Abbas Mohaddes – President & CEO Chuck McBride – VP Finance & CFO

Jeff Van Sinderen – B. Riley & Company Pete McManus – Sidoti & Company William Meyers – Miller Asset Management

Good afternoon everyone and thank you for participating in today’s conference call to discuss Iteris’ Financial Results for its Fiscal Third Quarter ended December 31, 2013. Joining us today are Iteris’ President and CEO, Mr. Abbas Mohaddes and the Company’s CFO, Mr. Chuck McBride. 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, are subject to change and 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 SEC, specifically, the Company’s most recent Forms 10-K, 10-Q and 8-K, which contain and 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 would like to turn the call over to Iteris’ President and CEO, Mr. Abbas Mohaddes. Sir, please proceed.

Thank you, Rachel [ph] and good afternoon everyone. As you saw at the close of the market today we issued a press release announcing the financial results for our fiscal third quarter ended December 31, 2013. Overall we were pleased with our performance for the third quarter. Our revenue of $16.5 million was up 18% from the same quarter a year ago and operating income of $300K improved $700K from the same quarter a year ago while we continued our accelerated investment in iPerform. During the quarter, we continued to expand our Roadway Sensors business domestically and internationally and with OEM products. Our Transportation Systems and iPerform businesses continued to track reasonably well to our plan. For those of you who are new investors, we separate our business into three segments: Roadway Sensors, Transportation Systems, and iPerform. We have established target growth and operating margins for each of these segments. The Roadway Sensors business model is primarily a product business. We target growth and operating margins of 45% and 15%. The Transportation Systems business model is primarily a consulting business. We target growth and operating margins up 35% and 15%. The iPerform business model is primarily consulting business today but we plan to expand into software as a service in the commercial markets. Therefore our target growth and operating margins are 60% and 15%. These targets reflect our long-term goals for each of our business segments. For today’s call, Chuck will walk us through the details of our financial results of the third quarter. Afterwards, I will discuss some highlights about the quarter, provide our outlook for the business as we move into the fourth quarter. And then we will open the call for your questions. Before passing the call over, I would like to welcome Chuck to his first call as CFO of Iteris. Chuck brings over 30 years of exceptional financial leadership and a proven track record of helping companies increase shareholder value. He has extensive experience across both public and private technology companies and demonstrated his management abilities in a variety of high level financial and operational roles. Chuck shares our vision of growing Iteris into a highly profitable market leader in the intelligent traffic management market. With that, I would like to turn the call over to Chuck.

Thank you, Abbas. I appreciate that. Good afternoon. I am delighted to join the team at Iteris and I am looking forward to getting to know you, our shareholders and analysts. As many of you know, early in the year, we aligned our business, our organization with our business strategy. Therefore we provided pro forma comparisons of revenue and segment income in our press release. During the third quarter ended December 31, revenue increased 18% to $16.5 million compared to $14 million in the same quarter a year ago. The increase was primarily attributable to a 45% increase in Roadway Sensors revenues, a 6% increase in Transportation Systems partially offset by an 8% decrease in iPerform. Gross margin in the third quarter was 37.4% compared to 36.8% in the same quarter a year ago. The 60 basis point increase was primarily the result of the shift in sales mix weighted more towards higher sales of Roadway Sensors products, which typically carry higher margins than other segment. Overall gross margin dollars grew to $6.2 million from $5.2 million for the same quarter a year ago. Roadway Sensors’ margin declined to 48.4 in the current quarter from 49.9 reported in the same quarter a year ago, primarily due to our increased sales in third party OEM products at lower margins. The overall higher revenues in the segment largely drove our higher gross margin in the quarter. Transportation Systems margins were flat at 26.7%, iPerform gross margins were approximately 37.3% which represents a decrease of 240 basis points from 39.7% reported in the same quarter a year ago, primarily due to contract mix. Operating expenses increased 5% during the quarter to $5.9 million compared to $5.6 million in the same quarter a year ago. The increase was primarily due to planned increases in sales and marketing and accelerated spending in iPerform. Operating income in the third quarter increased to $309,000 compared to a loss from operations of $427,000 in the same quarter a year ago. Net income in the third quarter was $238,000 or $0.01 per share compared to net income of $1.1 million or $0.03 per share in the same quarter a year ago, which included a $1.4 million gain, net of taxes, related to the sale of the company’s Vehicle Sensors business in July of 2013. Cash and cash equivalents was $20.5 million compared to $19.7 million a year ago and we have no bank debt. Backlog at the end of the third quarter was $36.8 million compared to $38 million in the same quarter a year ago. Backlog was comprised of $28.6 million for Transportation Systems, $4.4 million from iPerform and $3.8 million from Roadway Sensors. Transportation Systems and iPerform backlog declined 5.2% due to timing of new orders partially offset by a 19% increase in Roadway Sensors. I would like to turn the call back over to Abbas. Abbas?

Chuck thank you very much. As I indicated in my opening remarks, we experienced a strong growth from our core businesses. Both Transportation Systems and Roadway Sensors remain on track with our internal growth plan. The operating profits from these segments provided us with a cash flow necessary to continue fueling our investments in iPerform. Before I speak more about our outlook, I would like to discuss our operating segments in more details. As Chuck indicated, Roadway Sensors sales were up 45% to $7.3 million compared to $5.1 million in the same quarter a year ago primarily due to the success of various growth initiatives developed earlier in the year which included increases in our international sales and OEM distribution products and the delay of certain customer orders in the prior year period. We have also been gaining traction in some of our key products such as our Vector product, the very first hybrid detection system introduced to the market, which uses both video and radar. Our innovative products such as the SmartCycle and SmartSpan and Velocity continue to gain traction as we believe they solve real world customer needs. We expect to continue to grow internationally and during the quarter, we signed new distribution agreements in Latin America and Middle East. Our Transportation Systems sales were up 6% during the quarter primarily due to higher contract volumes. During the quarter and in part due to the Federal Highway Bill, we saw more requests or proposals indicating the funds are starting to flow. At [indiscernible] system contract awards included $2.2 million contract to provide a bus signal priority system for tourist transit rapid line in Los Angeles County. We are providing a multi-jurisdiction bus traffic signal priority system at 83 signalized intersections. This project expands our established operations throughout Los Angeles County and should grow our nationwide presence and utilize existing bus system technologies to mitigate traffic congestion. We were also awarded along with two other firms a five year indefinite delivery indefinite, quantity contract for traffic design and operations training services from the Federal Highway Administration. The Federal Highway Administration had budgeted a ceiling of $17.7 million for the five year training program. Our selection reflects our continued leadership in the transportation industry. Over the years, we have had a significant track record of developing and conducting training that utilizes our advanced learning in an instructional system design techniques. The Federal Highway Administration and National Highway Institute selection of Iteris highlights our capability. Moving on to our performance management segment or iPerform, we continued to make progress in achieving advancements in developing our predictive weather and traffic platforms while expanding our team of professionals. During the quarter, we continued to grow our marketing and software engineering staff bringing our iPerform group to 68 total professionals. iPerform is the leader in performance management solutions in the public marketplace. Their solutions allow agencies to make better decisions that save time, fuel, and chemicals and help make our road networks safer and more efficient. We are planning to leverage our knowledge and experience in the public traffic and weather solutions into commercial markets. Our plan is to continue to investing in technical and market development. We believe iPerform solutions have commercial applications in media, automotive, fleet management operations and maintenance, agricultural and the utility markets. Our commitment to iPerform is due to our belief that the market for traffic and weather analytics is expanding dramatically. We plan to continue to fund these investments through internally generated cash flow from our existing businesses. Last year, we established several milestones that investors could follow to monitor our progress in iPerform that included a robust graphical user interface, the integration of current and historic road and weather conditions, arterial performance management capabilities and a statistical predictive analysis for traffic, road and weather conditions. Since then we have released new innovative visualization products, MAP-21 performance measurement tools, integrated additional types of information including real-time traffic incidents, road and weather conditions, as well as, traffic and weather prediction systems. We also have found several new patents around our software’s predictive analysis applications. Further we made advancements in developing our predictive weather and traffic platforms. These advancements included the introduction of our ClearPath weather products. And we have two customers conducting beta test on our software solution. Our performance management solution items released enhanced analytics; supports to help state agencies better manage their state-wide road networks. We also expanded our ClearPath incident coverage which now supports 50 metropolitan markets in more than 25 states. Finally, as you may have seen this morning, we have entered into a global reseller agreement with Tinga, Inc. an earlier stage company that has a Cloud base marketplace that gives investors on-demand access to financially actionable information and reports. Under the agreement, Tinga will sell Iteris its traffic and weather information products and services through Tinga registered investment advisors and customers through Tinga’s AIR Exchange online marketplace. This agreement with Tinga demonstrates the need for our traffic and weather solutions in markets outside of transportation and global investors who seek relevant information to make investment decision will soon have direct access to purchase Iteris products and services through their Tinga Air and through the Tinga Air Exchange online marketplace. This is important to many investors such as commodity traders because traffic and weather information is a true component of investment analysis and decision making. We look forward to working with Tinga and being the first in the traffic and weather management market to leverage the services. 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 market leader in the intelligent information solutions market. Now, before I provide my closing remarks, we will be delighted to respond to your questions and comments, Rachel?

Thank you sir. Ladies and gentlemen we will now begin the question-and-answer session. (Operator Instructions) And our first question comes from the line of Jeff Van Sinderen with B. Riley & Company, please go ahead. Jeff Van Sinderen – B. Riley & Company: First of all, let me say congratulations on the year-over-year improvement. Abbas, maybe you could give us a little more detail on the new Tinga partnership and how that will work for you maybe, [indiscernible] what kind of revenues do you expect that to generate and where do you stand on adding other partnerships like this?

Thank you for your question Mr. Van Sinderen. Yes, so Tinga is an earlier stage organization in the financial marketplace that has forged a values relationships to provide investors and that community with a specific traffic and weather information there, for example, that are used in my written remarks is the commodity folks that they make decisions on futures of commodity prices, as you know, it is quite sensitive really in a very short period. So the more information that they have on an accurate weather and traffic it is quite useful for them and just to brief the expand on some of the features of a ClearPath Weather is that we get information from the National Weather that is typically 10 to 12 kilometres accuracy. Now what we do is that we apply analytics to turn that into 1 to 2 kilometre accuracy. With that we could predict weather conditions in a predictive manner for a very small section of the roadway or a field or a corn field I would sat – to the extent that we could provide that accurate information to a little bit more accurate that has a significant value for that market and you could imagine many others benefitting from that. That’s the relationship we have not at this point announced any financial magnitude with them but we have a clear arrangement and agreement in a way of the rep gene [ph] model. As we indicated we are in discussion with other potential partners that we could deliver within transportation industry and perhaps outside the transportation industry as I indicated such as agriculture for example that we feel that our products and services have a tremendous value outside of the public sector that we have enjoyed for many years and not to be able to offer that into the commercial marketplace. Jeff Van Sinderen – B. Riley & Company: Is the Tinga product is that have a mobile application?

To our knowledge they have sort of portfolio that includes online services to variety of customers, I don’t know specifically about their mobile application [indiscernible] but I would expect that is the most common arrangements that they provided to the financial industry. Jeff Van Sinderen – B. Riley & Company: Okay, got it. And then maybe you could talk a little bit more about what’s driving Roadway Sensors, you had pretty strong growth there, I think of 45%, do we expect that moderate down going forward obviously 45% that we wouldn’t expect to continue forever but maybe you can just give us a sense what sort of growth you think we should think about there and then maybe you can just speak to, also the broader outlook for iPerform, couple of different questions there?

Sure, sure. I am just recording that, so regarding Roadway Sensors 45% year-over-year increase that really was twofold, one about a year ago you might be called that we went through a tough quarter we had the Superstorm Sandy that head and as a result of that the handful of the contracts moved to rights so that adverse impact really was hard for us in that quarter we could only generate about $5.1 million worth of revenue. In addition, we began to focus on our activities and came up with the list of about a dozen specific initiatives, these ranged from expansion of our international market to enhancement of some specific domestic products to enhancement some product support and so on. We are quite fortunate that those initiatives are now really paying off and we are seeing the benefits of that and so I would anticipate that our investments and a strategic manoeuvring that we have done in Roadway Sensors to continue responding and to continue to grow. Regarding iPerform we are quite pleased with achievements that we have done during the Q3 and in fact since the beginning of the fiscal year and we would expect to continue expanding and continue our investments and achieving various milestones both in technical as well as partnerships and these are two significant areas that we indicated to investors in prior calls that we would continue doing and we are on track to do so. Jeff Van Sinderen – B. Riley & Company: Okay, that’s great to hear. When you think will start to see the inflection point and I was – for iPerform return to revenue growth, do you think will start to see that over the next couple of quarter?

So, the parts of the services that we are providing in iPerform are twofold. One it is the activities that we have had primarily in traffic, the performance measurement and weather with a software products that we have, that they are primarily consulting activities, if you will and that would continue and we expect that to grow. And then there is – the predicted services that will take us a few more quarters to develop. So I would expect at some point during our next fiscal quarter and beyond we begin to see that inflection points. So it will take us a bit of a time, however, we would expect as I indicated some traction based on the existing and some of the partial achievements that we are making such as the Tinga relationship as an example or things, arrangements like that, that we could in fact leverage our public agency products into the commercial. Hope that helps. Jeff Van Sinderen – B. Riley & Company: Okay. Yeah that helps a lot. And then finally I wanted to ask you about systems, it is great to see systems growing. I am just wondering how we should think about that segment going forward in terms of the Federal Highway Bill, it sounds like you are started to see dollars flow from that, and should we anticipate a similar growth rate, do you think that would accelerate going forward, maybe, you can just touch on that in the Federal Highway Bill and also maybe a portion of subcontract work is trending, that would be helpful.

Yes, sure. So our Transportation Systems is certainly getting help from the Federal Bill. We have seen in this particular quarter expansion of the Federal Funds into local estate and of course Federal Agencies as some of the announcements that we have had are of that. So we have seen expanded number of request for proposals. We have added professionals to respond to that kind of demand. So I would expect the Transportation Systems to continue taking advantage of that in the marketplace. We also see, again this is both for Transportation System and Roadway Sensors, more constructions is appears to us that the real estate market is coming back a little bit and we are beneficiary of that as more construction takes place. We expect to see more new traffic signals which typically require detection. So all of that really makes me to feel cautiously optimistic, if you will, about going forward with the Transportation Systems. Jeff Van Sinderen – B. Riley & Company: Okay, great. And then, maybe you can just touch on gross margin, gross margin was actually little better than last year, I believe but a little bit below than what it was in the prior quarter that – in Q2?

Yeah, year-over-year Mr. Van Sinderen it was flat. And we do fluctuate on quarterly basis. And I am going to respond also to one other question that you ask which had to do with the sub-consulting magnitude. So it fluctuates depending upon the type of contract, if it is cost [indiscernible] or lump sum and then the magnitude of the stuffs that we have, as you know, with that fluctuation lots of times we may not be able to enjoy a good wrap around the sub-consulting content. So that fluctuates from one quarter to the other. Overall, I have not felt that our gross margin has experienced any material deviation from what we have been enjoying over the last let’s say four to eight quarters. Jeff Van Sinderen – B. Riley & Company: Okay. And then you are going to talk about sub-contract, did you want to talk more about that or, I mean has there been a trend or?

Sure, I expand on that a little bit. So this quarter we have had a good magnitude of sub-consulting agreements. And because of some of the larger contracts that we have that trend may continue perhaps for a quarter or two, beyond that would be hard to really have much more visibility. But since a couple of years ago when we began doing more travel information 511 projects, do some integration projects, we are quite fortunate to enjoy larger contracts and then with that comes in some good sub-consulting content and a result of all of that enjoyment of a better revenue growth. Jeff Van Sinderen – B. Riley & Company: Okay, good. And speaking of revenue growth, this in Q4 would it be fair given the trend that you are seeing for us to expect revenues to grow year-over-year in Q4, I am just wondering also if we should be looking for your bottomline to grow as well in Q4?

Well, let me put it this way, Mr. Van Sinderen, I would be very disappointed if we didn’t continue to grow sequentially from this quarter to the Q4. Jeff Van Sinderen – B. Riley & Company: Okay, great to hear. Thank you so much and best of luck.

Van, thank you very much and I appreciate your questions.

Thank you. Our next question comes from the line of Pete McManus with Sidoti & Company, please go ahead. Pete McManus – Sidoti & Company: Hi guys, how you are doing?

Fine thank you, Mr. McManus. Thank you for being on the call. Pete McManus – Sidoti & Company: No problem. So can you guys explain upon some of the progress in international sales, what are some of the key products and developments in the Roadway Segment with respect to those new contracts in Latin America and Middle East?

Yes, sir. So one of the key things that we did, again as a part of our growth initiatives about a year ago, we focused a lot more on the international products in the way of responding to a specific need of the two key geography that we are pursuing, namely Latin America and Middle East. And to that end we have been quite responsive to the specifications and the international standards existing in those markets. And that has helped us quite a bit. So in this quarter, as an example, we had a good component close to a million dollar worth of international revenue that we enjoy. And at the same time as I indicated in my prepared remarks, we are expanding our presence, our distribution channels, our personnel that’s for pursuing that market. So this is pqart of our initiative to rally focused and the respond to the demand of the specific market in those two areas. Thanks for your question. Pete McManus – Sidoti & Company: And the last time you spoke, you mentioned Pico line [ph] being one of like the key product for international sale. Is that the still focus or is there any new products in the pipeline?

It really is and Pico and sometimes they refer to as P10 is a key product for us for international market. It is really designed for the types of inter sections and detachment requirements of much of the international market and it is priced appropriately again to respond to those demands. Of course we are also focusing on additional developments and enhancements of our products suitable for international market as we go forward. Their demands are diverse just as it is in domestic market in some areas it is quite a bit of overlap with the type of requirements that they have, at the same time they are really, as I indicated, the P10 or Pico and we have also a handful of other products such as Abacus and that market likes and we are promoting that as well. So similar to portfolio that we have them as we have managed domestically, it is our intention to respond to the demand of international market in a way of expansion about portfolio and that is very important to be able to sustain or growth in that market. Pete McManus – Sidoti & Company: Okay, great. And regarding the Tinga partnership, so will they be offering your full line of product and services or is there any particular focus specified in the agreement, also is there any fees that you have to pay to be on that platform?

So your last question, no, there is no fee. Its – we have a major agreement in various levels that generates, if you will, a revenue generation on what they sale. And then, the first part of your question it is not our entire portfolio at this it’s in fact a very focused product initially focused on weather information that is suited for certain financial advisors that then they would expand it to traffic. And we have a specific language articulated in our agreement that talks about that. So this was really the genesis of development of brand ClearPath. And the ClearPath is a brand of a series of products that you are developing and its initial one is suited and developed for that kind of application in which we have the Tinga. As I indicated, we have ClearPath also in beta tests into public agency as we have seen that would focus on traffic attributes of that particular product. Pete McManus – Sidoti & Company: Okay, great. Thanks guys.

Thank you Mr. McManus.

Thank you. Our next question comes from the line of William Meyers with Miller Asset Management, please go ahead. William Meyers – Miller Asset Management: Hi again congratulations on the quarter, on the good revenue gains.

Thank you sir. William Meyers – Miller Asset Management: I would like to follow-up on a previous question. Our international margins similar to or above or below American margins?

It is somewhat similar, Mr. Meyers, I should say though in international market, you know, we are still to a great extent in an investment mode, so we really have not reached what I would call a steady state or condition in the international markets but the typical margins that we enjoy are pretty much aligns with our domestic margins. In the long run and in a steadier state condition, I would envision that those margins are not going to certainly have any adverse impact. And they are in that 40% range, if you will. William Meyers – Miller Asset Management: Okay, well that sounds good. And do break down your percentage revenue that comes from international operations?

No, we don’t at this time. William Meyers – Miller Asset Management: Okay, could you give us some sort of indicator of an order of magnitude, is it less than 10%, more than 10%?

Sure, it is less than 10% at this moment on annual basis it is our intent certainly need to expand upon it as we go forward. William Meyers – Miller Asset Management: Okay, so plenty of room to expand?

Absolutely. William Meyers – Miller Asset Management: Okay, well, thank you very much.

Thank you for your questions, Mr. Meyers

(Operator Instructions). And our next question comes from the line of Manoj Nadkarni [ph]. He is with CIJ [ph], please go ahead.

Abbas, good afternoon and congratulations on very good quarter.

Thank you, good afternoon to you and thank you sir.

Can you please give some color on how seasonality effects your revenues in Roadway Sensors and Transportation Systems?

Yes sir, so typically, this quarter that we just finished Q3 is our weakest quarter historically for the Roadway Sensors, you appreciate that the construction primarily in the northern states domestically as slows down, so therefore, we have less fuels transportation systems, we have two major holidays and the numbers days are less than typical quarter so we have less billable days so historically this quarter let’s say about 23%, 24% or so of annual – so it is seasonal.

And then what happens going from March quarter to June quarter to September quarter, is there any pattern there?

There is again generally the way I look at our quarters is as follows. Typically and I underline the word typically, our second fiscal quarter is our strongest, then it is our first quarter then it is the last quarter then it is the third quarter. So let me repeat, it is sort of two one for three, it’s typically how it has over the let’s say over the last 4-5 years.

Okay and during calendar 2014, what do you expect the mix of the two segments Roadways Sensors and Transportation Systems, and how will that impact your overall gross margins?

So we are at the moment developing our fiscal plan, in other words, much of the calendar year 2014 would be in what we call a fiscal year 2015 because it starts in April and ends in March. And we are finalizing those plans, in fact, the plan to present to our board of directors meeting in mid-February. So at the moment I really couldn’t and perhaps shouldn’t speculate as to that mix but I could tell you that we expect growth in both of those segments as I indicated combination of our investments initiatives and the marketplace and – are aligned, we expect growth in both of those.

Okay. Regarding gross margin, your gross margin for Transportation Systems business was about 26% and your target is 35%, is that right?

That’s correct. And that’s in the long run, that’s our target, that’s where we are headed. And I just repeat for the Roadway Sensors, 45% and 15% and then of course iPerform once we get to a SaaS model, you could speculate the software base type of products, we would expect in the long run to have a steady state margins of the 60% and 15% respectively for the growth and operating margins.

For Roadway Sensors you are already at what 48%

We fluctuate essentially between 45% and 50%, so we have been enjoying at or better than target margins, as you expand and perhaps get into OEM mixes of product that we sell, we are still like 45% and – anything that we enjoy more than that, we really.

My question would be what actions are you planning to take to into your gross margins in the transportation systems business that’s where you are below the target?

So much of that reason that it is at that level is the higher mix of sub-consulting arrangements. So strategically what we like to do is as they go, we like to do more of the work in house to be able to enjoy a higher gross margin and we believe that we are on track to reach that target in the upcoming quarters and years.

Okay, very good, just one final question, did you buyback any shares in the December quarter?

We did not, as far as the shares we have purchased since inception 2.3 million, for about $3.6 million at an average price of $1.54, we are equivalently in the process of upgrading our 251 [ph] plan, so that’s all I could show with you at this point.

Okay, very good. Well, thank you very much.

Thank you sir for the questions and have wonderful afternoon.

Thank you this concludes our question and answer session. I would now like to turn the call back over to Mr. Mohaddes for closing remarks.

For the final quarter fiscal 2014, we continue to accept organic revenue growth from our core businesses. We believe that both the public and commercial sectors are in need of our intelligent traffic management products. Information and analytic solutions and we believe that our investments in these areas along with its strengthening marketplace we will continue to build shareholder value, we appreciate everyone’s support and thoughtful questions and we look forward to updating you again on our continued progress.

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