Abbas Mohaddes - President and Chief Executive Officer Craig Christensen - Controller

Jeff Van Sinderen - B. Riley & Company William Myers - Miller Asset Management Chris Biles - CJB Capital Management

Good afternoon everyone and thank you for participating in today’s conference call to discuss Iteris’ Financial Results for its Fiscal Second Quarter ended September 30, 2013. Joining us today are Iteris’ President and CEO, Mr. Abbas Mohaddes; and the Company’s Controller, Mr. Craig Christensen. Following their remarks, we’ll open the call up for your questions. Before we continue, we would like to remind all participants that during the course of this call, we may make forward-looking statements regarding future events or the future performance of the Company, which are based on current information and subject to change are not guarantees of future performance. Iteris is not undertaking an obligation to provide updates to these forward-looking statements in the future. Actual results may differ substantially from what is discussed today, and no one should assume that at a later date the Company’s comments from today will still be valid. Iteris refers you to the documents that the Company files from time-to-time with the (section). Specifically, the Company’s most recent Forms 10-K, 10-Q, 8-K, which contains the identity and important Risk Factors that could cause actual results to differ materially from those that are contained in any of the forward-looking statements. I would like to remind everyone that a webcast replay of today’s call will be available via the Investors section of the Company’s website at www.iteris.com. Now I’d like to turn the call over to Iteris’ President and CEO, Mr. Abbas Mohaddes. Sir, please proceed. Abbas Mohaddes - President and Chief Executive Officer: Thanks, (Nicole) and good afternoon everyone. As you saw at the close of the market today we issued a press release announcing the financial results of our fiscal second quarter ended September 30, 2013. During the quarter we experienced consolidated revenue growth, record Roadway Sensors revenue and increased margins which demonstrates the successful execution of our business plan and continued expansion into the intelligent traffic management market. Supported by healthy performance in our Roadway Sensors segment we also saw an improvement in operating income which included accelerated investment in iPerform. iPerform continues to gain momentum through key IT development, customer and staff expansion and the achievement of multiple milestones. Such milestones included the release of a new graphical user interface and integrated weather data and traffic incident information. These advancements were necessary to lay the groundwork for the development of our predictive weather and traffic platforms. But before going into further detail about the quarter and our outlook I will have to turn the call over to our Controller, Craig Christensen who will take us through the details of our financial results, afterwards I’ll return to discuss more of the highlights for the quarter and how we plan to build shareholder value as we move through our second half of fiscal 2014 and beyond. Finally we will open the call for your questions. Craig. Craig Christensen - Controller: Thanks, Abbas. Good afternoon everyone and thanks again for joining us today. For the fiscal second quarter ended September 30, 2013 total revenues increased 10% to $17 million compared to $15.5 million in the year ago quarter. The increase in revenues was primarily attributed to a 22% increase in Roadway Sensors revenue to a record $8.8 million and to a lesser extent a 20% increase in iPerform revenues to $1.4 million. The increase in Roadway Sensors revenues was primarily due to the success of various growth initiatives developed earlier in the year, strong demand in the traffic video detection market and improved traction in key products such as the Vantage Vector hybrid video and radar detection system. These increases were partially offset by a 4% decrease in Transportation Systems revenues primarily due to scheduling on certain contract awards. As you may recall during the first quarter we underwent an internal reorganization where we reassigned the weather related management decision support services which were historically included in the Transportation Systems segment into the iPerform segment to better align our predictive weather and traffic capabilities, resources and initiatives. Therefore prior year segment information provided in today’s press release is restated to reflect the reassignment of approximately $326,000 in revenues from Transportation Systems to iPerform in the year ago quarter. As there are different characteristics affecting each of our revenue streams and various attributes affecting our financial results Abbas will provide more detail regarding our total revenues later in his comments. Gross margin in the second quarter was 40.6% compared to 39.2% in the year ago quarter. The 140 basis point increase was primarily the result of the shift in sales mix weighted more towards sales of Roadway Sensors products and better absorption of certain manufacturing overhead cost achieved from the significant increase in Roadway Sensors revenues. Roadway Sensors margins were approximately 51% which represents an increase of 150 basis points from 49.5% reported in the year ago quarter. Although healthy at approximately 33% iPerform gross margins were down from 39% in the year ago quarter. iPerform gross margin is impacted by the factors similar to those in Transportation Systems. Transportation Systems margins were flat at 28.9%. As you may recall we recognized a portion of our Transportation Systems revenues and related gross margins using percentage of completion contract accounting and the underlying mix of contract activity affects the related gross profit recognized in any given period. Operating expenses increased 13% during the second quarter to $5.9 million, compared to $5.2 million in the same year ago quarter. The increase was primarily due to higher sales and marketing expenses in Roadway Sensors and iPerform as well as an increase in research and development expenses associated with iPerform. We invested approximately $485,000 in research development sales and marketing for iPerform compared to $342,000 in the same year ago quarter. Including the planned increase in R&D investments total operating income increased 20% to $1 million in the second quarter of 2014 compared to operating income of $837,000 in the year ago quarter. Net income in the second quarter of 2014 increased 20% to $661,000 or $0.02 per diluted share compared to $550,000 or $0.02 per diluted share in the year ago quarter. Cash at September 30, 2013 was $21.8 million compared to $19.1 million at March 31, 2013 and we continue to carry no debt. During the second quarter we repurchased approximately 21,000 shares of our common stock for $37,000 bringing the total to approximately 2.3 million shares since we initiated a series of share repurchase programs in August 2011. As of September 30, 2013 we have repurchased approximately 3.6 million worth of shares under these programs and have approximately $747,000 in funds remaining under the current program. Total backlog at the end of the second quarter was $40 million compared to $34.2 million in the prior quarter and $41.2 million in the same year ago quarter. Backlog was comprised of $31.1 million from Transportation Systems, $5.5 million from iPerform and $3.4 million from Roadway Sensors. This concludes my prepared comments on the financials. Now I’d like to turn the call back over to Abbas who will further discuss the quarter as well as our strategy as we move through the second half of fiscal year 2014. Abbas? Abbas Mohaddes - President and Chief Executive Officer: Thank you very much, Craig. As I indicated in my opening remarks we are very pleased with our sales growth and record Roadway Sensors revenue, as well as our expanded gross margins which are up over 100 basis points for the second quarter in a row. Our core Transportation Systems and Roadway Sensors segments remain on track with our internal growth plan and generated the operating income and cash flow necessary to fuel our continued investment in iPerform. With this planned increase in iPerform development, we have still enjoyed a 20% increase in operating income for the quarter. We continued to be confident in our market and believe the overall application of technology in transportation is gaining traction, particularly in the area of traffic management information. Before I speak more about our outlook, I’ll have to discuss our operating segments in more detail. As I have indicated, Roadway Sensors sales were up 22% to a record $8.8 million over the same quarter last year and 17% sequentially due to the success of various growth initiatives developed earlier, traction in some of our key products such as our Vector video and radar hybrid as well as healthier market conditions, primarily in the Western United States. Additionally, our innovative SmartCycle and SmartSpan products continue to gain traction addressing and solving their customer needs. We are the leader in this strong growing market and we believe we are continuing to take market share. We have kept our investment in international markets and made several new distribution agreements during the quarter in South America and Middle East. Roadway Sensors backlog was $3.4 million at the end of the second quarter compared to $3.2 million in the previous quarter. Our Transportation System sales were down 4% during the quarter largely due to a scheduling of certain contract awards. However year-to-date this segment has met our internal plan. We continue to believe our Transportation Systems business is well-positioned to capitalize on the Federal Highway Bill, the request for proposals from various agencies due to the bill continue to expand and as we have indicated before we believe we will be direct beneficiary of the bill. During the quarter we signed a six year contracted circle to operate Virginia’s Transportation Operations Centers. And specifically Iteris will provide general engineering and traffic operation services at two of the VDOT’s regional traffic centers. These centers monitor traffic conditions via cameras and other technology allowing them to provide travel information on road conditions, manage congestion and coordinate incident response. The operational component is valued at $6.6 million with general engineering services to potentially provide an additional $6 million to $8 million. Our VDOT award expands our strong support for Virginia’s transportation network since we prudently operate and maintain the Commonwealth's award-winning 511/Traveler Information Systems. This project has already kicked off and we have added several staff to provide onsite traffic operation assistance. There are several other opportunities where we are either in the process of submitting our bids or tracking the RFPs to be published which we expect in the upcoming quarters. Transportation Systems added $12 million in backlog during the quarter, far exceeding the burn rates of $6.9 million and bringing the total to $31.1 million. This compares to $6.1 million in the previous quarter. Moving on to our performance management segment or iPerform we continue to make solid progress in the quarter achieving two major milestones and bolstering our team of professionals. During the quarter, we hired nine new employees bringing our iPerform group to 62 total professionals. One of the notable additions was (indiscernible) an executive with extensive software-as-a-service and vertical market domain experience. He will serve as the VP of Marketing and Alliances. And we focus on channel sales and its strategic relationship development as well as on product launch plan development. As we’ve discussed iPerform was established in 2011 and provides a new generation of intelligent traffic and weather related information solutions. These solutions bring the power of Big Data to predicting traffic and weather conditions and delivering actionable information to both the public and commercial marketplace. This segment’s initial product Iteris PeMS or iPeMS is the state-of-the-art information management software suite that 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. We laid in fiscal 2013 we announced the beginning of an 18 month period of increased investment in iPerform and we are currently six months into this investment phase. Our commitment to this business is due to our belief that the market for traffic analytics is expanding dramatically. We plan to fund these investments through internal generated cash flow from our Roadway Sensors and Transportation Systems operating segments as well as revenues from iPerform. It is also important to note that we have been and expect to remain profitable during this 18 month period of investment. Our deep knowledge of traffic engineering and weather forecasting, our experienced managing traffic measurements on a massive at scale and our state-of-the-art analytical capabilities should position us to put complex Big Data to work enabling our customers to predict and solve real-time traffic management problems. The expansion of iPerform reflects our broadening focus beyond the public sector to a wider market that should benefit from our information based products and services. iPerform’s record in revenue model is expected to supplement our consulting and product businesses and augment the overall profitability of our organization. We prudently offer iPeMS as both license and software-as-a-service offering. By increasing investment in both technical and market development we are focused on expanding the scope of iPerform public sector solutions into the commercial marketplace. We continue to experience significant customer demand and have identified a number of commercial opportunities in the media, automotive, and mobile application markets. In fact during the quarter our team was able to secure an additional commercial partner and we have expanded discussions with several others. Although the contracts we have today with these two commercial customers are small, they are with reputable companies and have the potential to be very profitable anchored clients. During our first fiscal quarter, we released a significant upgrade to iPeMS which allows users to seamlessly ingest and analyze traffic data from multiple third-party data providers on a plug-and-play basis alleviating the need for costly and time consuming custom integration. This new product release also provides the ability to ingest historic third-party data which were analytics and visualization products combined with real-time sensor information and other real-time data to allow traffic management agencies to efficiently and effectively manage the road networks. These are just a few of the reasons we believe this product has a unique competitive advantage. While softwares such as Google Maps can provide travel information and routing in real-time, our iPeMS solution allows agencies and customers to analyze both historic and real-time information via dynamic visualization tools and reports using data from multiple sources. This includes fixed road sensors, third-party data, historic datasets and real-time traffic information. Today’s transportation markets require innovative technological solutions like iPeMS which go beyond monitoring travel time and a traditional red-yellow-green light paradigm to provide operators with the information they need to make actionable decisions for the traffic networks. To this end, we have several additional innovations on the development that will help drive iPerform’s market-leading position and accelerate the growth of this segment. As you may recall during the first quarter earnings calls, we also laid out other key product milestones that investors should track as it relates to our progress in iPerform. They include a robust graphical-user-interface, the integration of current and historic road and weather conditions, arterial performance measurement capabilities and a statistical predictive analytics for traffic, road and weather conditions. During the second quarter, we released new innovative visualization products, MAP-21 performance measurement tools, integrated additional types of information including real-time traffic incidence, road and weather conditions as well as traffic and weather prediction systems. We also continue to file patents around the software’s predictive analysis applications. As the market demand for better informational and analytics tools continues to expand, we believe the investments we are making today will highlight Iteris as a go-to-market leader. We expect our iPerform’s recurring revenue model to supplement our core consulting and product segments while enhancing the overall profitability of our business. Now, before I provide my closing remarks, we will be delighted to respond to questions and comments. Operator?

Thank you sir. We will now begin the question-and-answer session. (Operator Instructions) And our first question comes from the line of Jeff Van Sinderen from B. Riley & Company. Please go ahead, sir. Jeff Van Sinderen - B. Riley & Company: First let me say congratulations to your team on the year-over-year improvement. Abbas, maybe you could talk a little bit more about what’s driving the Roadway Sensors growth and what the outlook is there? Is that rate of growth you think sustainable for the next few quarters? And then maybe you can also speak to how we should think about the rate of growth for iPerform as well?

Sure. Thanks for the question, Mr. Van Sinderen. So Roadway Sensors at the beginning of the year, we developed about a dozen specific initiatives ranging from products enhancements to distribution channel expansion and that is domestically internationally specifically in South America and Middle East offering new products to market, strategic alliances with key system integrators. And we see that those initiatives are now actually helping us to expand our overall sales. Of course, we are getting a little bit of a help from the overall health of the market as well. We believe collectively we are expanding our market share. I believe and expect that year-over-year at least for some foreseeable future, specifically next quarter to sustain a growth. I say that with the caveat that our next quarter seasonally is weaker than all other quarters, but I do believe that we are headed for materials growth in our Roadway Sensors. All of these initiatives are ticking in gradually. And I would be very surprised if it would be otherwise. As far as the iPerform, that 20% growth that you are showing just for clarification purposes, that is really 100% legacy activities, in fact, specifically regarding the weather legacy components. As I indicated and as you know, we are into the 18 month development of the predicted software for the weather and traffic information. And it will take us some time to really crank up the sales in all the new activities, but we are quite fortunate that we have already secured couple of commercial customers during the quarter. We actually had a pretty healthy legacy backlog. I am absolutely bullish about the progress we are making technologically and achieving the milestones that we have had in this last two quarters. And I expect those milestone achievements to continue. We added about 9 or 10 professionals during the quarter and that was the most that we have done in any quarters so far. And we continue to invest in bringing in sales and marketing product management staff as well as software developers and algorithm individuals. So I would envision that iPerform will take a few quarters before it really cranks them the types of numbers that we expect to gradually to get into the steady state situation for them. Jeff Van Sinderen - B. Riley & Company: Okay. So I mean, it’s great to hear that you picked up two commercial customers there and I know you have been working toward various partnerships at iPerform, I would say, partnerships and alliances. Is there anything else on the horizon there that you think is eminent? Maybe you can just give us kind of your thoughts on the whole picture for partnerships and alliances for iPerform and other customers as well?

Sure. So we have two groups of customers and alliances, those that primarily focus on the public agency opportunities. And w have several alliances and some in the works. And we also as we have began penetrating into the commercial market we have had discussion with no less than dozen prospective customers. I am happy to report and repeat the fact that we have relationship and contracts with two of them. These are rather large notable customers that I am not ready to announce the names, but as to your point, we are also in discussion with at least half a dozen others. And I would expect in the coming one or two quarters that we add some more and add some points, I can’t wait actually to be able to announce some of these, particularly the ones that would provide some material revenue opportunities. But one thing that we have noticed in the marketplace is a significant interest and significant demand for the client of the software features that we are adding to iPeMS, specifically the predictive nature of the traffic and weather, something that many organizations feel it is extremely valuable to be able to provide, let’s say, to a fleet of a commercial vehicle that hey, in the afternoon during certain periods of times, we maybe experiencing half an hour delay on some major corridors so that they could arrange their trip in advance or to be able to inform their customers. That has a significant economic value and we believe that ultimately will position to cap on that value and be the beneficiary of that. So in summary, we are just expanding and adding in-depth in the revenue stream in various fronts in essentially expanding our workforce in the market and business development and sales as well as bringing the professionals that could help us really expand on the technological aspects of this. Jeff Van Sinderen - B. Riley & Company: Okay, good to hear. And I understand that the systems business is can be subject to scheduling of various contracts and so forth. And it sounds like that was an element of your quarter, just wondering how we should think about that going forward? When do you expect revenues to start growing again based on kind of the scheduling you are looking at now?

We would expect the revenues to continue grow in the upcoming quarters. And I just go back to that scheduling and I make a reference to a specific contract. We have this large contract that we announced and I alluded to earlier in my remarks with telco that we thought would kickoff sometime in the second quarter, it moved to the right. We have now kicked it off couple of weeks ago. We are well into the conduct of that contract. And what I see is significant expansion in the RFPs and these are larger RFPs actually. In fact, today I was looking at about 20 opportunities over $1 million. So these gradually should kick in. We still have about a year worth of Highway Bill in this current state. So I would envision the upcoming quarters it would resume growth. We have added by the way or in the process of adding two or three senior executives in sales and marketing to really be able to capture those RFPs at the better rate. So I came pretty positive as far as the overall outlook in transportation systems. And so far in the year, the two quarters combined, we are aligned with our internal top line and bottom line performance for that group. Jeff Van Sinderen - B. Riley & Company: Okay. And the RFPs that you are seeing, are lot of those derivative from the Federal Highway Bill or?

Good portions of them are for sure whether directly from Federal Highway or secondarily through the state and local agencies. Those funds are being distributed and that is happening. By the way I may mention that some of the growth attributed to the Roadway Sensors is also from the Highway Bill. And you realize that that bill is really for the overall not only design, but also construction and product as well. So the bill is definitely kicking in. We are seeing it in various ways and I believe that we have been direct beneficiary of the results of that. Jeff Van Sinderen - B. Riley & Company: Okay and then I know obviously there are some seasonal elements to Q3, but how should we think about gross margin going forward based on your anticipated mix of business, do you think it’s going to stay around this level, do you think it will expand or bounce around a little bit, how should we think about that?

At the moment when I look at the third quarter I would be surprised if we would experience any erosion in the margins. We haven’t really done a detailed calculation to determine whether or not at this time we would experience any expansions. So that’s what I could share with you on that. But I am pretty confident that the Roadway Sensors year-over-year should actually put out some expansion on the revenue portion. Jeff Van Sinderen - B. Riley & Company: Okay, great to hear. Thanks very much. I will let someone else jump in.

Thank you for your questions Mr. Van Sinderen.

Thank you. (Operator Instructions) And our next question comes from the line of William Myers with Miller Asset Management. Please go ahead. William Myers - Miller Asset Management: Hi, thanks. Can I – I would like to ask a little bit more about the Vantage Vector product. And the first thing is, is this a radio plus video product, is this the only radio radar I should say, radar plus video product that’s on the American market at this point or is there competition for that kind of thing?

Thank you, Mr. Myers for the question. When we first introduced this product about a year ago, at that time it was the first hybrid detection in our industry into traffic management that combined the top line proven video detection with that of the radar for the distance. Since then we have seen at least one other product to the market, although their strategy is a little bit different and I will expand on it briefly. To my knowledge their strategy of the video and radar are both at their soft line. The way we do ours is you have – I am many times driven to an intersection and the light is green and you are driving and all of a sudden the light turns yellow and you wonder should I stay or should I go. And the traffic engineers refer to that as the dilemma zone when a driver in that dilemma he or she should stop or should go through. This particular product focuses on that safety connotation that we start tracking the vehicle at about 600 feet, 700 feet from the intersection as they enter into that dilemma zone. And then as they get a little bit closer let’s say to about 400 feet or 300 feet then we would track him video – via video. That combination is really the important attribute of this specific product that traffic engineers really love because of the safety connotation of this as we appreciate. And so it has got a quite a bit of traction and we are selling that quite a bit. I hope that answers the question. William Myers - Miller Asset Management: Yes, just a little bit further. Do you have any idea how large the size of the market for the Vantage Vector could be going forward?

It would be hard to give that Mr. Myers to a very specific magnitude, but I would just perhaps provide the range that maybe in the next calendar year that range would be several million dollars of that product is specifically. And it may even be let’s say up to $5 million, $6 million, $7 million worth of traction. That is just an estimate at this point. William Myers - Miller Asset Management: Okay, I understand and I appreciate your thoughts. Thank you so much.

Thank you for the questions sir.

Thank you. And our next question comes from the line of Chris Biles with CJB Capital Management. Please go ahead sir. Chris Biles - CJB Capital Management: Hi guys. Thanks for taking my question. Abbas you may have touched on this earlier, but have you given personnel numbers within the sales and marketing in the iPerform division as far as accounts or as personnel?

I might have and not, but I could just provide you perhaps with a little bit more detail. At the moment we have about six, seven individuals in the sales and marketing that either do that on full-time basis or on part-time basis, while they are working on specific activities. We – this particular quarter we actually added two personnel in that area. And we plan to yet expand it as we basically line up some of our products and get through the launch planning which requires additional sales people not only in the public sector but quite a bit also in the commercial sector. Chris Biles - CJB Capital Management: Okay. Cash was up nicely on the quarter, can you point or attribute that to any one or a combination of issues?

As far as the cash? Chris Biles - CJB Capital Management: Yes.

Nothing is specific of course we made some profit. We have no debts. At the same time really to accountings credit, they did a very nice job of collection. The other key element that I should say that in the prior quarters we were spending a little bit more funds was the stock buyback. This last quarter our expenditure was significantly reduced, so that might have been also a contributor to that higher cash flow. Chris Biles - CJB Capital Management: Right, so can you touch on the buyback. I mean it seems to me that obviously at lower levels, you had a little more success but the repurchase of a whopping 21,000 shares during the quarter, what are your thoughts on that has the Board discussed that. I know there is certainly $0.75 million or more or less remaining on the current buyback?

Yes sir, so we discussed that in fact at every Board meeting and we tend to be subscribing perhaps to an opportunistic strategy if you will because the stock price has gained a bit of a momentum, that’s a strategy that have been directed by the Board and we are executing. At the same time going forward, we would be using that cash as the opportunity presents itself on a daily basis or on a block basis. We intend to exercise it and continue having that the buyback posture and that posture has not been changed by the Board at this time sir. Chris Biles - CJB Capital Management: Okay. And my remaining question is – was like two, one regarding M&A, anything on the horizon, are there opportunities out there from an IP or what are you seeing?

Yes, we have been looking at several organizations for a potential transaction. I cannot say at this moment there is one eminent, but we are in various stages of discussion with the handful of organizations that either are focused on providing IP that would help us or located at places that we may not have a strong presence. And we continued to carefully review that. And we would certainly brief the investors as we get closer to an opportunity that is announceable at that time. Chris Biles - CJB Capital Management: Thank you.

Thank you, Mr. Biles.

At this time this concludes our question-and-answer session. I would now like to turn the call back over to Mr. Mohaddes for his closing remarks. Abbas Mohaddes - President and Chief Executive Officer: For the second half of fiscal 2014, we plan to stay focused on developing and delivering solutions to the areas of the intelligent traffic management markets that they are growing faster than the overall market. While our fiscal third quarter is typically the weakest of the year, we still expect year-over-year revenue growth as the market demand for technology focused traffic management solutions continues to expand, we believe that the strategic investments we are making will build shareholder value and highlight Iteris as the go to market leader in our target markets. We appreciate everyone’s support and thoughtful questions and we look forward to updating you again on our continued progress.

This concludes today’s call. Thank you, ladies and gentlemen for joining us today for our presentation. You may now disconnect.