recorded to cost of revenues and approximately $0.4 million and $0.8 million, was recorded to amortization expense, respectively, in the unaudited condensed consolidated statements of operations for the three and nine months ended December 31, 2020.

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operations.

We have one indefinite useful life intangible asset, with de minimis carrying value, which was included in trade names and non-compete agreements.

As of ~~December 31, 2021,~~June 30, 2022, future estimated amortization expense was as follows:


Year Ending March 31,	Year Ending March 31,			Year Ending March 31,
(In thousands)	(In thousands)			(In thousands)
2022		$	807
2023	2023	3,113		2023	$	2,345
2024	2024	2,922		2024	2,985
2025	2025	2,444		2025	2,505
2026	2026	1,284		2026	1,293
2027				2027	1,095
Thereafter	Thereafter	1,714		Thereafter	1,056
		$	12,284		$	11,279

The future estimated amortization expense does not include the indefinite useful life intangible asset described above.

Warranty Reserve Activity

Warranty reserve is recorded as accrued liabilities in the accompanying unaudited condensed ~~consolidated~~ balance sheets. The following table presents activity related to the warranty reserve:


Warranty Reserve Activity	Warranty Reserve Activity	Nine Months Ended December 31,				Warranty Reserve Activity	Three Months Ended June 30,
		2021		2020			2022		2021
		(In thousands)					(In thousands)
Balance at beginning of fiscal year	Balance at beginning of fiscal year	$	569	$	416	Balance at beginning of fiscal year	$	616	$	569
Additions charged to cost of sales	Additions charged to cost of sales	171		438		Additions charged to cost of sales	51		125
Warranty claims	Warranty claims	(108)		(284)		Warranty claims	(44)		(34)
Balance at end of reporting period	Balance at end of reporting period	$	632	$	570	Balance at end of reporting period	$	623	$	660

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Earnings Per Share

The following table sets forth the computation of basic and diluted net income (loss) per share:


		Three Months Ended December 31,				Nine Months Ended December 31,					Three Months Ended June 30,
		2021		2020		2021		2020			2022		2021
		(In thousands, except per share amounts)				(In thousands, except per share amounts)					(In thousands, except per share amounts)
Numerator:	Numerator:									Numerator:
Net income (loss) from continuing operations	Net income (loss) from continuing operations	$	(2,402)	$	(261)	$	(3,862)	$	876	Net income (loss) from continuing operations	$	(4,850)	$	629
Net income (loss) from discontinued operations, net of tax	Net income (loss) from discontinued operations, net of tax	(28)		49		(104)		9,673		Net income (loss) from discontinued operations, net of tax	(15)		(18)
Net income (loss)	Net income (loss)	$	(2,430)	$	(212)	$	(3,966)	$	10,549	Net income (loss)	$	(4,865)	$	611
Denominator:	Denominator:									Denominator:
Weighted average common shares used in basic computation	Weighted average common shares used in basic computation	42,333		41,212		42,164		40,978		Weighted average common shares used in basic computation	42,380		41,875
Dilutive stock options	Dilutive stock options	—		—		—		565		Dilutive stock options	—		1,505
Weighted average common shares used in diluted computation	Weighted average common shares used in diluted computation	42,333		41,212		42,164		41,543		Weighted average common shares used in diluted computation	42,380		43,380
Basic:	Basic:									Basic:
Net income (loss) per share from continuing operations:	Net income (loss) per share from continuing operations:	$	(0.06)	$	(0.01)	$	(0.09)	$	0.02	Net income (loss) per share from continuing operations:	$	(0.11)	$	0.02
Net income (loss) per share from discontinued operations:	Net income (loss) per share from discontinued operations:	$	0.00	$	0.00	$	0.00	$	0.24	Net income (loss) per share from discontinued operations:	$	—	$	—
Net income (loss) per basic share	Net income (loss) per basic share	$	(0.06)	$	(0.01)	$	(0.09)	$	0.26	Net income (loss) per basic share	$	(0.11)	$	0.02
Diluted:	Diluted:									Diluted:
Net income (loss) per share from continuing operations:	Net income (loss) per share from continuing operations:	$	(0.06)	$	(0.01)	$	(0.09)	$	0.02	Net income (loss) per share from continuing operations:	$	(0.11)	$	0.01
Net income (loss) per share from discontinued operations:	Net income (loss) per share from discontinued operations:	$	0.00	$	0.00	$	0.00	$	0.23	Net income (loss) per share from discontinued operations:	$	—	$	—
Net income (loss) per diluted share	Net income (loss) per diluted share	$	(0.06)	$	(0.01)	$	(0.09)	$	0.25	Net income (loss) per diluted share	$	(0.11)	$	0.01

The following instruments were excluded for purposes of calculating weighted average common share equivalents in the computation of diluted net income (loss) per share as their effect would have been anti-dilutive:


		Three Months Ended December 31,		Nine Months Ended December 31,			Three Months Ended June 30,
		2021	2020	2021	2020		2022	2021
		(In thousands)		(In thousands)			(In thousands)
Stock options	Stock options	5,615	3,478	3,326	3,085	Stock options	5,718	25
Restricted stock units	Restricted stock units	538	126	367	147	Restricted stock units	446	—

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 business to DTN, an operating company of TBG AG, a Swiss-based holding company, pursuant to the DTN 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, the Company received $10.5 million in cash, and $1.5 million of the payment was deferred. DTN paid the Company $1.45 million on the 12-month anniversary of the closing date, and $0.05 million at the 18-month anniversary of the closing date. The DTN 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 business 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 business, which constituted one of our operating segments prior to first quarter of Fiscal 2021, qualifies as a discontinued operation in accordance with the criteria set forth in ASC 205-20, Presentation of Financial Statements – Discontinued Operations.

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On May 5, 2020, the Company also entered into a transition services agreement (“TSA”) with DTN, pursuant to which the Company agreed to support the information technology and accounting functions of the Agriculture and Weather Analytics business 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 income and costs associated with the TSA for the three and nine months ended December 31, 2021, were de minimis, which were included in income (loss) from discontinued operations on the unaudited condensed consolidated statement of operations.

The related assets and liabilities of the Agriculture and Weather Analytics business were reclassified to assets of discontinued operations and liabilities of discontinued operations, respectively, as of March 31, 2021 on the unaudited condensed consolidated balance sheets. The following table is a summary of major classes of assets and liabilities of discontinued operations:


	~~March 31, 2021~~
~~Assets~~
~~Right-of-use assets~~	$	78
~~Total noncurrent assets of discontinued operations~~	78
~~Total assets of discontinued operations~~	$	78

~~Liabilities~~
~~Current Lease Liabilities~~	$	94
~~Total current liabilities of discontinued operations~~	94
~~Long Term Lease liabilities~~	~~261~~
~~Total liabilities of discontinued operations~~	$	~~355~~

The results of operations for the Agriculture and Weather Analytics business were included in net income (loss) from discontinued operations on the Company's unaudited condensed consolidated statements of operations. The following table provides information regarding the results of discontinued operations:

Three Months Ended
December 31, Nine Months Ended
December 31,
2021 2020 2021 2020
Service revenue $ — $ — $ — $ 695
Cost of service revenues — — — 349
Gross profit — — — 346
Operating expenses:
General and administrative 28 6 148 752
Research and development — — 0 407
Restructuring charges — — — 837
Total operating expenses 28 6 148 1,996
Operating loss from discontinued operations (28) (6) (148) (1,650)
Other income, net — 24 44 51
Income (loss) from discontinued operation before income tax (28) 18 (104) (1,599)
Income tax (benefit) expense — 47 — (47)
Net income (loss) from discontinued operations (28) 65 (104) (1,646)
Gain on disposal of discontinued operations before income tax — — — 11,315
Income tax expense (benefit) on gain on disposal — (16) — 4
Gain on disposal of discontinued operations after income tax — (16) — 11,319
Net income (loss) from discontinued operations $ (28) $ 49 $ (104) $ 9,673

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The following table provides information on the gain recorded on the sale of the Agriculture and Weather Analytics business for the three and nine month periods ended December 31, 2020. These amounts reflect the closing balance sheet of the Agriculture and Weather Analytics business upon the closing of the sale on May 5, 2020 (in thousands).


~~Initial proceeds from sale, net of transaction costs~~	$	~~9,440~~
~~Closing working capital adjustment~~	~~250~~
~~Deferred payments of purchase price~~	~~1,500~~
~~Total consideration, net of transaction costs~~	~~11,190~~

~~Trade accounts receivable, net of allowance for doubtful accounts~~	~~1,060~~
~~Unbilled accounts receivable~~	~~488~~
~~Other classes of assets that are not major~~	~~194~~
~~Total Agriculture and Weather Analytics business assets~~	~~1,742~~

~~Trade accounts payable~~	~~349~~
~~Deferred revenue~~	~~1,518~~
~~Total Agriculture and Weather Analytics business liabilities~~	~~1,867~~
~~Gain on sale of Agriculture and Weather Analytics business~~	$	~~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~~May 12, 2022, the ~~sale~~Board of ~~the Agriculture and Weather Analytics business, the Board~~Directors of Iteris, Inc. approved restructuring activities to better position the Company for increased profitability and ~~growth, and~~growth. During the three months ended June 30, 2022, the Company incurred ~~total~~approximately $0.7 million related to employee separation costs in relation to these activities which were included in restructuring charges on the unaudited condensed statement of approximately $1.5 million, primarily resulting from a separation for certain employees who did not transition to DTN, additional positions that were eliminated to right-size the cost structure of the Company and lease impairment related to our Grand Forks, North Dakota facility.

~~For the nine months ended December 31, 2021 the Company did not incur any restructuring or severance costs.~~

~~The following table presents the restructuring and severance costs, for the nine months ended December 31, 2020 (in thousands):~~


	~~Total~~
~~Severance and benefits~~	$	~~1,105~~
~~Lease impairment and other costs~~	~~351~~
~~Total restructuring and severance costs~~	$	~~1,456~~

operations.

During the nine months ended December 31, 2020, approximately $0.6 million of the restructuring costs were recorded to restructuring charges in the unaudited condensed consolidated statements of operations, and approximately $0.8 million of the restructuring costs were recorded to income (loss) from discontinued operations in the unaudited condensed consolidated statements of operations.

As of ~~December 31, 2021,~~June 30, 2022, we ~~did not accrue any amounts~~have accrued approximately $0.7 million for severance and benefits related to the restructuring activities in accrued payroll and related expenses on the unaudited condensed ~~consolidated~~ balance sheet. ~~There were no additional~~Our restructuring activities during the three months ended ~~December 31, 2021 and the restructuring activities for the nine months ended December 31, 2021~~June 30, 2022 were as follows (in thousands):

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Balance at March 31, ~~2021~~2022	$	~~100~~—
Charged to expenses	707
Cash payments	~~(79)~~(19)
Balance at June 30, ~~2021~~2022	21
~~Adjustment to estimated expenses~~	~~(21)~~
~~Balance at September 30, 2021~~	$	—688

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4.Fair Value Measurements

We measure fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Fair value measurements are based on a three tier hierarchy that prioritizes the inputs used to measure fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets and liabilities; Level 2, defined as observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities or prices quoted in inactive markets; and Level 3, defined as unobservable inputs that are significant to the fair value of the asset or liability, and for which little or no market data exists, therefore requiring management to utilize its own assumptions to provide its best estimate of what market participants would use in valuing the asset or liability.

We did not have any material financial assets or liabilities measured at fair value on a recurring basis using Level 3 inputs as of ~~December 31, 2021~~June 30, 2022 or March 31, ~~2021.~~2022. Our non-financial assets, such as goodwill, intangible assets and property and equipment, are measured at fair value on a nonrecurring basis, generally when there is a transaction involving those assets such as a purchase transaction, a business combination or an adjustment for impairment. No non-financial assets were measured at fair value at ~~December 31, 2021~~June 30, 2022 and March 31, ~~2021.~~2022. As a result of the ~~reorganization during the nine months ended December 31,~~re-organization completed in April 2021, the Company reallocated goodwill to the 3 new reporting units discussed in Note ~~1, Description of~~10, Business ~~and Summary of Significant Accounting Policies.~~Segments. The contingent consideration representing Level 3 fair value measurement was prepared using the following assumptions:


Assumptions
Risk free rate			0.14%
Counter party risk premium			8.20%
Revenue WACC			5.10%
Revenue volatility			25.00%

The following tables present the Company’s financial assets that are recorded at fair value on a recurring basis, segregated among the appropriate levels within the fair value hierarchy:


		As of December 31, 2021									As of June 30, 2022
		(In thousands)									(In thousands)
		Amortized Cost		Gross Unrealized Loss		Gross Unrealized Gain		Estimated Fair Value			Amortized Cost		Gross Unrealized Loss		Gross Unrealized Gain		Estimated Fair Value
Assets:	Assets:									Assets:
Level 1:	Level 1:									Level 1:
Money market funds	Money market funds	$	6,361	$	—	$	—	$	6,361	Money market funds	$	1,280	$	—	$	—	$	1,280
Securities held in deferred compensation plan (1)	Securities held in deferred compensation plan (1)	936		(54)		50		932		Securities held in deferred compensation plan (1)	1,099		(142)		75		1,032
Subtotal	Subtotal	7,297		(54)		50		7,293		Subtotal	2,379		(142)		75		2,312
Level 2:	Level 2:									Level 2:
Commercial paper		4,499		—		—		4,499
Corporate notes and bonds		3,000		—		—		3,000
US Treasuries	US Treasuries	1,500		—		—		1,500		US Treasuries	2,400		—		—		2,400
Subtotal	Subtotal	8,999		—		—		8,999		Subtotal	2,400		—		—		2,400
Total	Total	$	16,296	$	(54)	$	50	$	16,292	Total	$	4,779	$	(142)	$	75	$	4,712

Liabilities:	Liabilities:									Liabilities:
Level 1:	Level 1:									Level 1:
Deferred compensation plan liabilities (2)	Deferred compensation plan liabilities (2)	$	939	$	(55)	$	48	$	932	Deferred compensation plan liabilities (2)	$	1,102	$	(146)	$	82	$	1,038
Subtotal	Subtotal	939		(55)		48		932		Subtotal	1,102		(146)		82		1,038
Level 3:	Level 3:									Level 3:
Contingent consideration (3)	Contingent consideration (3)	600		—		—		600		Contingent consideration (3)	255		—		—		255
Subtotal	Subtotal	600		—		—		600		Subtotal	255		—		—		255
Total	Total	$	1,539	$	(55)	$	48	$	1,532	Total	$	1,357	$	(146)	$	82	$	1,293

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		As of March 31, 2021									As of March 31, 2022
		(In thousands)									(In thousands)
		Amortized Cost		Gross Unrealized Loss		Gross Unrealized Gain		Estimated Fair Value			Amortized Cost		Gross Unrealized Loss		Gross Unrealized Gain		Estimated Fair Value
Assets:	Assets:									Assets:
Level 1:	Level 1:									Level 1:
Money market funds	Money market funds	$	4,676	$	—	$	—	$	4,676	Money market funds	$	71	$	—	$	—	$	71
Securities held in deferred compensation plan (1)	Securities held in deferred compensation plan (1)	89		—		11		100		Securities held in deferred compensation plan (1)	998		(106)		73		965
Subtotal	Subtotal	4,765		—		11		4,776		Subtotal	1,069		(106)		73		1,036

Level 2:	Level 2:									Level 2:
Commercial paper	Commercial paper	4,999		—		—		4,999		Commercial paper	7,499		—		—		7,499
Corporate notes and bonds		1,085		—		—		1,085
US Treasuries	US Treasuries	4,600		—		—		4,600		US Treasuries	7,798		—		—		7,798
Subtotal	Subtotal	10,684		—		—		10,684		Subtotal	15,297		—		—		15,297
Total	Total	$	15,449	$	—	$	11	$	15,460	Total	$	16,366	$	(106)	$	73	$	16,333

Liabilities:	Liabilities:									Liabilities:
Level 1:	Level 1:									Level 1:
Deferred compensation plan liabilities (2)	Deferred compensation plan liabilities (2)	$	100	$	—	$	11	$	111	Deferred compensation plan liabilities (2)	$	1,013	$	(106)	$	72	$	979
Subtotal	Subtotal	100		—		11		111		Subtotal	1,013		(106)		72		979
Level 3:	Level 3:									Level 3:
Contingent consideration (3)	Contingent consideration (3)	600		—		—		600		Contingent consideration (3)	600		—		—		600
Subtotal	Subtotal	600		—		—		600		Subtotal	600		—		—		600
Total	Total	$	700	$	—	$	11	$	711	Total	$	1,613	$	(106)	$	72	$	1,579

(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 short-term portion in accrued liabilities and long-term portion in other long-term liabilities on the Company’s ~~consolidated~~balance sheet. As of June 30, 2022, the balance of contingent consideration was all short-term and included in accrued liabilities on the Company's balance sheet.

Unrealized losses related to investments are due to interest rate fluctuations as opposed to credit quality. In addition, we do not intend to sell, and it is not more likely than not that, we would be required to sell, any of our investments before recovery of their cost basis. As a result, there is no other-than-temporary impairment for these investments as of ~~December 31, 2021.~~June 30, 2022.

6.5.Income Taxes

The effective tax rate used for interim periods is the estimated annual effective tax rate, based on current estimate of full year results, except that taxes related to specific events, if any, are recorded in the interim period in which they occur.

Income tax ~~expense~~benefit for the three ~~and nine months~~month period ended ~~December 31, 2021~~June 30, 2022 was approximately ~~$0.4 million and~~ $0.2 million, or ~~(18.5)% and (5.5)%, respectively,~~3.3% of pre-tax loss, as compared with ~~a (benefit)~~an expense of approximately ~~$(0.01) million and $0.06~~$0.08 million, or ~~4.5% and 5.3%, respectively,~~10.6% of pre-tax ~~loss and~~ income for the three ~~and nine~~ months ended ~~December 31, 2020.~~June 30, 2021.

In assessing the realizability of our deferred tax assets, we review all available positive and negative evidence, including reversal of deferred tax liabilities, potential carrybacks, projected future taxable income, tax planning strategies and recent financial performance. As we have experienced a cumulative pre-tax loss over the trailing three years, we continue to maintain a valuation allowance against our deferred tax assets. We intend to continue maintaining a full valuation allowance on our deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. However, given our current earnings and anticipated future earnings, we believe that there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to allow us to reach a conclusion that a significant portion of the valuation allowance will no longer be needed. Release of the valuation allowance would result in the recognition

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of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that we are able to actually achieve.

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our current taxes, deferred taxes, and uncertain tax positions of the Company in the year ended March 31, ~~2021.~~2022. The CARES Act also allows for the deferral of payroll taxes, as well as the immediate refund of federal Alternative Minimum Tax credits, which had previously been made refundable over a period of four years by the Tax Cuts and Jobs Act of 2017. The Company is utilizing the provision of the CARES Act allowing for the deferral of payroll taxes as of ~~December 31, 2021.~~June 30, 2022.

7.6.Commitments and Contingencies

Litigation and Other Contingencies

As a provider of traffic engineering services, hardware products, software and other various solutions for the traffic industry, the Company is, and may in the future from time to time, be involved in litigation relating to claims arising out of its operations in the normal course of business. While the Company cannot accurately predict the outcome of any such litigation, the Company is not a party to any legal proceeding, the outcome of which, in management’s opinion, individually or in the aggregate, would have a material effect on the Company’s unaudited condensed ~~consolidated~~ results of operations, financial position or cash flows.

8.7.Right-of-Use Assets and Lease Liabilities

We have various operating leases for our offices, office equipment and vehicles in the United States. These leases expire at various times through 2029. Certain lease agreements contain renewal options from 1 year to 5 years, rent abatement, and escalation clauses that are factored into our determination of lease payments when appropriate.

As a result of the restructuring activities and the sale of Agriculture and Weather Analytics business, the Company vacated the Grand Forks lease facility and has subleased the space to DTN, which expired on July 31, 2021. The Company recorded an impairment of $0.3 million during the quarter ended June 30, 2020, representing the total expected shortfall in sublease income and estimated lease buyout as compared to its required payments for the lease under the remainder of the original lease term. Sublease income was recognized on a straight-line basis over the term of the sublease. The Company did not record any impairment for the nine months ended December 31, 2021.

The table below presents lease-related assets and liabilities recorded on the unaudited condensed ~~consolidated~~ balance sheet as follows:

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Classification

~~December 31, 2021~~June 30, 2022

(In thousands)

Assets

Operating lease right-of-use-assets - continuing operations

Right-of-use assets

~~11,934~~10,950

Operating lease right-of-use-assets - discontinued operation

Noncurrent assets of discontinued operations

24—

Total operating lease right-of-use-assets

~~11,958~~10,950

Liabilities

Operating lease liabilities (short-term) - continuing operations

Accrued liabilities

~~1,385~~1,860

Operating lease liabilities (short-term) - discontinued operation

Current liabilities of discontinued operations

100

~~1,485~~1,960

Operating lease liabilities (long-term) - continuing operations

Lease liabilities

~~11,380~~10,268

Operating lease liabilities (long-term) - discontinued operation

Noncurrent liabilities of discontinued operations

~~197~~146

~~11,577~~10,414

Total lease liabilities

~~13,062~~12,374

Lease Costs

We recorded approximately $0.7 million and ~~$2.1~~$0.7 million of lease costs in on our unaudited condensed ~~consolidated~~ statements of operations for the three ~~and nine~~ months ended ~~December 31,~~June 30, 2022 and June 30, 2021, ~~as compared to approximately $0.7 million and $2.0 million for the three and nine months ended December 31, 2020.~~respectively. The Company currently has no variable lease costs. The Company recorded a de minimis amount of sublease income for both the three ~~and nine~~ months ended ~~December 31,~~June 30, 2022 and June 30, 2021, ~~and December 31, 2020,~~ which was included in income (loss) from discontinued operations on the unaudited condensed ~~consolidated~~ statement of operations.

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Supplemental Information

The table below presents supplemental information related to operating leases during the ~~nine~~three months ended ~~December 31, 2021~~June 30, 2022 (in thousands, except weighted average information):


Cash paid for amounts included in the measurement of operating lease liabilities	Cash paid for amounts included in the measurement of operating lease liabilities	$	2,104		Cash paid for amounts included in the measurement of operating lease liabilities	$	363
Weighted average remaining lease term (in years)	Weighted average remaining lease term (in years)	5.26			Weighted average remaining lease term (in years)	4.78
Weighted average discount rate	Weighted average discount rate	4.8		%	Weighted average discount rate	4.8		%

Maturities of Lease Liabilities

Maturities of lease liabilities as of ~~December 31, 2021~~June 30, 2022 were as follows:

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Fiscal Year Ending March 31,	Fiscal Year Ending March 31,	Operating Leases		Fiscal Year Ending March 31,	Operating Leases
(In thousands)	(In thousands)			(In thousands)
2022		$	680
2023	2023	2,105		2023	$	1,780
2024	2024	2,816		2024	2,843
2025	2025	2,616		2025	2,630
2026	2026	2,343		2026	2,341
2027				2027	2,391
Thereafter	Thereafter	4,513		Thereafter	2,098
Total lease payments	Total lease payments	15,073		Total lease payments	14,083
Less imputed interest	Less imputed interest	(2,011)		Less imputed interest	(1,709)
Present value of future lease payments	Present value of future lease payments	13,062		Present value of future lease payments	12,374
Less current obligations under leases	Less current obligations under leases	(1,485)		Less current obligations under leases	(1,960)
Long-term lease obligations	Long-term lease obligations	$	11,577	Long-term lease obligations	$	10,414

9.8.Stock-Based Compensation

We currently maintain 2 stock incentive plans, the 2007 Omnibus Incentive Plan and the 2016 Omnibus Incentive Plan (the “2016 Plan”). Of these plans, we may only grant future awards from the 2016 Plan. The 2016 Plan allows for the issuance of stock options, stock appreciation rights, restricted stock, time-restricted stock units (“RSUs"), performance-based restricted stock units ("PSUs”), cash incentive awards and other stock-based awards. At ~~December 31, 2021,~~June 30, 2022, there were approximately ~~3,083,947~~3,543,515 shares of common stock available for grant or issuance under the 2016 Plan. Total stock options vested and expected to vest were approximately ~~5.9~~5.8 million as of ~~December 31, 2021.~~June 30, 2022.

Stock Options

A summary of activity with respect to our stock options for the ~~nine~~three months ended ~~December 31, 2021~~June 30, 2022 is as follows:


		Options	Weighted Average Exercise Price Per Share			Options	Weighted Average Exercise Price Per Share
		(In thousands)				(In thousands)
Options outstanding at March 31, 2021		5,623	$	4.10
Options outstanding at March 31, 2022					Options outstanding at March 31, 2022	5,943	$	4.32
Granted	Granted	869	5.08		Granted	20	2.96
Exercised	Exercised	(489)	2.89		Exercised	(1)	1.87
Forfeited	Forfeited	(119)	4.87		Forfeited	(114)	5.18
Options outstanding at December 31, 2021		5,884	4.33
Options outstanding at June 30, 2022					Options outstanding at June 30, 2022	5,848	4.30

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Restricted Stock Units

A summary of activity with respect to our RSUs, which entitle the holder to receive 1 share of our common stock for each RSU upon vesting, for the ~~nine~~three months ended ~~December 31, 2021~~June 30, 2022 is as follows:

# of Shares Weighted
Average
Price Per
Share
(In thousands)
RSUs outstanding at March 31, 2021 448 $ 4.08
Granted 173 5.22
Vested (142) 4.83
Forfeited (4) 4.80
RSUs outstanding at December 31, 2021 475 4.26

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	# of Shares	Weighted Average Price Per Share
	(In thousands)
RSUs outstanding at March 31, 2022	451	$	4.12
Granted	—	—
Vested	(4)	5.30
Forfeited	(42)	5.30
RSUs outstanding at June 30, 2022	405	3.99

Performance Stock Units

The Company has granted a total "target" number of 132,403 PSUs to our executive officers. Between 0% and 160% of the PSUs will be eligible to vest based on average annual performance during the three-year performance period relative to the revenues per share and cash flow from operations objectives to be established by the Compensation Committee at the beginning of each year. In addition, the final PSU vesting based on the revenues per share and cash flow from operations performance will be subject to a modifier between .75x-1.25x based on the Company's total shareholder return relative to the Russell 2000 during the performance period, for a maximum achievement percentage of 200% of the "target" number of PSUs. The PSUs are amortized over a derived service period of 3 years. The value and the derived service period of the PSUs were estimated using the Monte-Carlo simulation model. The following table summarizes the details of the performance stock units:


		# of Shares	Weighted Average Price Per Share			# of Shares	Weighted Average Price Per Share
		(In thousands)				(In thousands)
PSUs outstanding at March 31, 2021		68	$	5.47
PSUs outstanding at March 31, 2022					PSUs outstanding at March 31, 2022	115	$	6.33
Granted	Granted	64	7.26		Granted	—	—
Forfeited	Forfeited	(17)	6.37		Forfeited	—	—
PSUs outstanding at December 31, 2021		115	6.33
PSUs outstanding at June 30, 2022					PSUs outstanding at June 30, 2022	115	6.33

As of ~~December 31, 2021,~~June 30, 2022, 19,855 PSUs had vested but not been issued as the three-year performance period has not yet elapsed. If cessation of service should occur prior to the end of the three-year period, these vested PSUs will be ~~issued as shares if earned under the terms of the grant.~~forfeited.

Stock-Based Compensation Expense

The following table presents stock-based compensation expense that is included in each line item on our unaudited condensed ~~consolidated~~ statements of operations:


		Three Months Ended December 31,				Nine Months Ended December 31,					Three Months Ended June 30,
		2021		2020		2021		2020			2022		2021
		(In thousands)				(In thousands)					(In thousands)
Cost of revenues	Cost of revenues	$	53	$	55	$	161	$	148	Cost of revenues	$	64	$	57
General and administrative expense	General and administrative expense	589		612		1,864		1,704		General and administrative expense	618		616
Sales and marketing	Sales and marketing	74		44		217		99		Sales and marketing	78		70
Research and development expense	Research and development expense	52		29		154		78		Research and development expense	88		51
Restructuring costs		—		—		—		42
Income (loss) from discontinued operations before gain on sale, net of tax		—		—		—		(57)
Total stock-based compensation	Total stock-based compensation	$	768	$	740	$	2,396	$	2,014	Total stock-based compensation	$	848	$	794

As of ~~December 31, 2021,~~June 30, 2022, there was approximately ~~$4.1~~$3.9 million, ~~$0.5~~$0.8 million and ~~$0.5~~$0.4 million 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~~2.6 years for stock options, ~~2.1~~2.8 years for RSUs and ~~2.2~~1.5 years for PSUs. If there are any modifications or cancellations of the underlying unvested awards, we may be required to accelerate, increase or cancel any remaining unearned stock-based compensation expense. Future stock-based compensation expense and

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unearned stock-based compensation will increase to the extent that we grant additional stock options, RSUs or other stock-based awards.

Other Stock-Based Compensation Plans

We currently maintain an Employee Stock Purchase Plan (“ESPP”) which allows employees to have a percentage of their base compensation withheld to purchase the Company’s common stock at 95% of the lower of the fair market at the beginning of the offering period and on the last trading day of the offering period. There are 2 offering periods during a calendar year, which consist of the six months beginning each January 1 and July 1. Employees may contribute 1-15% of their eligible gross pay up to a ~~$25,000~~$0.03 million annual stock value limit. No shares were purchased during the three months ended ~~December 31,~~June 30, 2022 and 2021 ~~and 2020~~ for the first offering periods of Fiscal ~~2022~~2023 and ~~2021, respectively. During the nine months ended~~

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~~December 31, 2021 and 2020, 44,449 and 41,679 shares were purchased related to the first offering periods of Fiscal~~ 2022, ~~and 2021,~~ respectively. The ESPP is considered a non-compensatory plan and accordingly, no compensation expense is recorded in connection with this benefit.

Deferred Compensation Plan

Effective October 1, 2020, the Company adopted the Iteris, Inc. Deferred Compensation Plan (the "DC Plan"). The DC Plan consists of ~~two~~2 plans, one that is intended to be an unfunded arrangement for eligible employees who are part of a select group of management or highly compensated employees of the Company within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA, and one for the benefit of non-employee members of our board of directors. Key employees, including our executive officers, and our non-employee directors who are notified regarding their eligibility to participate and delivered the DC Plan enrollment materials are eligible to participate in the DC Plan. Under the DC Plan, we will provide participants with the opportunity to make annual elections to defer a percentage of their eligible cash compensation and equity awards. A participant is always 100% vested in his or her own elective cash deferrals and any earnings thereon. Elective deferrals of equity awards are credited to a bookkeeping account established in the name of the participant with respect to an equivalent number of shares of our common stock, and such credited shares are subject to the same vesting conditions as are applicable to the equity award subject to the election. The Company established a rabbi trust to finance our obligations under the DC Plan with corporate-owned life insurance policies on ~~participants.~~

~~Employment Inducement Incentive Award Plan~~

~~On December 4, 2020,~~participants, and the ~~Board approved~~assets held within this trust are subject to the ~~Iteris, Inc. 2020 Employment Inducement Incentive Award Plan (the “Inducement Plan”). The terms~~claims of the ~~Inducement Plan~~Company's creditors. The assets and liabilities are ~~substantially similar~~recorded at their fair value, which represents their respective amortized cost values plus any unrealized gains or losses. Refer to Note 4, Fair Value Measurements, for further detail on the terms of the Company’s 2016 Omnibus Incentive Plan with the exception that incentive stock options may not be granted under the Inducement Plan. The Inducement Plan was adopted by the Board without stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules.

The Board 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 or any parent or subsidiary, or following a bona fide period of non-employment by the Company or a parent or subsidiary, and only if he or she is granted such award in connection with his or her commencement of employment with the Company or a subsidiary and such grant is an inducement material to his or her entering into employment with the Company or such subsidiary.

There were no awards granted under the Inducement Plan during the nine months ended December 31, 2021. No further awards will be granted under the Inducement Plan, although the outstanding awards under the Inducement Plan remain outstanding in accordance with their terms. DC plan.

~~10.~~9.Stock Repurchase Program

On August 9, 2012, the Board approved a ~~new~~ stock repurchase program pursuant to which we ~~may~~could acquire up to $3.0 million of our outstanding common stock for an unspecified length of time. Under the program, we could repurchase shares from time to time in the open market and privately negotiated transactions and block trades, and could also repurchase shares pursuant to a 10b5-1 trading plan during our closed trading windows, to the extent such a 10b5-1 plan was in place. There was no guarantee as to the exact number of shares that would be repurchased. We may modify or terminate the repurchase program at any time without prior notice.

On November 6, 2014, the Board approved a $3.0 million increase to the Company’s 2012 stock repurchase program, pursuant to which the Company could continue to acquire shares of its outstanding common stock from time to time for an unspecified length of time. From the inception of the 2012 stock repurchase program on August 9, 2012 through its retirement on May 12, 2022, we repurchased approximately 2,458,000 shares of our common stock for an aggregate price of approximately $4.3 million, at an average price per share of $1.73. As of June 30, 2022, these repurchased shares have been retired and resumed their status as authorized and unissued shares of our common stock.

On May 12, 2022 the Board of Directors retired the 2012 stock repurchase program and approved a new plan for the company to acquire up to $10.0 million of our outstanding common stock for an unspecified length of time. Under the program, we may repurchase shares from time to time in the open market and privately negotiated transactions and block trades, and may also repurchase shares pursuant to a 10b5-1 trading plan during our closed trading windows, to the extent such a 10b5-1 plan is in place. There is no guarantee as to the exact number of shares that will be repurchased. We may modify or terminate the repurchase program at any time without prior notice. On November 6, 2014, the Board 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. ForDuring the three ~~and nine~~ months ended ~~December 31, 2021 and 2020,~~June 30, 2022, we ~~did not repurchase any shares. From inception of the 2012 stock repurchase program through December 31, 2021, we~~have repurchased ~~approximately 2,458,000~~0.3 million shares ~~of our common stock~~ for an aggregate price of approximately ~~$4.3~~$0.9 million, at an average price of $2.90 per share, ~~of $1.73. As of December 31, 2021, all repurchased shares have been retired~~ and ~~resumed their status as authorized and unissued shares of our common stock. As of December 31, 2021,~~ approximately ~~$1.7~~$9.1 million remains available for the repurchase of our common stock under our current program.

~~11.Acquisitions~~

~~TrafficCast Acquisition~~

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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 Business and assumed certain specified liabilities of the Business.

The aggregate acquisition-date fair value of the consideration transferred of $16 million in addition to liabilities assumed of $1.7 million 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 accrued liabilities on the unaudited condensed consolidated balance sheets. Acquisition-related liabilities include customary post-closing adjustments, as well as short term liabilities related to certain ancillary agreements that will provide Iteris with ongoing access to mapping and monitoring services. These items are included in accrued liabilities on the unaudited condensed consolidated balance sheets. Contingent consideration relates to a $1 million earn out, that if earned, will be paid over two years based on the Business’ achievement of certain revenue targets. This item is included in other long-term liabilities on the unaudited condensed consolidated balance sheets.

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 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 in the Company's consolidated balances and is included in the annual review for impairment. The goodwill is fully deductible for tax purposes. The earnout consideration was valued using a Monte Carlo simulation. 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 tables summarize the 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~~

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The fair values of the TrafficCast assets and liabilities noted above approximate their carrying values at December 7, 2020. There was no difference between the fair value of trade accounts receivables and the gross contractual value of those receivables. There are no contractual cash flows related to these receivables that are not expected to be collected. The Company believes the goodwill related to the acquisition was a result of the ability of the Company to leverage its technology in the broader market, as well as offering cross-selling market exposure opportunities. Goodwill from the acquisition of TrafficCast was initially allocated to the Company's Roadway Sensors and Transportation Systems reporting units and upon the reorganization described in Note 12, Business Segments, the goodwill has been reallocated to the Company's 3 new reporting units and will be included in the annual review for impairment. The goodwill is fully deductible for tax purposes. The significant intangible assets identified in the purchase price allocation include customer relationship and developed technology, which are amortized over their respective useful lives on a straight line basis which approximates the underlying cash flows. To value the customer relationships, the Company utilized the income approach, specifically a discounted cash-flow method known as the excess earnings method. The Company used the replacement cost method with consideration of opportunity costs to estimate the fair value of the technology. The fair value estimates are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions. We believe the assumptions are representative of those a market participant would use in estimating fair value.

~~The following table presents the fair values and useful lives of the identifiable intangible assets acquired:~~

Amount Weighted Average
Useful Life
(in thousands) (in years)
Customer relationships $ 5,800 7
Technology 3,700 4
Total intangible assets assumed $ 9,500

~~Acquisition-Related Costs~~

In connection with the acquisition of TrafficCast, the Company recorded approximately $285,000 for the three- and nine- month periods ended December 31, 2020 of acquisition related professional fees recorded to selling, general and administrative expense, in the unaudited condensed consolidated statements of operations.

~~Pro Forma Financial Information~~

The following pro forma information presents the consolidated results of operations of the Company, TrafficCast for the three- and nine- month periods ended December 31, 2020, as if the acquisition of TrafficCast had been completed on April 1, 2020. There was no pro forma impact during the three- and nine- months ended December 31, 2021. These pro forma condensed consolidated financial results have been prepared for comparative purposes only and include certain adjustments that reflect pro forma results of operations, such as increased amortization for the fair value of acquired intangible assets and increased salaries expense related to the retention bonuses. The unaudited pro forma results do not reflect any operating efficiencies or potential cost savings that may result from the consolidation of the operations of the Company and TrafficCast. Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of the results of operations that actually would have been achieved had the acquisition of TrafficCast occurred as of April 1, 2020, nor are they intended to represent or be indicative of future results of operations:

Three Months Ended
December 31, 2020 Nine Months Ended
December 31, 2020
Pro forma revenue $ 30,537 $ 94,770
Pro forma net income (loss) from continuing operations $ (461) $ 417
Pro forma net income (loss) per share from continuing operations:
Basic $ (0.01) $ 0.01
Diluted $ (0.01) $ 0.01

~~12.~~10.Business Segments

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In Fiscal 2021, the Company completed the sale of substantially all of the assets used in connection with the Agriculture and Weather Analytics segment to DTN in exchange for a total purchase consideration of $12.0 million. On April

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30, 2020, in connection with the sale of the Agriculture and Weather Analytics segment, the Board approved restructuring activities to better position the Company for increased profitability and growth. Restructuring charges of approximately $1.5 million were incurred in Fiscal 2021 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.

On December 6, 2020, the Company entered into an Asset Purchase Agreement with TrafficCast (“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 transaction closed on December 7, 2020.

After these two significant transactions in Fiscal 2021, the Company underwent a re-organization that was completed in April 2021. The purpose of this was to align the Company’s organization structure with its singular goal of providing ~~best in class~~best-in-class smart mobility infrastructure management solutions to the marketplace. As a result of the ~~reorganization,~~re-organization, the Company's Chief Operating Decision Maker ("CODM"), ~~which~~who is our Chief Executive Officer, reviews the Company's results on a consolidated basis and our financial results are presented ~~on a consolidated basis~~ under a single reporting segment in order to provide the most accurate representation of Company's performance.

~~13.~~11.~~Subsequent Events~~

Long-Term Debt

On January 25, 2022, Iteris, Inc., entered into a Credit Agreement (the “Credit Agreement”) with Capital One, National Association, as agent.

The Credit Agreement provides for a $20 million revolving credit facility with a maturity date of January 24, 2026. In addition, the Company has the ability from time to time to increase the revolving commitments up to an additional aggregate amount not to exceed $40 million, subject to receipt of lender commitments and certain conditions precedent. The Credit Agreement evidencing the facility contains customary representation, warranties, covenants, and event of default. The Credit Agreement is collateralized by substantially all of our property and assets, including intellectual property. The Credit Agreement also contains certain restrictions and covenants that require the Company to maintain, on an ongoing basis, (i) a leverage ratio of no greater than 3.00 to 1.00 and (ii) a fixed charge coverage ratio of not less than 1.25 to 1.00. The leverage ratio also determines the ~~appliable~~applicable interest rate under the Credit Agreement. Borrowings under the revolving credit facility accrue interest at a rate equal to either ~~SOFR~~Secured Overnight Financing Rate ("SOFR") or a specified base rate, at the Company’s option, plus an applicable margin. The applicable margins range from 2.00% to 2.80% per annum for SOFR loans and 1.00% to 1.80% per annum for base rate loans. The revolving credit facility is subject to a commitment fee payable on the unused revolving credit facility commitments ranging from 0.25% to 0.35%, depending on the Company’s leverage ratio.

As of June 30, 2022, there were no amounts borrowed under the revolving credit facility and the Company is in compliance with the covenants. As of June 30, 2022, capitalized deferred financing costs of $0.3 million associated with the Credit Agreement are included in Other Assets on the unaudited condensed balance sheet. Amortization of the deferred financing costs and commitment fees on the unused revolving credit facility commitments are included in Interest Income (Expense), net on the unaudited condensed statement of operations.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This report, including the following discussion and analysis, contains forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) that are based on our current expectations, estimates and projections about our business and our industry, and reflect management’s beliefs and certain assumptions made by us based upon information available to us as of the date of this report. When used in this report and the information incorporated herein by reference, the words “expect(s),” “feel(s),” “believe(s),” “intend(s),” “plan(s),” “should,” “will,” “may,” “anticipate(s),” “estimate(s),” “could,” “should,” and similar expressions or variations of these words are intended to identify forward-looking statements. These forward-looking statements include, but are not limited to, statements regarding our anticipated growth, sales, revenue, expenses, profitability, capital needs, backlog, manufacturing capabilities, the market acceptance of our products and services, competition, statements concerning any potential future impact of the coronavirus disease COVID-19 pandemic on our business, the impact of any current or future litigation, the impact of recent accounting pronouncements, the impact of current supply chain constraints, the applications for and acceptance of our products and services, the status of our facilities and product development, the impact of the sale of our Agriculture and Weather Analytics business, and the impact of the acquisition of substantially all of the assets of TrafficCast International, Inc. These statements are not guarantees of future performance and are subject to certain risks and uncertainties that could cause our actual results to differ materially from those projected. You should not place undue reliance on these forward-looking statements that speak only as of the date hereof. We encourage you to carefully review and consider the various disclosures made by us which describe certain factors which could affect our business, including in “Risk Factors” set forth in Part II. Item 1A of this report, before deciding to invest in our company or to maintain or increase your investment. We undertake no obligation to revise or update publicly any forward-looking statement for any reason, including to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Overview

General

We are a provider of smart mobility infrastructure management solutions. ~~Municipalities, government~~Our cloud-enabled solutions help public transportation agencies, municipalities, commercial entities and other transportation infrastructure providers ~~use our solutions to~~ monitor, visualize, and optimize mobility infrastructure to ~~help ensure roads are~~make mobility safe, ~~travel is~~ efficient, and communities thrive. Additionally, we provide mobility data to automobile OEMs, media companies, insurance companies, and other commercial entities, whose products and services have a high dependency on the performance and/or condition of mobility infrastructure.sustainable for everyone.

Recent Developments

Impact of COVID-19 on Our Business

The COVID-19 pandemic (the “Pandemic”) has materially adversely impacted global economic conditions. More than ~~eighteen~~24 months into the Pandemic, COVID-19 continues to have an unpredictable and unprecedented impact on the ~~U.S. economy~~global economy. Though there has been a trend in increasing availability of COVID-19 vaccines, as well as an easing of restrictions on social, business, travel and government activities and functions, infection rates continue to fluctuate and federal, state and local ~~governments react~~government regulations continue to ~~this public health crisis with travel restrictions, quarantines and "stay-at-home" orders.~~rapidly change. 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. ~~We have not had any facility closures due~~Due to the ~~pandemic, but~~Pandemic, we have experienced ~~some~~ supply chain and work delays ~~due to the Pandemic.~~on certain projects. Should such ~~delays~~conditions become protracted or worsen or should ~~longer term~~longer-term budgets or priorities of our clients be impacted, the Pandemic could ~~materially impact~~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,~~Pandemic, new and potentially more contagious variants, such as the Delta and Omicron variants, the impact on capital and financial markets, the distribution, rate of adoption and efficacy of vaccines, and the related impact on the budgets and financial circumstances of our customers and suppliers, 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 ~~our~~the Company's future financial condition and results of operations, we have taken certain actions to preserve our liquidity, manage cash flow and strengthen our financial flexibility. Such actions ~~included,~~include, but are not limited to, reducing ~~our~~ discretionary spending, reducing capital expenditures, and implementing restructuring ~~activities with the goal of reducing payroll costs, including employee furloughs, pay freezes and pay cuts.~~activities. Refer to Note 3, Restructuring Activities, for more information.

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Our products require specialized parts which have become more difficult to ~~source~~source. In some cases, we have had to purchase such parts from third-party brokers at substantially higher prices. Additionally, to mitigate for component shortages, we have begun to increase inventory levels and have become subject to substantially increased prices as a result of the supply chain interruptions caused by the Pandemic. In anticipation of these shipment lead times as well as the fluctuation in prices, we may continue to ~~build~~do so for an extended period. In the event demand doesn't materialize, we may need to hold excess inventory for ~~anticipated periods~~several quarters. Alternatively, we may be unable to source sufficient components, even from third-party brokers, to meet customer demand, resulting in high levels of ~~growth, may build inventory anticipating demand that does not materialize, or may build inventory to serve what we believe is pent-up demand. We may remain supply-constrained beyond our Fiscal 2022.~~unshippable backlog. We have placed non-cancellable inventory orders for certain products in advance of our normal lead times to secure normal and incremental future supply and capacity and may need to continue to do so in the future. The $5 million operating loss in the current quarter was mainly due to costs associated with global supply chain constraints and restructuring charges. The Company expended over $5 million during Q1FY23 which was a planned increase in inventory as part of the Company's supply chain strategy. Despite the increased spending level, the Company still maintained working capital of over $31 million as of June 30, 2022. The cash flow used in operating activities of our continuing operations was approximately $7.2 million which was primarily driven by a planned increase in inventory as part of the Company’s supply chain strategy to help assure the Company has product and raw materials to satisfy customer demand. Although the Company's tactic to mitigate the current global supply chain issues by accumulating inventory in the current period resulted in a significant usage of cash in the current period, the Company does not expect to apply the same course of action, in the same magnitude, in future periods. Still, we may remain supply-constrained beyond the fiscal quarter ended June 30, 2022.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act ("CARES ~~Act~~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~~Refer to Note 6,5, Income Taxes, ~~to our Unaudited Condensed Consolidated Financial Statements, including in Part I, Item 1 of this report.~~for more information.

The Pandemic has had an impact on the Company’s human capital. While our Santa Ana product and commercial operations facility has remained open, easing of ~~pandemic~~Pandemic restrictions imposed by local and state authorities ~~have~~has allowed a portion of our workforce to return to our various facilities while others continue to work remotely. The Company’s information technology infrastructure has proven sufficiently flexible to minimize disruptions in required duties and responsibilities. We believe that our system of internal control over financial reporting has not been fundamentally altered and that the effectiveness of the design and operation of internal controls remained materially consistent during the three and nine month periods ended December 31, 2021. Additionally, we have been able to timely file financial reports. We believe we have the infrastructure to efficiently work remotely during the Pandemic. We do not expect to incur significant costs to safely reopen our facilities to all our employees.

~~Despite~~The Company assessed the impacts of the Pandemic ~~we believe that~~on the ~~ITS industry~~estimates and assumptions used in preparing our unaudited condensed financial statements. The estimates and assumptions used in our 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 ~~US should~~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. The Company will continue to ~~provide new opportunities for~~assess the ~~Company although, in~~effect on its operations by monitoring the ~~near term,~~spread of the ~~pace of new opportunities emerging may be restrained~~Pandemic and the ~~start dates~~actions implemented to combat the virus throughout the world. As a result, our assessment of ~~awarded~~the impact of the Pandemic may change.

Climate Change

We take climate change and the risks associated with climate change seriously. Increased frequency of severe and extreme weather events associated with climate change could adversely impact our facilities, interfere with intersection construction projects, ~~may be delayed.~~and have a material impact on our financial condition, cash flows and results of operations. More extreme and volatile temperatures, increased storm intensity and flooding, and more volatile precipitation are among the weather events that are most likely to impact our business. We ~~believe that~~are unable to predict the timing or magnitude of these events. However, we perform ongoing assessments of physical risk, including physical climate risk, to our ~~expectations are valid~~business and ~~that our plans for the future~~efforts to mitigate these physical risks continue to be ~~based~~implemented on ~~reasonable assumptions.~~an ongoing basis.

As a global leader in smart mobility infrastructure management, we also aim to reduce climate impact through our work with public and private-sector partners to increase the efficiency of mobility, which has the benefit of reducing carbon emissions, all as part of our commitment to a cleaner, healthier and more sustainable future. By reducing delays and stops as part of traffic signal timing projects, improving the efficiency of public transit via signal priority programs, reducing time spent roadside for heavy-emitting commercial freight vehicles during inspection, to name just a few examples, our industry-leading portfolio of smart mobility infrastructure management solutions is currently helping cities and states to reduce their carbon footprint.

Sale of Agriculture and Weather Analytics Business

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company, pursuant to the Purchase Agreement signed on May 2, 2020 (the ~~"DTN~~"AWA Purchase Agreement"), in exchange for a total purchase consideration of $12.0 million in cash, subject to working capital adjustments. Upon closing, the Company received $10.5 million and $1.5 million of payment was deferred. DTN paid the Company $1.45 million on the 12-month anniversary of the closing date, and $0.05 million at the 18-month anniversary of the closing date. The ~~DTN~~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 business 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 business, which constituted one of our operating segments prior to first quarter in Fiscal 2021, 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 business 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 income and costs associated with the TSA for the three ~~and nine~~ months ended ~~December 31,~~June 30, 2022 and June 30, 2021, were de minimis, which were included in income (loss) from discontinued operations on the unaudited condensed ~~consolidated~~ statement of operations.

~~Acquisition of the Assets of TrafficCast International, Inc.~~

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Under the TrafficCast Purchase Agreement, Iteris purchased from TrafficCast substantially all of the assets used in the conduct of the Business and assumed certain specified liabilities of the Business in exchange for a total purchase price of up to $17.7 million, with $15 million paid in cash on the closing date, $1 million held back as security for certain post-closing adjustments and post-closing indemnity obligations of TrafficCast, and a $1 million earn out, that if earned, will be paid over two years based on the 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 Business at closing (see Note 11, Acquisitions).

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. Since its integration in early Fiscal 2022, TrafficCast’s market-leading software and IoT devices, as well as its data ingestion, data science and analytics solutions, has enhanced Iteris’ suite of smart mobility infrastructure management solutions.

Non-GAAP Financial Measures

Adjusted income (loss) from continuing operations before interest, taxes, depreciation, amortization, stock-based compensation expense, and restructuring charges ~~and project loss reserves~~ (“Adjusted EBITDA”) was approximately ~~$0.1~~$(2.4) million and ~~$5.5~~$2.5 million for the three ~~and nine~~ months ended ~~December 31,~~June 30, 2022 and 2021, ~~as compared to approximately $1.5 million and $5.7 million for the three and nine months ended December 31, 2020,~~ respectively.

When viewed with our financial results prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) and accompanying reconciliations, we believe Adjusted EBITDA provides additional useful information to clarify and enhance the understanding of the factors and trends affecting our past performance and future prospects. We define these measures, explain how they are calculated and provide reconciliations of these measures to the most comparable GAAP measure in the table below. Adjusted EBITDA and the related financial ratios, as presented in this Quarterly Report on Form 10-Q (“Form 10-Q”), are supplemental measures of our performance that are not required by or presented in accordance with GAAP. They are not a measurement of our financial performance under GAAP and should not be considered as alternatives to net income or any other performance measures derived in accordance with GAAP, or as an alternative to net cash provided by operating activities as measures of our liquidity. The presentation of these measures should not be interpreted to mean that our future results will be unaffected by unusual or nonrecurring items.

We use Adjusted EBITDA non-GAAP operating performance measures internally as complementary financial measures to evaluate the performance and trends of our businesses. We present Adjusted EBITDA and the related financial ratios, as applicable, because we believe that measures such as these provide useful information with respect to our ability to meet our operating commitments.

Adjusted EBITDA and the related financial ratios have limitations as an analytical ~~tool,~~tools, and you should not consider itthem 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

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•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 unaudited condensed ~~consolidated~~ financial statements contained in this Form 10-Q. However, in spite of the above limitations, we believe that Adjusted EBITDA and the related financial ratios are useful to an investor in evaluating our results of operations because these measures:

•Are widely used by investors to measure a company’s operating performance without regard to items excluded from the calculation of such terms, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired, among other factors;

•Help investors to evaluate and compare the results of our operations from period to period by removing the effect of our capital structure from our operating performance; and

•Are used by our management team for various other purposes in presentations to our Board of Directors as a basis for strategic planning and forecasting.

The following financial items have been added back to or subtracted from our net income when calculating Adjusted EBITDA:

•Interest expense. Iteris excludes interest expense because it does not believe this item is reflective of ongoing business and operating results. This amount may be useful to investors for determining current cash flow.

•Income tax. This amount may be useful to investors because it represents the taxes which may be payable for the period and the change in deferred taxes during the period, and may reduce cash flow available for use in our business.

•~~Depreciation.~~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.

•~~Project loss reserves.~~ These expenses consist primarily of expenses incurred to complete a software development contract that will not be recoverable and are largely related to previously incurred and capitalized costs for non-recurring engineering activity. 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.

•~~Executive severance and transition costs.~~ Iteris excludes executive severance and transition costs because it does not believe that these expenses are reflective of ongoing operating results in the period incurred. These amounts may be useful to our investors in evaluating our core operating performance.

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Reconciliations of net income (loss) from continuing operations to Adjusted EBITDA and the presentation of Adjusted EBITDA as a percentage of total revenues were as follows:


		Three Months Ended December 31,						Nine Months Ended December 31,							Three Months Ended June 30,
		2021			2020			2021			2020				2022			2021
		(In Thousands)						(In Thousands)							(In Thousands)
Net income (loss) from continuing operations	Net income (loss) from continuing operations	$	(2,402)		$	(261)		$	(3,862)		$	876		Net income (loss) from continuing operations	$	(4,850)		$	629
Income tax expense (benefit)	Income tax expense (benefit)	375			(7)			201			55			Income tax expense (benefit)	(167)			75
Depreciation expense	Depreciation expense	203			183			629			551			Depreciation expense	159			232
Amortization expense	Amortization expense	810			512			2,428			1,236			Amortization expense	822			803
Interest expense														Interest expense	32			—
Stock-based compensation	Stock-based compensation	768			740			2,396			2,071			Stock-based compensation	848			794
Other adjustments:	Other adjustments:													Other adjustments:
Restructuring charges	Restructuring charges	—			—			—			619			Restructuring charges	707			—
Acquisition costs		—			285			—			285
Project loss		—			—			3,394			—
Executive severance and transition costs		340			—			340			—
Adjusted EBITDA	Adjusted EBITDA	$	94		$	1,452		$	5,526		$	5,693		Adjusted EBITDA	$	(2,449)		$	2,533
Percentage of total revenues	Percentage of total revenues	0.3		%	5.2		%	5.6		%	6.7		%	Percentage of total revenues	(7.3)		%	7.4		%

Critical Accounting Policies and Estimates

~~“Management’s~~"Management's Discussion and Analysis of Financial Condition and Results of ~~Operations”~~Operations" is based on our unaudited condensed ~~consolidated~~ financial statements included herein, which have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. ~~On an ongoing basis,~~Our significant accounting policies are summarized in Note 1 to the Financial Statements. In preparing our financial statements in accordance with GAAP and pursuant to the rules and regulations of the SEC, we ~~evaluate these~~make estimates, assumptions and ~~assumptions, including those related to~~judgments that affect the reported amounts of assets, liabilities, revenue ~~recognition, the collectability of accounts receivable~~and expenses, and related ~~allowance for doubtful accounts, projections~~disclosures of taxable income used to assess realizability of deferred tax assets, warranty reserves and other contingencies, costs to complete long-term contracts, indirect cost rates used in cost plus contracts, the valuation of inventories, the valuation of purchased intangiblecontingent assets and goodwill, the valuation of investments, estimates of future cash flows used to assess the recoverability of long-lived assets and the impairment of goodwill, and fair value of our stock option awards used to calculate stock-based compensation.liabilities. We base ~~these~~our estimates, assumptions and judgments on historical experience and ~~on various~~ other factors that we believe ~~to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that~~ are ~~not readily apparent from other sources. These estimates and assumptions by their nature involve risks and uncertainties, and may prove to be inaccurate. In the event that any of~~reasonable. We evaluate our estimates, or assumptions ~~are inaccurate~~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 ~~any material respect, it could~~the accounting for revenue recognition, goodwill, and income taxes have ~~a material adverse effect~~the most potential impact on our ~~reported amounts of assets~~financial statements. Historically, our estimates, assumptions and ~~liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.~~judgments relative to our critical accounting policies have not differed materially from actual results.

Recent Accounting Pronouncements

Refer to Note 1, Description of Business and Summary of Significant Accounting Policies, to our Unaudited Condensed ~~Consolidated~~ Financial Statements, included in Part I, Item 1 of this report for a discussion of applicable recent accounting pronouncements.

Analysis of Quarterly Results from Continuing Operations

The following table presents our total revenues for the three ~~and nine~~ month ended ~~December 31, 2021~~June 30, 2022 and ~~2020:~~2021:

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Three Months Ended December 31, $
Increase
(decrease) %
Change
2021 2020
(In thousands, except percentages)
Product revenues $ 15,870 $ 16,380 $ (510) (3.1) %
Service revenues 16,134 11,790 4,344 36.8 %
Total revenues $ 32,004 $ 28,170 $ 3,834 13.6 %


		Nine Months Ended December 31,				$ Increase (decrease)		% Change			Three Months Ended June 30,				$ Increase (decrease)				% Change
		2021		2020							2022		2021
		(In thousands, except percentages)									(In thousands, except percentages)
Product revenues	Product revenues	$	51,632	$	47,039	$	4,593	9.8	%	Product revenues	$	16,381	$	18,026			$	(1,645)			(9.1)	%
Service revenues	Service revenues	$	47,704	$	38,387	9,317		24.3	%	Service revenues	17,286		16,059		1,227				7.6	%
Total revenues	Total revenues	$	99,336	$	85,426	$	13,910	16.3	%	Total revenues	$	33,667	$	34,085	$	(418)			(1.2)	%

Product revenues primarily consist of product sales, but also includes OEM products for the traffic signal markets, as well as third-party product sales for installation under certain construction-type contracts. Product revenues for the three months ended ~~December 31, 2021~~June 30, 2022 decreased ~~3.1%~~9.1% to ~~$15.9~~$16.4 million, as compared to ~~$16.4~~$18.0 million in the corresponding period in the prior

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year, primarily due to global supply chain ~~and third-party supplier delays.~~constraints.

Service revenues ~~primarily~~ consist of ~~traffic study, design, engineering,~~software, managed services, systems integration, and ~~management~~consulting services ~~but also includes service revenues generated from advanced sensor technologies~~revenues. In certain instances, the lack of product ~~installation services~~availability can impact the timing of systems integration projects and ~~cloud-based application installation and support services.~~associated revenue recognition. Service revenues for the three months ended ~~December 31, 2021~~June 30, 2022 increased ~~36.8%~~7.6% to ~~$16.1~~$17.3 million, compared to ~~$11.8~~$16.1 million in the corresponding period in the prior year. This increase was due to continued adoption of Iteris' ClearMobility Platform and increased software revenue. However, delays in the ~~addition~~availability of ~~$2.0 million of TrafficCast SaaS revenue.~~certain third-party equipment adversely affected systems integration revenue in the period. Total annual recurring revenue, which we define as all software and managed services revenue was ~~25%~~28% of total revenue for the three months ended ~~December 31, 2021~~June 30, 2022 and ~~23%~~24% of total revenue for the three months ended ~~December 31, 2020.~~June 30, 2021.

Total revenues for the three months ended ~~December 31, 2021 increased 13.6%~~June 30, 2022 decreased 1.2% to ~~$32.0~~$33.7 million, compared to $28.2 million in the corresponding period in the prior year. The increase in total revenues was primarily due to an approximate 37% increase in services revenues offset by an approximate 3% decrease in product revenues.

~~Product revenues for the nine months ended December 31, 2021 increased 9.8% to $51.6 million, as compared to $47.0~~$34.1 million in the corresponding period in the prior year ~~primarily~~ due to ~~continued strong demand for~~the aforementioned reasons.

We plan to continue to focus on securing new contracts and extending and/or continuing our ~~hardware solutions, further augmented by~~existing relationships with both key public-sector and private-sector customers that have projects in their final project phases. While we believe our ability to obtain additional large contracts will contribute to overall revenue growth, the ~~addition~~mix of ~~approximately $4.6 million of TrafficCast~~subcontractor revenue and third-party product sales ~~offset by~~to our public-sector customers will likely affect the ~~factors aforementioned affecting the product revenues for the three months ended December 31, 2021.~~

~~Service revenues for the nine months ended December 31, 2021 increased 24.3%~~related total gross profit from period to ~~$47.7 million, compared to $38.4 million in the corresponding~~ period, in the prior year. This increase was primarily due to continued adoption of Iteris' ClearMobility Platform and the addition of $6.0 million of TrafficCast SaaS revenue. Total annual recurring revenue, which we define as ~~all software and managed services revenue, was 25% of total revenue for the nine months ended December 31, 2021 and 20% of total revenue for the nine months ended December 31, 2020.~~

~~Total revenues for the nine months ended December 31, 2021 increased 16.3% to $99.3 million, compared to $85.4 million in the corresponding period in the prior year. The increase in~~ total revenues ~~was primarily due to an approximate 9.8% increase in~~derived from subcontractors and third-party product sales generally have lower gross margins than revenues ~~and approximately 24.3% increase in services 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 ~~unaudited condensed consolidated~~ balance sheets. Backlog includes new bookings but does not include ~~awarded~~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. Total backlog was ~~$92.3~~approximately $108.9 million as of ~~December 31, 2021~~June 30, 2022 compared to approximately ~~$76.9~~$79.9 million as of ~~December 31, 2020.~~June 30, 2021.

Gross Profit

The following tables present details of our gross profit for the three ~~and nine~~ months ended ~~December 31, 2021~~June 30, 2022 and ~~2020:~~2021:

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Three Months Ended December 31, $
Increase (decrease) %
Change
2021 2020
(In thousands, except percentages)
Product gross profit $ 5,481 $ 7,967 $ (2,486) (31.2) %
Service gross profit 5,613 3,683 1,930 52.4 %
Total gross profit $ 11,094 $ 11,650 $ (556) (4.8) %
Product gross margin as a % of product revenues 34.5 % 48.6 %
Service gross margin as a % of service revenues 34.8 % 31.2 %
Total gross margin as a % of total revenues 34.7 % 41.4 %


		Nine Months Ended December 31,						$ Increase (decrease)				% Change					Three Months Ended June 30,								$ Increase (decrease)			% Change
		2021			2020									2022				2021
		(In thousands, except percentages)															(In thousands, except percentages)
Product gross profit	Product gross profit	$	22,703		$	21,213				$	1,490				7.0	%	Product gross profit			$	4,724			$	8,469		$	(3,745)		(44.2)	%
Service gross profit	Service gross profit	13,614			12,663			951				7.5	%	Service gross profit			5,435				5,624				(189)			(3.4)	%
Total gross profit	Total gross profit	$	36,317		$	33,876		$	2,441			7.2	%	Total gross profit			$	10,159			$	14,093			$	(3,934)		(27.9)	%

Product gross margin as a % of product revenues	Product gross margin as a % of product revenues	44.0		%	45.1		%							Product gross margin as a % of product revenues			28.8		%		47.0		%
Service gross margin as a % of service revenues	Service gross margin as a % of service revenues	28.5		%	33.0		%							Service gross margin as a % of service revenues			31.4		%		35.0		%
Total gross margin as a % of total revenues	Total gross margin as a % of total revenues	36.6		%	39.7		%							Total gross margin as a % of total revenues			30.2		%		41.3		%

Our product gross margin as a percentage of product revenues for the three ~~and nine~~ months ended ~~December 31, 2021~~June 30, 2022 decreased approximately ~~1410 and 110~~1,820 basis points ~~respectively,~~ as compared to the corresponding periods in the prior ~~year. The decrease in product gross margin was~~year primarily due to ~~higher~~an increase in raw material costs ~~for certain microchips and integrated circuits for our sensor products.~~as a result of global supply chain constraints.

Our service gross margin as a percentage of service revenues for the three ~~and nine~~ months ended ~~December 31, 2021 increased~~June 30, 2022 decreased approximately 360 basis points ~~and decreased approximately 450 basis points, respectively~~ as compared to the corresponding periods in the prior ~~year. The increase for the three months ended December 31, 2021 as compared to the three months ended December 31, 2020 was~~year primarily due to ~~higher sales in application~~increased compensation costs, the completion of previously awarded contracts, the timing of certain contracts, and ~~cloud based services, which generally result in higher gross margins than other services. The decrease for~~ the nine months ended December 31, 2021 as compared to the nine months ended December 31, 2020 was due to recognition of an estimated contractual loss on a project with a customer, for which approximately $3.4 million was recorded for the nine months ended December 31, 2021.contract mix.

Our total gross margin as a percentage of total revenues for the three ~~and nine~~ months ended ~~December 31, 2021~~June 30, 2022 decreased approximately ~~670 and 310~~1,110 basis points ~~respectively,~~ as compared to the corresponding prior year periods due to aforementioned reasons.

General and Administrative Expense

General and administrative expense for the three months ended ~~December 31, 2021 decreased approximately 5.4% to $5.9~~June 30, 2022 was unchanged at $6.4 million, compared to ~~$6.3~~$6.4 million for the three months ended December 31, 2020. General and administrative expense for the nine months ended December 31, 2021 increased approximately 5.2% to $18.4 million, compared to $17.5 million for the nine months ended December 31, 2020. The decrease for the three months ended December 31, 2021 as compared to the three months ended December 31, 2020 was due to a decrease in compensation and benefit costs. The increase for the nine months ended December 31, 2021 as compared to the nine months ended December 31, 2020 was primarily due to the additionJune 30, 2021.

Table of ~~TrafficCast, and additional professional services fees related to the Company's review of strategic alternatives.~~Contents

Sales and Marketing

Sales and marketing expense for the three months ended ~~December 31, 2021~~June 30, 2022 increased approximately ~~19.8%~~13.3% to ~~$4.6~~$5.2 million compared to ~~$3.9~~$4.6 million for the three months ended December 31, 2020. Sales and marketing expense for the nine months ended December 31, 2021 increased approximately 33.2% to $14.1 million compared to $10.6 million for the nine months ended December 31, 2020.June 30, 2021. The increase was primarily due to the addition of ~~TrafficCast,~~sales representatives, as well as higher compensation and ~~higher sales commissions based on higher sales for the nine months ended December 31, 2021.~~

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benefit costs.

Research and Development Expense

Research and development expense for the three months ended ~~December 31, 2021~~June 30, 2022 increased approximately ~~29%~~21.0% to ~~$1.9~~$2.1 million, compared to ~~$1.4~~$1.8 million for the three months ended December 31, 2020. Research and development expense for the nine months ended December 31, 2021 increased approximately 56.3% to $5.4 million, compared to $3.5 million for the nine months ended December 31, 2020.June 30, 2021. The overall increase was primarily due to the ~~addition of TrafficCast and~~ continued investment in research and development activities largely focused on improving our existing software related offerings.

We plan to continue to invest in the development of further enhancements and functionality of our Iteris ClearMobility Platform ~~as well as~~which includes among other things our software portfolio and our Vantage ~~products family.~~sensors.

Certain development costs were capitalized into intangible assets in the unaudited condensed ~~consolidated~~ balance ~~sheets;~~sheets in both the current and prior year periods; however, certain costs did not meet the criteria for capitalization under GAAP and are included in research and development expense. Going forward, we expect to continue to invest in our software solutions. This continued investment may result in increases in research and development costs, as well as additional capitalized software in future periods.

Amortization of Intangible Assets

Amortization of intangible assets was approximately $0.7 million ~~and $0.4 million for~~in each of the three months ended ~~December 31,~~June 30, 2022 and 2021, ~~and 2020,~~ respectively. Amortization of intangible assets was approximately $2.0 million and $0.8 million for the nine months ended December 31, 2021 and 2020, respectively. The increase was primarily due to amortization related to intangible assets acquired as part of the TrafficCast acquisition.

Income Taxes

Income tax expense for the three ~~and nine months~~month period ended ~~December 31, 2021~~June 30, 2022 was approximately ~~$0.4 million and~~ $0.2 million or ~~(18.5)% and (5.5)%, respectively,~~3.3% of pre-tax loss, as compared with an ~~(benefit)~~ expense of approximately ~~$(0.01) million and $0.06~~$0.08 million or ~~4.5% and 5.3%, respectively,~~10.6% of pre-tax ~~loss and~~ income for the three ~~and nine~~ months ended ~~December 31, 2020.~~June 30, 2021.

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, ~~2021.~~2022. The CARES Act also allows for the deferral of payroll taxes, as well as the immediate refund of federal Alternative Minimum Tax credits, which had previously been made refundable over a period of four years by the Tax Cuts and Jobs Act of 2017. The Company is utilizing the provision of the CARES Act allowing for the deferral of payroll taxes as of ~~December 31, 2021.~~June 30, 2022.

Liquidity and Capital Resources

Liquidity Outlook

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We believe we will have adequate liquidity over the next 12 months to operate our business and to meet our cash requirements. As of ~~December 31, 2021,~~June 30, 2022, we had cash and cash equivalents totaling approximately ~~$27.5~~$14.8 million. We ~~do not~~ have a

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$20 million revolving credit facility as of ~~December 31, 2021.~~June 30, 2022. See Note ~~13 Subsequent Events~~11 Long-Term Debt for further details on a revolving credit facility the company closed on January 25, 2022. Our cash position will also be impacted by any capital expenditures or acquisitions we complete in the future.

As a result of the Pandemic, we have taken and will continue to take action to reduce costs, preserve liquidity and manage our cash flow. Such actions include, but are not limited to reducing our discretionary spending, reducing capital expenditures, and reducing payroll costs, including employee furloughs, pay freezes and pay cuts as needed.

While the impact and duration of the Pandemic on our business is currently uncertain, the situation is expected to be temporary. The cash used in the current quarter was mainly due to costs associated with global supply chain constraints and restructuring charges. The Company expended over $5 million during Q1FY23 which was a planned increase in inventory as part of the Company's supply chain strategy. Despite the increased spending level, the Company still maintained working capital of over $31 million as of June 30, 2022. The cash flow used in operating activities of our continuing operations was approximately $7.2 million which was primarily driven by a planned increase in inventory as part of the Company’s supply chain strategy to help assure the Company has product and raw materials to satisfy customer demand. Although the Company's tactic to mitigate the current global supply chain issues by accumulating inventory in the current period resulted in a significant usage of cash in the current period, the Company does not expect to apply the same course of action, in the same magnitude, in future periods. In the longer term, we remain committed to increasing total shareholder returns through our investments in opportunities and initiatives to grow our business organically and through acquisitions that support our current strategies.

Cash Flows

We have historically financed our operations with a combination of cash flows from operations and the sale of equity securities. We expect to continue to rely on cash flows from operations and our cash reserves to fund our operations, which we believe to be sufficient to fund our operations for at least the next twelve months. However, we may need or choose to raise additional capital to fund potential future acquisitions and our future growth. We may raise such funds by selling equity or debt securities to the public or to selected investors or by borrowing money from financial institutions. If we raise additional funds by issuing equity or convertible debt securities, our existing stockholders may experience significant dilution, and any equity securities that may be issued may have rights senior to our existing stockholders. There is no assurance that we will be able to secure additional funding on a timely basis, on terms acceptable to us, or at all.

At ~~December 31, 2021,~~June 30, 2022, we had ~~$38.8~~$31.8 million in working capital, excluding current assets and liabilities of discontinued operations, which included ~~$27.5~~$14.8 million in cash and cash equivalents. This compares to working capital of ~~$36.4~~$36.8 million at March 31, ~~2021,~~2022, excluding current assets and liabilities of discontinued operations, which included ~~$25.2~~$23.8 million in cash and cash ~~equivalents as well as $3.1 million in short-term investments.~~equivalents.

Operating Activities. Net cash used byin operating activities of our continuing operations for the ~~nine~~three months ended ~~December 31, 2021~~June 30, 2022 of approximately ~~$2.0~~$7.2 million was primarily the result of approximately ~~$10.3~~$2.4 million from non-cash items, primarily for noncash lease expense, deferred income taxes, depreciation, stock-based compensation, and amortization. This was offset by our net loss from continuing operations of approximately ~~$3.9~~$4.9 million coupled with approximately ~~$8.5~~$4.8 million of outflows due to changes in working ~~capital.~~capital which was primarily driven by a planned increase in inventory as part of the Company's supply chain strategy. The Company does not expect such a large increase in inventory in future periods. Net cash used in operating activities from discontinued operations was ~~approximately $0.1 million.~~de minimis.

Net cash provided by operating activities of our continuing operations for the ~~nine~~three months ended ~~December 31, 2020~~June 30, 2021 of ~~$3.3~~approximately $1.2 million was primarily the result of our net income of approximately ~~$0.9~~$0.6 million and ~~$5.0~~$1.7 million in non-cash items, primarily for noncash lease expense, deferred income taxes, depreciation, stock-based compensation, and amortization, offset by approximately ~~$2.5~~$1.1 million from changes in working capital. Net cash used in operating activities from discontinued operations was approximately ~~$1.6~~$0.1 million.

Investing Activities. Net cash ~~provided by~~used in investing activities of our continuing operations during the ~~nine~~three months ended ~~December 31, 2021~~June 30, 2022 of approximately $0.5 million was primarily the result of approximately ~~$3.1 million in proceeds from the maturity of short-term investments offset by approximately $0.3~~$0.2 million of property and equipment purchases, and approximately ~~$1.3~~$0.3 million of capitalized software development costs. Net cash provided by investing activities from discontinued operations was ~~approximately $1.5 million.~~de minimis.

Net cash ~~used in~~provided by investing activities of our continuing operations during the ~~nine~~three months ended ~~December 31, 2020~~June 30, 2021 was primarily the result of approximately ~~$23.7 million in purchases of short-term investments, approximately $15.0 million in cash paid for the TrafficCast acquisition~~, approximately $0.4 million of property and equipment purchases, and approximately $0.6 million of capitalized software development costs, related to VantageLive! and ClearGuide. These investments were partially offset by approximately $27.0$3.1 million in proceeds from the sale and maturity of short-term ~~investments.~~investments offset by approximately $0.1 million of property and equipment purchases, and approximately $1.1 million of capitalized software

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development costs, of which $0.9 million pertained to further development of our Commercial Vehicle Operations ("CVO") software platform. Net cash provided by investing activities from discontinued operations was approximately ~~$9.7~~$1.5 million.

Financing Activities. Net cash ~~provided by~~used in financing activities of our continuing operations during the ~~nine~~three months ended ~~December 31, 2021~~June 30, 2022 was the result of approximately ~~$1.3 million and $0.2~~$0.9 million of ~~cash proceeds from the exercises~~repurchases of ~~stock options and purchase of ESPP shares, respectively.~~common stock.

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Net cash provided by financing activities of our continuing operations during the ~~nine~~three months ended ~~December 31, 2020~~June 30, 2021 was the result of approximately ~~$1.3 million and $0.2~~$1.4 million of cash proceeds from the exercises of stock ~~options and purchase of ESPP shares, respectively.~~options.

Off Balance Sheet Arrangements

We did not have any material off balance sheet arrangements at ~~December 31, 2021.~~June 30, 2022.

Seasonality

We have historically experienced seasonality, which adversely affects product sales in our third and fourth fiscal quarters due to a reduction in intersection construction and repairs during the winter months due to inclement weather conditions, with the third fiscal quarter generally affected the most by inclement weather. We have also experienced seasonality, particularly with respect to our service revenues, especially in the third fiscal quarter due to the increased number of holidays, causing a reduction in available billable hours.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, we are not required to provide the information required by Item 305 of Regulations S-K.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q.

Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Our management was required to apply its judgment in evaluating the cost-benefit relationship of such controls and procedures.

Changes in Internal Controls

During the fiscal quarter covered by this report, there has been no change in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

Inherent Limitations on Internal Controls

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of management override or improper acts, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple errors. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about

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the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to management override, error or improper acts may occur and not be detected. Any resulting misstatement or loss may have an adverse and material effect on our business, financial condition and results of operations.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information set forth in Note 7,6, Commitments and Contingencies, under the heading “Litigation and Other Contingencies” to our Unaudited Condensed ~~Consolidated~~ Financial Statements, included in Part I, Item 1 of this report, is incorporated herein by reference.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors disclosed in “Item 1A. Risk Factors” of our Annual Report on Form 10-K from the year ended March 31, ~~2021,~~2022, filed with the SEC on June 1, ~~2021, as amended on June 7, 2021.~~2022. Refer to Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended March 31, ~~2021,~~2022, filed with the SEC on June 1, ~~2021, as amended on June 7, 2021,~~2022, for a discussion of factors that could materially affect our business, financial condition, results of operations, or future results.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Recent Sales of Unregistered Securities

Not applicable.

Use of Proceeds from Registered Securities

Not applicable.

Purchases of Equity Securities by the Issuer

On August 9, 2012, our Board of Directors approved a ~~new~~ stock repurchase program pursuant to which we ~~may~~could acquire up to $3 million of our outstanding common stock for an unspecified length of time. Under the program, we could repurchase shares from time to time in the open market and privately negotiated transactions and block trades, and could also repurchase shares pursuant to a 10b5-1 trading plan during our closed trading windows, to the extent such a 10b5-1 plan was in place. There was no guarantee as to the exact number of shares that would be repurchased. We could 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 2012 stock repurchase program, pursuant to which the Company could continue to acquire shares of its outstanding common stock from time to time for an unspecified length of time. From inception of the 2012 stock repurchase program on August 9, 2012 through its retirement on May 12, 2022, we repurchased approximately 2,458,000 shares of our common stock for an aggregate price of approximately $4.3 million, at an average price per share of $1.73. As of June 30, 2022, these repurchased shares have been retired and returned to their status as authorized and unissued shares of our common stock.

For the three and nine month periods ended December 31, 2021, the Company did not repurchase any shares. From inception of the 2012 program in August 2012 through December 31, 2021, we repurchased approximately 2,458,000 shares of our common stock for an aggregate price of approximately ~~$4.3~~$0.9 million, at an average price of $2.90 per share, ~~of $1.73. As of December 31, 2021, all repurchased shares have been retired~~ and ~~returned to their status as authorized and unissued shares of our common stock. As of December 31, 2021,~~ approximately ~~$1.7~~$9.1 million remains available for the repurchase of our common stock under our current program.

Information regarding the repurchase of common stock during the three months ended June 30, 2022 is as follows:

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Period	Total Number of Shares Purchased	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Program	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
April 1, 2022 to April 30, 2022	—	—	—
May 1, 2022 to May 31, 2022	—	—	—
June 1, 2022 to June 30, 2022	300,000	2.90	300,000
Total	300,000	2.90	300,000	9,100,000

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

The following exhibits are filed or furnished herewith or are incorporated by reference to the location indicated.

Exhibit
Number

Description

Where Located

~~10.1~~

~~Credit Agreement, dated as of January 25, 2022, by and between Iteris, Inc. and Capital One,~~ ~~National Association~~

~~Exhibit 10.1 to the registrant’s Current Report on Form 8-K as filed with the SEC on January 28, 2022~~

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~~10.2~~

~~Severance Agreement, dated December 30, 2021 between Iteris, Inc. and Ramin Massoumi~~

~~Filed herewith~~

31.1

Certification of the Principal Executive Officer, as required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Filed herewith

31.2

Certification of the Principal Financial Officer, as required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Filed herewith

32.1

Certification of the Chief Executive Officer, as required pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Furnished herewith

32.2

Certification of the Chief Financial Officer, as required pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Furnished herewith

101.INS

Inline XBRL Instance Document – The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.

Filed herewith

101.SCH

Inline XBRL Taxonomy Extension Schema Document

Filed herewith

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

Filed herewith

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

Filed herewith

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101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

Filed herewith

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

Filed herewith

104.1

Cover Page Interactive Data File – The cover page interactive data file does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document

Filed herewith

3933

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Date: ~~February 3,~~August 4, 2022	ITERIS, INC.
	(Registrant)

	By	/s/ JOE BERGERA
		Joe Bergera
		Chief Executive Officer
		(Principal Executive Officer)


	By	/s/ DOUGLAS L. GROVES
		Douglas L. Groves
		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer)

4034


	Amount		Weighted Average Useful Life
	(in thousands)		(in years)
Customer relationships	$	5,800	7
Technology	3,700		4
Total intangible assets assumed	$	9,500


	Three Months Ended December 31, 2020		Nine Months Ended December 31, 2020

Pro forma revenue	$	30,537	$	94,770
Pro forma net income (loss) from continuing operations	$	(461)	$	417

Pro forma net income (loss) per share from continuing operations:
Basic	$	(0.01)	$	0.01
Diluted	$	(0.01)	$	0.01


	Three Months Ended December 31,				$ Increase (decrease)		% Change
	2021		2020
	(In thousands, except percentages)
Product revenues	$	15,870	$	16,380	$	(510)	(3.1)	%
Service revenues	16,134		11,790		4,344		36.8	%
Total revenues	$	32,004	$	28,170	$	3,834	13.6	%