iti-20240331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

___________________________________________

(Mark One)


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

For the fiscal year ended March 31, 2024


o			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						95-2588496
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification No.)
1250 S. Capital of Texas Hwy., Building 1, Suite 330, Austin, Texas						78746
(Address of Principal Executive Offices)						(Zip Code)

Registrant’s Telephone Number, Including Area Code: (512) 716-0808

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

Securities registered pursuant to Section 12(g) of the Act. None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

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 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 o

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 o

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 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. o

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. x

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. o

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). o

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

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of September 29, 2023 was approximately $147,728,051. For the purposes of this calculation, shares owned by officers, directors, and greater than 10% stockholders known to the registrant have been deemed to be owned by affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of June 11, 2024, there were 42,975,222 shares of our common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this report incorporates by reference certain information from the registrant’s definitive proxy statement for the 2024 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

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ITERIS, INC.

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED MARCH 31, 2024

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PART I
ITEM 1.	BUSINESS	4
ITEM 1A.	RISK FACTORS	11
ITEM 1B.	UNRESOLVED STAFF COMMENTS	25
ITEM 1C.	CYBERSECURITY	25
ITEM 2.	PROPERTIES	26
ITEM 3.	LEGAL PROCEEDINGS	26
ITEM 4.	MINE SAFETY DISCLOSURES	26
PART II
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	27
ITEM 6.	RESERVED	27
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	27
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	38
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	39
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	68
ITEM 9A.	CONTROLS AND PROCEDURES	68
ITEM 9B.	OTHER INFORMATION	70
ITEM 9C.	DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS	71
PART III
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	71
ITEM 11.	EXECUTIVE COMPENSATION	71
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	71
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	71
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES	71
PART IV
ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	72
ITEM 16.	FORM 10-K SUMMARY	74
	SIGNATURES	75

Unless otherwise indicated in this report, the “Company,” “we,” “us” and “our” refer to Iteris, Inc. BlueARGUS™, BlueTOAD®, ClearData®, ClearFleet®, ClearGuide®, ClearMobility®, ClearRoute®, CVIEWplus™, Inspect™, Iteris®, PedTrax®, SmartCycle®, SmartCycle Bike Indicator®, Spectra™, TrafficCarma®, TrafficCast®, UCRLink™, Vantage®, VantageARGUS CV™,Vantage Apex®, Vantage Next®, VantagePegasus®, VantageRadius®, VantageLive!®, Vantage Vector®, Velocity®, and VersiCam™ are among, but not all of, the trademarks of Iteris, Inc. Any other trademarks or trade names mentioned herein are the property of their respective owners.

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Cautionary Statement Regarding Forward-Looking Statements

This report 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,” “believe,” “intend,” “plan,” “should,” “will,” “may,” "might," “anticipate,” “estimate,” “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, revenues, expenses, profitability, capital needs, backlog, manufacturing capabilities, the market acceptance of our products and services, competition, the impact of any current or future litigation, the impact of recent accounting pronouncements, the impacts of ongoing and new supply chain constraints, the status of our facilities and product development, reliance on key personnel, general economic conditions, including rising interest rates, the impact of any current or future volatility or instability in national or international political conditions, any shutdown of the United States federal government, future impacts of COVID-19 or other future pandemics, and other characterizations of future events or circumstances are forward-looking statements. You should not place undue reliance on these forward-looking statements that speak only as of the date hereof. 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 and adversely from those projected. We encourage you to carefully read this annual report on Form 10-K in its entirety, including the various disclosures made by us which describe certain factors which could affect our business, such as those set forth in the “Risk Factors” of Part 1, 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.

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PART I

ITEM 1. BUSINESS

Description of Business

Iteris, Inc. (referred to in this report as “Iteris”, the “Company”, “we”, “our”, and “us”) is a provider of smart mobility infrastructure management solutions. Our cloud-enabled solutions help public transportation agencies, municipalities, commercial entities and other transportation infrastructure providers monitor, visualize, and optimize mobility infrastructure to make mobility safe, efficient, and sustainable for everyone.

As a pioneer in intelligent transportation systems (“ITS”) technology, our intellectual property, advanced detection sensors, mobility and traffic data, software-as-a-service (“SaaS”) offerings, mobility consulting services, and managed services represent a comprehensive range of smart mobility infrastructure management solutions that we distribute to customers throughout the United States (“U.S.”) and internationally.

We believe our products, solutions and services increase vehicle and pedestrian safety and decrease congestion within our communities, while also reducing environmental impact, including vehicle carbon emissions.

We continue to make significant investments to leverage our existing technologies and further enhance our advanced detection sensors, SaaS portfolio, mobility data sets, mobility consulting services, and managed services. As we are always mindful of capital allocation, we apply significant effort to evaluate and prioritize these investments. Likewise, 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. Our principal executive offices are located at 1250 S Capital of Texas Hwy, Bldg. 1, Suite 330, Austin TX 78746, and our telephone number at that location is (512) 716-0808. Our website address is www.iteris.com. The inclusion of our website address in this report does not include or incorporate by reference into this report any information on, or accessible through, our website. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, together with amendments to these reports, are available on the "Investor Relations" section of our website, free of charge, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the U.S. Securities and Exchange Commission (“SEC”).

Developments Impacting our Business

COVID-19

Although COVID-19 has entered an endemic stage, COVID-19 (including new variants of COVID-19) or other future pandemics may adversely affect the global economic conditions, including possible additional supply chain disruptions, workplace dislocations, economic contraction, and negative pressure on customer budgets and customer sentiment. When COVID-19 was considered a public health emergency, we took actions to preserve our liquidity, manage cash flow and strengthen our financial flexibility. Such actions included, but were not limited to, reducing our discretionary spending, reducing capital expenditures, and implementing restructuring activities.

Our products require specialized parts, some of which became more difficult to source during the COVID-19 pandemic. In some cases, we had to purchase such parts from third-party brokers at substantially higher prices. The Company’s strategies to mitigate global supply chain issues included re-designing certain circuit boards to accommodate computer chips that are more readily available in the market at more reasonable prices, and accumulating inventory in the first two quarters of the fiscal year ended March 31, 2023 (“Fiscal 2023”). We also placed non-cancellable inventory orders for certain products in advance of our normal lead times to secure normal and incremental future supply and capacity.

We curtailed the increase in inventory purchases and in particular components purchased in the secondary markets in the second half of Fiscal 2023, and the Company currently does not expect to accumulate inventory in the same magnitude in future periods. However, if the Company encounters additional supply chain constraints again in the future, it may need to further adjust its operations to maintain sufficient liquidity.

Restructuring Activities

To help offset increases in supply chain costs in Fiscal 2023, on May 12, 2022, our Board of Directors approved restructuring activities to better position the Company for increased profitability and growth. The Company incurred employee separation costs in relation to these activities, which were included in restructuring charges on the statement of operations (see Note 3, Restructuring Activities, to the Financial Statements for more information).

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Products and Services

Iteris provides comprehensive smart mobility infrastructure management solutions for public-sector and private-sector customers primarily located in North America. These solutions include traveler information systems, transportation performance measurement software, traffic analytics software, transportation operations software, transportation-related data sets, advanced sensing devices, managed services, traffic engineering services, and mobility consulting services.

Software Solutions

Iteris offers our public-sector and private-sector customers a portfolio of industry-leading smart mobility infrastructure software solutions. These software solutions include ClearGuide, ClearRoute, Commercial Vehicle Operations (“CVO”), TrafficCarma, VantageLive! and VantageARGUS CV (previously known as BlueARGUS) as described below.

•ClearGuide, which is provided on a software-as-a-service basis (“SaaS”), is a state-of-the-art mobility intelligence and transportation performance analytics solution. It utilizes a wide range of data resources and analytical techniques to determine current and future traffic patterns to enable the effective performance analysis and management of traffic infrastructure resources at various levels – highway, arterial (i.e., corridor), or intersection. At times, we refer to intersection performance analytics as signal performance measurement (“SPM”). ClearGuide users can measure how a transportation network is performing and identify potential areas of improvement. These applications are also capable of providing users with predictive traffic analytics, and easy-to-use visualization and animation features based on historical traffic conditions.

•ClearRoute delivers contextual, real-time, actionable mobility intelligence and traveler information services on a platform-as-a-service basis. ClearRoute provides multimodal, multilingual, traveler information via mobile apps, websites, email and text alerts, and Interactive Voice Response (“IVR”). The ClearRoute solution benefits from a powerful, flexible and streamlined infrastructure to help reduce congestion and improve safety and mobility for transportation networks across the country, and facilitates frictionless interoperability, flexible provisioning, and robust management of customer focused data.

•Commercial Vehicle Operations and vehicle safety compliance applications, which are provided on a SaaS basis, include various applications branded as ClearFleet, CVIEWplus, and Inspect. Collectively, these software applications support state-based commercial vehicles operations by storing and distributing intrastate and interstate commercial vehicle information for local, state, and federal agency roadside and enforcement operations.

•TrafficCarma, which is easily white labeled, is the first mobile application focused on the 120 million U.S. daily commuters and their journeys to and from work, train stations, airports, sporting events and other destinations. TrafficCarma provides advice on known route choices, not turn-by-turn navigation. It is personalized for people’s daily commutes and the roads they drive most. Verified crowdsourced content is combined with road speed data, public agency reports, camera imaging and other metrics and delivers users information relevant to their commute and other personal routes.

•VantageLive! is a SaaS solution that allows users to collect, process and analyze advanced intersection data from our Vantage sensors, as well as to view and understand intersection activity.

•VantageARGUS CV (previously BlueARGUS) is a SaaS solution that collects, analyzes, and visualizes various information related to travel times, speeds, and origin-destination from our BlueTOAD Spectra sensors and connected vehicle information from our BlueTOAD Spectra RSU sensors.

Mobility Data Sets

ClearData is the enhanced mobility data output of the Iteris ClearMobility Platform, a suite of data integration and analytics engines that aggregates and validates both proprietary and diversely sourced data inputs, including incidents, construction and connected vehicle GPS probes. Following processing and quality assurance, ClearData reflects real-time road conditions and is delivered to public-sector and private-sector customers via subscription-based direct data feeds or application programming interfaces (“APIs”), or through ClearGuide, our mobility intelligence and transportation performance analytics software solution. The complex, dynamic nature of roadway traffic cannot be explained by any single data source. ClearData resolves data conflicts through proprietary computerized algorithms and selective quality control from experienced traffic analysts.

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Advanced Sensors

Iteris offers advanced intersection detection and other fixed traffic sensors that collectively comprise our two sensor families – Vantage and BlueTOAD. Increasingly, we bundle communications systems and traffic data collection applications (e.g., VantageLive! and VantageARGUS CV) with our sensor products.

The Vantage family of sensors uses advanced image processing technology, radar technology and other techniques to observe multi-modal traffic (e.g., vehicle, bicycle, and pedestrian), translate these observations into structured data, and apply sophisticated, proprietary algorithms to this structured data to optimize traffic signal performance in real-time. Certain Vantage sensors apply machine learning techniques for enhanced object classification. In addition to detecting the presence of objects, our Vantage systems record vehicle count, speed and other traffic information used in traffic management systems. Thus, our Vantage systems give traffic managers the tools to mitigate roadway congestion by visualizing and analyzing traffic patterns, allowing them to modify traffic signal timing to improve traffic flow. Our various software components complement our Vantage detection systems by providing integrated platforms to manage and view detection assets remotely over a network connection, as well as a mobile application for viewing anywhere. The Vantage family of sensors includes Vantage Apex, Vantage Next, VantagePegasus, VantageRadius, Vantage Vector, Velocity, SmartCycle, SmartCycle Bike Indicator, VersiCam, PedTrax, and P-Series products.

•Vantage Apex is the industry’s first full 1080p high-definition (“HD”) video and 4D/HD radar hybrid sensor with integrated artificial intelligence (“AI”) algorithms. Vantage Apex provides precise and detailed detection, tracking and classification of traffic.

•Vantage Next uses a powerful processor that enables future functional growth while maintaining proven Iteris video detection performance and reliability. The architecture supports expanding ITS applications and easily integrates with existing technologies and is anticipated to integrate with future technologies.

•VantagePegasus offers wireless broadband communications for transportation systems. VantagePegasus wireless networks are built with carrier grade radio components that deliver wireless connectivity and the bandwidth for communications from remote sites to a centralized host system.

•VantageRadius is the industry’s leading 4D high-definition radar detection system with an integrated high-resolution video camera for traffic monitoring and detection verification.

•Vantage Vector is a hybrid video and radar detection sensor with a wide range of capabilities, including stop bar and advanced zone detection, which enable advanced safety and adaptive control applications.

•Velocity takes advantage of the large number of vehicles that are driving with Bluetooth or Wi-Fi enabled devices such as smart phones. Each Velocity reader senses a device's unique “MAC” address as they pass a reader station and transmits the time and location of the device to a central host system. As devices are detected at successive Velocity readers, the Host System calculates average travel times and speeds for a roadway segment. The device specific network address remains totally anonymous.

•SmartCycle capability, which can effectively differentiate between bicycles and other vehicles with a single video detection camera, is available with all of our Vantage systems. SmartCycle enables more efficient signalized intersections, improved traffic throughput and increased cyclist safety. Agencies using bicycle timing benefit from bicycle-specific virtual detection zones that can be placed anywhere within the approaching traffic lanes, eliminating the need for separate bicycle-only detection systems.

•SmartCycle Bike Indicator, which leverages the SmartCycle bicycle detection algorithm, is a device that mounts onto traffic signals and illuminates when cyclists waiting at an intersection have been detected, allowing cyclists to avoid interacting with vehicle traffic and without pushing pole-mounted buttons.

•VersiCam, an integrated camera and processor video detection system, is a cost-efficient video detection system for smaller intersections that require only a few detection points.

•PedTrax capability, which is also available with all of our Vantage systems, provides bi-directional pedestrian counting and speed tracking within the crosswalk to help improve signal timing efficiency, as well as providing an additional data stream to existing vehicle and bicycle counts.

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•P-Series detection cameras are integrated machine vision processors and cameras, designed for use on all types of intersections outside of North America.

The BlueTOAD product family combines unique MAC address capture with the latest CV technologies. The combination of these two technologies provides customers with a market leading sensor along with a comprehensive data set that enables advanced analytics through our SaaS offerings. The BlueTOAD family of sensors includes BlueTOAD Spectra and BlueTOAD Spectra CV, both of which we bundle with a cloud-based software application branded as VantageARGUS CV.

•BlueTOAD Spectra is a complete system for identifying the travel times of vehicles using advanced Bluetooth re-identification techniques. This provides traffic flow information for vehicle travel as well as Origin-Destination information.

•BlueTOAD Spectra CV is a full-featured connected vehicle and travel time information system. In addition to travel times and vehicle speeds, it communicates vital safety and mobility information via both DSRC and C-V2X from infrastructure to vehicles and other users.

In select territories, the Company also sells certain complementary original equipment manufacturer (“OEM”) products for the traffic intersection market, which include, among other things, traffic signal controllers and traffic signal equipment cabinets.

We believe that future growth domestically and internationally for our Vantage family of products will depend, in part, on the continued replacement of traditional in-pavement loop technology with above-ground video and radar detection technologies to manage traffic.

Managed Services

Iteris Managed Services include traffic management centers (“TMC”) design, staffing, and operations services for public agencies, whether they need to create a new TMC or migrate an existing TMC network to a virtual environment. Iteris partners with agencies to augment their internal capability and provide the foundation and expertise required to successfully implement virtual TMCs to support goals such as capital or recurring cost savings, operation from any location, and staff security and flexibility.

Additionally, Iteris’ managed services combine SaaS, smart sensors and consulting expertise to proactively address the challenges of monitoring and maintaining intersections, arterial roads and highways along with their related in-field technology. These services include arterial management and asset management managed services. Our asset management managed service combines innovative traffic optimization with hardware inventory and maintenance.

With Iteris Managed Services, public transportation agencies, real estate developers, construction firms, and event operators are provided the opportunity to save time and money while keeping road users safer and ensuring that traffic flows efficiently.

Traffic Engineering and Mobility Consulting

Our traffic engineering and mobility consulting services include planning, design, development and implementation of software and hardware-based ITS solutions that integrate sensors, video surveillance, computers and advanced communications equipment to enable public agencies to monitor, control and direct traffic flow, assist in the quick dispatch of emergency crews, and distribute real-time information about traffic conditions. Our services also include planning, design, implementation, operation and management of surface transportation infrastructure systems. We perform analysis and study goods movement, provide travel demand forecasting and systems engineering, and identify mitigation measures to reduce traffic congestion.

ClearMobility Platform

With the Company’s introduction of the ClearMobility Platform, we aligned our entire portfolio of solutions under a common branding structure. We believe this alignment will drive internal synergies, increase our cross-sell rate, enhance sales productivity, and increase market awareness of our entire solutions portfolio. Additionally, the ClearMobility Platform enables seamless interoperation among our solutions via a common mobility data management engine, API framework, and microservices ecosystem that provides standardized data ingestion, cleansing, and analytics, as well as authentication and policy-based security for each component of the ClearMobility Platform. Our ClearMobility Platform is both horizontally scalable and third-party extensible.

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Our process of developing, enhancing, aligning, harmonizing, and optimizing our portfolio of individual solutions is an ongoing process, for which the Company’s chief operating decision maker (“CODM”) evaluates financial and operational performance holistically. As such, we report as a single operating segment.

Market Conditions

Currently, over 90% of our revenues are attributable to public-sector customers. Therefore, most of our revenues depend on state and local government funding, and to a lesser extent federal governmental funding. In some cases, this funding is appropriated annually through the respective legislative process. In other cases, various dedicated funding mechanisms exist to support transportation infrastructure and related projects, including, but not limited to dedicated sales and gas tax measures, vehicle and permit fees, and other alternative dedicated funding sources. Additionally, some of our activities may be funded through bond measures.

We believe that overall demand for our solutions will continue to depend, at least in part, on the federal and local governments’ use of funds, and as in the past, our business may be, at times, adversely affected by governmental budgetary issues. The Infrastructure Investment and Jobs Act (“IIJA”) became effective on November 15, 2021. The IIJA will contribute $1.2 trillion to fund physical infrastructure and public works, adding $550 billion to existing levels of transportation-specific funding. Within that funding pool, areas of direct relevance to Iteris include $110 billion for roads, bridges and major projects, $39 billion for public transit, and $11 billion for transportation safety. However, delays in the obligation of appropriated funding and debates related to the federal debt ceiling may cause uncertainty regarding the availability of transportation funds in federal, state and local budgets. Although the pace of actual spending of IIJA funds may lag behind the appropriation process, sometimes significantly, the funds appropriated can continue to be spent after the IIJA expires.

Sales and Marketing

We market and sell our software, mobility data, managed services, traffic engineering, and mobility consulting services to government agencies pursuant to negotiated contracts that involve competitive bidding and specific qualification requirements. Most of our contracts are with federal, state and local municipal customers, and generally provide for cancellation or renegotiation at the option of the customer upon reasonable notice and fees paid for modification. We generally use selected members of our traffic engineering, mobility consulting, data science and product management teams on a regional basis to serve in sales and business development functions. Our traffic engineering and mobility consulting service contracts generally involve long lead times and require extensive specification development, evaluation and price negotiations.

We sell our Vantage and BlueTOAD product families along with their related software bundles through both direct and indirect sales channels. Where we sell direct, we use a combination of our own sales personnel and outside sales organizations to sell, oversee installations, and support our products. Our indirect sales channel comprises a network of independent distributors in the U.S. and select international locations, which sell integrated systems and related products to the traffic management market. Our independent distributors are trained in and primarily responsible for the sales, installation, set-up and support of our products. They maintain an inventory of demonstration traffic products from various manufacturers, who sell directly to government agencies and installation contractors. These distributors often have long-term arrangements with local government agencies in their respective territories for the supply of various products for the construction and renovation of traffic intersections, as they are generally well-known suppliers of various high-quality ITS products to the traffic management market. We periodically hold technical training classes for our distributors and end-users, and we maintain a full-time staff of customer support technicians throughout the U.S. to provide technical assistance when needed. When appropriate, we modify or make changes to our distributor network to accommodate the needs of the market and our customer base.

We sell traffic and mobility data and software through a direct sales model to commercial enterprises, such as media companies involved in providing real-time traffic data and traffic incident data to insurance companies, automotive OEMs and the traveling public.

We have historically had a diverse customer base. For the fiscal year ended March 31, 2024 (“Fiscal 2024”) and Fiscal 2023, no individual customer represented greater than 10% of our total revenues. As of March 31, 2024 and 2023, no individual customer accounted for more than 10% of our total trade accounts receivable.

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Manufacturing and Materials

We use contract manufacturers to build subassemblies that are used in our products. Additionally, we procure certain components for our products from qualified suppliers, both in the U.S. and internationally, and generally use multi-sourcing strategies when technically and economically feasible to mitigate supply risk. Historically, Veris Manufacturing has served as our only contract manufacturing services (CMS) partner; however, in fiscal 2024, we entered into a contract with a second CMS partner, Creation Technologies. We believe the addition of a second CMS partner will help to mitigate potential business discontinuity should either CMS partner be unable to meet its commitments to Iteris. We also believe the addition of a second CMS partner will improve our ability to negotiate possible pricing concessions. Production volumes for our CMS partners typically is based upon bi-annual forecasts that we generally adjust on a monthly basis to control inventory levels. Our CMS partners deliver manufactured subassemblies and components to our Santa Ana, California facility, which includes approximately 12,000 square feet of space, where they go through final assembly and testing prior to shipment to our customers. Our production facility maintains a Quality Management System that is currently certified as conforming to all requirements of the International Organization for Standardization (“ISO”) 9001:2015 international standard. Additionally, we also purchase and resell certain third-party products at times in order to better service customer needs. These third-party products may be stored and shipped from our Santa Ana facility or one of our regional distribution centers, depending on the type of third-party product and the ultimate customer destination.

Customer Support and Services

We provide warranty service and support for our products, as well as follow-up service and support for which we charge separately. Such service revenues were not a material portion of our total revenues for Fiscal 2024 and Fiscal 2023. We believe customer support is a key competitive factor for our Company.

Backlog

Our total backlog of unfulfilled firm orders was approximately $123.8 million at March 31, 2024. We typically expect to recognize revenues in the range of approximately two-thirds to three-quarters of our backlog as of the end of a fiscal year in the subsequent fiscal year. At March 31, 2023, we had backlog of approximately $114.2 million. The 8.4% increase in backlog in the current fiscal year was generally attributable to overall strong demand for our products and services, as well as the timing of the receipt of some large contracts.

Backlog is an operational measure representing future unearned revenues believed to be firm and earned under existing agreements, but it does not represent the total contract award if a firm purchase order or task order has not yet been issued under the contract. Backlog is not included in deferred revenues on our balance sheets. Backlog does not include contract awards for which definitive contracts have not been executed. We believe backlog is a useful metric for investors, given its relevance to total orders.

The timing and realization of our backlog is subject to the inherent uncertainties of doing business with federal, state and local governments, particularly given budgetary constraints, cut-backs and other delays or reallocations of funding that these entities typically face. In addition, pursuant to the customary terms of our agreements with government contractors and other customers, our customers can generally cancel or reschedule orders with little or no penalties. Lead times for the release of purchase orders often can be affected by a variety of factors including the scheduling and forecasting practices of our individual customers, as well as availability of installation labor and ancillary parts related to installation which we do not manufacture or supply. These factors can affect the timing of the conversion of our backlog into revenues. For these reasons, among others, our backlog at a particular date might not be indicative of the timing of our future revenues.

Product Development

Our product development activities are mostly conducted at our facilities in Santa Ana, California, and Madison, Wisconsin, as well as using additional employee and partner resources across North America. Our research and development costs and expenses were approximately $10.0 million for Fiscal 2024 and $8.3 million for Fiscal 2023. We expect to continue to pursue various product development programs and incur research and development expenditures in future periods.

We believe our engineering and product development capabilities are a competitive strength. We strive to continuously develop new products, technologies, features and functionalities to meet the needs of our ever-changing markets, as well as to enhance, improve upon, and refine our existing product lines. We plan to continue to invest in the development of further enhancement and functionality of our ClearMobility Platform.

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Competition

Generally, we face significant competition in each of our target markets. Increased competition may result in price reductions, reduced gross margins and loss of market share, any of which could have a material adverse effect on our business, financial condition and results of operations.

The markets in which we operate are highly fragmented and subject to evolving national and regional quality, operations and safety standards. Our competitors vary in number, scope and breadth of the products and services they offer. Our competitors providing managed services and consulting include a mix of local, regional and international engineering services firms. Our competitors in software products (e.g., performance measurement and management, advanced traveler information systems, asset management software, and our commercial vehicle operations and vehicle safety compliance platforms) include university affiliated software organizations, venture backed software companies, and other multi-disciplinary hardware and software corporations.

In the market for our detection products, we compete with manufacturers and distributors of other above-ground video camera and radar detection systems and manufacturers and distributors of other non-intrusive detection devices (e.g., microwave, infrared, radar, ultrasonic and magnetic detectors), as well as manufacturers and installers of in-pavement inductive loop products, which have historically been, and currently continue to be, the predominant vehicle detection system in this market. Additionally, products such as BlueTOAD and VantagePegasus compete against various competitors in the travel-time and data communications markets, respectively.

In general, the markets for the products and services we offer are highly competitive and are characterized by rapidly changing technology and evolving standards. Many of our current and prospective competitors have longer operating histories, greater name recognition, access to larger customer bases, and significantly greater financial, technical, manufacturing, distribution and marketing resources than we do. As a result, they may be able to adapt more quickly to new or emerging standards or technologies, or to devote greater resources to the promotion and sale of their products. It is also possible that new competitors or alliances among competitors could emerge and rapidly acquire significant market share. We believe that our ability to compete effectively in our target markets will depend on a number of factors, including the success and timing of our new product development, the compatibility of our products with a broad range of computing systems, product quality and performance, reliability, functionality, price and service, and technical support. Our failure to provide services and develop and market products that compete successfully with those of other suppliers and consultants in our target markets could have a material adverse effect on our business, financial condition and results of operations.

Intellectual Property and Proprietary Rights

Our ability to compete effectively depends in part on our ability to develop and maintain the proprietary aspects of our technology. Our policy is to obtain appropriate proprietary rights of protection for any potentially significant new technology we acquire or develop. We currently have 34 issued U.S. patents, including: (i) 17 relating to our advanced sensor technologies, (ii) 10 relating to our engineering and consulting services technologies and (iii) 7 related to our traffic and mobility software. We have 2 pending patent applications in the U.S. We currently have 9 issued foreign patents and 1 foreign patent application related to our traffic and mobility software. The expiration dates of our patents range from 2026 to 2042. We intend to pursue additional patent protection to the extent we believe it would be beneficial and cost-effective.

In addition to patent laws, we rely on copyright and trade secret laws to protect our proprietary rights. We attempt to protect our trade secrets and other proprietary information through agreements with customers and suppliers, proprietary information agreements with our employees and consultants, and other similar measures. We do not have any material licenses or trademarks other than those relating to product names. We cannot be certain that we will be successful in protecting our proprietary rights. While we believe our patents, patent applications, software and other proprietary know-how have value, rapidly evolving technology makes our future success dependent largely upon our ability to successfully achieve continuing innovation.

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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 in the normal course of business related to our intellectual property rights and the intellectual property rights of others. While the Company cannot accurately predict the outcome of any such litigation, the Company is not a party to any litigation or other legal proceedings related to its intellectual property or the intellectual property of others, the outcome of which, in management’s opinion, individually or in the aggregate, would have a material effect on the Company’s results of operations, financial position or cash flows. An adverse outcome in such litigation or similar proceedings could subject us to significant liabilities to third parties, require disputed rights to be licensed from others or require us to cease marketing or using certain products, any of which could have a material adverse effect on our business, financial condition and results of operations. In addition, the cost of addressing any intellectual property litigation claim, both in legal fees and expenses, as well as from the diversion of management’s resources, could be significant and could have a material adverse effect on our business, financial condition and results of operations, regardless of a claim’s validity.

Employees

As of March 31, 2024, we employed 454 full-time employees and 18 part-time employees, for a total of 472 employees. None of our employees are represented by a labor union, and we have never experienced a work stoppage. We believe our relations with our employees are good.

Government Regulation

Our manufacturing operations are subject to various federal, state and local laws and regulations, including those restricting the discharge of materials into the environment. We are not involved in any pending or, to our knowledge, threatened governmental investigations or proceedings, which would require curtailment of our operations because of such laws and regulations. We continue to spend funds in connection with our compliance with applicable environmental regulations. These expenditures have not been significant in the past, and we do not expect any significant expenditure in the near future. Currently, compliance with foreign laws has not had a material impact on our business; however, as we expand internationally, foreign laws and regulations could have a material impact on our business in the future.

ITEM 1A. RISK FACTORS

Our business is subject to a number of risks, some of which are discussed below. Other risks are presented elsewhere in this report and in the information incorporated by reference into this report. You should consider the following risks carefully in addition to the other information contained in this report and our other filings with the SEC, including our subsequent quarterly reports on Form 10-Q and current reports on Form 8-K, before deciding to buy, sell or hold our common stock. The risks and uncertainties described below are not the only ones facing our company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business operations. If any of these risks actually occurs, our business, financial condition, or results of operations could be seriously harmed. In that event, the market price for our common stock could decline and you may lose all or part of your investment.

Risk Related to Our Business

Because we depend on government contracts and subcontracts, we face additional risks related to contracting with federal, state and local governments, including budgetary issues and fixed price contracts, that could adversely impact our future revenues and profitability.

A significant portion of our revenues comes from contracts with governmental agencies, either as a general contractor, subcontractor or supplier. We anticipate that revenues from government contracts will remain a significant portion of our revenues. Government business is, in general, subject to special risks and challenges, including:

•delays in funding and uncertainty regarding the allocation of funds to state and local agencies from the U.S. federal government, and delays or reductions in other state and local funding dedicated for transportation and ITS projects;

•other government personnel or budgetary constraints, including local governments not having sufficient personnel to pursue projects; reaching the current federal debt ceiling; and/or cut-backs, delays or reallocation of government funding, including without limitation, changes in the administration and repeal of government purchasing programs;

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•audits, litigation or investigations that delay or otherwise negatively impact the funding for certain government projects;

•long purchase cycles or approval processes;

•competitive bidding and qualification requirements, as well as our ability to replace large contracts once they have been completed;

•changes in government policies and political agendas;

•maintenance of relationships with key government entities from whom a substantial portion of our revenues is derived;

•milestone deliverable requirements and liquidated damage and/or contract termination provisions for failure to meet contract milestone requirements;

•performance bond requirements;

•potential government shutdowns and related uncertainty with respect to the federal budget and debt ceiling;

•adverse weather conditions or other natural or health disasters or developments, such as COVID-19, and evacuations and flooding due to hurricanes, or severe storms, can result in our inability to perform work in affected areas; and

•international relations and international conflicts such as the war in Ukraine and the war in the Middle East, or other military operations that could cause the temporary or permanent diversion of government funding from transportation or other infrastructure projects.

Governmental budgets and plans are subject to change without warning. Certain risks of selling to governmental entities include dependence on appropriations and administrative allocation of funds, changes in governmental procurement legislation and regulations and other policies that may reflect political developments or agendas, significant changes in contract scheduling, intense competition for government business and termination of purchase decisions for the convenience of the governmental entity. Substantial delays in purchase decisions by governmental entities and rescheduling or cancellation in purchase decisions by governmental entities, and the current constraints on government budgets at the federal, state and local level, and the ongoing uncertainty as to the timing and accessibility to government funding could cause our revenues and income to drop substantially or to fluctuate significantly between fiscal periods.

In addition, a number of our government contracts are fixed price contracts. As a result, we might not be able to recover any cost overruns we may incur. These fixed price contracts require us to estimate the total project cost based on preliminary projections of the project’s requirements. The financial viability of any given project depends in large part on our ability to estimate these costs accurately and complete the project on a timely basis. In the event our costs for these projects exceed the fixed contractual amount, we will be required to bear the excess costs. Such additional costs could adversely affect our financial condition and results of operations. Moreover, certain of our government contracts are subject to termination or renegotiation at the convenience of the government, which could result in a large decline in our revenues in any given period. Our inability to address any of the foregoing concerns or the loss or renegotiation of any material government contract could seriously harm our business, financial condition and results of operations.

Our profitability could be adversely affected if we are not able to maintain adequate utilization of our engineering and consulting workforce.

The cost of providing our engineering and mobility consulting services, including the extent to which we utilize our workforce, affects our profitability. The rate at which we utilize our workforce is affected by a number of factors, including:

•our ability to transition employees from completed projects to new assignments and to hire and assimilate new employees;

•our ability to forecast demand for our services and thereby maintain an appropriate headcount in our various regions and related professional disciplines;

•the timing of new contract awards, the commencement of work under an awarded contract or the completion of large contracts;

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•the availability of project funding or other project budget issues;

•our need to devote time and resources to training, business development, professional development and other non-chargeable activities; and

•our ability to match the skill sets of our employees to the needs of the marketplace.

An inability to properly and fully utilize our engineering and consulting workforce would reduce our profitability and could have an adverse effect on our results of operations.

Our management information systems and databases have been and could in the future be disrupted by data protection breaches, system security failures, cyber threats or by the failure of, or lack of access to, our internal operations, such as our enterprise resource planning (“ERP”) system, or services provided to our customers. These disruptions could negatively impact our sales, increase our expenses, significantly harm our reputation and/or adversely affect our stock price.

Experienced users and computer programmers may be able to penetrate, or “hack”, our network security and create system disruptions, cause shutdowns and compromise or misappropriate our confidential information or that of our employees and third parties. Computer programmers and hackers also may be able to develop and deploy viruses, worms, and other malicious software programs that attack our internal network, any of our systems, service offerings or otherwise exploit any security vulnerabilities of our network, systems or service offerings. In addition, sophisticated services, hardware and operating system software and applications that we procure from third parties may contain defects in design or manufacture, including “bugs” and other problems that could unexpectedly interfere with the operation of a system. We could incur expenses addressing problems created by cyber or other security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities, and our efforts to address these problems might not be successful. We must, and do, take precautions to secure customer information and prevent unauthorized access to our databases and systems containing confidential information. Any data security event, such as a breach, data loss or information security lapses, whether resulting in the compromise of personal information or the improper use or disclosure of confidential, sensitive or classified information, could result in interruptions, cessation of service(s), claims, remediation costs, regulatory sanctions against us, loss of current and future contracts, adverse effects to results of operations and financial condition, serious harm to our reputation and/or adverse effects to our stock price. We operate our ERP system and other key business systems on SaaS platforms, and we use these systems for reporting, planning, sales, audit, inventory control, loss prevention, purchase order management and business intelligence. Accordingly, we depend on these systems, and the third-party providers of these services, for a number of aspects of our operations. If these service providers or these systems fail, or if we are unable to continue to have access to these systems on commercially reasonable terms, or at all, operations could be severely disrupted until an equivalent system(s) could be identified, licensed or developed, and integrated into our operations. This disruption could have a material adverse effect on our business and due to the evolving nature of these cyber and other security threats, the potential impact of any future incident cannot be predicted. We carry insurance, including cyber insurance, commensurate with our size and the nature of our operations, although there is no certainty that such insurance will in all cases be sufficient to adequately cover us for all costs and losses incurred in connection with the occurrence of any of these system security risks, data protection breaches, cyber-attacks or other events.

If unauthorized access is obtained to our customer’s personal and/or proprietary data in connection with our web-based and mobile application solutions and services, we may suffer various negative impacts, including a loss of customer and market confidence, loss of customer loyalty, and significant liability to our customers and to individuals or businesses whose information was being stored.

Protecting our customers’ data is critical to our business, and if there is unauthorized access, we may incur significant costs or liabilities. In addition, we are required to comply with government contracting requirements and make investments in our systems to protect that data. If we are unable to do so, our customers may lose confidence in us, which would harm our sales, and we may incur significant expenses or liabilities.

Acquisitions, investments and divestitures could result in operating difficulties, dilution, and other consequences that may adversely affect our business and results of operations.

Acquisitions, investments and divestitures are important elements of our overall corporate strategy and use of capital, and these transactions could be material to our financial conditions and results of operations. We expect to continue to evaluate and enter into discussions regarding potential strategic transactions, including acquiring complementary businesses, products, services, and technologies. Acquisitions may require significant capital infusions which could include debt, equity, or convertible securities. In general, strategic transactions also involve a number of special risks, including:

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•the strategic benefits and opportunities from any planned or completed acquisition or divestiture by the Company might not be realized or may take longer to realize than expected;

•strategic benefits and opportunities related to past and ongoing restructuring actions might not be realized or may take longer to realize than expected;

•our ability to realize the expected financial benefits of an acquisition, divestiture or other strategic transaction might not be realized or may take longer to realize than expected;

•cost reductions might not occur as expected;

•management time and focus may be diverted from operating our business due to challenges related to acquisitions and other strategic transactions;

•the failure to retain or integrate key acquired personnel;

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SEC Form 10-K filed by Iteris Inc.