Market Overview

Iteris Reports First Quarter Revenue of $25.5 Million

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Iteris,
Inc.
(NASDAQ:ITI), the global leader in applied informatics for
transportation and agriculture, today reported financial results for its
fiscal first quarter 2019 ended June 30, 2018.

Fiscal First Quarter 2019 Financial Summary

  • Total revenue of $25.5 million, down 6.3% year over year
  • Transportation Systems revenue of $13.2 million, down 10.5% year over
    year
  • Roadway Sensors revenue of $10.9 million, down 3.7% year over year
  • Agriculture and Weather Analytics revenue of $1.4 million, up 21.7%
    year over year
  • Total Gross Margin Rate of 40.0%, up 357 basis points year over year

Management commentary:

"As expected, our first quarter results were down year over year due to
the transition of a large contract with the Virginia Department of
Transportation, which impacted our Transportation Systems segment, and
the continued choppiness in the Texas market for intersection detection
that affected our Roadway Sensors segment," said Joe Bergera, president
and CEO. "We believe these conditions are temporary and expect Iteris to
be a long-term beneficiary of a favorable shift in transportation
infrastructure spending focused on smart cities, data analytics, and
enhanced safety and mobility."

"During Q1, our Transportation Systems segment, in particular, secured a
large number of substantial contracts, and while our selling expense
increased this period, the result was a total added segment backlog of
$16.1 million for the quarter," continued Mr. Bergera. "As a result, our
total company ending backlog for the quarter increased by $2.4 million,
or 5.8% on a sequential quarter basis. The fundamentals for both our
smart transportation and digital agriculture markets remain positive,
which we believe will drive improvements in our financial results as we
move through the remainder of the year."

GAAP Fiscal First Quarter 2019 Financial Results

Total revenue in the first quarter of fiscal 2019 decreased 6.3% to
$25.5 million, compared with $27.2 million in the same quarter a year
ago. This decline was driven by a 10.5% decrease in Transportation
Systems and a 3.7% decrease in Roadway Sensors, which was partially
offset by a 21.7% increase in Agriculture and Weather Analytics revenue.

Operating expenses in the first quarter were $11.8 million, compared
with $10.5 million in the same quarter a year ago. The increase was
primarily due to increases in selling, general and administrative
expenses as a result of increased sales and marketing activities, as
well as costs related to our transition to a new ERP system and our
adoption of the new ASC 606 revenue recognition rules. In addition,
there was an increase in Roadway Sensors salesforce headcount, which
resulted in higher salary and personnel-related costs.

Operating loss in the first quarter was $1.6 million compared with an
operating loss of $0.6 million in the same quarter a year ago. Net loss
in the first quarter was $1.6 million, or ($0.05) per share, compared
with a net loss of $0.5 million, or ($0.01) per share in the year-ago
quarter.

From a balance sheet perspective, cash and short-term investments
decreased $2 million from the start of the fiscal year, however, this
was more than offset by an increase in accounts receivable of $3.7
million. The decrease in cash and increase in accounts receivable was
due to the launch of our new ERP system in April 2018, which resulted in
a temporary delay in customer billing during Q1.

Non-GAAP Fiscal First Quarter 2019 Financial Results

In addition to results presented in accordance with generally accepted
accounting principles in the United States ("GAAP"), the company has
included the following non-GAAP financial measures: non-GAAP operating
expenses, non-GAAP operating loss, non-GAAP net loss and non-GAAP basic
and diluted net loss per share. These non-GAAP financial measures
exclude the following items: (a) stock compensation expense; (b)
depreciation; (c) amortization; and (d) the estimated tax effect of the
foregoing non-GAAP adjustments. A discussion of the company's use of
these non-GAAP financial measures is set forth below in the financial
statements portion of this release under the heading "Non-GAAP Financial
Measures and Reconciliation," which also includes a reconciliation of
such non-GAAP financial measures to their most comparable GAAP financial
measures for the three months ended June 30, 2018 and 2017.

Non-GAAP operating expenses in the first quarter increased to $10.9
million, compared with $9.8 million in the same quarter a year ago.
Non-GAAP operating loss in the first quarter was approximately $540,000,
compared with operating income of approximately $218,000 in the same
quarter a year ago. Non-GAAP net loss in the first quarter was
approximately ($538,000), or ($0.02) per share, compared with net income
of approximately $292,000, or $0.01 per share, in the same quarter a
year ago.

Earnings Conference Call

Iteris will conduct a conference call today to discuss its fiscal first
quarter 2019 results.

Date: Tuesday, August 7, 2018
Time: 4:30 p.m. Eastern
time (1:30 p.m. Pacific time)
Toll-free dial-in number:
1-888-394-8218
International dial-in number: 1-323-701-0225
Conference
ID:
3805751

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

A replay of the conference call will be available after 7:30 p.m.
Eastern time on the same day through August 14, 2018. To access the
replay dial information, please click here.

About Iteris, Inc.

Iteris is the global leader in applied informatics for transportation
and agriculture, turning big data into big breakthrough solutions. We
collect, aggregate and analyze data on traffic, roads, weather, water,
soil and crops to generate precise informatics that lead to safer
transportation and smarter farming. Municipalities, government agencies,
crop science companies, farmers and agronomists around the world use our
solutions to make roads safer and travel more efficient, as well as
farmlands more sustainable, healthy and productive. 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 potential revenue growth for the upcoming
quarters, the events that may have a potential impact on our future
results, and our future performance, growth, operating results,
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, the timing and amount of government funds allocated to
overall transportation infrastructure projects and the transportation
industry; our ability to invest in marketing and selling our solution
offerings on a cost-effective and efficient manner; federal, state and
local government regulations, budgetary issues, constraints and delays;
the potential unforeseen impact of product and service offerings from
competitors, increased competition in certain market segments and other
competitive pressures; our ability to secure additional Transportation
Systems consulting contracts and successfully complete such contracts on
a timely basis; our ability to specify, develop, complete, introduce,
market and gain broad acceptance of our new and existing products and
technologies; the timing and successful completion of customer
qualification of our products and the risks of non-qualification; the
effectiveness of efficiency, cost, and expense reduction efforts; our
ability to successfully identify, complete and integrate acquisitions of
products, technologies and companies; our ability to attract, retain,
integrate and incentivize our key employees and our ability to maintain
and expand our ecosystem of customers, technology partners, service
providers, teaming partners and sales channel partners; 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 related to terrorist activity or armed
conflict 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 CONSOLIDATED BALANCE SHEETS
(in thousands)
 
  June 30,   March 31,
2018 2018
 
ASSETS:
Cash $ 4,780 $ 10,152
Short-term investments 8,667 5,319
Trade accounts receivable, net 16,528 12,866
Unbilled accounts receivable 6,980 7,473
Inventories 2,796 2,921
Prepaid expenses and other current assets   1,397   1,165
Total current assets 41,148 39,896
 
Property and equipment, net 2,297 2,333
Intangible assets, net 3,568 3,751
Goodwill 15,150 15,150
Other assets   1,756   1,756
Total assets $ 63,919 $ 62,886
 
LIABILITIES AND STOCKHOLDERS' EQUITY:
Trade accounts payable $ 10,418 $ 7,838
Accrued payroll and related expenses 8,156 7,398
Accrued liabilities 2,079 2,358
Deferred revenue   3,975   4,900
Total current liabilities 24,628 22,494
Long-term liabilities 829 871
Total liabilities 25,457 23,365
Stockholders' equity   38,462   39,521
Total liabilities and stockholders' equity $ 63,919 $ 62,886
 
ITERIS, INC.
UNAUDITED CONSOLIDATED
STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
 
  Three Months Ended
June 30,
  2018       2017  
 
Product revenues $ 11,918 $ 11,923
Service revenues   13,557     15,260  
Total revenues 25,475 27,183
Cost of product revenues 6,494 6,863
Cost of service revenues   8,789     10,415  
Total cost of revenues   15,283     17,278  
Gross profit 10,192 9,905
Operating expenses:
Selling, general and administrative 9,630 8,697
Research and development 2,089 1,727
Amortization of intangible assets   65     33  
Total operating expenses   11,784     10,457  
Operating loss (1,592 ) (552 )
Non-operating income (expense):
Other income (expense), net 15 (7 )
Interest income, net   39     2  
Loss from continuing operations before income taxes (1,538 ) (557 )
(Provision) benefit for income taxes   (41 )   1  
Loss from continuing operations (1,579 ) (556 )
Gain on sale of discontinued operation, net of tax  

-

    86  
 
Net loss $ (1,579 ) $ (470 )
 

Loss per share from continuing operations – basic and diluted

$

(0.05

)

 

(0.02

)

 

Gain per share from sale of discontinued operation – basic and
diluted

$

-

 

$

0.01

 
 
Net loss per share - basic and diluted $ (0.05 )

$

(0.01

)

 
Shares used in basic per share calculations   33,201     32,506  
Shares used in diluted per share calculations   33,201     32,506  
 
ITERIS, INC.
UNAUDITED SEGMENT REPORTING DETAILS
(in thousands)
 
  Roadway   Transportation   Ag & Weather  
Sensors Systems Analytics Iteris, Inc.
Three Months Ended June 30, 2018
Product revenues $ 10,801 $ 1,117 $ - $ 11,918
Service revenues   59   12,067   1,431     13,557  
Total revenues $ 10,860 $ 13,184 $ 1,431 $ 25,475
 
Segment operating income (loss) $ 1,833 $ 1,358 $ (1,142 ) $ 2,049
Corporate and other income (expense), net (3,522 )
Amortization of intangible assets   (65 )
Loss from continuing operations before income taxes $ (1,538 )
 
Roadway Transportation Ag & Weather
Sensors Systems Analytics Iteris, Inc.
Three Months Ended June 30, 2017
Product revenues $ 11,280 $ 643 $ - $ 11,923
Service revenues   -   14,084   1,176     15,260  
Total revenues $ 11,280 $ 14,727 $ 1,176 $ 27,183
 
Segment operating income (loss) $ 2,547 $ 2,332 $ (1,832 ) $ 3,047
Corporate and other income (expense), net (3,571 )
Amortization of intangible assets   (33 )
Loss from continuing operations before income taxes $ (557 )

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 measures in this release:
non-GAAP operating expenses, non-GAAP operating (loss) income, non-GAAP
net income and non-GAAP basic and diluted earnings per share from
continuing operations. These non-GAAP financial measures exclude the
following items: (a) stock-based compensation; (b) depreciation; (c)
amortization; and (d) the estimated tax effect of the foregoing non-GAAP
adjustments.

Iteris believes that the presentation of these non-GAAP financial
measures provides important supplemental information to management and
investors regarding financial and business trends relating to its
financial condition and results of operations. Iteris' management
believes that the use of these non-GAAP financial measures provides
consistency and comparability among and between results from prior
periods or forecasts and future prospects, and also facilitates
comparisons with other companies in its industry. The company's
management believes that the exclusion of the items described above
provides insight into core operating results, the ability to generate
cash and underlying business trends affecting performance. Iteris has
chosen to provide this information to investors to enable them to
perform additional analysis of past, present and future operating
performance, and as a supplemental means to evaluate ongoing core
operations.

Management uses certain non-GAAP financial measures internally for
strategic decision making, forecasting future results and evaluating
current performance. Non-GAAP financial measures are not prepared in
accordance with GAAP; therefore, the information is not necessarily
comparable to other companies' financial information and should be
considered as a supplement to, not a substitute for, or superior to, the
corresponding financial measures calculated in accordance with GAAP.

Details of the items excluded from GAAP financial results in calculating
non-GAAP financial measures and explanatory footnotes are as follows:

        a)   Iteris excludes stock-based compensation expenses from its non-GAAP
financial measures primarily because they are non-cash expenses and
management finds it useful to exclude certain non-cash charges to
assess the appropriate level of various operating expenses to assist
in budgeting, planning and forecasting future periods. Moreover,
because of varying available valuation methodologies, subjective
assumptions and the variety of award types that companies can use
under FASB ASC Topic 718, Iteris believes excluding stock-based
compensation expenses allows investors to make meaningful
comparisons between our recurring core business operating results
and those of other companies.
 
b) Iteris excludes depreciation expenses from its non-GAAP financial
measures. Management finds it useful to exclude these charges to
assess the appropriate level of various operating expenses to assist
in budgeting, planning and forecasting future periods.
 
c) Iteris incurs amortization of developed technology and purchased
intangibles in connection with acquisitions of certain businesses
and technologies. Amortization of developed technologies and
purchased intangibles is inconsistent in amount and frequency, and
is significantly affected by the timing and size of our developments
and acquisitions. Management finds it useful to exclude these
variable charges from our cost of revenues and operating expenses to
assist in budgeting, planning and forecasting future periods.
Investors should note that the use of intangible assets contributed
to our revenues earned during the periods presented and will
contribute to our future period revenues as well. Amortization of
developed technologies and purchased intangible assets will recur in
future periods.
 
d) The amount represents the estimated income tax effect of the
non-GAAP adjustments. The tax effect of non-GAAP adjustments for the
first quarters of Fiscal 2019, Fiscal 2018 and Fiscal 2017, were
calculated by applying an estimated tax rate of 1% to each specific
non-GAAP item, due to the impact of the valuation allowance on our
effective tax rate in those years.
 

Iteris, Inc.

Schedule Reconciling GAAP Net Loss to Non-GAAP Net (Loss) Income
($ in thousands, except per share amounts)
(unaudited)
   
For the Three Months Ended
June 30,
  2018     2017  
 
GAAP net loss $ (1,579 ) $ (470 )
 
GAAP net loss per share - basic and diluted $ (0.05 ) $ (0.01 )
 
The non-GAAP amounts have been adjusted to exclude the following
items:
 
Excluded from cost of revenues:
Amortization (c) $ 200 $ 104
 
Excluded from operating expenses:
Stock based compensation (a) $ 522 $ 449
Depreciation (b) 265 184
Amortization (c)   65     33  
Total excluded from operating expenses $ 852   $ 666  
 
Total excluded operating loss $ 1,052   $ 770  
 
Income tax effect on non-GAAP adjustments (d)   (11 )   (8 )
Total excluded from operating loss after income tax effect $ 1,041   $ 762  
 
Non-GAAP net (loss) income $ (538 ) $ 292  
 
Non-GAAP net (loss) income per share - basic and diluted $ (0.02 ) $ 0.01  
 
(a) - (d) See corresponding footnotes above.
 
Iteris, Inc.
Schedule Reconciling GAAP Operating (Loss) to Non-GAAP Operating
(Loss) Income
($ in thousands)
(unaudited)
   
For the Three Months Ended
June 30,
  2018     2017  
GAAP cost of revenues $ 15,283 $ 17,728
Amortization (c)   (200 )   (104 )
Non-GAAP cost of revenues $ 15,083   $ 17,624  
 
GAAP operating expenses $ 11,784 $ 10,457
Stock based compensation (a) (522 ) (449 )
Depreciation (b) (265 ) (184 )
Amortization (c)   (65 )   (33 )
Non-GAAP operating expenses $ 10,932   $ 9,791  
 
GAAP operating loss $ (1,592 ) $ (552 )
Stock based compensation (a) (522 ) (449 )
Depreciation (b) (265 ) (184 )
Amortization (c)   (265 )   (137 )
Non-GAAP operating (loss) income $ (540 ) $ 218  

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