February 23, 2024

Iteris Reports Record Nine-Month Revenue of $129.2 Million, 14% Higher Than Prior Year Period, and GAAP Net Income of $3.0 Million, a $17.3 Million Improvement from the Prior Year Period

Nine-Month Adjusted EBITDA of $10.0 million, an $18.1 million improvement from the prior year period

Contacts

Iteris Contact

Kerry A. Shiba

Senior Vice President, Chief Financial Officer, Secretary and Treasurer

Tel: (949) 270-9457

Email: [email protected]

Investor Relations

MKR Investor Relations, Inc.

Todd Kehrli

Tel: (213) 277-5550

Email: [email protected]

Iteris, Inc. (NASDAQ: ITI), the global leader in smart mobility infrastructure management, today reported financial results for its fiscal 2024 third quarter ended December 31, 2023.

Fiscal 2024 Third Quarter Financial and Business Highlights

  • Revenue of $42.1 million, up 4% year over year compared to an unusually strong prior year period
  • Gross margins of 36.9%, up 780 basis points year over year
  • GAAP net income of $0.4 million, or $0.01 per share, a $2.4 million, or $0.06 per share improvement from the prior year
  • Adjusted EBITDA of $3.1 million, equivalent to $0.07 per share, a $3.5 million, or $0.08 per share equivalent, improvement from the prior year (see “Non-GAAP Financial Measures and Reconciliation” below for important information)
  • Cash and cash equivalents of $21.2 million as of December 31, 2023, reflecting positive net cashflow of $0.9 million, including $0.2 million used in the third quarter for share repurchases and $0.9 million for investing activities
  • Released cutting-edge integrated detection and connected vehicle system for safety applications
  • Awarded contract to develop intelligent transportation systems master plan for the Cebu metropolitan area, a major domestic and international port in the Philippines
  • Recently announced a new partnership with Arity, a mobility data and analytics company, founded by The Allstate Corporation

Fiscal 2024 Year-to-Date Financial Highlights

  • Record revenue of $129.2 million, up 14% year over year
  • Gross margins of 37.6%, up 1,250 basis points year over year
  • GAAP net income of $3.0 million, or $0.07 per share, $17.3 million, or $0.41 per share, higher than the prior year
  • Adjusted EBITDA of $10.0 million, equivalent to $0.23 per share, an $18.1 million, or $0.42 per share equivalent, improvement from the prior year (see “Non-GAAP Financial Measures and Reconciliation” below for important information)
  • Net cash flow of $4.8 million, $18.1 million higher than the prior year reflecting earnings improvement and strong working capital management

Management Commentary:

“We are pleased to report year-to-date organic revenue increased 14% from last year despite a return to normal pre-COVID seasonality in the third quarter,” said Joe Bergera, President and CEO of Iteris. “In addition to the strong nine-month revenue performance, improvements in our gross margins drove a significant, $18.1 million year-to-date increase in adjusted EBITDA relative to the same prior year period.

“Although the return to pre-COVID seasonality will also affect fiscal 2024 fourth quarter prior year comparisons, we continue to experience strong demand for our ClearMobility® Platform and expect to end the fiscal year with 10% revenue growth at the midpoint of our guidance range. Over the long term, we continue to anticipate strong organic revenue growth consistent with our Vision 2027 targets, which assume a five-year organic revenue CAGR of approximately 14%, as well as expanding operating leverage that will drive further adjusted EBITDA margin improvement.”

Fiscal Year 2024 Full Year Outlook

  • Tightening full-year total revenue guidance to a range of $171.0 million to $173.0 million, representing organic growth of 10% year over year at the mid-point, which reflects temporary customer delays largely due to current budget uncertainty and agency labor constraints
  • Reiterating our full-year adjusted EBITDA margin guidance in the range of 7% to 9%, representing a significant year-over-year improvement (see “Non-GAAP Financial Measures and Reconciliation” below for important information)
  • Adjusting full-year net cash flow guidance in the range of $8.0 million to $12.0 million, which would represent a $17.1 million increase year over year at the midpoint driven by adjusted EBITDA improvement and continued working capital management

GAAP Fiscal Year 2024 Third Quarter Financial Results

  • Total revenue in the third quarter of fiscal year 2024 increased 4% to $42.1 million, compared with $40.7 million in the same quarter a year ago. This revenue growth was driven primarily by an increase in revenues related to consulting services. Product revenues also increased, but at a lower rate when compared to the prior year which reflected a return to pre-Covid seasonality.
  • Operating expenses in the third quarter increased 8% to $15.2 million, compared with $14.0 million in the same quarter a year ago.
  • Net income in the third quarter was $0.4 million, or $0.01 per share, compared with a net loss of $(2.0) million, or $(0.05) per share, in the same quarter a year ago. The improvement was primarily attributable to higher gross margin, which was impacted in the prior period by supply chain constraints and resulting high raw material costs.

Non-GAAP Fiscal 2024 Third Quarter Results

In addition to results presented in accordance with generally accepted accounting principles in the United States (“GAAP”), Iteris (the “Company”) has included the following non-GAAP financial measure: net income (loss) before interest, taxes, depreciation, amortization, stock-based compensation expense, restructuring charges, project loss reserves, other legal expenses, and executive severance and transition costs (“Adjusted EBITDA”). A discussion of the Company’s use of this non-GAAP financial measure is set forth below in the financial statements portion of this release under the heading “Non-GAAP Financial Measures and Reconciliation,” along with a reconciliation of Adjusted EBITDA to net income (loss).

Adjusted EBITDA in the third quarter of fiscal 2024 was $3.1 million, or 7.4% of total revenues, compared with a $0.4 million loss, or (1.0)% of total revenues, in the same quarter a year ago. The improvement primarily mirrors the increase in GAAP earnings.

Earnings Conference Call

Iteris will conduct a conference call today to discuss its fiscal 2024 third quarter results.

Date: Thursday, February 8, 2024

Time: 4:30 p.m. Eastern time (1:30 p.m. Pacific time)

Toll-free dial-in number: 888-506-0062

International dial-in number: +1 973-528-0011

Participant access code: 537202

If joining by phone, please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact MKR Investor Relations at 1-213-277-5550.

To listen to the live webcast or view the press release, please visit the investor relations section of the Iteris website at www.iteris.com.

A telephone replay of the conference call will be available approximately two hours following the end of the call and will remain available for one week. To access the replay, dial +1-877-481-4010 (US Toll Free), or +1 919-882-2331 (International) and enter replay passcode 49720.

About Iteris, Inc.

Iteris is the world’s trusted technology ecosystem for smart mobility infrastructure management. Delivered through Iteris’ ClearMobility® Platform, our AI-powered end-to-end solutions monitor, visualize and optimize mobility infrastructure around the world, and help bridge legacy technology silos to unlock the future of transportation. That’s why more than 10,000 public agencies and private-sector enterprises focused on mobility rely on Iteris every day. Visit www.iteris.com for more information, and join the conversation on Twitter, LinkedIn and Facebook.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:

This release may contain forward-looking statements, which speak only as of the date hereof and are based upon our current expectations and the information available to us at this time. Words such as "believes," "anticipates," "expects," "intends," "plans," "seeks," "estimates," "may," "will," "can," and variations of these words or similar expressions are intended to identify forward-looking statements. These statements include, but are not limited to, statements about the Company’s anticipated demand and growth opportunities, conversion of bookings to revenue, the impact and success of new solution offerings, the Company’s acquisitions, our future performance, growth and profitability, operating results, and financial condition and prospects. Such statements are subject to certain risks, uncertainties, and assumptions that are difficult to predict, and actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors.

Important factors that may cause such a difference include, but are not limited to, federal, state and local government budgetary issues, spending and scheduling changes, funding constraints and delays, and impact related to the federal government debt ceiling; uncertainties regarding potential multiple negative impacts that may occur in the future due to COVID-19 or other similar global health emergencies; our ability to source key raw materials in the global supply chain; the timing and amount of government funds allocated to overall transportation infrastructure projects and the transportation industry; risks related to our ability to recruit, integrate and/or retain key talent; our ability to replace large contracts once they have been completed; the effectiveness of efficiency, cost, and expense reduction efforts; our ability to successfully complete and integrate acquired assets and companies; our ability to specify, develop, complete, introduce, market and gain broad acceptance of our new and existing product and service offerings; the potential unforeseen impact of product and service offerings from competitors, increased competition in certain market segments, and such competitors’ patent coverage and claims; any softness in the markets that we address; and the impact of general economic and political conditions and specific conditions in the markets we address, and the possible disruption in government spending and commercial activities, such as import/export tariffs, terrorist activities or armed conflicts in the United States and internationally. Further information on Iteris, Inc., including additional risk factors that may affect our forward-looking statements, as contained in our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K, and our other SEC filings that are available through the SEC's website (www.sec.gov).

ITERIS, INC.

UNAUDITED CONDENSED

BALANCE SHEETS

(in thousands)

 

December 31,

2023

March 31,

2023

Assets

Current assets:

Cash and cash equivalents

$

21,185

$

16,587

Restricted cash

 

338

 

140

Trade accounts receivable, net

 

24,859

 

23,809

Unbilled accounts receivable

 

8,596

 

8,349

Inventories

 

11,456

 

10,841

Prepaid expenses and other current assets

 

3,615

 

3,128

Total current assets

 

70,049

 

62,854

Property and equipment, net

 

1,290

 

1,297

Right-of-use assets

 

7,332

 

8,345

Intangible assets, net

 

10,021

 

10,190

Goodwill

 

28,340

 

28,340

Other assets

 

570

 

768

Total assets

$

117,602

$

111,794

Liabilities and stockholders’ equity

 

 

Current liabilities:

 

 

Trade accounts payable

$

14,249

$

12,943

Accrued payroll and related expenses

 

10,877

 

12,923

Accrued liabilities

 

5,304

 

5,453

Deferred revenue

 

8,619

 

6,720

Total current liabilities

 

39,049

 

38,039

Long-term liabilities

 

9,981

 

10,849

Total liabilities

 

49,030

 

48,888

Stockholders’ equity

 

68,572

 

62,906

Total liabilities and stockholders’ equity

$

117,602

$

111,794

ITERIS, INC.

UNAUDITED CONDENSED

STATEMENT OF OPERATIONS

(in thousands, except per share amounts)

 

Three Months Ended

December 31,

Nine Months Ended

December 31,

2023

2022

2023

2022

Product revenues

$

23,133

 

$

22,852

 

$

70,189

 

$

60,021

 

Service revenues

 

18,996

 

 

17,834

 

 

59,048

 

 

53,591

 

Total revenues

 

42,129

 

 

40,686

 

 

129,237

 

 

113,612

 

Cost of product revenues

 

12,985

 

 

15,981

 

 

38,175

 

 

47,664

 

Cost of service revenues

 

13,595

 

 

12,885

 

 

42,446

 

 

37,418

 

Cost of revenues

 

26,580

 

 

28,866

 

 

80,621

 

 

85,082

 

Gross profit

 

15,549

 

 

11,820

 

 

48,616

 

 

28,530

 

Operating expenses:

 

 

 

 

General and administrative

 

5,226

 

 

5,499

 

 

17,371

 

 

16,904

 

Sales and marketing

 

6,421

 

 

5,780

 

 

18,947

 

 

16,652

 

Research and development

 

2,858

 

 

2,047

 

 

7,531

 

 

6,356

 

Amortization of intangible assets

 

650

 

 

651

 

 

1,952

 

 

1,970

 

Restructuring charges

 

 

 

 

 

 

 

707

 

Total operating expenses

 

15,155

 

 

13,977

 

 

45,801

 

 

42,589

 

Operating income (loss)

 

394

 

 

(2,157

)

 

2,815

 

 

(14,059

)

Non-operating income (expense):

 

 

 

 

Other income, net

 

141

 

 

135

 

 

388

 

 

229

 

Interest income (expense), net

 

39

 

 

 

 

109

 

 

(332

)

Income (loss) before income taxes

 

574

 

 

(2,022

)

 

3,312

 

 

(14,162

)

Provision for income taxes

 

(219

)

 

(27

)

 

(281

)

 

(149

)

Net income (loss)

$

355

 

$

(2,049

)

$

3,031

 

$

(14,311

)

 

 

 

 

Net income (loss) per common share

 

 

 

 

Basic net income (loss) per share

$

0.01

 

$

(0.05

)

$

0.07

 

$

(0.34

)

Diluted net income (loss) per share

$

0.01

 

$

(0.05

)

$

0.07

 

$

(0.34

)

 

 

 

 

 

Shares used in basic per share calculations

 

42,944

 

 

42,341

 

 

42,798

 

 

42,336

 

Shares used in diluted per share calculations

 

43,784

 

 

42,341

 

 

43,762

 

 

42,336

 

ITERIS, INC.

Non-GAAP Financial Measures and Reconciliation

In addition to results presented in accordance with GAAP, the Company has included the following non-GAAP financial measure in this release: net income (loss) before interest, taxes, depreciation, amortization, stock-based compensation expense, restructuring charges, project loss reserves, other legal expenses, and executive severance and transition costs (“Adjusted EBITDA”).

When viewed with our financial results prepared in accordance with GAAP and accompanying reconciliations, we believe Adjusted EBITDA and the related financial ratios provide 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 press release, 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 (loss) or any other performance measures derived in accordance with GAAP, or as alternatives to net cash provided by (used in) operating activities as a measure of our liquidity. The presentation of these measures should not be interpreted to mean that our future results will be unaffected by unusual or nonrecurring items.

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

Adjusted EBITDA and the related financial ratios have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations include:

  • They generally do not reflect our cash expenditures, future requirements for capital expenditures or contractual commitments;
  • They do not reflect changes in, or cash requirements for, our working capital needs;
  • Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;
  • They are not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows;
  • They do not reflect the impact on earnings of charges resulting from matters unrelated to our ongoing operations; and
  • Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as comparative measures.

Because of these limitations, Adjusted EBITDA and the related financial ratio should not be considered as a measure 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 Financial Statements contained in this Press Release. However, in spite of the above limitations, we believe that Adjusted EBITDA and the related ratio are useful to an investor in evaluating our results of operations because these measures:

  • Are widely used by investors to measure a company’s operating performance without regard to items excluded from the calculation of such terms, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired, among other factors;
  • Help investors to evaluate and compare the results of our operations from period to period by removing the effect of our capital structure from our operating performance; and
  • Are used by our management team for various other purposes in presentations to our Board of Directors as a basis for strategic planning and forecasting.

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

  • Income tax. This amount may be useful to investors because it represents the taxes that might be payable for the period and the change in deferred taxes during the period, and therefore could reduce cash flow available for use in our business.
  • Depreciation expense. Iteris excludes depreciation expense primarily because it is a non-cash expense. These amounts may be useful to investors because it generally represents the wear and tear on our property and equipment used in our operations.
  • Amortization expense. 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 they represent the estimated attrition of our acquired customer base and the diminishing value of product rights.
  • Interest income and expense. Iteris excludes interest income and 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. For the nine months ended December 31, 2022, interest expense includes amortization of the remaining capitalized deferred financing costs due to the termination of the Credit Agreement in Fiscal 2023.
  • 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.
  • Other legal expenses. Iteris excludes legal expenses that it believes are infrequent, unusual and not reflective of ongoing operating results in the period incurred. These amounts may be useful to our investors in evaluating our core operating performance. We do not adjust for any ordinary course legal expenses. For the three and nine months ended December 31, 2023, other legal expenses consist of costs related to a specific breach of contract dispute for which the Company previously expected a settlement to be reached, however, due to a change in facts and circumstances that now point to a more protracted and costly process, we included the legal costs of $0.8 million incurred during the three months ended December 31, 2023 and $1.9 million for the nine months ended December 31, 2023. This matter is currently scheduled to go to trial in April 2024, so related costs will likely increase in the near term. The Company believes that an outcome resulting in a loss is remote. There were no such costs in the prior year periods.
  • 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.

It is impractical to attempt to reconcile expected Adjusted EBITDA to expected GAAP net income (loss) because many of the adjustments are difficult to forecast, including stock-based compensation because it depends on the price of our stock in the future, which is difficult to predict. Reconciliations of historical net income (loss) to Adjusted EBITDA and the presentation of Adjusted EBITDA as a percentage of net revenues were as follows:

 

Three Months Ended

December 31,

Nine Months Ended

December 31,

 

2023

2022

2023

2022

 

(In Thousands)

Net income (loss)

$

355

 

$

(2,049

)

$

3,031

 

$

(14,311

)

Provision for income taxes

 

219

 

 

27

 

 

281

 

 

149

 

Depreciation expense

 

136

 

 

153

 

 

422

 

 

461

 

Amortization expense

 

779

 

 

770

 

 

2,349

 

 

2,396

 

Interest (income) expense

 

(39

)

 

 

 

(109

)

 

332

 

Stock-based compensation

 

822

 

 

438

 

 

2,218

 

 

1,982

 

Other adjustments:

 

 

 

 

Restructuring charges

 

 

 

 

 

 

 

707

 

Other legal expenses

 

835

 

 

 

 

1,854

 

 

 

Acquisition earnout payments

 

 

 

248

 

 

 

 

248

 

Adjusted EBITDA

$

3,107

 

$

(413

)

$

10,046

 

$

(8,036

)

Percentage of total revenues

 

7.4

%

 

(1.0

)%

 

7.8

%

 

(7.1

)%

 

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