Aftermarket

Iteris Reports "Solid Profitability" in First Fiscal Quarter

July 29, 2008

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Iteris Inc. Santa Ana, Calif., reported operating income of $1.4 million and net income of $666,000, or $0.02 per share, for the quarter ended June 30, 2008,
compared to operating income of $1.6 million and net income of $1.1 million, or $0.03 per share, in the same quarter of the prior fiscal year.

For the first quarter ended June 30, the company, which makes a Lane Departure Warning system for heavy trucks, reported net sales and contract revenues of $17.4 million, representing a 10.7 percent increase compared to net sales and contract revenues of $15.8 million reported in the first quarter of the prior fiscal year. This increase was primarily a result of a 25.5 percent increase in Transportation Systems contract revenues which were $6.9 million for the quarter. Roadway Sensors and Vehicle Sensors net sales in the current quarter were $7.4 million and $3.1 million, respectively.

Gross margin decreased slightly to 44.4 percent in the current quarter compared to 45.0 percent in the first quarter of the prior fiscal year mainly as a result of an increase in contract revenues as a percentage of total net sales and contract revenues. Contract revenue gross margins are generally less than those derived from product sales and are typically in the mid 30 percent range. Operating expenses were $6.4 million for the quarter, representing an increase of 16.0 percent from $5.5 million reported in the first quarter of the prior fiscal year, and increased as a percentage of net sales and contract revenues from 35.0 percent in the first quarter of fiscal 2008 to 36.7 percent in the current quarter.

"I am pleased Iteris achieved double-digit growth and solid profitability, while making focused investments in new product development and sales and marketing despite challenging economic conditions," said Abbas Mohaddes, president and chief executive officer. "Some of our investments have already paid off as evidenced by our contract backlog, which reached an all-time high of $28.5 million mainly as a result of an additional $11.0 million in signed contracts during our first quarter."

Included in current quarter net income is a $491,000 income tax provision. In the prior year quarter, the income tax provision of $134,000 benefited from the release of valuation allowance that was recorded against certain deferred tax assets. In the current quarter and for the remainder of fiscal 2009, the company expects to record a provision for income taxes at an effective tax rate of approximately 40 percent. Iteris analyzes its tax position quarterly and should this analysis result in a change in future estimated taxable income, the valuation allowance recorded against any remaining unrealized deferred tax assets will be evaluated and if released, in part or in whole, could reduce the company's effective tax rate to less than 40 percent. The company had over $10 million in net deferred tax assets recorded on the June 30, 2008 balance sheet, which it expects to use to off-set federal income taxes payable to the extent allowable.

Approximately $11.0 million in new Transportation Systems consulting contracts were signed during the quarter ended June 30, 2008. Transportation Systems consulting backlog at the end of the first fiscal quarter was $28.5 million, up from $24.6 million reported at the end of the prior fiscal quarter.

To date, 65 U.S. heavy truck fleets have selected the Iteris Lane Departure Warning system, collectively representing an estimated 49,000 vehicles, while testing of the LDW systems continues with 83 heavy truck fleets that the company estimates represent more than 156,000 vehicles.

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