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TABLE OF CONTENTS
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K



(Mark One)  

ý

 

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

For the fiscal year ended March 31, 20192020

OR

o

 

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

For the transition period from                                  to                                 

Commission file number 001-08762

LOGO

ITERIS, INC.
(Exact Name of Registrant as Specified in Its Charter)

Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
 95-2588496
(I.R.S. Employer
Identification No.)

1700 Carnegie Ave., Santa Ana, California
(Address of Principal Executive Offices)

 

92705
(Zip Code)

Registrant's Telephone Number, Including Area Code:(949) 270-9400

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

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $0.10 par value ITI The NASDAQ Stock Market LLC

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

         Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933, as amended (the "Securities Act"). Yes o    No ý

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.Securities Exchange Act of 1934, as amended (the "Exchange Act"). Yes o    No ý

         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 ý    No o

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

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

Large accelerated filer o Accelerated filer ý Non-accelerated filer o Smaller reporting company ý

Emerging growth company o

         If an emerging growth company, indicateIndicate by check mark ifwhether the registrant has elected notfiled a report on and attestation to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a)its management's assessment of the Exchange Act.effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. o

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

         The aggregate market value of the registrant's common stock held by nonaffiliates of the registrant as of September 30, 20182019 was approximately $132,700,000.$233,300,000. For the purposes of this calculation, shares owned by officers, directors and 10% stockholders known to the registrant have been deemed to be owned by affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of May 31, 2019,29, 2020, there were 33,388,69640,732,994 shares of our common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

         None.Part III of this report incorporates by reference certain information from the registrant's definitive proxy statement for the 2020 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission.

   


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ITERIS, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED MARCH 31, 20192020
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PART I

    

ITEM 1.

 

BUSINESS

  4 

ITEM 1A.

 

RISK FACTORS

  1112 

ITEM 1B.

 

UNRESOLVED STAFF COMMENTS

  2426 

ITEM 2.

 

PROPERTIES

  2426 

ITEM 3.

 

LEGAL PROCEEDINGS

  2426 

ITEM 4.

 

MINE SAFETY DISCLOSURES

  2426 

PART II

    

ITEM 5.

 

MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

  2527 

ITEM 6.

 

SELECTED FINANCIAL DATA

  2527 

ITEM 7.

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  2628 

ITEM 7A.

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

  4139 

ITEM 8.

 

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

  4240 

ITEM 9.

 

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

  8180 

ITEM 9A.

 

CONTROLS AND PROCEDURES

  8180 

ITEM 9B.

 

OTHER INFORMATION

  8284 

PART III

    

ITEM 10.

 

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

  8384 

ITEM 11.

 

EXECUTIVE COMPENSATION

  8884 

ITEM 12.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

  10084 

ITEM 13.

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

  10384 

ITEM 14.

 

PRINCIPAL ACCOUNTING FEES AND SERVICES

  10484 

PART IV

    

ITEM 15.

 

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

  10685 

        Unless otherwise indicated in this report, the "Company," "we," "us" and "our" refer to Iteris, Inc. and its wholly-owned subsidiary,subsidiaries, ClearAg, Inc. and Albeck Gerken, Inc., CheckPoint™, ClearAg®ClearGuide™, ClearPath Weather®ClearFleet™, CVIEW-Plus™, Edge®, EdgeConnect™, EMPower®, EvapoSmart™, IMFocus™, inspect™, iPeMS®, Iteris®, Iteris SPM™, Next®, P10™, P100™, P-Series™, PedTrax®, Pegasus™, Reverse 511®, SmartCycle®, SmartCycle Bike Indicator™, SmartSpan®, SPM™ (logo), TransitHelper®, UCRLink™, Vantage®, VantageLive!™, Vantage Next®, VantagePegasus®, VantageRadius®, Vantage Vector®, Velocity®, and VersiCam™ are among, but not all of, the trademarks of Iteris, Inc. Any other trademarks or trade names mentioned herein are the property of their respective owners.


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Cautionary Statement

        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, impact of planned acquisitions and dispositions, the Company's strategy for growth, competition, the impact of the outbreak of a novel strain of coronavirus, COVID-19, the impact of any current or future litigation, the impact of recent accounting pronouncements, the applications for and acceptance of our products and services, and the status of our facilities and product development. 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 I, Item 1A of this report, before deciding to invest in our company or to maintain or increase your investment. We undertake no obligation to revise or update publicly any forward-looking statement for any reason, including to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.


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PART I

ITEM 1.    BUSINESS

Overview

        Iteris, Inc. (referred to collectively with its wholly-owned subsidiary,subsidiaries, ClearAg, Inc. and Albeck Gerken, Inc. ("AGI"), in this report as "Iteris," the "Company," "we," "our," and "us") is a provider of essential applied informatics that enable smart transportation and digital agriculture.transportation. Municipalities, government agencies crop science companies, agriculture service providers and other agribusinessesbusinesses use our solutions to make roads safer and travel more efficient, as well as farmlands more sustainable, healthy and productive.efficient.

        As a pioneer in intelligent transportation systems ("ITS") technology for more than two decades, our intellectual property, products and software-as-a-service ("SaaS") offerings and weather forecasting systems offer a comprehensive range of ITS solutions to our customers throughout the U.S. and internationally.

        InPrior to the digital agriculture market,sale of our Agriculture and Weather Analytics segment in May 2020, we have combined our intellectual property with enhanced atmospheric, land surface and agronomic modeling techniques to offer smart content and analytic solutions that provideprovided analytical support to large enterprises in the agriculture industry, such as seed and crop protection companies, integrated food companies, and agricultural equipment manufacturers and service providers.

        We believe our products, solutions and services improve and safely optimize mobility within our communities, while minimizing environmental impact on the roads we travel and the lands we farm.our roadways.

        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 while supporting the agriculture market with our smart content and digital agriculture platform, andwe are always exploring strategic alternatives intended to optimize the value of all of our businesses.Company.

        Iteris was incorporated in Delaware in 1987 and has operated in its current form since 2004. Our principal executive offices are located at 1700 Carnegie Avenue, Santa Ana, California 92705, and our telephone number at that location is (949) 270-9400. Our website address is www.iteris.com. The inclusion of our website address in this report does not include or incorporate by reference into this report any information on, or accessible through, our website. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, together with amendments to these reports, are available on the "Investor Relations" section of our website, free of charge, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the U.S. Securities and Exchange Commission ("SEC").

Recent Developments

ClearAg,Public Offering and Acquisition of Albeck Gerken, Inc.

        On June 13, 2019, the Company completed an underwritten public offering of 6,182,797 shares of the Company's common stock for net proceeds to the Company of approximately $26.8 million, after deducting underwriting discounts and estimated offering expenses payable by the Company. The Company used approximately $6.2 million of the net proceeds of this offering to pay the cash portion of the purchase price in the acquisition of AGI, a privately-held professional transportation engineering services firm headquartered in Tampa, Florida (see Note 11, "Acquisition" of the Notes to Consolidated Financial Statements, included in Part II, Item 8 of this report for further details on the acquisition of AGI), and plans to use the balance of the net proceeds for general corporate purposes and possibly for other future acquisitions.


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Coronavirus

In March 2020, a global pandemic was declared by the World Health Organization related to the rapidly growing outbreak of a novel strain of coronavirus, COVID-19 ("the Pandemic"). The Pandemic is having an unprecedented impact on the U.S. economy as federal, state and local governments react to this public health crisis, such as travel restrictions, quarantines and "stay-at-home" orders. The uncertainties caused by these events and actions include, but are not limited to, the adverse effect of the Pandemic on the economy, our vendors, our employees and customers and customer sentiment in general. Continued impacts of the Pandemic have materially adversely impacted global economic conditions, and could impact our business, results of operations and financial condition. The extent of the impact of the Pandemic on our business and financial results and volatility of our stock price will depend largely on future developments, including the duration of the spread of the outbreak, the impact on capital and financial markets and the related impact on the financial circumstances of our customers, all of which are highly uncertain and cannot be reasonably estimated as of this report.

Sale of Segment

        On May 5, 2020, pursuant to an Asset Purchase Agreement (the "Purchase Agreement") entered in on May 2, 2020, the Company sold the assets of its Agriculture and Weather Analytics segment, composed of its ClearAg and ClearPath Weather product lines, to DTN, LLC ("DTN"), an operating company of TBG AG, a Swiss-based holding company. See Note 14 "Subsequent Events" of the Notes to Consolidated Financial Statements, included in Part II, Item 8 of this report for further details on the sale of the Agriculture and Weather Analytics segment.

Restructuring

        On April 2017,30, 2020, in connection with the sale of the Agriculture and Weather Analytics segment, the Board of Directors of Iteris, Inc. formedapproved a wholly-owned subsidiary, ClearAg, Inc.,plan of restructuring that will involve a Delaware corporation,charge in the range of approximately $1.7 million to provide ClearAg solutions$1.9 million in the fiscal quarter ending June 30, 2020, of which approximately 60% relates to the agriculture markets.sale of the Agriculture and Weather Analytics segment. The restructuring charge includes separation costs for certain employees who will not transition to DTN and an additional 10 to 15 positions that are being eliminated to right-size the cost structure of the Company. The restructuring is expected to result in a cash expenditure of approximately $1.7 million to $1.9 million. The annualized savings from the restructuring charges, excluding those related to the sale, are expected to be in the range of $1.2 million to $1.3 million. The amounts stated above are preliminary and subject to change as the Company finalizes its assessment of the charges and savings associated with the above items.

Products and Services

        We currently operate in three reporting segments:Our reportable segments consist of: Roadway Sensors, Transportation Systems, and, prior to May 5, 2020, Agriculture and Weather Analytics.

        The Roadway Sensors segment provides various advanced detection sensors and systems for traffic intersection management, communication systems and roadway traffic data collection applications. The Roadway Sensors product line uses advanced image processing technology and other techniques to capture and analyze sensor data through sophisticated algorithms, enabling vehicle, bicycle and pedestrian detection, as well as the transmission of both video images and data using various communication technologies. The Transportation Systems segment provides traffic engineering and consulting services, as well as


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managed services, performance measurement, traffic analytics, traveler information and commercial vehicle operating software solutions. The Agriculture and Weather Analytics segment includes ClearPath Weather, our road maintenance applications, and ClearAg, our digital agriculture platform.


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        See Note 1112 "Business Segments, Significant Customer and Geographic Information" of the Notes to Consolidated Financial Statements, included in Part II, Item 8 of this report for further details on our reporting segments. See Note 14 "Subsequent Events" of the Notes to Consolidated Financial Statements, included in Part II, Item 8 of this report for further details on the sale of the Agriculture and Weather Analytics segment.

        Our Roadway Sensors products include, among others, Vantage, VantageLive!, Vantage Next®, VantagePegasus, VantageRadius, Vantage Vector, Velocity, SmartCycle, SmartCycle Bike Indicator, SmartSpan, VersiCam, PedTrax and P-Series products.

        We believe that future growth domestically and internationally, will be dependent in part on the continued adoption of above-ground video detection technologies, instead of traditional in-pavement loop technology, to manage traffic.


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


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        Our Transportation Systems segment includes engineering and consulting services, focused onperformance measurement and traffic analytics solutions, as well as the development of transportation management and traveler information systems for the ITS industry. Our Transportation Systems services include planning, design, development and implementation of software and hardware-based ITS systems that integrate sensors, video surveillance, computers and advanced communications equipment to enable public agencies to monitor, control and direct traffic flow, assist in the quick dispatch of emergency crews, and distribute real-time information about traffic conditions. Our services include planning, design, implementation, operation and management of surface transportation infrastructure systems. We perform analysis and study goods movement, commercial vehicle operations, provide travel demand forecasting and systems engineering, and identify mitigation measures to reduce traffic congestion. The Transportation Systems segment also includes the operations of AGI beginning July 2, 2019 (see Note 11 "Acquisition" of the Notes to Consolidated Financial Statements, included in Part II, Item 8 of this report for further details on the acquisition of AGI).

        The Transportations Systems segment also includes our performance measurement and managementtraffic analytics solutions, Iteris Signal Performance Measures (SPM), Iteris ClearGuide, and iPeMS—a state-of-the-art information managementanalytics software suite that provides prescriptive data insights for multiple applications, including to help determine current and future traffic patterns, permitting the effective performance analysis and management of traffic infrastructure resources. iPeMSOur analytics suite of products utilizes a wide range of data resources and analytical techniques to determine current and future traffic patterns, permitting the effective performance analysis and management of traffic infrastructure resources. This information can then be analyzed by traffic professionals to measure how a transportation network is performing and to identify potential areas of improvement. iPeMS isThese applications are also capable of providing users with predictive traffic analytics, and easy-to-use visualization and animation features based on historical traffic conditions.

        We recently launched our comprehensive signal performance measures solution offering, Iteris SPM, a cloud-based application that provides proactive operations and signal maintenance with business process outsourcing and managed services. This offering is expected to be priced on a per intersection per month basis.

This segment also includes our advanced traveler information system solutions and services, as well as our commercial vehicle operations and vehicle safety compliance platforms, known as "ClearFleet", "CVIEW-Plus," "CheckPoint," "UCRLink" and "inspect." These platformssoftware applications support state-based commercial vehicle operations by storing and distributing intrastate and interstate commercial vehicle information for local, state and federal agencies' roadside and enforcement operations.

        Our Transportation Systems segment is largely dependent upon state and local governmental funding, and to a lesser extent federal governmental funding. In addition, various other funding mechanisms exist to support transportation infrastructure and related projects, including, but not limited to, bonds, dedicated sales and gas tax measures, and other alternative funding sources. We believe the overall expansion of our Transportation Systems segment in the future will continue to be dependent at least in part on the federal and local government's use of funds, and as in the past, our Transportation Systems business has been, at times, adversely affected by governmental budgetary issues. Delays in the allocation of funds may prolong uncertainty regarding the allotment of transportation funds in federal, state and local budgets.

        OurThe Agriculture and Weather Analytics segment, which we formed during the first quartersold in May 2020, consisted of our fiscal year ended March 31, 2013, consists of our ClearPath Weather, a road maintenance application, and ClearAg, solutions.a digital agriculture platform.

        Our        ClearPath Weather is a web-based solution, which includes a suite of tools that apply data assimilation and modeling technologies to assess weather conditions for customizable route/site weather


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and pavement forecasting, and render winter road maintenance recommendations for state agencies, municipalities and commercial companies to improve roadway maintenance decisions.


        Our ClearPath Weather business is a market leader in performance management solutions for state organizations. We intend to use our strong brand and deep experience in the traffic management market, as well as our market-specific intellectual property, to expand our leadership in data aggregation and analytics in this market.Table of Contents

        Beginning in late 2013, we undertook the development of "ClearAg solutions" for the digital agricultural market. These new products utilize and expand the intellectual property, technology base and product suites of our ClearPath Weather solutions. For our ClearAg solutions, we developed additional scientific and agronomic models and forecasts, expanded our computing infrastructure for additional big data acquisition and processing, and designed distributed delivery vehicles and products.

        OurThe ClearAg solutions combine weather and agronomic data with proprietary land-surface modeling and analytics to solve complex agricultural problems and to increase the efficiency and sustainability of farmlands. The ClearAg Platform delivers validation tools for ag inputs, irrigation, field readiness, and harvest solutions giving growers, researchers and other agribusinesses access to a comprehensive database of historical, real-time and forecasted weather, soil and plant health information, as well as other information on crop growth. Companies use the ClearAg Platform to simulate field conditions and determine how new products may perform on a crop given certain weather and soil conditions. Growers and agribusinesses leverage the ClearAg Platform to determine the best times to plant, spray, fertilize, irrigate, and harvest crops.

        Currently, we offer our ClearAg solutions were offered on a subscription basis, with customers consuming ClearAg through our visualization component application programming interfaces ("APIs"). These APIs facilitate the integration of ClearAg's analytics and insights with the offerings of large enterprise customers in the agriculture market. We commenced commercial sales

        On May 5, 2020, pursuant to a Purchase Agreement the Company sold the assets of the ClearAg solutions and related APIs in the first quarter of our fiscal year ended March 31, 2015 ("Fiscal 2015").

        We expect market acceptance of our ClearAg solutions to continue to increase in upcoming quarters. We plan to continue to fund the investments in our ClearAg solutions, through cash flow generated from our Roadway Sensors and Transportation Systems operations, revenues from ourits Agriculture and Weather Analytics segment, composed of its ClearAg and our available cashClearPath Weather product lines, to DTN, an operating company of TBG AG, a Swiss-based holding company. As a result of the sale, we no longer operate in the Agriculture and Weather Analytics segment. See Note 14 "Subsequent Events" of the Notes to Consolidated Financial Statements, included in Part II, Item 8 of this report for further details on hand, as needed. We may also elect to raise additional equity for these investments.the sale of the Agriculture and Weather Analytics segment.

        We currently sell our Roadway Sensors products through both direct and indirect sales channels. In the territories we sell through direct channels, we use a combination of our own sales personnel and outside sales organizations to sell, oversee installations, and support our products. Our indirect sales channel is comprised of a network of independent distributors in the U.S. and select international locations, which sell integrated systems and related products to the traffic management market. In the fourth quarter of our fiscal year ended March 31, 2018 ("Fiscal 2018"), we entered into a distribution agreement to expand our northern European sales coverage in the U.K. and Ireland. Our independent distributors are trained in, and primarily responsible for, sales, installation, set-up and support of our products, maintain an inventory of demonstration traffic products from various manufacturers, and sell directly to government agencies and installation contractors. These distributors often have long-term arrangements with local government agencies in their respective territories for the supply of various products for the construction and renovation of traffic intersections, and are generally well-known suppliers of various high-quality ITS products to the traffic management market. We periodically hold technical training classes for our distributors and end users, and maintain a full-time staff of customer support technicians throughout the U.S. to provide technical assistance when needed. When


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appropriate, we have the ability to modify or make changes to our distributor network to accommodate the needs of the market and our customer base.

        We market and sell our Transportation Systems services and solutions and, prior to May 2020, our ClearPath Weather services, primarily to government agencies pursuant to negotiated contracts that involve competitive bidding and specific qualification requirements. Most of our contracts are with federal, state and local municipal customers, and generally provide for cancellation or renegotiation at the option of the customer upon reasonable notice and fees paid for modification. We generally use


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selected members of our engineering, science and information technology teams on a regional basis to serve in sales and business development functions. Our Transportation Systems contracts generally involve long lead times and require extensive specification development, evaluation and price negotiations.

        Currently, we marketClearAg solutions were marketed and sell our ClearAg solutionssold on a subscription basis, under a SaaS license, to seed and crop protection companies, agriculture equipment manufacturers, irrigation solution providers, allied providers and other agriculture service providers. Due to the recent consolidation of certain large companies in the agriculture market, sales to such companies typically involve long lead times. Although we sell directly to all of our customers, some of these customers include ClearAg into their solutions which are ultimately used by growers.

        We have a small dedicated software solutions sales team that serves as an overlay to our regionally aligned customer management team.

        We have historically had a diverse customer base. For the fiscal year ended March 31, 2020 ("Fiscal 2020"), no individual customer represented greater than 10% of our total revenues. For the fiscal year ended March 31, 2019 ("Fiscal 2019")2019) and Fiscal 2018, one individual customer represented greater than 10% of our total revenues. As of March 31, 2020 and 2019, no individual customer accounted for more than 10% of our total trade accounts receivable.

Manufacturing and Materials

        We use contract manufacturers to build subassemblies that are used in our Roadway Sensors products. Additionally, we procure certain components for our Roadway Sensors products from qualified suppliers, both in the U.S. and internationally, and generally use multi-sourcing strategies when technically and economically feasible to mitigate supply risk. These subassemblies and components are typically delivered to our Santa Ana, California facility where they go through final assembly and testing prior to shipment to our customers. Our key suppliers include Veris Manufacturing MoboTrex, Inc. and Sony Electronics,MoboTrex, Inc. Our manufacturing activities are conducted in approximately 9,000 square feet of space at our Santa Ana, California facility. Production volume at our subcontractors is based upon quarterly forecasts that we generally adjust on a monthly basis to control inventory levels. Typically, we do not manufacture any of the hardware used in the transportation management and traveler information systems that we design and implement. Our production facility maintains a Quality Management System that is currently certified as conforming to all requirements of the ISO 9001 certified.9001:2015 international standard.

Customer Support and Services

        We provide warranty service and support for our products, as well as follow-up service and support for which we charge separately. Such service revenue was not a material portion of our total revenues for Fiscal 2020, Fiscal 2019 and Fiscal 2018 and the fiscal year ended March 31, 2017 ("Fiscal 2017").2018. We believe customer support is a key competitive factor for our company.Company.

        Our ClearAg solutions arewere primarily sold as annual subscription services with recurring monthly revenue. As an element of these services, we provideprovided full-time support and customer service for such ClearAg solutions.


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Backlog

        Our total backlog of unfulfilled firm orders was approximately $55.4$67.2 million as ofat March 31, 2019,2020, which included $44.5$53.4 million related to Transportation Systems, $6.2$8.7 million related to Roadway Sensors, and $4.7$5.2 million related to Agriculture and Weather Analytics. Typically, we recognize approximately more than 70% of our Transportation Systems backlog as of the end of a fiscal year in the subsequent fiscal year, and currently expect that trend to continue for the near future. Substantially all of the entire backlog for Roadway Sensors and Agriculture and Weather Analytics as ofat March 31, 20192020 is expected to be recognized as revenue in the fiscal year ending March 31, 20202021 ("Fiscal 2020"2021"). and only a small portion of the backlog for Agriculture and Weather Analytics was realized prior to its sale in May 2020. At March 31, 2018,2019, we had backlog of approximately $47.5$55.4 million, which included $37.7$44.5 million related to Transportation Systems, $5.6$6.2 million related to Roadway Sensors and $4.2$4.7 million related to Agriculture and Weather


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Analytics. The increase in backlog in the current fiscal year was largely due to increased sales and marketing efforts in our Transportation Systems segment during the current fiscal year.

        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 consolidated balance sheets. Backlog does not include announced orders for which definitive contracts have not been executed. We believe backlog is a useful metric for investors, given its relevance to total orders.

        The timing and realization of our backlog is subject to the inherent uncertainties of doing business with federal, state and local governments, particularly in view of budgetary constraints, cut-backs and other delays or reallocations of funding that these entities typically face. In addition, pursuant to the customary terms of our agreements with government contractors and other customers, our customers can generally cancel or reschedule orders with little or no penalties. Lead times for the release of purchase orders often depend upon the scheduling and forecasting practices of our individual customers, which also can affect the timing of the conversion of our backlog into revenues. For these reasons, among others, our backlog at a particular date may not be indicative of our future revenues, in particular for our Roadway Sensors segment.

Product Development

        Our product development activities are mostly conducted at our principal facility in Santa Ana, California, as well as our facilities in Grand Forks, North Dakota and Oakland, California. Our research and development costs and expenses were approximately $8.6 million for Fiscal 2020, $7.8 million for Fiscal 2019, and $7.9 million for Fiscal 2018, and $6.9 million for Fiscal 2017.2018. We expect to continue to pursue various product development programs and incur research and development expenditures, primarily in our AgricultureRoadway Sensors and Weather Analytics and Roadway SensorsTransportation Systems segments in future periods.

        We believe our engineering and product development capabilities are a competitive strength. We strive to continuously develop new products, technologies, features and functionalities to meet the needs of our ever-changing markets, as well as to enhance, improve upon, and refine our existing product lines. We plan to continue to invest in the development of our ClearAg and ClearPath Weather solutions, and oursoftware offerings that include Iteris SPM, iPeMS, Iteris ClearGuide, and Iteris ClearFleet, as well as our other commercial vehicle operations software offerings.products. In addition, we intend to continue to invest in further enhancements and functionality in our Vantage products family. We believe that developing new and enhanced product offerings across our segments and enhancing, refining and marketing our existing products are key components for strong organic growth and profitability.

Competition

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

        The markets in which our Agriculture and Weather Analytics segment operates vary from the commercial sector customers for ClearAg solutions to public sector customers for ClearPath Weather solutions. Our competitors vary in number, scope and breadth of the products and services they offer. In the public sector, we compete with some of the same transportation engineering, planning and design firms that also compete with our Transportation Systems segment. In the commercial sector, we compete with a variety of entities that currently provide weather-related data to that market, such as IBM/The Weather Company and DTN.


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


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        The markets in which our Transportation Systems segment operates is highly fragmented and subject to evolving national and regional quality, operations and safety standards. Our competitors vary in number, scope and breadth of the products and services they offer. Our competitors in the managed services and consulting business lines include a mix of local, regional and international engineering services firms. Our competitors in the software business line which includes(e.g., performance measurement and management, advanceadvanced traveler information systems, and our commercial vehicle operations and vehicle safety compliance platformsplatforms) include university affiliated software organizations, venture backed software companies, as well as other multi-disciplinary hardware and software corporations.

        The markets in which our Agriculture and Weather Analytics segment operated vary from the commercial sector customers for ClearAg solutions to public sector customers for ClearPath Weather solutions. Our competitors vary in number, scope and breadth of the products and services they offer. In the public sector, we competed with some of the same transportation engineering, planning and design firms that also compete with our Transportation Systems segment.

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

Intellectual Property and Proprietary Rights

        Our ability to compete effectively depends in part on our ability to develop and maintain the proprietary aspects of our technology. Our policy is to obtain appropriate proprietary rights protection for any potentially significant new technology acquired or developed by us. We currently have a total of 5321 issued U.S. patents, including: (i) 1014 relating to our Roadway Sensors technologies, twofour of which waswere issued in Fiscal 2019,2020 and (ii) 7 relating to our Transportation Systems technologies. Prior to the sale of our Agriculture and Weather Analytics segment in May 2020, we had a total of 36 issued U.S. patents relating to our Agriculture and Weather Analytics technologies, tentechnologies. Prior to the sale of which were issuedour Agriculture and Weather Analytics in Fiscal 2019, and (iii) 7 relating to our Transportation Systems technologies, one of which was issued in Fiscal 2019. We haveMay 2020, we had a total of 14 pending patent applications in the U.S. and 15 pending8 total foreign patent applications. The expiration dates of our patents range from 2026 to 2038. We intend to pursue additional patent protection to the extent we believe it would be beneficial and cost-effective.

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


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        Litigation may be necessary in the future to enforce our proprietary rights, to determine the validity and scope of the proprietary rights of others, or to defend us against claims of infringement or invalidity by others. An adverse outcome in such litigation or similar proceedings could subject us to significant liabilities to third parties, require disputed rights to be licensed from others or require us to cease marketing or using certain products, any of which could have a material adverse effect on our business, financial condition and results of operations. In addition, the cost of addressing any intellectual property litigation claim, both in legal fees and expenses, as well as from the diversion of management's resources, regardless of whether the claim is valid, could be significant and could have a material adverse effect on our business, financial condition and results of operations.

Employees

        As of March 31, 2019,2020, we employed 362414 full-time employees and 3126 part-time employees, for a total of 393440 employees. As a result of the sale of our Agriculture and Weather Analytics segment in May 2020 and related restructuring activities, we currently have approximately 348 full-time and 26 part-time employees. None of our employees is represented by a labor union, and we have never experienced a work stoppage. We believe our relations with our employees are good.

Government Regulation

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

ITEM 1A.    RISK FACTORS

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

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

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


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