SEC Filing | Iteris Inc

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iti-20211231

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________________________________________________________

Form 10-Q

(Mark One)


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

For the quarterly period ended December 31, 2021


☐			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

https://cdn.kscope.io/b8772abc47d3388ca9c02facab9e0784-iti-20211231_g1.jpg

ITERIS, INC.

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of

incorporation or organization)

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

Austin, Texas

(Address of principal executive office)

95-2588496

(I.R.S. Employer

Identification No.)

78746

(Zip Code)

(512) 716-0808

(Registrant’s telephone number, including area code)

(Former address, if changed since last report)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.10 par value

ITI

The Nasdaq Stock Market LLC

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

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

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

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☒

Emerging growth company

☐

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

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

As of February 2, 2022, there were 42,410,783 shares of our common stock outstanding.

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ITERIS, INC.

Quarterly Report on Form 10-Q

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PART I.	FINANCIAL INFORMATION	1

ITEM 1.	FINANCIAL STATEMENTS	1

	UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 2021 AND MARCH 31, 2021	1

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

	UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED DECEMBER 31, 2021 AND 2020	3

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

	NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	5

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	28

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	37

ITEM 4.	CONTROLS AND PROCEDURES	37

PART II.	OTHER INFORMATION	38

ITEM 1.	LEGAL PROCEEDINGS	38

ITEM 1A.	RISK FACTORS	38

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	38

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	38

ITEM 4.	MINE SAFETY DISCLOSURES	38

ITEM 5.	OTHER INFORMATION	38

ITEM 6.	EXHIBITS	38

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

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Iteris, Inc.

Unaudited Condensed Consolidated Balance Sheets

(In thousands, except par values)


	December 31, 2021		March 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	27,474	$	25,205
Restricted cash	199		263
Short-term investments	—		3,100
Trade accounts receivable, net of allowance for doubtful accounts of $849 and $1,019 at December 31, 2021 and March 31, 2021, respectively	20,446		19,020
Unbilled accounts receivable	12,405		11,541
Inventories	6,884		5,066
Prepaid expenses and other current assets	3,147		5,445
Current assets of discontinued operations	27		—
Total current assets	70,582		69,640
Property and equipment, net	1,510		1,923
Right-of-use assets	11,934		11,353
Intangible assets, net	12,296		14,297
Goodwill	28,340		28,340
Other assets	555		1,238
Noncurrent assets of discontinued operations	24		78
Total assets	$	125,241	$	126,869
Liabilities and stockholders’ equity
Current liabilities:
Trade accounts payable	$	8,208	$	8,935
Accrued payroll and related expenses	11,103		11,734
Accrued liabilities	4,960		4,921
Deferred revenue	7,320		7,349
Current liabilities of discontinued operations	154		94
Total current liabilities	31,745		33,033
Lease liabilities	11,380		10,146
Deferred income taxes	298		808
Unrecognized tax benefits	104		119
Other long-term liabilities	2,718		3,523
Noncurrent liabilities of discontinued operations	197		261
Total liabilities	46,442		47,890
Commitments and contingencies (Note 7)
Stockholders’ equity:
Preferred stock, $1.00 par value:
Authorized shares — 2,000
Issued and outstanding shares — none	—		—
Common stock, $0.10 par value:
Authorized shares - 70,000 at December 31, 2021 and March 31, 2021
Issued and outstanding shares — 42,334 at December 31, 2021 and 41,687 at March 31, 2021	4,234		4,170
Additional paid-in capital	185,550		181,828
Accumulated deficit	(110,985)		(107,019)
Total stockholders' equity	78,799		78,979
Total liabilities and stockholders' equity	$	125,241	$	126,869

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

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Iteris, Inc.

Unaudited Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)


	Three Months Ended December 31,				Nine Months Ended December 31,
	2021		2020		2021		2020

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

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

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

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

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

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Iteris, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands)


	Nine Months Ended December 31,
	2021		2020
Cash flows from operating activities
Net income (loss)	$	(3,966)	$	10,549
Less: Net income (loss) from discontinued operations	(104)		9,673
Net income (loss) from continuing operations	(3,862)		876

Adjustments to reconcile net income (loss) from continuing operations to net cash provided by (used in) operating activities:
Project Loss	3,394		—
Right-of-use asset non-cash expense	1,871		1,031
Deferred income taxes	(525)		11
Depreciation of property and equipment	629		551
Stock-based compensation	2,396		2,071
Amortization of intangible assets	2,428		1,236
Other	—		71
Loss on disposal of equipment	120		—
Changes in operating assets and liabilities, net of effects of discontinued operation and acquisition:
Trade accounts receivable	(1,426)		(2,169)
Unbilled accounts receivable and deferred revenue	(555)		2,321
Inventories	(1,818)		(671)
Prepaid expenses and other assets	(1,001)		(1,123)
Trade accounts payable and accrued expenses	(1,758)		163
Operating lease liabilities	(1,922)		(1,048)
Net cash provided by (used in) operating activities - continuing operations	(2,029)		3,320
Net cash used in operating activities - discontinued operations	(81)		(1,592)
Net cash provided by (used in) operating activities	(2,110)		1,728
Cash flows from investing activities
Purchases of property and equipment	(336)		(395)
Purchase of short-term investments	—		(23,655)
Maturities of investments	3,100		27,000
Capitalized software development costs	(1,339)		(592)
Cash paid in business acquisition, net of cash acquired	—		(15,000)
Net cash provided by (used in) investing activities - continuing operations	1,425		(12,642)
Net cash provided by investing activities - discontinued operations	1,500		9,690
Net cash provided by (used in) investing activities	2,925		(2,952)
Cash flows from financing activities
Proceeds from stock option exercises	1,330		1,334
Proceeds from ESPP purchases	239		188
Tax withholding payments for net share settlements of restricted stock units	(179)		—
Net cash provided by financing activities - continuing operations	1,390		1,522
Net cash provided by financing activities - discontinued operations	—		—
Net cash provided by financing activities	1,390		1,522
Increase in cash, cash equivalents and restricted cash	2,205		298
Cash, cash equivalents and restricted cash at beginning of period	25,468		14,363
Cash, cash equivalents and restricted cash at end of period	$	27,673	$	14,661
Supplemental cash flow information:
Cash paid during the year for:
Income taxes	$	165	$	102
Supplemental schedule of non-cash investing and financing activities:
Deferred payment of purchase price receivable	$	—	$	1,500
Lease liabilities arising from obtaining right-of-use assets	$	2,452	$	533
Deferred consideration related to TrafficCast acquisition	$	—	$	2,050
Working capital adjustment related to TrafficCast acquisition	$	—	$	625

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

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Iteris, Inc.

Unaudited Condensed Consolidated Statements of Stockholders’ Equity

(In thousands)


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


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

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

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Iteris, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

December 31, 2021

1.Description of Business and Summary of Significant Accounting Policies

Description of Business

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

Recent Developments

COVID-19 Update

The COVID-19 pandemic (the “Pandemic”) has materially adversely impacted global economic conditions. More than eighteen months into the Pandemic, COVID-19 continues to have an unpredictable and unprecedented impact on the U.S. economy as federal, state and local governments react to this public health crisis with travel restrictions, quarantines and "stay-at-home" orders. The uncertainties caused by the Pandemic include, but are not limited to, supply chain disruptions, workplace dislocations, economic contraction, and downward pressure on some customer budgets and customer sentiment in general. Due to the Pandemic, we have experienced supply chain and work delays on certain projects. Should such conditions become protracted or worsen or should longer term budgets or priorities of our clients be impacted, the Pandemic could negatively affect our business, results of operations and financial condition. The extent of the impact of the Pandemic on our business and financial results, and the volatility of our stock price will depend largely on future developments, including the duration of the spread of the outbreak, new and potentially more contagious variants, such as the Delta and Omicron variants, the impact on capital and financial markets, the distribution, rate of adoption and efficacy of vaccines, and the related impact on the budgets and financial circumstances of our customers and suppliers, all of which are highly uncertain and cannot be reasonably estimated as of the date of this report.

Given the uncertainties surrounding the impacts of the Pandemic on the Company's future financial condition and results of operations, the Company has taken certain actions to preserve its liquidity, manage cash flow and strengthen its financial flexibility. Such actions include, but are not limited to, reducing discretionary spending, reducing capital expenditures, implementing restructuring activities, and reducing payroll costs, including employee furloughs, pay freezes and pay cuts. Refer to Note 4, Restructuring Activities, for more information.

Our products require specialized parts which have become more difficult to source and have become subject to substantially increased prices as a result of the supply chain interruptions caused by the Pandemic. In anticipation of these shipment lead times as well as the fluctuation in prices, we may continue to build inventory for anticipated periods of growth, may build inventory anticipating demand that does not materialize, or may build inventory to serve what we believe is pent-up demand. We may remain supply-constrained beyond the fiscal year ending March 31, 2022 ("Fiscal 2022"). We have placed non-cancellable inventory orders for certain products in advance of our normal lead times to secure normal and incremental future supply and capacity and may need to continue to do so in the future.

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

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The Company assessed the impacts of the Pandemic on the estimates and assumptions used in preparing these unaudited condensed consolidated financial statements. The estimates and assumptions used in these assessments were based on management’s judgment and may be subject to change as new events occur and additional information is obtained. In particular, there is significant uncertainty about the duration and extent of the impact of the Pandemic and its resulting impact on global economic conditions. If economic conditions caused by the Pandemic do not recover as currently estimated by management, the Company’s financial condition, cash flows and results of operations may be materially impacted. See below for areas that required more judgments and estimates as a result of the Pandemic. The Company will continue to assess the effect on its operations by monitoring the spread of the Pandemic and the actions implemented to combat the virus throughout the world and its assessment of the impact of the Pandemic may change.

Sale of Agriculture and Weather Analytics Business

Restructuring Activities

On April 30, 2020, in connection with the sale of the Agriculture and Weather Analytics business, the Board of Directors of Iteris, Inc. (the "Board") approved restructuring activities to better position the Company for increased profitability and growth. Restructuring charges of approximately $1.5 million were incurred for separation costs for certain employees who did not transition to DTN, additional positions that were eliminated to right-size the cost structure of the Company, and the impairment of certain lease-related assets. See Note 4, Restructuring Activities, for further details on the restructuring activities.

Acquisition of the Assets of TrafficCast International, Inc.

On December 6, 2020, the Company entered into an Asset Purchase Agreement (the “TrafficCast Purchase Agreement”) with TrafficCast International, Inc. (“TrafficCast”), a privately held company headquartered in Madison, Wisconsin that provides travel information technology, applications and content to customers throughout North America in the media, mobile technology, automotive and public sectors. Under the TrafficCast Purchase Agreement, the Company agreed to purchase from TrafficCast substantially all of its assets, composed of its travel information technology, applications and content (the “Business”). The transaction closed on December 7, 2020.

Under the TrafficCast Purchase Agreement, Iteris purchased from TrafficCast substantially all of the assets used in the conduct of the Business and assumed certain specified liabilities of the Business incurring $1.7 million in certain obligations in addition to the total consideration of $16 million, with $15 million paid in cash on the closing date, $1 million held back as security for certain post-closing adjustments and post-closing indemnity obligations of TrafficCast, and a $1 million earn out, that if earned, will be paid over two years based on the Business’ achievement of certain revenue targets. The TrafficCast Purchase Agreement also provides for customary post-closing adjustments to the purchase price tied to working capital balances of the Business at closing (see Note 11, Acquisitions).

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

Basis of Presentation

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

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As noted above, during the first quarter of Fiscal 2021, the Company completed the sale of its Agriculture and Weather Analytics segment. The Agriculture and Weather Analytics segment’s results of operations and related cash flows have been reclassified to net income (loss) from discontinued operations, respectively, for all periods presented. The assets and liabilities of the Agriculture and Weather Analytics segment have been reclassified to assets of discontinued operations and liabilities of discontinued operations, respectively, in the unaudited condensed consolidated balance sheet as of December 31, 2021. See Note 3, Discontinued Operations, for further information.

Use of Estimates

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

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

Revenue Recognition

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

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

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

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

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We generally estimate variable consideration at the most likely amount to which we expect to be entitled and in certain cases based on the expected value, which requires judgment. We include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us. We review and update these estimates on a quarterly basis.

The Company’s typical performance obligations include the following:

Performance Obligation

When Performance

Obligation is Typically

Satisfied

When Payment is

Typically Due

How Standalone

Selling Price is

Typically Estimated

Product Revenues

Standard purchase orders for delivery of a tangible product

Upon shipment (point in time)

Within 30 days of delivery

Observable transactions

Engineering services where the deliverable is considered a product

As work is performed (over time)

Within 30 days of services being invoiced

Estimated using a cost-plus margin approach

Service Revenues

Engineering and consulting services

As work is performed (over time)

Within 30 days of services being invoiced

Estimated using a cost-plus margin approach

SaaS

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

At the beginning of the contract period

Estimated using a cost-plus margin approach

Disaggregation of Revenue

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

Trade Accounts Receivable and Contract Balances

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

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

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

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

Contract Fulfillment Costs

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

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other current assets. These costs primarily relate to the satisfaction of performance obligations related to the set-up of SaaS platforms. These costs are amortized on a straight-line basis over the estimated useful life of the SaaS platform.

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

Transaction Price Allocated to the Remaining Performance Obligations

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

Deferred Revenue

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

Concentration of Credit Risk

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

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

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

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

Fair Values of Financial Instruments

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

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

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

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

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

Cash, Cash Equivalents and Restricted Cash

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

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

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


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

Investments

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

Allowance for Doubtful Accounts

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

Inventories

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

Property and Equipment

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

Intangible Assets

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

Goodwill and Long-Lived Assets

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

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

Income Taxes

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

Income tax positions must meet a more-likely-than-not recognition threshold to be recognized. Income tax positions that previously failed to meet the more-likely-than-not threshold are recognized in the first subsequent financial reporting

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period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not threshold are derecognized in the first subsequent financial reporting period in which that threshold is no longer met.

Stock-Based Compensation

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

Research and Development Expenditures

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

Warranty

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

Repair and Maintenance Costs

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

Comprehensive Income (Loss)

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

Recent Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This standard update requires that certain financial assets be measured at amortized cost net of an allowance for estimated credit losses such that the net receivable represents the present value of expected cash collection. In addition, this standard update requires that certain financial assets be measured at amortized cost reflecting an allowance for estimated credit losses expected to occur over the life of the assets. The estimate of credit losses must be based on all relevant information including historical information, current conditions and reasonable and supportable forecasts that affect the collectability of the amounts. In November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842): Effective Dates, which defers the effective date of ASU 2016-13 to fiscal years beginning after December 15, 2022 for all entities except SEC reporting companies that are not smaller reporting companies. We are currently evaluating the timing and impact of adopting ASU 2016-13 on our unaudited condensed consolidated financial statements.

2.Supplemental Financial Information

Inventories

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The following table presents details of our inventories:


	December 31, 2021		March 31, 2021
	(In thousands)
Raw materials	$	5,365	$	2,714
Work in process	234		435
Finished goods	1,285		1,917
	$	6,884	$	5,066

Property and Equipment.

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


	December 31, 2021		March 31, 2021
	(In thousands)
Equipment	$	6,908	$	6,806
Leasehold improvements	3,089		3,046
Accumulated depreciation	(8,487)		(7,929)
	$	1,510	$	1,923

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

Intangible Assets

The following table presents details of our net intangible assets:


	December 31, 2021						March 31, 2021
	Gross Carrying Amount		Accumulated Amortization		Net Book Value		Gross Carrying Amount		Accumulated Amortization		Net Book Value
	(In thousands)
Technology	$	4,986	$	(2,288)	$	2,698	$	4,986	$	(1,594)	$	3,392
Customer contracts / relationships	9,550		(2,606)		6,944		9,550		(1,547)		8,003
Trade names and non-compete agreements	782		(735)		47		782		(683)		99
Capitalized software development costs	5,604		(2,997)		2,607		5,177		(2,374)		2,803
Total	$	20,922	$	(8,626)	$	12,296	$	20,495	$	(6,198)	$	14,297

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

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

As of December 31, 2021, future estimated amortization expense was as follows:


Year Ending March 31,
(In thousands)
2022	$	807
2023	3,113
2024	2,922
2025	2,444
2026	1,284
Thereafter	1,714
	$	12,284

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

Warranty Reserve Activity

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


Warranty Reserve Activity	Nine Months Ended December 31,
	2021		2020
	(In thousands)
Balance at beginning of fiscal year	$	569	$	416
Additions charged to cost of sales	171		438
Warranty claims	(108)		(284)
Balance at end of reporting period	$	632	$	570

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Earnings Per Share

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


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

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


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

3.Discontinued Operations

On May 5, 2020, the Company completed the sale of substantially all of our assets used in connection with our Agriculture and Weather Analytics business to DTN, an operating company of TBG AG, a Swiss-based holding company, pursuant to the DTN Purchase Agreement signed on May 2, 2020, in exchange for a total purchase consideration of $12.0 million in cash, subject to working capital adjustments. Upon closing, the Company received $10.5 million in cash, and $1.5 million of the payment was deferred. DTN paid the Company $1.45 million on the 12-month anniversary of the closing date, and $0.05 million at the 18-month anniversary of the closing date. The DTN Purchase Agreement also provides for customary post-closing adjustments to the purchase price related to working capital at closing. The parties also entered into certain ancillary agreements at the closing of the transaction that will provide Iteris with ongoing access to weather and pavement data that it integrates into its transportation software products, and a joint development agreement under which the parties agreed to pursue future joint opportunities in the global transportation market.

The sale of the Agriculture and Weather Analytics business was a result of the Company’s shift in strategy to focus on its smart mobility infrastructure management solutions and to capitalize on the potential for a future partnership upon the sale of this business component to DTN. We have determined that the Agriculture and Weather Analytics business, which constituted one of our operating segments prior to first quarter of Fiscal 2021, qualifies as a discontinued operation in accordance with the criteria set forth in ASC 205-20, Presentation of Financial Statements – Discontinued Operations.

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On May 5, 2020, the Company also entered into a transition services agreement (“TSA”) with DTN, pursuant to which the Company agreed to support the information technology and accounting functions of the Agriculture and Weather Analytics business for a period up to 12 months and DTN agreed to provide the contract administration/account management services for certain contracts of the Company and other transition services. Either party may make any reasonable request to extend the period of time the other party shall provide a transition service beyond the initial service period or access to additional services that are necessary for the transition of the operations and business. The income and costs associated with the TSA for the three and nine months ended December 31, 2021, were de minimis, which were included in income (loss) from discontinued operations on the unaudited condensed consolidated statement of operations.

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


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

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

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


	Three Months Ended December 31,				Nine Months Ended December 31,
	2021		2020		2021		2020
Service revenue	$	—	$	—	$	—	$	695
Cost of service revenues	—		—		—		349
Gross profit	—		—		—		346

Operating expenses:
General and administrative	28		6		148		752
Research and development	—		—				407
Restructuring charges	—		—		—		837
Total operating expenses	28		6		148		1,996
Operating loss from discontinued operations	(28)		(6)		(148)		(1,650)
Other income, net	—		24		44		51
Income (loss) from discontinued operation before income tax	(28)		18		(104)		(1,599)
Income tax (benefit) expense	—		47		—		(47)
Net income (loss) from discontinued operations	(28)		65		(104)		(1,646)
Gain on disposal of discontinued operations before income tax	—		—		—		11,315
Income tax expense (benefit) on gain on disposal	—		(16)		—		4
Gain on disposal of discontinued operations after income tax	—		(16)		—		11,319
Net income (loss) from discontinued operations	$	(28)	$	49	$	(104)	$	9,673

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


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

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

Trade accounts payable	349
Deferred revenue	1,518
Total Agriculture and Weather Analytics business liabilities	1,867
Gain on sale of Agriculture and Weather Analytics business	$	11,315

The initial proceeds were net of transaction costs of approximately $1.1 million.

4.Restructuring Activities

On April 30, 2020, in connection with the sale of the Agriculture and Weather Analytics business, the Board approved restructuring activities to better position the Company for increased profitability and growth, and the Company incurred total restructuring charges of approximately $1.5 million, primarily resulting from a separation for certain employees who did not transition to DTN, additional positions that were eliminated to right-size the cost structure of the Company and lease impairment related to our Grand Forks, North Dakota facility.

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

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


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

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

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

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Balance at March 31, 2021	$	100
Cash payments	(79)
Balance at June 30, 2021	21
Adjustment to estimated expenses	(21)
Balance at September 30, 2021	$	—

5.Fair Value Measurements

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

We did not have any material financial assets or liabilities measured at fair value on a recurring basis using Level 3 inputs as of December 31, 2021 or March 31, 2021. Our non-financial assets, such as goodwill, intangible assets and property and equipment, are measured at fair value on a nonrecurring basis, generally when there is a transaction involving those assets such as a purchase transaction, a business combination or an adjustment for impairment. No non-financial assets were measured at fair value at December 31, 2021 and March 31, 2021. As a result of the reorganization during the nine months ended December 31, 2021, the Company reallocated goodwill to the three new reporting units discussed in Note 1, Description of Business and Summary of Significant Accounting Policies.

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


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

Liabilities:
Level 1:
Deferred compensation plan liabilities (2)	$	939	$	(55)	$	48	$	932
Subtotal	939		(55)		48		932
Level 3:
Contingent consideration (3)	600		—		—		600
Subtotal	600		—		—		600
Total	$	1,539	$	(55)	$	48	$	1,532

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

Level 2:
Commercial paper	4,999		—		—		4,999
Corporate notes and bonds	1,085		—		—		1,085
US Treasuries	4,600		—		—		4,600
Subtotal	10,684		—		—		10,684
Total	$	15,449	$	—	$	11	$	15,460

Liabilities:
Level 1:
Deferred compensation plan liabilities (2)	$	100	$	—	$	11	$	111
Subtotal	100		—		11		111
Level 3:
Contingent consideration (3)	600		—		—		600
Subtotal	600		—		—		600
Total	$	700	$	—	$	11	$	711

(1) Included in prepaid expenses and other current assets on the Company’s consolidated balance sheet.

(2) Included in accrued payroll and related expenses on the Company’s consolidated balance sheet.

(3) Included short-term portion in accrued liabilities and long-term portion in other long-term liabilities on the Company’s consolidated balance sheet.

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

6.Income Taxes

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

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

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

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

On March 27, 2020, the CARES Act was enacted in response to the Pandemic. The CARES Act contains numerous income tax provisions, such as relaxing limitations on the deductibility of interest and the use of net operating losses arising in taxable years beginning after December 31, 2017. The income tax provisions of the CARES Act had an immaterial impact on our current taxes, deferred taxes, and uncertain tax positions of the Company in the year ended March 31, 2021. The CARES Act also allows for the deferral of payroll taxes, as well as the immediate refund of federal Alternative Minimum Tax credits, which had previously been made refundable over a period of four years by the Tax Cuts and Jobs Act of 2017. The Company is utilizing the provision of the CARES Act allowing for the deferral of payroll taxes as of December 31, 2021.

7.Commitments and Contingencies

Litigation and Other Contingencies

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

8.Right-of-Use Assets and Lease Liabilities

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

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

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

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	Classification	December 31, 2021
		(In thousands)
Assets
Operating lease right-of-use-assets - continuing operations	Right-of-use assets	$	11,934
Operating lease right-of-use-assets - discontinued operation	Noncurrent assets of discontinued operations	24
Total operating lease right-of-use-assets		$	11,958

Liabilities
Operating lease liabilities (short-term) - continuing operations	Accrued liabilities	$	1,385
Operating lease liabilities (short-term) - discontinued operation	Current liabilities of discontinued operations	100
		1,485
Operating lease liabilities (long-term) - continuing operations	Lease liabilities	11,380
Operating lease liabilities (long-term) - discontinued operation	Noncurrent liabilities of discontinued operations	197
		11,577
Total lease liabilities		$	13,062

Lease Costs

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

Supplemental Information

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


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

Maturities of Lease Liabilities

Maturities of lease liabilities as of December 31, 2021 were as follows:

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Fiscal Year Ending March 31,	Operating Leases
(In thousands)
2022	$	680
2023	2,105
2024	2,816
2025	2,616
2026	2,343
Thereafter	4,513
Total lease payments	15,073
Less imputed interest	(2,011)
Present value of future lease payments	13,062
Less current obligations under leases	(1,485)
Long-term lease obligations	$	11,577

9.Stock-Based Compensation

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

Stock Options

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


	Options	Weighted Average Exercise Price Per Share
	(In thousands)
Options outstanding at March 31, 2021	5,623	$	4.10
Granted	869	5.08
Exercised	(489)	2.89
Forfeited	(119)	4.87
Options outstanding at December 31, 2021	5,884	4.33

Restricted Stock Units

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


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

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Performance Stock Units

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


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

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

Stock-Based Compensation Expense

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


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

As of December 31, 2021, there was approximately $4.1 million, $0.5 million and $0.5 million of unrecognized compensation expense related to unvested stock options, RSUs and PSUs, respectively. This expense is currently expected to be recognized over a weighted average period of approximately 2.8 years for stock options, 2.1 years for RSUs and 2.2 years for PSUs. If there are any modifications or cancellations of the underlying unvested awards, we may be required to accelerate, increase or cancel any remaining unearned stock-based compensation expense. Future stock-based compensation expense and unearned stock-based compensation will increase to the extent that we grant additional stock options, RSUs or other stock-based awards.

Other Stock-Based Compensation Plans

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

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

Deferred Compensation Plan

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

Employment Inducement Incentive Award Plan

On December 4, 2020, the Board approved the Iteris, Inc. 2020 Employment Inducement Incentive Award Plan (the “Inducement Plan”). The terms of the Inducement Plan are substantially similar to the terms of the Company’s 2016 Omnibus Incentive Plan with the exception that incentive stock options may not be granted under the Inducement Plan. The Inducement Plan was adopted by the Board without stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules.

The Board initially reserved 300,000 shares of the Company’s common stock for issuance pursuant to awards granted under the Inducement Plan. In accordance with Rule 5635(c)(4) of the Nasdaq Listing Rules, awards under the Inducement Plan may only be made to an employee who has not previously been an employee or member of the Board or any parent or subsidiary, or following a bona fide period of non-employment by the Company or a parent or subsidiary, and only if he or she is granted such award in connection with his or her commencement of employment with the Company or a subsidiary and such grant is an inducement material to his or her entering into employment with the Company or such subsidiary.

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

10.Stock Repurchase Program

On August 9, 2012, the Board approved a new stock repurchase program pursuant to which we may acquire up to $3.0 million of our outstanding common stock for an unspecified length of time. Under the program, we may repurchase shares from time to time in the open market and privately negotiated transactions and block trades, and may also repurchase shares pursuant to a 10b5-1 trading plan during our closed trading windows, to the extent such a 10b5-1 plan is in place. There is no guarantee as to the exact number of shares that will be repurchased. We may modify or terminate the repurchase program at any time without prior notice. On November 6, 2014, the Board approved a $3.0 million increase to the Company’s existing stock repurchase program, pursuant to which the Company may continue to acquire shares of its outstanding common stock from time to time for an unspecified length of time. For the three and nine months ended December 31, 2021 and 2020, we did not repurchase any shares. From inception of the 2012 stock repurchase program through December 31, 2021, we repurchased approximately 2,458,000 shares of our common stock for an aggregate price of approximately $4.3 million, at an average price per share of $1.73. As of December 31, 2021, all repurchased shares have been retired and resumed their status as authorized and unissued shares of our common stock. As of December 31, 2021, approximately $1.7 million remains available for the repurchase of our common stock under our current program.

11.Acquisitions

TrafficCast Acquisition

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On December 7, 2020, the Company completed the acquisition of the assets of TrafficCast, a privately held company headquartered in Madison, Wisconsin that provides travel information technology, applications and content to media, mobile technology, automotive and public sector customers throughout North America. Under the TrafficCast Purchase Agreement, Iteris purchased from TrafficCast substantially all of the assets used in the conduct of the Business and assumed certain specified liabilities of the Business.

The aggregate acquisition-date fair value of the consideration transferred of $16 million in addition to liabilities assumed of $1.7 million totaled approximately $17.7 million, which consisted of the following:


	Fair Value
	(in thousands)
Cash	$	15,000
Security hold back	1,000
Acquisition-related liabilities	1,131
Contingent consideration	600
Total	$	17,731

The security hold back relates to amounts held back as security for certain post-closing adjustments and post-closing indemnity obligations of TrafficCast, and is included in accrued liabilities on the unaudited condensed consolidated balance sheets. Acquisition-related liabilities include customary post-closing adjustments, as well as short term liabilities related to certain ancillary agreements that will provide Iteris with ongoing access to mapping and monitoring services. These items are included in accrued liabilities on the unaudited condensed consolidated balance sheets. Contingent consideration relates to a $1 million earn out, that if earned, will be paid over two years based on the Business’ achievement of certain revenue targets. This item is included in other long-term liabilities on the unaudited condensed consolidated balance sheets.

The acquisition of TrafficCast has been accounted for as a business combination. We estimated the fair values of net assets acquired, and the excess of the consideration transferred over the aggregate of such fair values was recorded as goodwill. The Company believes the goodwill related to the acquisition was a result of the ability of the Company to leverage its technology in the broader market, as well as offering cross-selling market exposure opportunities. Goodwill from the acquisition of TrafficCast is included in the Company's consolidated balances and is included in the annual review for impairment. The goodwill is fully deductible for tax purposes. The earnout consideration was valued using a Monte Carlo simulation. The fair value estimates are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions. We believe the assumptions are representative of those a market participant would use in estimating fair value.

The following tables summarize the purchase price allocation (in thousands) as of December 7, 2020:


Trade accounts receivable	$	2,087
Unbilled accounts receivable	596
Inventories	941
Right-of-use assets	193
Property and equipment	233
Intangible assets	9,500
Goodwill	7,750
Other assets	242
Total assets acquired	21,542
Accounts payable	1,026
Deferred revenue	2,460
Lease liabilities	193
Other liabilities	132
Total liabilities assumed	3,811
Total purchase price	$	17,731

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

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


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

Acquisition-Related Costs

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

Pro Forma Financial Information

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


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

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

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

12.Business Segments

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In Fiscal 2021, the Company completed the sale of substantially all of the assets used in connection with the Agriculture and Weather Analytics segment to DTN in exchange for a total purchase consideration of $12.0 million. On April 30, 2020, in connection with the sale of the Agriculture and Weather Analytics segment, the Board approved restructuring activities to better position the Company for increased profitability and growth. Restructuring charges of approximately $1.5 million were incurred in Fiscal 2021 for separation costs for certain employees who did not transition to DTN, additional positions that were eliminated to right-size the cost structure of the Company, and the impairment of certain lease-related assets.

On December 6, 2020, the Company entered into an Asset Purchase Agreement with TrafficCast (“TrafficCast”), a privately held company headquartered in Madison, Wisconsin that provides travel information technology, applications and content to customers throughout North America in the media, mobile technology, automotive and public sectors. Under the TrafficCast Purchase Agreement, the Company agreed to purchase from TrafficCast substantially all of its assets, composed of its travel information technology, applications and content. The transaction closed on December 7, 2020.

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

13.Subsequent Events

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

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

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

Forward-Looking Statements

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

Overview

General

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

Recent Developments

Impact of COVID-19 on Our Business

The COVID-19 pandemic (the “Pandemic”) has materially adversely impacted global economic conditions. More than eighteen months into the Pandemic, COVID-19 continues to have an unpredictable and unprecedented impact on the U.S. economy as federal, state and local governments react to this public health crisis with travel restrictions, quarantines and "stay-at-home" orders. The uncertainties caused by the Pandemic include, but are not limited to, supply chain disruptions, workplace dislocations, economic contraction, and downward pressure on some customer budgets and customer sentiment in general. We have not had any facility closures due to the pandemic, but we have experienced some supply chain and work delays due to the Pandemic. Should such delays become protracted or worsen or should longer term budgets or priorities of our clients be impacted, the Pandemic could materially impact our business, results of operations and financial condition. The extent of the impact of the Pandemic on our business and financial results, and the volatility of our stock price will depend largely on future developments, including the duration of the spread of the outbreak, new and potentially more contagious variants, such as the Delta and Omicron variants, the impact on capital and financial markets, the distribution, rate of adoption and efficacy of vaccines, and the related impact on the budgets and financial circumstances of our customers and suppliers, all of which are highly uncertain and cannot be reasonably estimated as of the date of this report.

Given the uncertainties surrounding the impacts of the Pandemic on our future financial condition and results of operations, we have taken certain actions to preserve our liquidity, manage cash flow and strengthen our financial flexibility. Such actions included, reducing our discretionary spending, reducing capital expenditures, implementing restructuring activities with the goal of reducing payroll costs, including employee furloughs, pay freezes and pay cuts.

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Our products require specialized parts which have become more difficult to source and have become subject to substantially increased prices as a result of the supply chain interruptions caused by the Pandemic. In anticipation of these shipment lead times as well as the fluctuation in prices, we may continue to build inventory for anticipated periods of growth, may build inventory anticipating demand that does not materialize, or may build inventory to serve what we believe is pent-up demand. We may remain supply-constrained beyond our Fiscal 2022. We have placed non-cancellable inventory orders for certain products in advance of our normal lead times to secure normal and incremental future supply and capacity and may need to continue to do so in the future.

On March 27, 2020, the CARES Act was signed into law in the United States. The CARES Act provides relief to U.S. corporations through financial assistance programs and modifications to certain income tax provisions. The Company is applying certain beneficial provisions of the CARES Act, including the payroll tax deferral and the alternative minimum tax acceleration. For more information, refer to Note 6, Income Taxes, to our Unaudited Condensed Consolidated Financial Statements, including in Part I, Item 1 of this report.

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

Despite the Pandemic, we believe that the ITS industry in the US should continue to provide new opportunities for the Company although, in the near term, the pace of new opportunities emerging may be restrained and the start dates of awarded projects may be delayed. We believe that our expectations are valid and that our plans for the future continue to be based on reasonable assumptions.

Sale of Agriculture and Weather Analytics Business

On May 5, 2020, the Company completed the sale of substantially all of our assets used in connection with our Agriculture and Weather Analytics business to DTN, LLC (“DTN”), an operating company of TBG AG, a Swiss-based holding company, pursuant to the Purchase Agreement signed on May 2, 2020 (the "DTN Purchase Agreement"), in exchange for a total purchase consideration of $12.0 million in cash, subject to working capital adjustments. Upon closing, the Company received $10.5 million and $1.5 million of payment was deferred. DTN paid the Company $1.45 million on the 12-month anniversary of the closing date, and $0.05 million at the 18-month anniversary of the closing date. The DTN Purchase Agreement also provides for customary post-closing adjustments to the purchase price related to working capital at closing. The parties also entered into certain ancillary agreements at the closing of the transaction that will provide Iteris with ongoing access to weather and pavement data that it integrates into its transportation software products, and a joint development agreement under which the parties agreed to pursue future joint opportunities in the global transportation market.

The sale of the Agriculture and Weather Analytics business was a result of the Company’s shift in strategy to focus on its mobility infrastructure management solutions and to capitalize on the potential for a future partnership upon the sale of this business component to DTN. We have determined that the Agriculture and Weather Analytics business, which constituted one of our operating segments prior to first quarter in Fiscal 2021, qualifies as a discontinued operation in accordance with the criteria set forth in ASC 205-20, Presentation of Financial Statements – Discontinued Operations.

On May 5, 2020, the Company also entered into a transition services agreement (“TSA”) with DTN, pursuant to which the Company agreed to support the information technology and accounting functions of the Agriculture and Weather Analytics business for a period up to 12 months and DTN agreed to provide the contract administration/account management services for certain contracts of the Company and other transition services. Either party may make any reasonable request to extend the period of time the other party shall provide a transition service beyond the initial service period or access to additional services that are necessary for the transition of the business operations. The income and costs associated with the TSA for the three and nine months ended December 31, 2021, were de minimis, which were included in income (loss) from discontinued operations on the unaudited condensed consolidated statement of operations.

Acquisition of the Assets of TrafficCast International, Inc.

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

TrafficCast operates two lines of business – commercial and public sector – each of which contributes about 50% of total revenue. Its commercial line of business develops software that collects, filters, and models real-time traveler information and traffic incident data for global media companies and other commercial customers. Its public sector line of business provides sensors and related software that help state and local agencies measure, visualize, and manage traffic flow. Since its integration in early Fiscal 2022, TrafficCast’s market-leading software and IoT devices, as well as its data ingestion, data science and analytics solutions, has enhanced Iteris’ suite of smart mobility infrastructure management solutions.

Non-GAAP Financial Measures

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

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

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

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

•They do not reflect our cash expenditures, future requirements for capital expenditures or contractual commitments;

•They do not reflect changes in, or cash requirements for, our working capital needs;

•Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;

•They are not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows;

•They do not reflect the impact on earnings of charges resulting from matters unrelated to our ongoing operations; and

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•Other companies in our industry may calculate Adjusted EBITDA differently than we do, whereby limiting its usefulness as comparative measures.

Because of these limitations, Adjusted EBITDA and the related financial ratios should not be considered as measures of discretionary cash available to us to invest in the growth of our business or as a measure of cash that will be available to us to meet our obligations. You should compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only as supplemental information. See our unaudited condensed consolidated financial statements contained in this Form 10-Q. However, in spite of the above limitations, we believe that Adjusted EBITDA and the related financial ratios are useful to an investor in evaluating our results of operations because these measures:

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

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

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

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

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

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

•Depreciation. Iteris excludes depreciation expense primarily because it is a non-cash expense. These amounts may be useful to investors because it generally represents the wear and tear on our property and equipment used in our operations.

•Amortization. Iteris incurs amortization of intangible assets in connection with acquisitions. Iteris also incurs amortization related to capitalized software development costs. Iteris excludes these items because it does not believe that these expenses are reflective of ongoing operating results in the period incurred. These amounts may be useful to investors because it represents the estimated attrition of our acquired customer base and the diminishing value of product rights.

•Stock-based compensation. These expenses consist primarily of expenses from employee and director equity based compensation plans. Iteris excludes stock-based compensation primarily because they are non-cash expenses and Iteris believes that it is useful to investors to understand the impact of stock-based compensation to its results of operations and current cash flow.

•Restructuring charges. These expenses consist primarily of employee separation expenses, facility termination costs, and other expenses associated with Company restructuring activities. Iteris excludes these expenses as it does not believe that these expenses are reflective of ongoing operating results in the period incurred. These amounts may be useful to our investors in evaluating our core operating performance.

•Project loss reserves. These expenses consist primarily of expenses incurred to complete a software development contract that will not be recoverable and are largely related to previously incurred and capitalized costs for non-recurring engineering activity. Iteris excludes these expenses as it does not believe that these expenses are reflective of ongoing operating results in the period incurred. These amounts may be useful to our investors in evaluating our core operating performance.

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

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


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

Critical Accounting Policies and Estimates

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

Recent Accounting Pronouncements

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

Analysis of Quarterly Results from Continuing Operations

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

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


	Nine Months Ended December 31,				$ Increase (decrease)		% Change
	2021		2020
	(In thousands, except percentages)
Product revenues	$	51,632	$	47,039	$	4,593	9.8	%
Service revenues	$	47,704	$	38,387	9,317		24.3	%
Total revenues	$	99,336	$	85,426	$	13,910	16.3	%

Product revenues primarily consist of product sales, but also includes OEM products for the traffic signal markets, as well as third-party product sales for installation under certain construction-type contracts. Product revenues for the three months ended December 31, 2021 decreased 3.1% to $15.9 million, as compared to $16.4 million in the corresponding period in the prior year, primarily due to supply chain and third-party supplier delays.

Service revenues primarily consist of traffic study, design, engineering, and management services, but also includes service revenues generated from advanced sensor technologies product installation services and cloud-based application installation and support services. Service revenues for the three months ended December 31, 2021 increased 36.8% to $16.1 million, compared to $11.8 million in the corresponding period in the prior year. This increase was due to continued adoption of Iteris' ClearMobility Platform and the addition of $2.0 million of TrafficCast SaaS revenue. Total annual recurring revenue, which we define as all software and managed services revenue was 25% of total revenue for the three months ended December 31, 2021 and 23% of total revenue for the three months ended December 31, 2020.

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

Product revenues for the nine months ended December 31, 2021 increased 9.8% to $51.6 million, as compared to $47.0 million in the corresponding period in the prior year, primarily due to continued strong demand for our hardware solutions, further augmented by the addition of approximately $4.6 million of TrafficCast product sales, offset by the factors aforementioned affecting the product revenues for the three months ended December 31, 2021.

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

Total revenues for the nine months ended December 31, 2021 increased 16.3% to $99.3 million, compared to $85.4 million in the corresponding period in the prior year. The increase in total revenues was primarily due to an approximate 9.8% increase in product revenues, and approximately 24.3% increase in services revenues.

Backlog is an operational measure representing future unearned revenue amounts believed to be firm that are to be earned under our existing agreements and are not included in deferred revenue on our unaudited condensed consolidated balance sheets. Backlog includes new bookings but does not include awarded orders for which definitive contracts have not been executed. We believe backlog is a useful metric for investors, given its relevance to total orders, but there can be no assurances we will recognize revenue from bookings or backlog timely or ever. Total backlog was $92.3 million as of December 31, 2021 compared to approximately $76.9 million as of December 31, 2020.

Gross Profit

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

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	Three Months Ended December 31,						$ Increase (decrease)		% Change
	2021			2020
	(In thousands, except percentages)
Product gross profit	$	5,481		$	7,967		$	(2,486)	(31.2)	%
Service gross profit	5,613			3,683			1,930		52.4	%
Total gross profit	$	11,094		$	11,650		$	(556)	(4.8)	%

Product gross margin as a % of product revenues	34.5		%	48.6		%
Service gross margin as a % of service revenues	34.8		%	31.2		%
Total gross margin as a % of total revenues	34.7		%	41.4		%


	Nine Months Ended December 31,						$ Increase (decrease)		% Change
	2021			2020
	(In thousands, except percentages)
Product gross profit	$	22,703		$	21,213		$	1,490	7.0	%
Service gross profit	13,614			12,663			951		7.5	%
Total gross profit	$	36,317		$	33,876		$	2,441	7.2	%

Product gross margin as a % of product revenues	44.0		%	45.1		%
Service gross margin as a % of service revenues	28.5		%	33.0		%
Total gross margin as a % of total revenues	36.6		%	39.7		%

Our product gross margin for the three and nine months ended December 31, 2021 decreased approximately 1410 and 110 basis points, respectively, as compared to the corresponding periods in the prior year. The decrease in product gross margin was due to higher costs for certain microchips and integrated circuits for our sensor products.

Our service gross margin for the three and nine months ended December 31, 2021 increased approximately 360 basis points and decreased approximately 450 basis points, respectively as compared to the corresponding periods in the prior year. The increase for the three months ended December 31, 2021 as compared to the three months ended December 31, 2020 was due to higher sales in application and cloud based services, which generally result in higher gross margins than other services. The decrease for the nine months ended December 31, 2021 as compared to the nine months ended December 31, 2020 was due to recognition of an estimated contractual loss on a project with a customer, for which approximately $3.4 million was recorded for the nine months ended December 31, 2021.

Our total gross margin for the three and nine months ended December 31, 2021 decreased approximately 670 and 310 basis points, respectively, as compared to the corresponding prior year periods due to aforementioned reasons.

General and Administrative Expense

General and administrative expense for the three months ended December 31, 2021 decreased approximately 5.4% to $5.9 million, compared to $6.3 million for the three months ended December 31, 2020. General and administrative expense for the nine months ended December 31, 2021 increased approximately 5.2% to $18.4 million, compared to $17.5 million for the nine months ended December 31, 2020. The decrease for the three months ended December 31, 2021 as compared to the three months ended December 31, 2020 was due to a decrease in compensation and benefit costs. The increase for the nine months ended December 31, 2021 as compared to the nine months ended December 31, 2020 was primarily due to the addition of TrafficCast, and additional professional services fees related to the Company's review of strategic alternatives.

Sales and Marketing

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

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Research and Development Expense

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

We plan to continue to invest in the development of further enhancements and functionality of our Iteris ClearMobility Platform as well as our Vantage products family.

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

Amortization of Intangible Assets

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

Income Taxes

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

Liquidity and Capital Resources

Liquidity Outlook

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We believe we will have adequate liquidity over the next 12 months to operate our business and to meet our cash requirements. As of December 31, 2021, we had cash and cash equivalents totaling approximately $27.5 million. We do not have a revolving credit facility as of December 31, 2021. See Note 13 Subsequent Events for further details on a revolving credit facility the company closed on January 25, 2022. Our cash position will also be impacted by any capital expenditures or acquisitions we complete in the future.

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

While the impact and duration of the Pandemic on our business is currently uncertain, the situation is expected to be temporary. In the longer term, we remain committed to increasing total shareholder returns through our investments in opportunities and initiatives to grow our business organically and through acquisitions that support our current strategies.

Cash Flows

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

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

Operating Activities. Net cash used by operating activities of our continuing operations for the nine months ended December 31, 2021 of approximately $2.0 million was primarily the result of approximately $10.3 million from non-cash items, primarily for noncash lease expense, deferred income taxes, depreciation, stock-based compensation, and amortization. This was offset by our net loss from continuing operations of approximately $3.9 million coupled with approximately $8.5 million of outflows due to changes in working capital. Net cash used in operating activities from discontinued operations was approximately $0.1 million.

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

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

Net cash used in investing activities of our continuing operations during the nine months ended December 31, 2020 was primarily the result of approximately $23.7 million in purchases of short-term investments, approximately $15.0 million in cash paid for the TrafficCast acquisition, approximately $0.4 million of property and equipment purchases, and approximately $0.6 million of capitalized software development costs, related to VantageLive! and ClearGuide. These investments were partially offset by approximately $27.0 million in proceeds from the sale and maturity of short-term investments. Net cash provided by investing activities from discontinued operations was approximately $9.7 million.

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

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

Off Balance Sheet Arrangements

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

Seasonality

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

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

Changes in Internal Controls

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

Inherent Limitations on Internal Controls

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of management override or improper acts, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple errors. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to management override, error or improper acts may occur and not be detected. Any resulting misstatement or loss may have an adverse and material effect on our business, financial condition and results of operations.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

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

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

On August 9, 2012, our Board of Directors approved a new stock repurchase program pursuant to which we may acquire up to $3 million of our outstanding common stock for an unspecified length of time. Under the program, we may repurchase shares from time to time in the open market and privately negotiated transactions and block trades, and may also repurchase shares pursuant to a 10b5-1 trading plan during our closed trading windows, to the extent such a 10b5-1 plan is in place. There is no guarantee as to the exact number of shares that will be repurchased. We may modify or terminate the repurchase program at any time without prior notice. On November 6, 2014, our Board of Directors approved a $3.0 million increase to the Company’s existing stock repurchase program, pursuant to which the Company may continue to acquire shares of its outstanding common stock from time to time for an unspecified length of time.

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

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

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

Exhibit
Number

Description

Where Located

10.1

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

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

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10.2

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

Filed herewith

31.1

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

Filed herewith

31.2

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

Filed herewith

32.1

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

Furnished herewith

32.2

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

Furnished herewith

101.INS

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

Filed herewith

101.SCH

Inline XBRL Taxonomy Extension Schema Document

Filed herewith

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

Filed herewith

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

Filed herewith

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

Filed herewith

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

Filed herewith

104.1

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

Filed herewith

___________________________________

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SIGNATURES

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


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

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


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

confidential_severancexa

Page 1 of 11 Confidential Separation and Release Agreement: 030697.011-3056970v9 CONFIDENTIAL SEVERANCE AND RELEASE AGREEMENT This CONFIDENTIAL SEVERANCE AND RELEASE AGREEMENT (the “Agreement”) is hereby made and entered into this ______________ __, 202_, by and between ITERIS, INC. (the “Company”) and RAMIN MASSOUMI (“Executive”) (the Company and Executive, together, the “Parties”). 1. Termination. Executive’s employment with the Company will terminate effective as of December 31, 2021 (the “Termination Date”). Upon the Termination Date, Executive agrees to resign any and all board and officer positions with the Company and agrees to execute any reasonably necessary documents requested by the Company to effectuate and further evidence the same. Executive will be receive his Accrued Rights (as defined in the Amended and Restated Executive Severance Plan established by Iteris, Inc. on February 5, 2018 and amended and restated effective June 4, 2019 (the “Severance Plan”)), including payment for any accrued but unused vacation earned through the Termination Date, and will also be reimbursed for any approved business expenses that Executive has timely submitted for reimbursement in accordance with the Company’s business expense reimbursement policy or practice. Except as set out in this Agreement, as provided by the specific terms of a benefit plan or as required by law, all employee benefits will end on the Termination Date. Executive hereby acknowledges that upon receipt of his final paycheck, he will have been paid all compensation due and owing to him through the Termination Date for labor and services performed for the Company’s benefit. Executive agrees that as of the Termination Date, he will no longer hold a position within the Company and/or its subsidiaries, including any signature authority or power of attorney with respect to the Company, its subsidiaries and officers and directors. 2. Severance Benefits. If Executive signs and does not revoke this Agreement as provided in Section 20 below, the Company will provide Executive with the following payments and benefits collectively referred to in this Agreement as the “Severance Benefits”: (a) Severance Pay. Pursuant to the Severance Plan, the Company will provide Executive an amount in the aggregate equal to Executive’s annual Base Salary in effect as of the Termination Date (the “Severance Pay”). Subject to Section 8.13 of the Severance Plan, the Severance Pay will be paid in substantially equal installment payments over the one-year period following the Termination Date, payable in accordance with the Company’s normal payroll practices, but no less frequently than monthly, which payments in the aggregate shall be equal to the Severance Pay and which shall begin following the next pay period after the Effective Date (as defined below). The Severance Pay will be subject to applicable federal, state and local payroll taxes, and other withholdings required by law or authorized by Executive. Each payment of the Severance Pay shall be treated as a separate payment for purposes of Section 409A of the Internal Revenue Code, as amended (the “Code”), and the regulations issued thereunder (Section 409A”). (b) COBRA Reimbursement. Executive’s health benefit coverage as an active employee will end on the Termination Date. However, Executive will be eligible for COBRA Severance (defined below). If Executive timely elects continued health insurance coverage under December 30 1 DocuSign Envelope ID: 0C80020A-FBB9-483E-B812-58A7E5EE1B11

Page 2 of 11 Confidential Separation and Release Agreement: 030697.011-3056970v9 COBRA, the Company will pay Executive’s COBRA premiums to continue Executive’s group health care coverage (including coverage for eligible dependents and domestic partner, if applicable) (the “COBRA Severance”) at its current level through the period starting on the Termination Date and ending on the earliest to occur of (i) the end of the twelve-month period following the Termination Date; (ii) the date Executive becomes eligible for group health insurance coverage through a new employer; or (iii) the date Executive (or a dependent, as applicable) ceases to be eligible for COBRA continuation coverage for any reason, including plan termination (the “COBRA Payment Period”). In the event Executive becomes covered under another employer's group health plan or otherwise ceases to be eligible for COBRA during the COBRA Payment Period, Executive must notify the Company in writing of such event within two (2) weeks. Notwithstanding the foregoing, if the Company determines, in its sole discretion, that it cannot pay the COBRA Severance without a substantial risk of violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company shall in lieu thereof provide to Executive a taxable monthly cash payment in an amount equal to the monthly COBRA premium that Executive would be required to pay to continue Executive’s group health insurance coverage in effect of the Termination Date (which amount shall be based on the premium for the first month of COBRA coverage), which payments shall be made on the last day of each month regardless of whether Executive elects COBRA continuation coverage and shall end on the earlier of (x) the date upon which Executive obtains other employment or (y) the end of the twelve-month period following the Termination Date. (c) Consulting Services; Continued Vesting. i. For up to the twelve (12) month period following the Termination Date (the “Consulting Period”), Executive agrees to make himself available for reasonable consulting as requested by the Company during such period. Executive agrees to perform the consulting services diligently, competently, and in a professional manner, in compliance with all laws applicable to the provision of such services. Executive will at all times retain discretion and judgment in the manner and means of carrying out the consulting services and will not be expected to adhere to any particular schedule for the performance of such services, except in the case of occasional scheduled conferences or meetings. ii. To the extent Executive travels in the course of providing services to the Company during the Consulting Period, the Company will pay for all of Executive’s reasonable out of pocket expenses incurred in connection with such travel. The reimbursement of expenses will include pre-approved airfare, hotel and conference fees associated with conferences that Executive attends on Company’s behalf. These expenses will be reimbursed to Executive by Company no later than thirty (30) days after submission of the reimbursement request (with appropriate documentation) to Company by Executive. iii. Executive acknowledges and agrees that, during the Consulting Period, Executive will be an independent contractor and not an employee of the Company, and will not be entitled to receive any compensation for Executive’s service as an independent contractor other than as expressly provided above. Executive shall be eligible and free to become employed with any business or company of his choosing (or become self-employed) DocuSign Envelope ID: 0C80020A-FBB9-483E-B812-58A7E5EE1B11

Page 3 of 11 Confidential Separation and Release Agreement: 030697.011-3056970v9 outside the Company immediately after the Termination Date without limitation, provided that Executive continues to comply with any obligations to the Company that survive the termination of Executive’s employment, including but not limited to the obligations set forth in Executive’s Iteris Associate Agreement regarding proprietary information and intellectual property (the “Surviving Obligations”). In the event Executive becomes employed by a business other than the Company after the Termination Date, this will not affect or change any of Company’s obligations to pay any Severance benefits or other compensation due to Executive pursuant to this agreement. iv. Provided Executive reasonably makes himself available for consulting services during the Consulting Period, Executive will be entitled to continued vesting of all outstanding equity awards in accordance with and subject to the terms and conditions of any equity agreements and governing plan documents applicable to Executive. Executive acknowledges and agrees that to the extent any such equity awards were designated as incentive stock options pursuant to Section 422 of the Internal Revenue Code of 1986, the exercise of such options more than three months after Executive’s employment with the Company ends will result in the options being deemed nonstatutory stock options (except in certain limited circumstances specified in the applicable option grant agreement as permitted by applicable tax laws). Treatment of the options as nonstatutory stock options may result in tax consequences to Executive, including an obligation on the part of the Company to withhold taxes from income Executive may recognize at the time of exercise. Executive is encouraged to seek his own tax and financial advice regarding the consequences any decision to exercise the options, and acknowledges that he is not relying on any statements or representations of the Company or any of its agents with regard to such tax consequences. Except as expressly provided herein, the equity awards remain subject to the terms of the applicable award agreement(s) between Executive and the Company. If Executive does not sign this Agreement and return it to the Company within twenty-one (21) days of the date it was provided to Executive, or if Executive revokes this Agreement pursuant to Section 20, Executive will not be entitled to the Severance Benefits as described above. Executive hereby acknowledges and agrees that but for his execution of this Agreement, he would not be entitled to the Severance Benefits as set out herein. 3. Payment in Full. Executive agrees and acknowledges the Severance Benefits are specific and sufficient consideration for the releases and covenants contained in this Agreement. Executive further represents and affirms that, except as set forth in this Agreement, he has been paid and/or received all leave (paid or unpaid), compensation, wages, bonuses, commissions, severance, and/or benefits to which he may be entitled for any and all work performed for the benefit of the Company, including but not limited to his work as an employee and that no other leave (paid or unpaid), compensation, wages, bonuses, commissions, severance and/or benefits are due, except as provided for in this Agreement. Executive specifically agrees and acknowledges that the Severance Benefits described in this Agreement represent the total amount of severance and benefit continuation for which he is eligible under the Severance Plan. DocuSign Envelope ID: 0C80020A-FBB9-483E-B812-58A7E5EE1B11

Page 4 of 11 Confidential Separation and Release Agreement: 030697.011-3056970v9 4. Release of Claims. In consideration for the promises set forth in this Agreement, Executive, for himself and for his spouse, family, heirs, and anyone acting for him, including representatives, attorneys, executors, administrators, successors, insurers, and assigns, hereby releases, acquits, and forever discharges the Company, its past, present and future directors, officers, partners, representatives, shareholders, employees, agents, attorneys, parents, subsidiaries, affiliates, successors, predecessors and assigns, (the “Company Releasees”) or any of them, from any and all actions, causes of action, grievances, obligations, costs, expenses, damages, punitive damages, losses, claims, liabilities, suits, debts, demands, agreements, orders, benefits (including attorneys’ fees and costs actually incurred), or liabilities of whatever character, in law or in equity, known or unknown, suspected or unsuspected, matured or unmatured, asserted or not asserted, based on any act, omission, event, occurrence, or non- occurrence from the beginning of time through the Effective Date of this Agreement, including but not limited to any claims or causes of action arising out of or in any way relating to Executive’s employment, the termination of his employment with the Company, and/or any other occurrence arising before the Effective Date of this Agreement. This waiver and release includes, but is not limited to, claims that the Company and/or any of the Company Releasees: a. have violated or breached any personnel policies, handbooks, contracts of employment, severance pay agreements (including but not limited to the Severance Plan) or covenants of good faith and fair dealing; b. have discriminated, harassed or retaliated against Executive on the basis of age, race, color, sex, national origin, ancestry, disability, religion, harassment, marital status, parental status, handicap, genetic information, source of income, veteran status, entitlement to benefits, or any other protected characteristic, in violation of any local, state or federal law, ordinance or regulation, including, but not limited to: Title VII of the Civil Rights Act of 1964; 42 U.S.C. § 1981; the Civil Rights Act of 1866, 1964, and 1991; the Age Discrimination in Employment Act as amended by the Older Workers’ Benefit Protection Act; the Americans With Disabilities Act of 1990; the Rehabilitation Act of 1973; the Worker Adjustment Retraining and Notification Act; the National Labor Relations Act; the Occupational Safety and Health Act of 1970; the Equal Pay Act of 1963; the Genetic Information Nondiscrimination Act of 2008; the Sarbanes-Oxley Act; the California Fair Employment and Housing Act; the California Equal Pay Law; the California Wage Theft Protection Act; California Healthy Workplaces, Healthy Families Act of 2014; the California Occupational Health and Safety Act of 1973; the California Family Rights Act; the California Political Activities Discrimination Law; the California Whistleblower Laws; California Government Code § 12900, et seq.; California Labor Code; California New Parent Leave Act; and the California Family and Medical Leave Act; c. have violated public policy or common law, including claims under state and federal law for retaliatory discharge, negligent hiring or supervision, breach of contract, wrongful termination, tort, personal injury, invasion of privacy, defamation, intentional or negligent infliction of emotional distress and/or mental anguish, intentional interference with DocuSign Envelope ID: 0C80020A-FBB9-483E-B812-58A7E5EE1B11

Page 5 of 11 Confidential Separation and Release Agreement: 030697.011-3056970v9 contract, negligence, detrimental reliance, loss of consortium to Executive or to any member of his family, and/or promissory estoppel; d. have failed to pay wages or otherwise violated any law governing the payment of wages or protection of workers seeking payment for work performed, including, but not limited to laws governing the payment of wages in the State of California, and any other federal, state or local statutory and/or common laws; and/or e. have violated any other federal, state or local law, ordinance or regulation, including, but not limited to the Employee Retirement Income Security Act of 1974 (ERISA), the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), and/or the Family and Medical Leave Act (FMLA). However, this section does not apply to any COBRA benefits that may come due as a result of the Termination Date that will be made available subsequent to the Termination Date. Excluded from this release are any claims which cannot be waived by law, including but not limited to the right to file a charge with or participate in an investigation conducted by the U.S. Equal Employment Opportunity Commission, the California Department of Fair Employment and Housing, the National Labor Relations Board or any other federal, state or local governmental agency charged with investigating complaints, whether based in employment discrimination, violations of laws governing the payment of wages, labor law violations or otherwise (collectively, “Governmental Agencies”), provided that Executive is waiving, however, his right to any monetary compensation, or other relief should Governmental Agencies pursue any claims on his behalf. Also excluded from this release are any claims for a breach of this Agreement. Executive expressly agrees and understands that this release and waiver of claims is a GENERAL RELEASE, and that any reference to specific claims arising out of or in connection with his employment is not intended to limit the release and waiver of claims. Executive, his heirs, executors, beneficiaries, legal representatives and assigns, individually and/or in their beneficial capacity, further agree never to institute against the Company or any of the Company Releasees any lawsuit with respect to any claim or cause of action of any type which may have existed at any time prior to the Effective Date, provided that Executive may file a charge or complaint with or participate in an investigation conducted by a Governmental Agency as provided above. By signing this Agreement, Executive will waive any right he had to bring a lawsuit against any of the Company Releasees based upon any actions taken by any of the Company Releasees prior to the Effective Date, and he will have released the Company Releasees of any and all claims of any nature arising up to the Effective Date. Executive acknowledges that Executive is aware that Executive may hereafter discover facts in addition to, or different from, those which Executive now knows or believes to be true, but it is Executive’s intention here, fully and finally and forever, to settle and to release any and all matters, disputes and differences, known or unknown, suspected or unsuspected, that do now exist, may exist or heretofore have existed with respect to those matters described above. Executive hereby acknowledges that this release applies both to known and unknown claims that may exist between Executive and the Company and the Company Releasees. Executive hereby DocuSign Envelope ID: 0C80020A-FBB9-483E-B812-58A7E5EE1B11

Page 6 of 11 Confidential Separation and Release Agreement: 030697.011-3056970v9 expressly waives and relinquishes all rights and benefits that Executive may have under any state or federal statute or common law principle that would otherwise limit the effect of this Agreement to claims known or suspected prior to the date Executive executes this Agreement, and does so understanding and acknowledging the significance and consequences of such specific waiver. In addition, Executive hereby expressly understands and acknowledges that it is possible that unknown losses or claims exist or that present losses may have been underestimated in amount or severity, and Executive explicitly took that into account in giving this release. Executive hereby waives any and all rights under Calif. Civil Code § 1542, which provides that: A general release does not extend to claims that the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release and that, if known by him or her, would have materially affected his or her settlement with the debtor or released party. Section 2699 of the California Labor Code (the Private Attorneys General Act (PAGA)) allows employees to recover penalties for violations of the California Labor Code (“labor code violations”) on behalf of all “aggrieved” employees and the State of California. Section 2699(c) of the PAGA defines an “aggrieved employee” as follows: [A]ny person who was employed by the alleged violator and against whom one or more of the alleged violations was committed. As of the Effective Date of this Agreement, Executive acknowledges that Executive is not “aggrieved” for the purposes of any potential claims under PAGA because Executive agrees that Executive has not committed any labor code violations against Executive. Thus, as of the Effective Date of this Agreement, Executive lacks standing to bring a PAGA action because Employee is not “aggrieved.” 5. No Filings. Executive represents and warrants that he has not filed or otherwise initiated any action, claim, charge, complaint or lawsuit against the Company or any of the Company Releasees, with any agency, court or Governmental Agency. By signing this Agreement, Executive agrees and acknowledges that he has no cause to believe that any violation of any local, state or federal law has occurred with respect to his employment or separation of employment from the Company, including but not limited to any violation of any federal, state municipal, foreign or international whistleblower or fraud law, statute or regulation. In addition, Executive further agrees and acknowledges that he is not aware of any conduct that would be unlawful under the False Claims Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, or any other compliance obligation. 6. Confidentiality. Executive hereby represents and agrees that he will not (except as required by law) disclose information regarding the specific terms of this Agreement to DocuSign Envelope ID: 0C80020A-FBB9-483E-B812-58A7E5EE1B11

Page 7 of 11 Confidential Separation and Release Agreement: 030697.011-3056970v9 anyone except his immediate family, his attorney and accountant or financial advisor as reasonably necessary. 7. Defend Trade Secrets Act. Pursuant to the Federal Defend Trade Secrets Act of 2016, an individual shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that (a) is made (i) in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (b) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. An individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to his or her attorney and use the trade secret information in the court proceeding, if the individual (a) files any document containing the trade secret under seal; and (b) does not disclose the trade secret, except pursuant to court order. 8. Post-Employment Cooperation. Executive agrees to fully cooperate with the Company in all matters relating to the winding up of his work, including but not limited to, any current or future litigation in which the Company is or becomes involved; provided that, any such requested cooperation will be reasonable and with due regard for Executive’s other commitments, and provided further that Executive will be entitled to reimbursement of reasonable, necessary and approved expenses in rendering such cooperation which will include payment of Executive’s then existing hourly rate for time spent on any matters which occur subsequent to the Consulting Period. In addition, Executive will immediately return to the Company all personal property belonging to the Company that is in Executive’s possession or control, including, without limitation, all records, papers, files, drawings, notes, specifications, marketing materials, software, reports, proposals, equipment, or any other device, material, document or possession, however obtained. The Company acknowledges that Executive will retain as his own, all hardware in his possession, including his current laptop, cell phone and printer in Executive’s home office, provided that all Company data, software, and systems are deleted from such hardware to the satisfaction of the Company. The return of Company property as described in this Section is an express requirement under this Agreement and a condition to Executive’s receipt of the Severance Benefits. 9. No Admissions/No Representations. Executive understands, acknowledges and agrees that the release set out in Section 4 of this Agreement is a final compromise of any potential claims by Executive against the Company and the Company Releases. Executive further understands, acknowledges and agrees that the release set out in Section 4 of this Agreement in connection with his employment by and service to the Company is not an admission by the Company or the Company Releases that any such claims exist or that the Company or any of the Company Releases are liable for any such claims. The Parties each individually and independently acknowledge that, except as expressly set forth herein, no representation of any kind or character has been made to induce the execution of this Agreement. The Parties individually warrant for themselves that each is competent to execute this Agreement and accepts full responsibility therefor. The Parties further agree that this Agreement shall be deemed to have been prepared by the Parties jointly, and no ambiguity shall be resolved against any Party on the premise that it was responsible for drafting this Agreement, in whole or in part. DocuSign Envelope ID: 0C80020A-FBB9-483E-B812-58A7E5EE1B11

Page 8 of 11 Confidential Separation and Release Agreement: 030697.011-3056970v9 10. Non-Disparagement. Executive agrees not to publicly or privately criticize, denigrate, or disparage or make any statements or remarks that have the intended or foreseeable effect of harming the reputation of the Company and/or any of its present and former directors, officers, partners, representatives, shareholders, employees, agents, attorneys, insurers, parents, subsidiaries, affiliates, successors, predecessors and assigns through any means of communication, including, but not limited to, print or broadcast media or any Internet communication outlet. The Company agrees to instruct its senior management employees, executives, officers, and Human Resources not to denigrate, defame, or disparage Executive and/or his family members, agents, attorneys and/or representatives. Notwithstanding the foregoing, nothing in this Agreement prohibits any person from providing truthful information and/or testimony in connection with any investigation or proceeding conducted by Governmental Agencies. To the extent any prospective employer would like to contact the Company, Executive will direct such prospective employer to Human Resources, who will confirm only Executive’s dates of employment and job title and salary if requested by Executive. 11. Non-Solicit. To the fullest extent permitted under applicable law, Executive agrees that for a period of twelve (12) months immediately following the Termination Date, Executive will not directly or indirectly solicit any of the Company’s employees to leave their employment at the Company. 12. Relief and Enforcement. Executive understands and agrees that any breach of this Agreement by him will relieve the Company of its obligation to provide the Severance Benefits. However, this shall not apply unless the Company provides Executive with written notice of such breach, care of his attorney Alyssa Milman White, Esq., 610 Newport Center Drive, Suite 1200, Newport Beach, CA 92660, (949) 640-0800, within thirty (30) days, and to the extent such breach is curable, Executive will be given fifteen (15) days to cure said breach. Executive also understands and agrees that if he violates the terms of Sections 4, 5, 6, 7, 8, 10 or 11 of this Agreement, he will cause injury to the Company (and/or one or more of the Company Releasees) that will be difficult to quantify or repair, so that the Company (and/or the Company Releasees) will have no adequate remedy at law. Accordingly, Executive agrees that if he violates Sections 4, 5, 6, 7, 8, 10 or 11 of this Agreement, the Company (or the Company Releasees) will be entitled as a matter of right to obtain an injunction from a court of law, restraining him from any further violation of this Agreement. The right to an injunction is in addition to and not in lieu of any other remedies that the Company (or the Company Releasees) has at law or in equity. 13. Voluntary Execution. By signing below, Executive acknowledges that he has read the foregoing Agreement, that he understands its contents and that he has relied upon or had the opportunity to seek the legal advice of his attorney, who is the attorney of his own choosing. 14. Reservation of Rights/Waiver. Both Parties reserve the right to sue for breach of contract in the event that there is a breach of the covenants and/or obligations set forth herein. The failure of either Party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver thereof or deprive that Party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. DocuSign Envelope ID: 0C80020A-FBB9-483E-B812-58A7E5EE1B11

Page 9 of 11 Confidential Separation and Release Agreement: 030697.011-3056970v9 15. Choice of Law. This Agreement shall be governed by and interpreted under the laws of the State of California without regard for any conflict of law principle that would dictate the application of the laws of another jurisdiction. Venue of any litigation or dispute arising out of this Agreement shall be in Orange County, California. 16. Entire Agreement/Severability. This Agreement, including the Surviving Obligations (which are incorporated herein by reference) contains the entire, final expression of the agreement and understanding by and between the Parties with respect to the matters herein referred to, and it is a complete and exclusive statement of the terms thereof. This Agreement shall supersede all prior understandings, oral and written, hereto before had between the Parties with respect to the subject matter hereof. No amendments, representations, promises, agreements, or understandings, written or oral, not herein contained shall be valid or binding unless the same is in writing and signed by both Parties. Should any provision of this Agreement be declared or be determined by any agency or court to be illegal or invalid, the validity of the remaining parts, terms or provisions shall not be affected thereby and said illegal or invalid part, term or provision shall be deemed not a part of this Agreement. 17. Binding Nature of Agreement. This Agreement shall inure to the benefit of and shall be binding upon Executive, his heirs, administrators, representatives, executors, successors and assigns and upon the successors and assigns of the Company. 18. Headings. The headings of the sections of this Agreement are for convenience only and are not binding on any interpretation of this Agreement. 19. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 20. Review and Effective Date. a. Agreement is Knowing and Voluntary. Executive understands, agrees and acknowledges that he: 1. has carefully read and/or had read to him and fully understands all of the provisions of this Agreement; 2. knowingly and voluntarily agrees to all of the terms set forth in this Agreement; 3. knowingly and voluntarily intends to be legally bound by the same; and 4. was advised, and hereby is advised in writing, to consider the terms of this Agreement and consult with an attorney of Executive’s choice prior to executing this Agreement. DocuSign Envelope ID: 0C80020A-FBB9-483E-B812-58A7E5EE1B11

Page 10 of 11 Confidential Separation and Release Agreement: 030697.011-3056970v9 b. 21-Day Consideration Period. Executive acknowledges that the Company has offered him twenty-one (21) days to consider the terms and conditions of this Agreement and to decide whether to sign and enter into this Agreement. In the event that Executive elects to sign this Agreement prior to the expiration of the twenty-one (21) day period, he acknowledges that in doing so, he will voluntarily waive the balance of the twenty-one (21) days permitted. Executive understands and agrees that any change to the initially drafted terms of this Agreement are not material and will not restart the running of this twenty-one (21) day period. c. 7-Day Revocation Period. Executive has seven (7) days after his execution of this Agreement to revoke his acceptance of it (the “Revocation Period”). Any such revocation must be made in writing to be received by Jeff McDermott by the close of business on the seventh (7th) day following Executive’s signature to be effective. The Parties acknowledge and agree that this Agreement is neither effective nor enforceable and neither Party is obligated to perform the promises contained herein in the event that the Agreement is revoked or until expiration of the seven (7) day revocation period, the “Effective Date” of this Agreement. Notwithstanding any provision of this Agreement to the contrary, in no event shall the timing of the Executive’s execution of this Agreement, directly or indirectly, result in the Executive designating the calendar year of payment of an amount that is subject to Section 409A, and if a payment that is subject to execution of this Agreement and is subject to Section 409A could be made in more than one taxable year, payment will be made in the later taxable year to the extent required to comply with Section 409A. [Remainder of page left intentionally blank; signature page immediately follows.] DocuSign Envelope ID: 0C80020A-FBB9-483E-B812-58A7E5EE1B11

Page 11 of 11 Confidential Separation and Release Agreement: 030697.011-3056970v9 THE PARTIES EACH ACKNOWLEDGE FOR THEMSELVES THAT THEY EACH HAVE CAREFULLY READ THE FOREGOING CONFIDENTIAL SEPARATION AND RELEASE AGREEMENT, AND FULLY UNDERSTAND EACH OF ITS TERMS. THE PARTIES FURTHER ACKNOWLEDGE FOR THEMSELVES THAT EACH HAS FULL KNOWLEDGE AND UNDERSTANDING OF THE AGREEMENT’S LEGAL CONSEQUENCES AND EACH INTENDS TO BE BOUND BY SAME. Dated: 12/30/2021 RAMIN MASSOUMI Dated: ITERIS, INC. By: Title: DocuSign Envelope ID: 0C80020A-FBB9-483E-B812-58A7E5EE1B11 Joe Bergera 12/31/2021 President & CEO

Document

EXHIBIT 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Joe Bergera, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Iteris, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: February 3, 2022

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

Document

EXHIBIT 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Douglas L. Groves, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Iteris, Inc.;

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: February 3, 2022

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

Document

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Iteris, Inc. (the “Company”) on Form 10-Q for the quarter ended December 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Joe Bergera, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Date: February 3, 2022

			/s/ JOE BERGERA
			Joe Bergera
			Chief Executive Officer

A signed original of this written statement required by Section 906, or any other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

Document

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Iteris, Inc. (the “Company”) on Form 10-Q for the quarter ended December 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Douglas L. Groves, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Date: February 3, 2022

			/s/ DOUGLAS L. GROVES
			Douglas L. Groves
			Senior Vice President and Chief Financial Officer