Q2 2020 Earnings Call
Conference call today's conference is being recorded at this time I would like to turn the conference over to Todd Curly NKR Group. Please go ahead Sir.
Thank you operator, good afternoon, everyone and thank you for participating in todays conference call to discuss I terraces financial results for its fiscal second quarter 2020 ended September Thirtyth 2019.
Joining us today already terraces, president and CEO Mr., Joe Bridge era, and the company's CFO Mr. Andy Schmidt.
Following their remarks, we'll open the call for your questions.
Before we continue I'd 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 statements are based on current information are subject to change and are not guarantees of future performance I'd terraces, not undertaking and obligation to pay.
Slide updates to these forward looking statements in the future.
Actual results may differ substantially from what has discussed today and no one should assume that at a later date the company's comments from today will still be valid I'd Terrace 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, an 8-K, which contain.
And then identify important risk factors that could cause actual results to differ materially from those that are contained in any of the forward looking statements.
I'd like to remind everyone that you will find a supplementary report on our second quarter financial metrics and a webcast replay of todays call on the Investor Relations section of the company's website at Www dot terrorists stock comp.
Now I'd like to turn the call overnight terraces, President and CEO Mr. Joe preserved. Please go ahead.
Great. Thank you Todd and good afternoon, everyone. Thanks for joining us today.
As you start the close of the market, we issued a press release announcing the financial results for our fiscal second quarter ended Septemberthirty 2019.
In Q2, I Terrace continued to experience strong demand for our smart transportation and digital Agriculture solutions, We recorded 27.9 million in total revenue, bringing our total fiscal first half revenue to 54.5 million.
This result represents a 14% increase relative to the prior second quarter revenue and a 9% increase relative to the prior first half revenue.
We secured second quarter total net bookings of 34.7 million, bringing our first half total net bookings to 65.7 million.
This represents im sorry. This total net bookings result represents a 3% increase for the quarter and a 7% increase relative to our prior first half.
And our total second quarter, ending backlog expanded to a record 70.6 million, representing 18% sequential and a 19% year over year increase in total ending backlog.
Now let me provide a brief overview of performance by segment.
In Q2, our transportation systems segment recognized 14 million in revenue, representing a 14% increase versus the same prior year period.
For the first half of fiscal year 2020, the segment reported revenue of 26.4 million, which is a 3% increase versus the same prior year half.
Two factors drove the segment second quarter revenue increase first our acquisition of Albuquerque, Inc. on July 2nd contributed 1.7 million in revenue for the quarter and second at the transportation systems segment resumed slight organic growth as we began slowly to convert prior period bookings to recognized.
Revenue.
The segment slower than expected rate of organic growth was due to delays in our receipt of authorizations to proceed for five large contracts.
Although the causes of the delays very firm contract to contract a common theme as it agencies are struggling in the current tight labor market to recruit and retain employees, who typically perform essential program management and contract administration tasks.
Without adequate resource levels that length of time between contract award and receipt of an off the rate authorization to proceed is taking up to three to six months longer than our historical experience.
We're closely monitoring the status of authorizations to proceed for these five major contracts and we expect to receive authorizations for at least some of these contracts in our third quarter, which would further accelerate the segments rate of revenue growth as we progress through our second half.
Notwithstanding the delays in revenue conversion the segment recorded strong second quarter net bookings of 18.9 million, bringing first half net bookings to 36.2 million.
The segments more notable second quarter bookings include 4.3 million in various task orders from the Virginia Department of Transportation and please note. These activities are this activity is in addition to our management of dots traffic operation centers, which we've discussed on several prior calls.
We also received 2.5 million in various task orders from the Florida Department of transportation much of which as result of our acquisition of Alba Gergen, which is significantly enhanced our presence in the Florida market.
2.2 million in various contracts for our advanced traveler information system, which we provide the agencies on a hosted basis.
1.5 million in software as a service contracts from various agencies for use of our performance measurement solution brand. It is clear guide and for use of our commercial vehicle operations software products.
And finally $600000 task order for the first phase of a design initiative for large highway construction project near San Antonio.
Additionally, Cisco systems named by terrorists Osisko solutions technology integration partner for the Cisco Transportation Aiotv solutions segment.
As a step by terrorists is now able to resell Cisco products on a highly favorable basis, making attractive for us to bundle Cisco products into our solutions. The new arrangement with Cisco also provides a framework for a higher degree of commercial collaboration between the two companies in certain strategic geographies.
Due to the segment's strong second quarter book gains the total ending backlog for our transportation systems.
Reached a record 58.3 million.
In Q2, the roadway sensors segment recorded revenue of 12.6 million, representing a 14% year over year increase for the first half of fiscal year 2020. The segment reported revenue of 25.4 million, which is a 16% increase versus the same prior year half.
The segment second quarter result reflects particularly strong performance in the state of Texas, The Pacific Northwest and Southern California.
Additionally, we saw continued increase in demand for vantage live our SaaS based intersection analytics platform and for vantage radius. Our radar based intersection detection product line that we launched in fiscal 2018.
In Q2, our agriculture, and whether analytics segment recognized 1.3 million in revenue, which represents a 20% increase compared to the same prior period quarter.
For the first half of fiscal 2020, the segment recorded 2.7 million in revenue, representing a 9% increase relative to the prior year first half.
As mentioned on previous calls the segments first half and second quarter revenue in particular is affected by seasonal pricing for our clearpath weather product, which experiences higher usage during winter months.
The segment continued to experienced strong bookings performance during the second quarter. Despite a delay that pushed the renewal of our largest clearpath weather contract to October the segment second quarter total net bookings were 2.3 million, bringing first half total net bookings to 2.7 million.
Some notable second quarter customer wins include one of the largest privately owned seed producers in the United States selected Clearags provide standard environmental data for its internal functions and to support highly targeted recommendations for the application of crop inputs to its and customers.
BSF Corporation further expanded its use a clear AG, which was already a key component of Zarxio. The company's digital farming solution and clear AG was selected to enhance the key customer facing application to one of the worlds largest fertilizer and crop nutrition companies.
Now I'd like to turn the call over to Andy to walk through our financial results.
Thank you Jill and good afternoon, everyone.
Following up on Joe's introduction to our financial highlights in summary, as key revenue drivers consistent with past quarters I'll focus on providing an update of our three business segments from a modeling perspective and finish with our balance sheet highlights.
As a reminder, or press release issued today includes financial tables with current quarter and year to date financial information and our pro forma reconciliation in the segment information.
This time Curly mentioned, we also publish a key financial metrics document, which is posted on our website under the Investor Relations link under financial reports, which provides a trend view of our key financial metrics.
Looking to their Q2 in first half of fiscal 20, there are two important dynamics to keep in mind.
First we completed our confidentially marketed public offering in Q1.
Which we discussed during our last quarterly update.
In Q2 as Joe noted, we completed our acquisition of Elbit Gerken, specifically, we closed the acquisition on July 2nd.
As such our current reporting quarter shows a full quarter of revenue and operating expense associated with the acquisition.
In addition, we experienced nonrecurring transaction expense related to the acquisition that we call out in their pro forma results detailed in our press release.
And all we recognized approximately $766000 of onetime third party acquisition related expense under GAAP Q2 fiscal 20 results, bringing our total year to date related expenses to $922000.
Please refer to non-GAAP reconciliation provided in our press release for more detail.
Okay, let's consider or three business segments and business model updates.
Staying consistent with Joe's order I'll start with our transportation systems segment.
Joe outlined our continued favorable bookings and backlog trends in significant new contract wins steer noted our current period results include approximately 1.7 million of AJ revenue.
Our Q2 year over year organic revenue comp is slightly up compared with our prior year period of approximately 12.4 million.
Primarily due to contract delays, which do outlined.
It's important to note that the contract start blaze do not represent lost revenue, but simply a shift the revenue to future quarters.
In terms of contribution margin operating costs of 3 million in Q2 includes AIG operating expenses in compares to 2.4 million in the previous year period.
And all Q2 contribution margin of 13.8% compares to 14.3% for to prior year period. However is an increase from 12.7% in Q1 of the current fiscal year.
A key significance the period ending September 30 is a seasonally low revenue period for AG type due to seasonal tropical storms in the Florida region.
While revenues our lowest during this period expenses and remain somewhat flat throughout the year.
Looking forward, we expect to AG acquisition to contribute more significantly to contribution margins.
Switching to our sensors segment similar to Q1, we saw a significant year over year growth in the segment led by the come back of the Texas region as well as overall strong performance across all regions.
The overall product mix in Q2, 20 lean more towards a tourist product versus third party product resulted in gross margins at 45.5% compared to 42.3% in our Q1 of the current fiscal year.
From a Q2 year over year perspective, gross margins were consistent at 45.5%.
Q1 operating expense of 3.5 million compares to 2.5 billion in the prior year period.
The increase is attributed to increased sales commission on much higher year over year sales as well as a slight increase in engineering expense attributed to a shift from capitalized development to sustaining engineering.
Put it all together.
Due to contribution margin of 17.7% is within expectations and it compares unfavorably, however to 22.6% for to previous year period.
It should be noted in our previous year contribution margin percentage benefited from certain favorable nonrecurring accounting adjustments.
Switching to AG and weather is Joe previously outlined we had very positive bookings and revenue dynamics for this segment for the period and year to date.
Gross margins for AG and whether at 54.5% is within expectations, given 1.3 million in revenue for the quarter and compares favorably to 50.7% for the previous year period.
Operating expenses continue to improve current quarter Opex of 1.8 million compares favorably to 2.1 million for the previous year periods.
The segments contribution loss of approximately 1.1 million for Q2 compares favorably to last year's lost 1.6 million.
No we continue to post continuous quarters of improved financial performance in this segment.
In terms of corporate expenses, which include unallocated public company expense accounting finance 80, marketing HR facilities expenses. So on we've essentially stable as given many growth related transitions.
Corporate expense for Q2 of 20 was approximately 4.2 million net of acquisition expense.
While this is up from 3.9 million in previous year, we experienced higher than typical proxy related expense this quarter due to a typical shareholder activity.
Finally, let me address our balance sheet.
Our year to date fiscal year 20 is a unique period due to the Q1 capital raise into Q2 purchase of AG.
In regard to share count we started this fiscal year with 33.4 million shares of common stock outstanding.
Our raise added about 6.2 million shares in the AG acquisition included 869000 shares.
Adding in shares attributed to stock option exercises in restricted stock units. We ended the period September Thirtyth 2019, with 40.6 million shares outstanding.
In terms of cash we began our fiscal year is approximately 9 million in cash and short term investments.
Taking the capital raise in acquisition out of the equation.
Only used about $200000 in cash year to date, including capital expense Thats, a great change of pace for this company.
In particular, we've made great improvements and are working capital position.
And Tories associated with our sensors segment have dropped from 2.9 million at the beginning of the year to 2.5 million as return as we returned to scale in that business unit.
And in cash and short term investments at September Thirtyth 2019 was 29.5 million.
As a final comment we saw a non-GAAP operating loss of 322000 this period.
The current period loss does not include internal labor acquisition related effort that will subside throughout the balance of the year.
Our year to date loss of 690000 is an improvement over fiscal 2019 year to date non-GAAP loss of 950000.
And we have a clear view of positive non-GAAP operating income for the second half this fiscal year.
At this point I'll turn the call back to Joe.
Great. Thanks, Andy.
So I terrace remains in a strong position to capitalize on favorable secular trends in smart transportation and digital agriculture.
And during the second half of fiscal 2020, we will continue to introduce product and service innovations to expand our addressable market and enhance our competitive differentiation as we further develop highly meaningful high margin SaaS models and both of our end markets.
Ill provide some commentary on our approach by segment and our associate expectations for the balance of fiscal year 2020.
While bookings growth may fluctuate within any given quarter. The sales pipeline for our transportation systems segment continues to reached new highs and our opportunity conversion rates remained favorable. Therefore, we continue to anticipate strong bookings for the segment throughout the second half of fiscal year 2020 and B.
And with the highest rate of opportunity conversion coming from three areas first customer adoption of our software as a service products in other words clear guide our terrorists SPM and our commercial vehicle operations product family.
Second customer adoption of our business process outsourcing and managed services offerings, such as intersection as a service, which is a software enabled managed service and third additional penetration in the Midwest, Texas and of course, Florida, where we have significantly enhanced our presence with the recent acquisition of Albuquerque.
In the second half of fiscal 2020, the transportation systems segments should realize year over year growth in the high teens adds a rate of backlog to revenue conversion increases and we consolidate the financial results of the recent Albuquerque and acquisition.
For your reference we continue to expect Albuquerque to contribute over 4 million in revenue to the transportation systems segment and our second half.
And as our post acquisition integration activities in associated costs should be largely behind us by December 31, we should start to see the benefit of the Albuquerque and acquisition drop to our bottom line beginning in our fourth quarter.
Now, let's discuss the roadway sensors segment.
We continue to expect roadway sensors segments report full year revenue growth of more than 10%. The segments primary growth drivers include first several product innovations that further enhance our competitive differentiation.
Second an increase in product revenue and also SaaS revenue attributable to vantage live.
And third implementation of certain programs to enhance productivity of our direct and indirect sales channels, including establishment of a new national sales and customer success organization.
Given typical seasonality in a scheduled product cycle, we continue to expect second half growth rates to moderate somewhat due to high single digits. Nonetheless, the segment's second half operating income margin should increase somewhat relative to our first half due to product mix and sales afib.
Currency.
As a result, we continue to expect this segment's second half and full year operating income margin dollars.
Increase relative to last year's annual segment level operating income margin.
And finally, let's discuss our agriculture and whether analytics business.
During the second half of fiscal 2020, we'll continue to strengthen clearags, new market position and increased customer adoption.
Our commercial activities will focus on penetration in existing strategic account.
Acquisition of new agribusiness accounts and adoption by Allied providers in North America in Europe .
Due to continued revenue growth and cost containment and our second half we expect our net investment in clear active further decline, resulting in a full year net investment of less than $4 million.
So in summary.
We continue to anticipate full year fiscal 2020 consolidated enterprise wide revenue growth in the mid teens and we further expect the combined effect of incremental operating margin dollars from the organic revenue growth and our transportation systems and roadway sensors segment.
A decrease in our net investment and clear AG and the accretive effect of the Albuquerque, and acquisitions yield a non-GAAP operating profit for the second half of fiscal 2020 as Andy just said.
With that would be delighted to respond to your questions and comments.
Operator.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you were using speakerphone. Please make sure you meet function is turned off to allow your signature reach our equipment.
Again press Star one.
Ask a question.
We'll take our first question from Jeff Van Sinderen B. Riley FBR.
Everyone.
I wanted to start with the bookings backlog, you've seen a tremendous increase and booking backlog for transportation systems.
And I think you said you expect to see an increase in rate of conversion on that backlog seems like where.
Like there were some delays in unlocking that is that just a matter of timing and then I guess, how should we think about that hitting the BNL anymore color you can give us in that.
As we're thinking about second half.
Yes.
Great question.
Absolutely we've had we obviously, we've seen really strong bookings.
We are continuing experienced strong bookings growth, we expect that to continue our backlog has grown as a result of that increased bookings. It also grown because.
I candidly, we haven't been able to convert some of the prior period bookings are existing backlog to revenue at the pace that we had expected we absolutely expect to start unlocking that in Q3, we'll see more that unlocked in Q4 as I said in my prepared remarks. The main reason that that hasn't occurred at the pace that we had expected is that frankly.
Like I said, the specifics are different from contract contract, but across all the agencies were seeing the impact of a really tight labor market and basically key staff that are necessary to perform program management and contract administration tasks are in short supply.
In some cases, they reach retirement age and so they've moved on and agencies are unable to find people to replace some also we're seeing instances where people are leaving agency roles to take jobs in the commercial sector and so they are just simply aren't enough people to get some of this work process.
That being said these are firm commitments, it's in our backlog it will absolutely convert to revenue. It's just simply a matter of time and just to reiterate we have good line of sight to at least a couple of the five.
For agencies, providing us the necessary authorizations proceeding Q3, potentially all five could come in but at least a couple of them well and as a result, you'll see an even higher rate of growth.
In our transportation systems in the second half and Jeff. This is Andy let me kind of add to let Joe just said what's interesting about these contracts as well is in some cases weather.
It's asked an optional basis are sometimes its mandated even though we don't have the authorizations to proceed as Joe just discussed.
The require us to typically as we call. It work at risk and what that means is were already performing certain tests that are critical to make sure that these programs go off when they're ready to actually launch as Joe said near Q3, and maybe all in Q3, maybe accommodations Q3 in Q4, but the net kicker.
Yes.
We been actually parking costs that turns into revenue on our balance sheet. That's been appropriately authorized by these agencies. So as these projects do get released they actually get off with a kick start so not only do we have the staff in place to execute we also end up with a running start on these projects as we go.
Okay. That's helpful.
And then if we could shift a minute to to AG.
Maybe you can speak a little bit more about how that's going.
Is it on track what's left to do as far as integration. What are you seeing with they command center, particularly curious about that are there some assignments with AG that you're winning.
Already and then Conversely are there some gating factors around that.
Yes so.
Great question, So Jeff just to make sure everybody is on the same page I, when you're referring that AG, you're referring to Albert Kirk and not AG.
And.
Yes and.
Ed Albuquerque integration is going great.
We have a very detailed integration plan, we're actually slightly ahead of schedule on that and as I said.
Essentially all the integration work will be completed by December 31, and by the way that all have some benefits in terms of the operating the segment level operating income margin or the operating income margin contribution from Albert Gerken, starting in Q4, but with respect to sort of.
The commercial landscape and what you are calling that command center or the captive traffic management Center.
Right actually seeing.
Really nice.
Activity already as I mentioned, we had a significant.
Amount of bookings in the Florida market and the most recent quarter and that was due to really the combination of the two companies theres been a lot of very positive.
Sort of press and kind of just viral.
Kind of communication.
Our crop before department transportation various municipal agencies in Florida.
Around that.
Unique combined capabilities of the two companies and so we saw very very strong conversion rates on all the opportunities that we pursued in the Florida market in our second quarter and again the total value their contracts have you received in Florida, and our second quarter is 2.5 million.
With respect to the traffic management Center.
First of all at one of the say that as you may remember from prior conversations.
At that one of the things was really exciting about Albuquerque, and as they on like most.
Business process outsourcing models are managed services models in our space have their own captive TMC Air traffic management Center, which results in really highly leveraged model and Thats why their historical EBITDA margins have been so fantastic.
We.
Plan to absolutely capitalize on that so far.
We have deployed our software products related software product for example by terrorists SPM advantage live we've made that about and also clear guide we've made available to all Albuquerque, and staff and so it's available and running in their lab and actually in the PMC and they're already started.
Vantage of that.
With respect to.
Come.
Our our intention to try to leverage that in future deals when we're bidding on other work such as for example that Virginia Department Transportation TLC activity that we perform.
There are a number of.
Pending procurements that we are tracking and we do expect as we originally stated to basically leverage or incorporate that this captive TMC into our bid on those particular pursuit, but at this point, we have yet to win and award because.
The length of sales cycles, and so that probably won't occur for another couple of quarters, but again already really strong on very positive commercial collaboration and occurring in the Florida Maher.
Monies and then secondly.
We already deployed.
At our soft using it in their lab and in their cap if Tam.
You talked about it previously this is a small private company as they integrate into a public company format turns out that the rules of assay six so six or accounting requirements. There revenue that we've talked you previously translates really dead on with how we actually record revenue and revenue recognition our current quarter.
Again, both models are with an $80000 of each other so everything we talked you previously does translate into public company accounting.
Okay. That's really helpful and then if I could squeeze in one more.
Maybe just briefly on Cisco you recently enhanced your relationship with Cisco. So first is that strategic and then maybe you could just touch on what enables you to do and Cisco to do as you work together in concert.
Yes sure.
So absolutely we see it is highly strategic.
I mentioned that but it's worth mentioning again.
The interesting thing is that if you look at the.
Traffic infrastructural transportation infrastructure across the country.
A lot of that.
Devices that have been deployed our.
Not connected necessarily to anything so for example in a lot of cases are intersection detection equipment. While it is capturing for particular agency a lot of really valuable information intersection because there is no connectivity to that intersection that that data is not being.
Ingested into a.
Essentially could data warehouse to do any kind of historical analysis.
The Cisco and other companies.
I recognize that they see a tremendous opportunity to provide.
Much more significant levels of connectivity.
To that particular sector.
Additionally, the development of connected and automated vehicles is putting a lot of pressure on agencies.
To even accelerate the pace at which connectivity is provided I'm really across the entire transportation infrastructure.
And therefore, you're seeing a number of technology companies such as Cisco as I said get really focused on this marketplace because of our experience designing the communication infrastructure for a lot lot of those agency that the most advanced communication infrastructure typically they've used us to help design.
That that infrastructure and so we're very very unique position to collaborate the companies such as Cisco to increase the penetration of connectivity in specific cloud connectivity across the transportation infrastructure, so that kind of from a higher level, that's what the way Cisco's look.
Got it from our perspective, we're very excited about this particular new.
Level of partnership.
We have a number of offers like for example, intersections of service, where we see a lot of demand for Cisco gear with this new partnership we have the ability to effectively function as a Cisco reseller and resell Cisco gear very attractive prices. So all the sudden it may.
Economic sense for us to start including Cisco.
In that solutions that we're going to market with.
That will result in additional revenue for us as were successful in pulling Cisco gear through those deals.
Additionally, because this is already has a really strong interest in this market and they see us as really strong partner for them.
This new relationship provides an even stronger and more formalized framework for the two companies to work together and specifically to develop.
Kind of the joint market, if you will persist going I terrorists.
Prime primarily in three is applied nationwide, but they're really three geographic areas that were especially focused on one is California, the others, Texas in the third is Florida, and so with Cisco's resources.
Brand recognition their own direct sales channel as well as their other.
Channel partners.
We believe that Cisco is going to.
Really help us move the needle.
Of course over some period of time, it's not going to happen overnight, but over the next couple of years, we think thats relationship with Cisco can really help us move the needle, especially in all three of those markets but.
Potentially nationwide.
Which obviously have nice financial benefits for US, we think is gonna be really important for the broader industry and providing a better connectivity for transportation infrastructure and enabling things like vehicles infrastructure integration.
Well congratulations on that thanks for taking my questions and continued success.
Thank you.
Thank you well take our next question from Steve Dyer of Craig Hallum Capital Group.
Hey, guys friends that go on for Steve.
Hi, Rob.
As it relates to transportation systems, So my math implies.
Flattish revenue for the second half of the organically if you exclude all but gerken.
2 million a quarter there.
First is that correct and then secondly, I guess can you help me reconcile the commentary that you expect accelerating growth in backlog conversion and some of these large contracts ramping up in the second half coming online versus I guess that segment growth and my math of high single or high teens girls.
Sure. So this is andy or and I'll start with the just the actual performance. Yes. It is flattish for the first half keep in mind, our first quarter, we had the unfavorable comp where we still are comping year over year with the larger V that contract that phased out after Q1, so as we get into our Q2.
Were slightly up organically.
And again year to date, that's good to be where we are again at the 12.4 million is what's interesting as we go into our Q3 Q3 is typically a seasonally down quarter for both our transportation units, but indicates a systems likewise, regardless of contract starts that Joe has been comp.
And team to that we expect a couple of them the kick loose maybe all of them, regardless, we don't expect to see seasonality in our third quarter, which is which is a big positive. So so again thats another kind of triggered towards how we are very confident we're going to see strong year over year growth starting in <unk>.
Our Q4, and certainly continuing into our Q4 as we.
Start start seeing these contracts get up and go.
So Brian this is Joe I think you were saying that the doing quick back on below math you were thinking that it's on an organic basis systems would be flat in the second half first.
So first half of the second half.
Yeah, I was primarily talking more guidance for the second half so you're right that you expect high teen Yell segment in the second half if you just layer on 4 million on the last year. It gets you had about there. So I guess the commentary doesn't quite a line what kind of those numbers than expected yet. So we should we should take that off.
Line and talk to you, but in fact, we are looking at strong organic growth in the second half.
Excluding the Albuquerque, and impact so why don't I, just I don't want to work I don't want to take up a lot examples time, but I'll just say that no. We absolutely expect organic growth in the second half transportation systems organic growth in the second half.
Gotcha, Yeah, well offline here, okay switching over so backlog I think that includes the Albequerque and do you have what the organic backlog was or how much that contributed to it.
Yeah sure do.
We're about 51.1 million just organic in terms of ending backlog, which is still up significantly from the 49.5 billion. We recorded in Q1.
Yes, so and I can just add add to that Ryan. So if you exclude alba gerken our year over year.
Backlog would have been up 10%.
And on a sequential basis, the backlog would have been up 9%.
Got you and that's just transportation systems backlog right.
Sorry that was on an enterprise basis, it probably would be roughly the same for system, where do you want to sure systems in our Q1 of 2019 was 40 million and we're at 49.4 million in their Q1 and 51.1 in our Q2, so up very significantly.
Got you. Thank you and then last one for me is you know sounds like the Opex Gerken integration is going well.
What does the acquisition pipeline going forward look like and then what is kind of the realistic cadence for potentially layered on more deals in the future from both human capital as well as I'm just integration everything thanks.
Yeah sure a good question. So yeah, the integration is going really well we.
We think it would make both strategic and financial sense to potentially do some additional acquisitions and you know would be our desire to do so.
As far as that.
Timing.
Kind of reverse the order of your question and say that.
You know interestingly.
In addition, during the Albert Gerken acquisition, and then the integration, which has lot of heavy lifting undermined folks that we have actually taken over the management of traffic operation centers. For example, in Virginia, and then more recently in Florida, which as a result required us to.
Onboard a significant number of employees and then migrate that function to our into our infrastructure, our corporate infrastructure and as as a result, we actually have gotten pretty darn good at doing what effectively looks like post acquisition integration and.
Back in as I mentioned, the Alpha Gerken integration has been going extremely well and we've kinda largely use the same playbook.
And so we definitely have the capability to do.
As far as integration goes we are the capability to do additional integrations and snap them into our chassis pretty easily at this point and by the way I would add that one of the things that may it is making it possible is that we had been making investments over the last couple of years to migrate to a new ERP system.
Two.
Deploy salesforce dot com across all of our segments and so its use in general course of business and we've implemented and become proficient in the use of other similar sort of enterprise applications right. So thats kind of enabled us, but anyway I don't think the limiting factor.
Her in terms of doing additional acquisitions will be our ability to successfully integrate the company, it's going to be a function of finding I can you know the write business that makes sense on many levels right does it is there a strategic fit can we get.
Can we is there a reasonable valuation you know.
Expectation into our <unk> on that on that particular asset and and in some cases, there maybe some business would be interested in acquiring but like like let's take Albuquerque, and for example, which was owned effectively by the founder and so he has.
Had various objectives regarding whether and when he does he chose to sell that business and so we need to get alignment around you know that the desire the seller.
So in terms of terms it makes sense for us, but also the timeframe that makes sense for us. So the bottom line is that going to be the major limiting factor is our ability to find the right acquisition at the right pricing when that's going to going to happen.
It.
If I were just sort of just gas I would think that it's gonna be like maybe sort of every 12 to 18 months over the next couple of years, we might be successful in finding another out but gurkin closing the transaction and then integrating them into our operation, but there could be periods, where things could happen they can bunch up and be a little bit CLO.
Closer and then there could be no other periods, where you could maybe it might stretch out to more like 24 months, but again I think on you'll sort of average out at about like maybe one transaction every 12 to 18 months.
Great. Thanks, guys. Good luck.
Thank you we'll take our next question from Joseph Osha of JMP Securities.
Oh, either and thanks actually bring neatly for a queuing up a one of the several questions I was going to ask a as you think about that acquisition cadence or would it be.
Your intention to try and fund that with thought wherever you buy with internally generated cash flow or might you contemplate levering enterprise are doing other things to try to move that forward.
And you want Barbara sure. So you know something that we didnt.
At a point at the right, but it's pretty obvious for us is.
The key qualify for any acquisition.
It's got to be accretive.
There's a lot of business out there a lot of technology that is for sale, that's still and growth.
The development loads, we have a for mindset on whatever we buy is going to be accretive you know, we're close to 30 million in cash and you know that's enough cash to deliver the next acquisition in our mind and what we look at and you know.
As we've talked before we've been looking at acquisitions for a number of years is this is a pipeline type event and so this is not new to US we have a good pipeline out there that we're always talking too.
But you know it's a combination of fusion using the cash on hand, and as Joe commented before you typically we're talking to people that do actually enjoyed effect that were a public company and we create liquidity from that perspective, and they buy into the story of where we're going in terms of the overall strategy and opportunity.
So there is typically it's you know in expectation of combination of cash we have in the balance sheet combined perhaps with shares that we would issue from the perspective of its a desire of the purchaser to actually have a play in the stock not just cash.
Yeah, I would add to that to those as we.
Evolve the financial characteristics of the business.
Meaning that we get to consistent operating income profitability.
And that will have the ability to use other kinds of financial instruments to do future acquisitions, and so we would certainly no plan to do that going forward.
The question is like.
When are we able to pull that lever right.
So we'll have to look at that but that's certainly our intention.
Sure.
He did did you just state <unk> 30 million to I Must've misheard that what was that a reference to what was that a reference to.
Approximately 30 million in cash we have in the balance sheet as we talk today.
But.
As Joe said, you know, we're transitioning into cash flow positive performance and so you continue to build that that war chest and and then.
Joe is alluding to is well is obviously, we do all our homework and as we get to solid EBITDA performance different instruments, meaning debt instruments become available to us at the rate market prices. So so you know again, we have a full array of different financial instruments to put to use in terms of acquisitions in India.
I want to comment too some of the 30 million cashless I'm, a former cash and others in the form of short term investment showed just to make sure but he understands that shirt. So so as Joe pointed out oftentimes I'd, just say cash, but if you look at our balance sheets, it's referred to as cash in short term investments to combine by 29.5 million right now.
Right. Okay. Thank you and then.
Following again on the one of the previous questions I I.
We can take this offline if you want I I too am having difficulty teasing out.
In transportation systems, what we think the organic rate of growth. So maybe I'll. Just ask you were at a higher level here for that and roadway sensors.
As we think not just about the remainder of this fiscal year, where we're coming off some some easy comps, but you're looking for the next fiscal year, what what kind of organic rates of growth might should we be thinking about for those businesses.
Yes, so for transportation systems would be looking at growth in.
Mid to high organic growth in the mid to high single digits for the first half.
The second half I apologize and then looking ahead as we've said we think that it's reasonable to expect organic growth in the <unk>.
Low teens.
As for transportation systems, now, let's talk about roadway sensors kind of similarly, we would expect that over the long term you could expect organic growth and the low teens.
In the second half as I said, we expect there might be a little bit a moderation in the growth you saw in the first half that's due to the fact, there is a planned product cycle in Q4 and that will we expect result in some moderation as I say.
But we would still anticipate the.
The.
Segments growth will be in the high single digit so again, the organic growth of both of those segments will be well chess pieces and the kind of the mid to high single digits roadway sensors, my high single digits, but for different reasons.
And if we think thats only that's but that rate of growth is limited to that period time.
And that again over the longer term, we would expect organic growth for both of those segments to be.
Low teens.
Okay. Thank you and then that the last question for me I'll try to not hard things here is is there some point at which you.
Do you think that net investment that if the EBIT level up rag and whether it could get to get the flat.
And how I mean did to the extent you can communicate what what are your goals around achieving.
Sure. So you know as Jim pointed out we made continuous improvement here.
We're looking at next fiscal year again to continue that improvement to where on a quarterly basis stones that starts running down to zero. So so our goal next year is to have that business operating you know if not ill flat you know definitely under that million dollar burn level so that your.
Dealing with maybe you know again that $250000 appeared something something that's really de minimis. So so we see that opportunity to do so and we hit it from both angles. We continue to see this revenue growth and of course, its assess model. So.
Well sticky as all get out again, we essentially with.
With the with the healthy firms out there C 100% retention.
You know, we're hitting that on both sides were looking at that we continue to look at different expense opportunities as you know the technologies mature and so basically it from this point on there's there's just not that high requirement from an R&D perspective, we're choosing to actually manage expense side from the sales and marketing opportunity.
So so again, we look at significant improvement year on year out was next year.
Bringing it down to a point, where you know it just doesn't hit People's radar in terms of any kind of burn.
Okay. Thank you.
Again, if you would like to ask a question. Please signal by pressing star one we'll take our next question from Mike Shlisky Dougherty and company.
Okay.
Okay. Good afternoon guys.
I wanted to just back up to something you said and you and your and your earlier comments.
Did you say that one of your larger or your largest customer.
Contract renewal was delayed after we ended the quarter was that when you said and I Wonder just make sure that wasn't facts on after the quarter was over.
I also on whether there was an expansion or increase in the pricing or scope of that deal.
Yes, so that was it was an AG and weather. So this is Joe and yeah that was asking whether analytics contract was specifically a clear path whether contracts not a clear x. I want to be super clear about that and yet it was are by far our largest.
Clearpath weather contract, it's for what's called the pooled study on their several states that.
Collaborate.
The share funds in order to procure our service at arguably somewhat preferential pricing because of the total size of that contract.
And it was scheduled for renewal in.
Our September 30, ending quarter. It there was a delay.
Kind of a gan sort of a consistent theme now with a lot of things being delayed due to staff shortages in these various agencies, but ultimately it did come through we did receive it in October and it did reflect to be honest with modest but it did reflect some of growth over the prior year contract value.
Okay I'm sure you don't want to say the exact amount, but would you be able to tell us.
Well the segment backlog would've been up year over year, how did you sign it by then and ended the month.
Yes, so I.
This particular contract I don't really want to disclose the total value, but it is I will say, it's a seven figure.
Total contract value and yes, the total bookings would have.
I would have been up with this additional contracts.
In the mix.
Okay got it.
And I mean further say too that if you just look at the Clearags bookings alone they were up significantly year over year.
Got it.
And that's not the housing is my other question you had commented and it doesn't result that this quarter are typically there's a step down in the topline, but the I can weather segment happened last I was hoping and this year, but once you sign when you've got kind of lives.
Just I too for the back happened for next year could that seasonality change in fiscal 2021 or is going to be kind of same going forward.
Yeah, I I would like to think that it's going to change in for two reasons one as as.
Clearag revenue overtakes Clearpath revenue, that's going to reduce the seasonal effect because of seasonality is entirely due to clearpath weather and remember just for everyone's benefit. The primary current use case for Clearpath weather is by no snow states that are using the information to help them plan.
Operate their snowplow operations and because of that use.
A lot of states have essentially required that we provide them a seasonal pricing model and because we had a seasonal pricing model. We you know, even though the contracts or for a full year the usages in that winter and that's when we recognize the revenue for that contract under the current model. So.
Again as clear AG starts represent a large in larger portion of the total segment revenue that will minimize the seasonality. The second thing is that we are doing a lot of work with agencies to find state agencies to find.
Year round uses of the environmental information.
You can imagine that like park and Recreation Department could use us to help them.
I had better optimize their irrigation.
Like fields for example, and also medians that along certain roadways, and so as were successful in selling that additional value add that represents.
Additional revenue total revenue for us, but it will also smooth this.
Current kind of seasonal pricing effect that we have so for both those reasons overtime, absolutely the seasonality will start to decline.
Got it and then I wanted to just a follow up on your comments about some of the your customers having some staff storage is in helping some of your deals move forward.
I guess I wanted to ask whether youre folks you're fully staffed when they're ready you got some pretty good backlog and because of growth here I'm curious to make sure that you've done that looks it kind of do the work once they actually but Lisa.
Mike Thats, a really smart question [laughter].
Yes, I know yeah, so thats.
As we think about the second half.
We're very.
You know optimistic very bullish because we have a ton of backlog, we have clear line of sight as to getting some of these critical notices to proceed but.
But there are couple of questions in our mind. One is do we get to do we get three or do we get all five of those notices to proceed and when specifically did they come in.
And then secondly, do we have the internal labor or do our subcontractors in some cases have the internal labor or that product that we need to fulfill within that window and so we are being slightly more cautious about the second half.
Today than we were like a quarter ago, but that being said everything is moving in the right direction. These are firm orders were absolutely going to get this revenue. It's just a matter of precisely when does it layout and again no. It is a function of went precisely to receive those notices.
We're seeing as Andy said in some cases that'll allow us to take revenue on work, it's actually already been performed in its sitting on our balance sheet now.
The second thing is exactly what you said, it's like what is our staff availability and how did that affect the revenue conversion.
Okay.
Okay, great guys. Thanks, so much appreciate it.
Thank you I'll now turn it back to management for closing remarks.
Us [noise].
Great.
I appreciate it so let me just say that.
With that a lot of great question, we do have I do want to make everybody aware that we've got some stuff going on Investor Relations Frac, Ed and we are going to be it a couple of conferences I actually this month and we'd love to see you. So it. Please look for us at the Craig Hallum Capital Group, 10th annual Alpha slow.
Conference in New York City, that's taking place on November 12, and then also the Fury Research partners Hidden Gems 2019 conference, which is also in New York City on November 21, So any of your attending these conferences would love to see please come see our presentation and or sign up to visit with us in a one on one.
Okay.
In the meantime, we look forward to updating you guys again on our continued progress in airport our results for the third quarter fiscal 20, and so with that it concludes today's call.
Thank you ladies and gentlemen, this concludes todays conference you may now disconnect.
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