Iteris Inc (ITI) 2012 Q1 法說會逐字稿

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Iteris' financial results for its first fiscal quarter ended June 30, 2011. Joining us today are Iteris' President and CEO, Mr. Abbas Mohaddes, and the Company's CFO, Mr. Jim Miele. Following their remarks, we'll open the call for your questions.

(Operator Instructions)

Then, before the conclusion of today's call, I'll provide the necessary precautions regarding forward-looking statements made by the management during this call. I would also like to remind everyone that a webcast replay of today's call will be available via the investor section of the Company's website at www.iteris.com until August 9, 2011. I would now like to turn the call over to Mr. Mohaddes. Sir, please proceed.

Thank you, Craig, and good afternoon, everyone. As you saw at the close of the market today, we issued a press release announcing financial results for our first quarter of fiscal year 2012. Over the past year, we have leveraged our strong financial position to expand our investment in R&D and sales and marketing to keep our technologies at the forefront of the intelligent traffic management market. We believe this investment has positioned us with the strongest product portfolio in our history.

As you saw yesterday, we announced the divestiture of our vehicle sensors business. This divestiture marks the transformation of Iteris to a focused traffic management Company and provides us with substantial resources to take advantage of these opportunities. I will expand upon this divestiture later in my prepared remarks.

We generated positive cash flow from operations and net income in the first quarter, even with these operational investments and the costs associated with the divestiture. Our transportation systems segment revenues improved 8% sequentially, and we signed $6.5 million worth of new contracts during the quarter. While this segment has been hampered by soft spending in prior quarters, our rate of new contract sales bookings for the quarter confirm the recovery of this market, and we expect continued increases in capital spending by various regional agencies we serve.

Our roadway sensors segment enjoyed over $7.8 million in bookings during the quarter, and we continue to receive excellent market acceptance from our recently introduced products to market. As we continue in fiscal 2012, we believe there are specific opportunities to accelerate top line revenue through investments in our core businesses and synergistic acquisitions that enable the overall expansion of our presence in the intelligent traffic management market.

Now, before I comment further, I would like to turn the call over to our CFO, Jim Miele, who will take us through the details of our financial results for the quarter. Afterwards, I'll return to discuss some more of the highlights for the quarter and how we plan to build shareholder value in fiscal 2012. Finally, we will open the call for your questions. Jim?

Thanks, Abbas, and good afternoon, everyone, and thank you again for joining us. The first quarter, ended June 30, 2011, our net sales and contract revenues increased 2% to $16 million over the same year ago quarter. The increase was primarily due to the acquisition of Meridian Environmental Technologies in January, 2011, which contributed an additional $1.1 million in contract revenues during the quarter. It was offset primarily by a 10% decline in roadway sensors net sales.

Roadway sensors net sales were negatively impacted during the quarter by the timing of certain shipments, which moved into subsequent quarters. Although these delays negatively impacted our roadway net sales, the segment experienced its strongest bookings quarter in the last four sequential quarters of approximately $7.8 million. As there are different characteristics affecting each of our revenue streams and different attributes affecting our financial results, Abbas will provide more details regarding our net sales and contract revenues later in his comments.

Gross margins in the first quarter were 41%, compared to 44.8% in the same year ago quarter. This decline reflects decreased vehicle sensors gross margins, as a result of a product mix more weighted towards our newly introduced third generation lane departure warning unit, which, at low volume production levels, carries a higher manufacturing cost.

Roadway sensors margins were strong for the quarter at greater than 50%. Gross margins related to contract revenues were negatively impacted by normal seasonality associated with Meridian's weather forecasting services. Subsequent to the pending divestiture of vehicle sensors, we expect our product margins to increase, as they will be solely attributable to roadway sensors. Additionally, we expect our consulting margins to improve as we focus on new, higher margin consulting initiatives.

Operating expenses increased 13% to $6.3 million for the first quarter and were mainly related to approximately $200,000 in legal and other professional fees attributable to the vehicle sensors divestiture, as well as the inclusion of approximately $320,000 of Meridian operating expenses, primarily categorized in SG&A. Despite the additional divestiture expenses, GAAP net income was $97,000, or $0.00 per diluted share in the first quarter of fiscal 2012 versus $797,000, or $0.02 per diluted share in the same year ago quarter.

We generated almost $400,000 in positive cash from operations and ended the quarter with $11.4 million in cash, down only slightly from $11.8 million at March 31, 2011. We've not yet drawn on our $12 million line of credit with our senior letter -- lender, and we reduced our long-term debt by another $500,000 to $2.5 million. Subsequent to the pending divestiture of vehicle sensors, we expect a significant increase in our cash position with $12 million payable at closing. This will be reduced by any related banking and other transaction fees.

We will also de-book roughly $6 million to $7 million in net assets from the balance sheet, solely related to the vehicle sensors business, which includes approximately $5 million in goodwill. I anticipate using our federal not -- net operating loss carryforward to offset as much federal income tax as possible. However, since California has temporarily suspended the use of NOLs, the transaction will be more than likely subject to California state income tax. This concludes my prepared comments on the financials. I'll turn the call back over to Abbas. Abbas?

Thank you, Jim. I would first like to address in greater detail our vehicle sensors divestiture mentioned in my opening remarks. The divestiture marks an important step in our overall strategy to transform into a pure play intelligent traffic management Company. Beyond its financial benefits, the divestiture allows management to focus specifically on opportunities in traffic management solutions. We plan to further enhance our intellectual property through opportunities much like our recent successful acquisition of Meridian Environmental Technologies. We also intend to make further investments in R&D and sales and marketing, which we expect will help accelerate our organic growth.

We developed a successful portfolio of products in the vehicle sensor segment, particularly lane departure warning, forward collision warning, blind spot warning, and the SafetyDirect software. Going forward, we believe this market will demand companies invest more in R&D and sales and marketing in order to compete, typically suited for larger players in this field.

As I have stated before, the European Union is mandating lane departure warning on all new commercial trucks by year 2015. The level of expected demand is also generating new competition which many larger companies that have vast resources to better compete in this market. We can now focus our efforts fully on our core businesses in intelligent traffic management and believe we are better equipped to execute on our accelerated growth strategy, financially and otherwise.

I would now like to further elaborate on the first quarter's results, address our confidence in the overall intelligent traffic management market, and provide an update on our growth initiatives. Our vehicle sensors business segment, which we announced to divest, subsequent to the end of the quarter, grew sales 17% to $2.1 million in the first quarter, despite reduction in orders during the quarter from a key customer in Japan. In the second quarter, however, we expect the order from Japan to return to normal.

Roadway sensors net sales decreased 10%, year over year, primarily attributable to a strong year ago comparison quarter and the delay of two significant shipments. However, we received $7.8 million worth of bookings in this segment during the quarter, up sequentially from $7.5 million and the strongest in the last four quarters.

Roadway sensors backlog at the end of the quarter was over $3 million, the highest ending backlog level for this business in the last several years. Although the timing of shipments related to our backlog can be difficult to predict, the strength of our bookings this quarter, the trend over the last few quarters, and our expanding backlog reinforces my optimism about our prospects for future growth. The new product offerings in this segment have been very well received by the market, and we expect for these products to serve us well as the market recovery gains momentum.

During the quarter, we released Abacus 2.0, providing traffic engineers and departments of transportation a software-based force multiplier that leverages existing camera systems by collecting real-time traffic data, rapidly identifying incidents, and gaining enhanced traffic flow information in a ready to use geographical user interface format. We also released VantageView 2.0 video detection management software, which completes our Vantage product line by providing enhanced data collection and graphical display, including vehicle counts, the speed, and occupancy with multivideo viewing capability from a web-based application.

Along with these two new products, we have also seen tremendous growth in adoption of our Wide-Dynamic-Range, or WDR, cameras, which provide our processors with better imagery during adverse conditions, enabling more accurate detection and higher quality images for surveillance. The WDR camera has only been available to the market since February, 2010, and has reached 50% of total camera sales, making it the most successful new camera launch in Iteris' history.

Key drivers for our roadway sensor revenue stream in the upcoming quarters are expected to be, first, increasing traction domestically, as they grow our core and addressable markets through increasing the depth and breadth of our product portfolio. We plan to introduce new products in the upcoming quarters that address underserved and emerging market segments. In addition, we expect to benefit from an overall rise in the video detection addressable market, as end users increasingly recognize the benefits of above-ground detection in comparison to legacy in-pavement technologies.

And second, partnerships tailored to the international market, with several of our newer products, such as Pico and Abacus being well suited for international markets. We are actively engaged in discussions with numerous prospective channel partners in various parts of the world. This approach added value for us in our fiscal year 2011, when our international sales grew substantially over FY 2010, and we expect to gain additional leverage by continuing to expand our channel relationships.

In transportation systems, sales decreased 5%, year over year, which was largely due to ongoing weakness in the markets and the lengthening of the overall sales cycle, as well as the delay of certain contracts. Sequentially, however, revenues increased 8%, representing the third straight quarter of revenue growth in this segment and including the $1.1 million of revenue attributable to Meridian.

Our contract revenues actually increased 13% over the same year ago quarter. We are encouraged by the sequential growth in this business, as well as the added $6.5 million backlog we experienced during the quarter. We are also seeing an expanded number of requests for proposals, particularly the regional agencies in many of the markets we serve.

Over the last two quarters, we have also added several senior associates, possessing business development experience, which we anticipate will result in more contract awards going forward. Funding of the federal bill is being seriously considered this year, and regional agencies are preparing for more RFPs. Despite the raging debate about spending cuts, a multiyear highway bills has solid bipartisan support on Capitol Hill. While the magnitude of the bill remains difficult to estimate, the bill is being discussed, and we believe the deliberation at Congress will commence shortly.

In addition, we expect the funding attributed to traffic management in the new bill to be significantly higher than previous bills, and this would ultimately benefit Iteris. Also, there are a variety of other transportation-related funds flowing into our market, including various stimulus funds, infrastructure funds, high speed rail transit funds, state and local agency bonds, tax hikes, focus on transit, and transportation infrastructure improvements. As this funding increases, we believe the proactive steps we are taking today will strategically position us best in class technologies for the future.

At the end of the year, we had $30.1 million in total backlog, which includes $6.5 million of new signed contracts during the quarter. Key drivers in transportation system revenue stream for the remainder of fiscal 2012 are expected to include, first, our expanded contract pipeline, including major regional transportation planning and engineering, transit contracts, significant traffic management system planning, design, and system integration, as well as design build contracts that are typically several million dollars.

We are tracking several such projects that we anticipate will grow revenues in this area. Examples of recent contracts awarded include a $1.3 million contract to provide traffic engineering and planning manuals for Abu Dhabi Department of Transportation. We were also selected for a $1.3 million contract to analyze congestion improvement alternatives to several of the Los Angeles freeways.

Second, we anticipate progress in the development of new niche technical markets. We have developed a specific transit signal priority tool, which we are now marketing nationwide and anticipate a favorable market reaction. We are currently completing a system integration tool, as well as developing a key software tool for performance measurement and management. These activities, coupled with recent hiring of several key associates in several of the underserved markets, is expected to achieve our accelerated growth strategy.

I'd now like to focus on key areas of our business where I see Iteris accelerating our growth in the upcoming quarters. First, we see expansion opportunities through our existing video detection technology and beyond. We plan to grow our product portfolio, both domestically and internationally, through the introduction of innovative and superior products that should benefit from the overall rise in above-ground technologies we are expecting worldwide.

Second, Iteris is better positioned to capture a larger market within travel information systems, because of our acquisition of MET, as well as various related R&D investments. As a unified force in the marketplace, we are marketing several new projects and developing and enhancing software for the industry. We are also committed to growing the weather information and decision support systems offerings of MET and expect to continued demand in the integration of weather information, decision support, and traffic management.

And third, the growing performance measurement and management niche in the traffic management market. There, we are investing in R&D and sales and marketing, which, at this time, for competitive reasons, we cannot elaborate upon.

In summary, the divestiture of vehicle sensors segment has put Iteris in a better position to focus and capitalize on the growing intelligent traffic management market. With a stable balance sheet, which has grown in its strength as a result of our strategic divestiture, Iteris will not only grow organically, but also, proactively, seeking synergistic companies, which will make our intellectual property the standard of the intelligent traffic management market. We expect not only to grow our top line, but to leverage our software-based products and services in a common market to enjoy attractive margins and earnings. Now, with that, we would be delighted to respond to your questions and comments. Craig?

Thank you very much. Ladies and gentlemen, at this time we will begin the question-and-answer session.

(Operator Instructions)

And our first question does come from the line Jeff Van Sinderen with B. Riley.

Good afternoon. I wonder if you guys can just sort of walk us through how the business is going to look or how the P&L is going to look without the vehicle sensors portion. Maybe you can just give us a sense of what the revenues were and what the profitability was from that business over the last, let's say, latest 12 months. And then, let's start -- I guess we can start with that.

Sure. Thanks for the question, Mr. Van Sinderen. Yes. I'll begin responding to that, and then I'll pass it to Jim to add his remarks if he chooses to do so. Over the last year, the revenue was about -- and I'm just talking about rolling quarters -- about $8 million -- $7 million, $8 million. Relatively break even opportunity from operating income, and we have been in R&D mode in the last few years, and that really continued and really generated some excellent products for us, in particular, SafetyDirect.

Going forward, we would certainly lose that $2 million, or so, of the quarterly and we are obviously anticipating growth in that market, but we would envision that, in a combination of organic growth and acquisitions that we would be focusing on to expect to really fill that far beyond what that was generating for us.

Okay, good. It's great to see you guys focusing on your core business. Maybe you can just give us a better sense of what we should think about for R&D dollar spend. I know that's one of the areas you are planning more spending on. Obviously, some of the dollars you were investing were for the vehicle sensors business. Now that's gone. What should we think about, as far as a dollar number per quarter for R&D, going forward?

What is happening, Mr. Van Sinderen, is that the intelligent traffic management market is showing very strong growth, worldwide, in several niche areas, and those are the very areas that are great interest to us, and we feel that we need to spend and invest more, not only in R&D, but also sales and marketing. We feel that, as an example, the above-ground detection market is estimated to be over $400 million at the CAGR of double digit growth, and we already put in two products in the market, so we would be -- continue doing that.

Domestically, the same way, and I indicated in my prepared remarks that the travel information R&D, as well as performance management and measurement, the R&D that we would be doing, we would be going through a process, and we do this every year. Right about August, September, we begin the process, and we complete that by November, December to present it to the board at the beginning of the year for the upcoming fiscal year. So we would be going through that process to determine how much of R&D we would be spending, but I would anticipate that the expenditure in R&D certainly would not be decreased. If any, it would be increased, even despite the departure of the vehicle sensors business.

This is an area that we are focusing now. It really is a dual approach, if you will. We have to invest more in order to grow organically, and we have to invest more in the way of partnership and acquiring intellectual property to, in combination, really, help us accelerate our growth.

Got it. Okay, good. And then, maybe you can just give us any color on what you're seeing on the acquisition front. Is there anything that's catching your eye, now that you can really focus all of your efforts on traffic management?

Sure. I appreciate the question. So, we have been looking at the opportunities for well over a year now, and we have over a dozen organizations that we feel that have a potential to have a synergistic opportunity with us. We have some active activities in the way of a letter of intent, and obviously, I couldn't comment any further on that, but I would expect that we would see more partnerships and more acquisitions in the quarters to come.

Okay, great to hear. I'll let someone else jump in. Thanks very much.

Thank you very much.

And our next question will come from the line of Nick Halen with Sidoti & Company.

Hey, guys. Quick question I had is you mentioned an increase in sales and marketing, obviously, and I was just wondering if you've done any adding to the sales force recently and if, going forward, you plan on adding at all.

Absolutely, and thanks for the question, Mr. Halen. So, this last quarter or two, we have added about a half a dozen seasoned senior executives. These are all -- what we refer to them as the rainmakers -- excellent marketers in key markets, and we continue investing, particularly in the niche initiatives that we have. And some of those I could not really expand upon, just for competitive reasons. For travel information system, as an example, we really have a national plan and initiative that would require not only expanded R&D, but also sales and marketing executives.

The same way with the performance measurement initiatives. These are adjacent new markets and new niche areas that we need to expand, again, both in sales and marketing and R&D. And these are areas that we anticipate seeing the benefits, really, in the upcoming quarters, and as the market really gains momentum, we believe that the activities that we are doing now would clearly positions us for top line growth, and also, much of our activity really focuses on software-based opportunities that we expect the margin and bottom line also to improving accordingly.

Okay. Well -- so, just one more question. You mentioned focusing on a -- some of the underserved markets right now, and I was wondering if you could be a little more specific, in terms of which markets you actually -- you see as being underserved right now, if you can just clarify that.

Absolutely. Some of that has to do with international, and this is both service and products. We are now focused in the Middle East, in South America, and a few other spots, internationally. And domestically, just right around our headquarters in here. We have added a staff in San Diego. We are increasing our presence in the San Francisco Bay area and other markets. We established a new office in Michigan, as an example, recently. So, these are both domestic and international.

So the situation that we have is that in order for us to attain more market share and the new niche areas, we've got to go to markets that we may not have a strong presence otherwise. And, of course, we do quite a bit of analysis in advance to see where those markets are and where we are most cost effective to really move in. We have done that already, and we have a handful of others that we have in mind to continue going forward.

Okay. Great. Thank you.

And thank you.

(Operator Instructions)

And our next question does come from the line of Eric Swergold with Firestorm Capital.

Hi, Abbas. Eric Swergold here. Hope you're doing well.

Thank you.

Thanks for simplifying the business into one major service area for us, so it will make it a lot easier to analyze. Two areas of question. First is, could you go into a little bit more detail about the royalties or the tail on the divested business lines, in terms of what we might be able to expect from that over time? It sounds like you tried to retain some upside from that business, even though you sold it.

And then, also, with respect to the traffic management business, do you think there has been some holdup because of either municipal or federal budget delays, where you think there will be funds released in the future that can accelerate that business for you? Thank you.

And thank you for the question, Mr. Swergold. Yes, I could add a little bit more color on the divestiture, and I would also suggest that we would be shortly filing an 8-K that articulates a little bit more detail. But I just add some color, and I don't want to jump this 8-K, per se.

We felt that, as part of the deal, we have two components of the earnouts for a various number of years, one of which is focused on a royalty that we have been enjoying from the car market. And, as you might recall, we introduced a new partnership with a company called Audiovox earlier in the year that we are finalizing developments of a specific product for the aftermarket car market, which we believe has a substantial opportunity. So, the royalties and revenues on those we would be enjoying for several years.

In addition to that, we would be enjoying some components of the lane departure warning revenues over the next couple of years or so, as a result of the negotiated overall consideration with Bendix Knorr. So, the overall consideration had a cash out closing component, as well as the potential earnouts that we very much look forward to enjoying the opportunities to receive those in upcoming years.

Your second part, as far as the traffic management, yes, we have seen, in certain pockets, some budget holdups of municipalities, but mostly, it's state budgets that we have seen. However, we have started to see many of the regional agencies that enjoy some other types of funds. Just to give you an example, here in Orange County, there is a Measure M, in Los Angeles County, a Measure R, and these are tax-related measures that the funding directly come into infrastructure, and therefore, we get to see the RFP and then work on those. So those are being accelerated. We are seeing more of it.

Once the federal bill passes, which we believe it will this year, we anticipate a shot in the arm added funding on that, which really positions us to capitalize on this, as you appropriately indicated, really focusing on this intelligent traffic management market. This is our core business. It has been for a long time. More than 80% of our revenue has been coming from this business and, really, allows us to now, with the much added resources financially, to focus what needs to be done in order to capitalize on this and take full advantage of this growing market.

Which, by the way, there is a study done by ITS America, funded by US DOT, that would be released shortly that would -- really addresses how significant are the markets and how growing market this ITS market is. Just application of technology in transportation is becoming, really, an important element of the overall funding expenditure. Agencies are now realizing that every dollar that you put in to do typical infrastructure work, you may, in the sense of Wall Street, get a rate of return of, let's say, $1, $1.50. When we put that money in traffic management, studies reveal that we may enjoy as much as $7 or $8 in return.

So, that -- in a tough economy, if you are investing, you want to do it wisely. It really begs the question of why not investing more in traffic management and technology solutions in that really paves the road in order to achieve that objective. And that's exactly the business we are in, and we are positioning ourselves for significant growth.

Okay. And then, one follow-up, if I may, that sort of tags on Jeff's question earlier, which is, you mentioned slightly higher SG&A and R&D spending on the traffic management business. Is this going to be SG&A and R&D that would have been spent in the sensor business, where you're just redirecting those energies to your remaining business?

Yes, the way it is happening, Mr. Swergold, is that there is a team of number of people that would be departing, some of those also in the R&D group that would be joining Bendix Knorr. So, in a way of expending R&D in traffic management, if you're looking at the existing core group, plus added staff that you may need in certain areas, such as the algorithm development, software development, and other related areas to really respond to the needed R&D.

I don't envision SG&A really following in the same fashion. We now have, really, a well oiled infrastructure, if you will, in our organization to be able to do that, so I don't see much of a growth in that. I defer to Jim to expand on it, if he wishes, but it is really the calculated and prudent R&D and sales and marketing that we would be looking at in key initiatives that truly provide us with a high rate of return.

I think that summarizes the position of the Company.

Good. Thanks very much, guys.

And thank you very much, sir.

(Operator Instructions)

And our next question does come from the line of Brett Reiss with Janney Montgomery Scott.

Afternoon, gentlemen.

Good afternoon, sir.

Mr. Mohaddes, I've usually been a listener on these calls over the last few years, and in the past, the Company has waxed poetic that -- with the vehicle sensor business, that you were -- had a competitive advantage, there was barriers to entry, and were on the cusp of it being, perhaps, standard equipment in passenger vehicles. So, the sale of the business -- just -- can you kind of walk me through -- it seems to be a change of pace of some of the themes I've heard on past calls.

Yes, sir, Mr. Reiss, I'll be delighted to share with you our thoughts on that. So, yes, we proudly invented the lane departure warning, and then invested to come up with additional products suited for this market. The market dynamic has changed in the recent last few years, triggered by a variety of activities. We essentially were facing with significant competition -- much larger companies that entered the market with significant R&D that was getting more and more difficult to compete with.

At the same time, we had -- the European Union all of a sudden mandated the LDW, which was wonderful and sort of a two-edged sword, if you will. In one hand, we felt that the demand for that technology would be 10, 20 times in just a few years. At the same time, we were looking for partners that we could work with that could help us to be able to deliver this product to our customers at the proper price.

So, when the larger companies come in, they have much leverage in materials, in relationships, so despite the fact that we feel that we have a competitive product, to be able to compete properly in very large volumes, we felt that would require much more investment in R&D and much more investment in sales and marketing. So, we were faced with, essentially, a decision as to is this where we need to really go out and raise a lot of money and invest, or should we focus on our own core market, which is intelligent traffic management, and find suitors that really have the resources and the interest and the market know-how to really capitalize on it? And we are quite pleased that a partner that we have been working with for several years in various opportunities really wanted to leverage this and take full advantage of that.

So, in summary, that has been our strategy. So, we are quite pleased that much of the technology in the machine vision that we have been using in the above-ground detection would continue to stay with us, and we would be investing even more in that area. There are not only video, but other above-ground technologies that we would be investigating to expand our vehicular sensor business, as it relates to traffic management.

Right.

So that has been -- I hope that this responds to your comments and questions.

Sure. Sure. Now, were they really the only bidder on the division?

For confidentiality reasons, with your indulgence, I'd like not to answer that directly, at this point.

Okay. And -- yes?

But I could tell you this, though. Over the last couple years, we have had tremendous number of organizations interested in that particular property. I'll just leave it at that.

Okay. And just shifting gears, with your new focus on traffic management systems, I'm just -- can you give me some comfort? I'm a little concerned that the states and municipalities that are going to ultimately purchase these systems from you -- their ability to pay in a timely fashion.

Sure, Mr. Reiss. And I would interpret that in couple of components, not only to be able to pay in a timely manner, but also, having the money to begin with, and, of course, that's a very important element. When we look at the -- and I include a little bit broader market. We have the federal agencies, the state agencies, regional agencies, and local municipalities. Really, four categories of customers, and then, in addition to that, we have private companies as well, and I'll just expand on that a little bit and then come back to the core question that you have.

When you take travel information system, as an example, it is not only the municipalities. Ultimately, we want to reach the consumer and really empower them to come up with opportunities to choose their routes, and perhaps we will be benefiting from the phone call that they make or, let's say, a billboard that some company would be advertising along the way to reference them to the site or something. So, there are, really, generally, five categories of folks that would be providing funds.

Each category really has its own funding characteristics. From a federal standpoint, the revenue has been coming, actually, in a very steady pace, despite the debate and the challenges that we are facing from a federal level. And I talked about the federal bill. And I do firmly believe that components of that bill that relates to our business would actually be significantly expanding, and we know the bill will go through, and we know that we would be benefiting from that.

Setting that aside, state agencies essentially get much of their funds from the feds, plus many revenue channels that they have themselves. Again, in vast majority of the states, they have experienced a steady revenue stream. There are several that are experiencing hardship, such as California, as an example. There are others that continue spending the money in infrastructure. And also, federal build would benefit them as they get overall infrastructure shot in the arm.

There are transit funds that, in the recent years, have become more and more available. Billions of dollars that are headed toward the high speed rail, and we have our fingers in various phases and levels of those funds. When we get to the regional agencies, these are agencies that primarily benefit from various bond measures that are specifically tailored to transportation and infrastructure. And on those, in the last two, three quarters, we actually have seen increase in request for proposals and activities.

And when it comes to the local agencies, again, I concur with the sentiment that much of them are experiencing hardship, but they have primarily two types of funds. They have the general funds that they have to spend, and they typically do, for maintenance activities, and much of our revenues comes from that. And then, they have the capital improvement funds. Some of that has dried up in some agencies. Others are still proceeding. So, all in all, although the funds have been relatively flat in the last two, three quarters, there are every indication that these funds would grow at all levels.

I should also mention something that hopefully would provide you more comfort, as far as payables. Typically, the agencies, when they send out an RFP and when they execute a contract, the beauty of that situation is that they have the money in the bank. So, there is minimal danger of not be able to pay. When we look at -- and we look at this carefully on daily and weekly basis -- when we look at, in the last couple of years, our receivables, it is really -- have not been hindered materially from what we have been experiencing prior to the economic hardship that we all have seen.

So, from a payment standpoint, that's one of the wonderful things about government agencies -- that when they sign, they pay. Now, they may delay contracts, and they have, but they are typically good customers when it comes to payment. I hope that this helps and adds some color to the questions you asked, Mr. Reiss.

Very much so.

I tried to (inaudible).

Very much so, and good luck.

And thank you, sir. Thank you very much for your support.

And at this time, this does conclude our question-and-answer session. I would now like to turn the call back over to Mr. Mohaddes for his closing comments.

This concludes today's call, and thank you, ladies and gentlemen, for joining us for this presentation, and we look forward to informing you in the upcoming quarters our updates and business activities. Thank you again.

Thank you. Ladies and gentlemen, before we conclude today's call, I would like to take a moment to read the Company's Safe Harbor statement. We would like to remind all participants that during the course of this call, Iteris made forward-looking statements regarding future events or the future performance of the Company. The forward-looking statements discussed during the call are based upon information currently available. This information will likely change over time. By discussing the Company's current perceptions of the market and the future performance of the Company, its products and services, and the pending divestiture of the vehicle sensor segment, Iteris is not undertaking an obligation to provide updates 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 Form 10-K and 10-Q. These documents contain and identify important risk factors that could cause actual results to differ materially from those that are contained in any of the forward-looking statements.

Finally, I would like to remind everyone that this call will be available for replay via telephone through August 9, 2011, starting at approximately 7.30 P.M. Eastern time today. Please follow the instructions in today's earning release. An audio webcast of this conference will also be available for the replay via the investors relation section of the Company's website at www.iteris.com. This concludes today's call. Thank you, ladies and gentlemen, for joining us for our presentation. You may now disconnect.