Q2 2021 Iteris Inc Earnings Call

Good day and welcome to the I Cherish fiscal second quarter 2021 financial results Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Mr. Todd Kehrli MTR agree. Please go ahead Sir.

Thank you operator, good afternoon, everyone and thank you for participating in todays conference call to discuss later since financial results for its fiscal 2021 second quarter ended September 32020.

Joining us today are I trust as president and CEO, Mr., Jobin, Jura and the company's CFO Mr. Doug Groves.

Following their remarks, well open the call for your questions from covering sell side analysts you also answered select questions that investors submitted to the company in advance of the call for the instructions on our press release dated October 20 or 2020.

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 statements are based on current information are subject to change and they are not guarantees of future performance I.

Hi, Joe this 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.

I Cherish refers you to the documents the company files from time to time with the FCC specifically the Companys. Most recent forms 10-K, 10-Q, and 8-K, which 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.

I'd like to remind everyone that you'll find a supplementary report of our second quarter financial metrics and a webcast replay of today's call on the Investor Relations section of the company's website at Www Dot I terrorists dot com.

Now I'd like to turn the call over dieters since president and CEO Mr. Jobin sure Joe. Please proceed.

Great. Thanks, Scott and good afternoon, everyone.

I appreciate everybody joining us today.

As you saw at the close of market, we issued a press release announcing the financial results for our fiscal second quarter ended September 32020.

Given the sale of our agriculture and weather analytics segment DTN X C on May five 2020.

Reporting the results of that segment as discontinued operations for all periods presented in todays earnings announcement and as such I will be discussing only our continuing operations during the remainder of this call.

Our software enabled delivery model has proven highly resilient over the last several months.

As a result, I terrorists continues to experience strong demand for our smart mobility infrastructure management solutions. Despite 19.

In our second quarter, we reported 29.3 million in second quarter total revenue, representing a 10% increase compared to the same prior year period.

Additionally, we reported record second quarter total net bookings of 34.5 million, which is a 6% increase year over year.

Similar to the company's total net bookings growth or total ending backlog rose, 8% on a sequential basis to reach a record 73.1 million.

The combination of the company's continued growth and improved cost structure. Following the strategic actions, we took in our first quarter.

You have a significant increase in net income and adjusted EBITDA.

Even as we continue to invest in are clear mobility platform.

Doug will discuss our profitability metrics in more detail in a few minutes.

In the meantime, let me provide an overview of our second quarter sales performance by segment.

Our transportation systems segment recognized 15 million in second quarter revenue, representing a 7% increase versus the same prior year period.

The segment's growth continued reflect particularly strong performance in our western region with our mid Atlantic and southeast regions experiencing some delays in backlog conversion.

A few projects slipped to the right due to COVID-19.

As an example travel restrictions delayed some program activities that we would have normally completed under our contract to maintain the connected and automated vehicle reference architecture for the U.S. Department of transportation.

Although we expect to recognize the majority of this delayed revenue in future quarters, the dynamic market conditions created by the Cobi 19 pandemic remain unpredictable.

Our transportation system segment reported second quarter net bookings of 17.3 million, even after we recorded some de bookings due to COVID-19.

It's net bookings result reflects strong demand for all the segments lines of business and also the essential nature of our solution portfolio.

About 45% of the segments second quarter net bookings will be recognized in the future is annual recurring revenue.

Recent notable customer agreements include a 4.1 million dollar task order under the recently awarded $9.8 million Q contract with the Federal Highway administration to develop and maintain the nations architecture reference for co-operative intelligent transportation, which is also known as our guide he for connected nod.

Immediate vehicle development.

At 3.6 million dollar contract extension with the Virginia Department of transportation for their continued delivery for advanced traveler information system.

2.3 million dollar contract extension to manage the network Operation Center for the Virginia Department of Transportation.

$1.5 million task order to continue to support the signal Operation Center for the Virginia Department of Transportation is northern region.

A 1 million dollar contract extension with the Florida Department of Transportation District, seven for a cheerio corridor performance management across a corridors within the district.

A 1 million dollar contract with the city of Tampa for the design and implementation of an advanced traveler management system and two task orders with the South Carolina Department of transportation for a combined value of 1 million to extend our clear out include God software deployments.

Based on its solid net bookings of transportation systems segment ended the quarter with a backlog of 61.9 million, which represents a 4% sequential increase and a 6% year over year increase.

Now moving to a roadway sensors segment.

The roadway sensors segment reported record second quarter revenue of 14.3 million, which represents a 14% increase versus the same prior year period.

In addition to the strong revenue performance the segment made tangible progress against other product and commercial objectives. For example, the segment expanded its geographic coverage into the U.S. Pacific Islands revenue exclusive distribution agreement with Phoenix specific the leading traffic equipment distributor in the region.

Secured a seven figure competitive contracts in Reno value Valley, California provide advanced video and radar detection. It every major intersection across the city. This is the segment's largest single order a year to date.

On the segment continues to develop and monetize our Cisco relationship receiving an approximate half million dollar commitment for Cisco equipment from the municipal customer in California Central Valley.

And the segment continued to deliver against critical launch milestones for the plant near term availability of next generation solutions that we expect to contribute to both the segments product and recurring revenue streams going forward.

With that I'll, let Doug comment on our financial results after which I'll conclude my remarks.

Thank you Joe Good afternoon, everyone. As a reminder, please see the Companys 10-Q filing press release and supplemental financial metrics document all of which are posted on our IR website for a further description of matters under discussion during the call today.

As Joe noted the results of the agriculture and weather analytics segment are reported as discontinued operations in our SEC filings and today My comments will be focused only on our continuing operations.

Consistent with the last few quarters results, we've seen the performance of the business in Q2 continued to improve with favorable year over year trends in certain key metrics, including top line growth, increasing backlog and margin expansion.

We're starting to see the benefits of the restructuring efforts. We took in Q1 and we continue to diligently manage the cost basis of the company to help drive operating margin expansion.

Now I'll move to the details of the second quarter results as Joe mentioned total revenue for the fiscal 2021 second quarter increased 10% to 29.3 million compared to 26.6 million in the same quarter a year ago.

Gross margins in the first quarter was 38.8% compared to 40.2% from the same quarter last year.

The decrease in gross margins was driven by product mix in both reporting segments operating expenses in the first quarter were 10.6 million compared to 11.9 million in the same prior year quarter.

The decrease was driven primarily by $1.4 million decrease in ESS you name due to the timing of bid and proposal activities in the transportation system segment.

We do expect to see an increase in this activity in our third quarter.

As we mentioned on our first quarter earnings call, we're improving our profitability and expect this trend to continue.

We reported GAAP operating income in the first quarter.

Oh.

748000, excuse me second quarter compared with a GAAP operating loss of 1.2 million in the same quarter a year ago.

GAAP net income from continuing operations in the second quarter was 700000 or two cents per share compared with $1.1 million or three cents per share loss last year.

Adjusted EBITDA for the second quarter increased 1.3 million to 2 million or 6.7% of revenue, which compares to 633000 or 2.4% of revenue in the second quarter of last year.

Now, let me turn to our segment results.

Our transportation systems revenue for the second quarter was 15 million compared to $14 million in the prior year quarter, an increase of 6.7% and in line with our expectations.

<unk> level operating income for the second quarter was $2.3 million compared to 1.9 million from the prior year quarter and related operating margins were 15.3% compared to 13.8% last year. The margin expansion was primarily driven by increased volume and a decrease in operating expenses in the segment.

Roadway sensors revenue for the second quarter was 14.2 million compared to $12.6 million in the prior year quarter or an increase of 13.8%.

It was a record quarter for this segment as we continue to take market share from our competitors and leverage our broad portfolio of products.

Segment level operating income was $3.1 million for the quarter compared to 2.2 million last year and the related operating margins were 21.6% versus 17.7% last year.

The improvement in margins was primarily driven by the increased volumes.

Corporate expenses.

In the quarter were 4.4 million compared to 5.1 million in the prior year after adjusting for the acquisition cost at all Burger King in the prior year corporate expenses were flat year over year.

Turning to liquidity and capital resources total cash and short term investments of 37.8 million at the end of the second quarter.

We spent 246000 in capital expenditures and capitalized software costs in the corner and we.

Expect these expenditures to remain under 1% of revenue for the whole year, reflecting our asset light business model.

Operating cash flow from continuing operations was 2.4 million compared to 1.7 million in the prior year quarter and the increase reflects our improved profitability and continued focus on improving working capital absent any acquisitions, we do expect our cash position to continue to build going forward.

In summary, we're glad to report another.

Solid quarter of performance and we expect this trend to continue in Q3, taking into account the seasonality that typically impacts our third quarter results due to holidays and weather with our continued focus on solid execution. We expect continued improvement in top and bottom line results with that I will turn the call back over to Joe.

Huh.

Thank you Doug.

Although we expect the economic environment to remain volatile and uncertain for another two to four quarters, we remain really bullish about the long term prospects for the smart mobility infrastructure management market.

Indeed vehicle electrification mobility as a service vehicle to infrastructure integration and connected and automated vehicles represent favorable secular trends, which will continue to shift the allocation of transportation infrastructure budgets from traditional pick and shovel projects to advance technology initiatives.

And these same trends will foster new software enabled service delivery models, we will continue to change out transportation agencies at all levels of government fulfill their missions.

Hi, Terasquare mobility platform as a key element of our strategy to capture these opportunities.

To that end, we continue to align our solution portfolio to the clear mobility platform as well as execute against a clear mobility cloud roadmap.

For example in Q2, we extended the use of our common <unk> framework with the release of a new Apiay for a clear guide product the clear Guy <unk> will enable seamless interoperability between clear guide and our other software products easy integration between clear guide and various third party solutions, which is which is central to our.

Goal of creating a market, leading ecosystem and utilization of certain clear guy components by career mobility cloud.

In Q3, a highly respected state department of transportation is scheduled to deploy the first release of our clear <unk> mobility cloud, which we believe will provide us with valuable reference site.

Then in Q4, we plan to introduce new sensor capabilities that among other things will enrich our clear mobility cloud data sets and we plan to introduce a new software enabled managed service will contribute to our recurring revenue going forward.

From a commercial perspective, both our transportation systems and roadway sensors segment continue to see healthy demand for their solutions.

However, our transportation system sales pipeline in particular has a higher than normal concentration of large opportunities, which will make the segment more susceptible to some lumpiness in the second half, especially in light of some of the COVID-19 delays we experienced in the first half.

Well, we're bullish about the medium to long term prospects for our marketplace. We do remain cautious about the current level of uncertainty in which we operate therefore, we will continue to provide financial commentary on the one quarter at a time until the economic environment Reestablishes some form of equilibrium.

Accordingly, our guidance commentary today will focus on our third quarter.

We ended the period with a record backlog and an active sales pipeline, but our third quarter is normally impacted by winter weather and the holiday season, both of which limit the number of available days to recognize revenue.

Furthermore, we anticipate the cobot Knight team will continue to shift some projects to the right as happened in our first half.

The net effect of these events is expected to yield mid single digit revenue growth in the period.

In terms of profitability, both net income and adjusted EBITDA will decline sequentially consistent with typical seasonality and expected revenue mix. However, we expect to see another significant year over year improvement in net income and adjusted EBITDA in the third quarter.

In other words, we expect a terrorist to continue to benefit from our software enabled delivery model and our operational agility as we navigate a very challenging economic landscape.

With that we'd be delighted to respond to questions and comments operator are there any questions for us.

Thank you and at this time, we will open the floor for questions. If he would like to ask a question. Please signal by pressing star one on your telephone keypad now <unk>.

So using a speaker phone. Please make sure that your mute function is turned off to allow your signal to reach our equipment and again Thats star one to ask a question.

Well pause for just a minute everyone an opportunity to signal for questions.

And our first question comes from Jeff Van Sinderen with B. Riley.

Well. Thank you for taking my call. This is Richard.

Just that century C bench that.

Citizenship bookings assistance or recurring revenue it was like.

Youssef Squali represents.

Your chart so Seth.

Then.

Can you give us any thoughts you have there.

Your targets.

<unk> sorry.

<unk> expenses.

Okay.

Yes.

I'm sure. Richard This is Joe I'll, just kind of start off and then I'm going to pass this over to Doug. If you can elaborate but I first I just want to make sure that I heard you correctly I think you may have said that our.

25% of the systems bookings were recurring in nature and I wanted to just clarify in case I missed her or in case I heard that correctly I meant to say that 45% of the total bookings would be recognized as annual recurring revenue going forward, so 45% rather than 25% and then.

Doug did you want to would you mind, commenting on Richard's additional questions regarding our current recurring revenue levels and our expectations going forward.

Sure, Yes, so Richard.

Current annual recurring revenue runs about 20% of our total revenue and as we look forward you know our.

Our goal is to get that you know a lot closer to 30% now it's going to take a couple of years, but you can see from last quarter and this quarter that not quite half of the transportation systems bookings were in annual recurring revenue. So you know that's a good sign that you know we're continuing to see good.

Deal flow there, but I think you know will take US a couple of years, but we're extremely focused on that for a lot of different reasons that we've talked about in the past create you know just more scale in the business, but also more predictability.

And these revenues are you know, particularly sticky with our customers, which obviously we like.

Okay, that's great and Oh, that's question Yeah, it's been a while office yeah [laughter].

Okay I'm sorry.

That's right I'm, sorry, you said that acquisitions, even greater that well Vicki.

Can you speak to any additional synergies synergies that you see developing with age.

Good.

Sure I'm going to go do go whatever you're gonna space coming on Oh, Yeah, Oh, I would I would just say you know the cost synergies have largely been wrung out and there weren't you know a town it wasn't a big company, we integrated it pretty quickly you know like.

Like less than six months. So you know what we're seeing now though is just further you know all set revenue opportunities with you know a much larger footprint in that geography, you know where they are headquartered so I think that's you know where were really focus is bringing all of the things to bear that I'd tariffs can offer you know too that that.

Business and you know Weve successfully created a new region that we refer to as the southeast that is run by you know, Jeff Gurkin, one of the former principles of Albuquerque.

And Richard I'd, just add to that that we recently announced a near Miss analytics project.

With the Florida Department Transportation and this is where we're doing some there is some consulting but by and large it's almost entirely.

Yes agreement, where we're monitoring.

Certain conditions at various intersections to identify factors that contribute to accident.

With the intent of being able to provide alerts for both the traveling public but also the agency to try to minimize accidents.

That is an example of the kind of new business that we are.

A winning in Florida as a result of the relationship with Albert Gurkin.

Yves <unk> that that particular type of capability is something that we've been working on in other parts of the country, but through the relationships that other gergen hadn't, Florida, we were able to penetrate one of the district offices.

Fair and secure that when I think you can expect that you'll see other deals like that over the next couple of quarters, where we're demonstrating our ability to cross sell our software into the Florida market by leveraging topic gherkins relationships in that geography.

Well that's a good news thank you.

Our next question comes from Mike Latimore with Northland capital markets.

Hi, Thanks a.

Lots of records in the corner right there [laughter].

[laughter].

[laughter] in terms of the yeah. The roadway sensor business you know that that came in nicely above what we were looking for I guess any any color on kind of what drove the extra demand there.

Yeah. This is Joe I'll take a crack at that I think there were a couple of things.

First of all we've been talking over the last.

Couple years actually put the last eight quarters about.

Enhanced capabilities that we've added to our vantage sensor product family.

<unk>, including very sophisticated pedestrian detection.

Certain object classification algorithms, which weve introduced.

Also the introduction of a new generation of radar detection.

Which we think now actually really setting the standard in the market and so the big piece of the growth is due to the fact that we think we're just simply taking market share due to the fact that you know we just continue to move the performance bar on in the industry with these enhanced.

I meant that we've introduced which you know we don't believe any of our competitors are capable of matching so that's a big factor. It's just superior product performance and we do believe we're taking market share.

I do want it in full transparency also I'm just make sure that folks understand that you know sort of that well COVID-19 has you.

<unk>.

In some respects put.

Put pressure on a lot of.

Areas in which we tend to compete in the market. There has been a little bit of a silver lining in that in certain geographic areas. We have seen a reduction in traffic and as a result that has allowed for some agencies to accelerate some of their activities.

That they otherwise would have been limited to perhaps performing like on the weekends or at night.

Due to superior traffic. So there is some there has been some silver lining and that has contributed a little bit we think to the cells by effectively pulling some deals forward but.

But I want to go back to the first point that I made which is that we think the most significant factor is just the superior product performance and you can expect that we will continue to introduce additional features and even in next generation technology platform, which will further extend.

Our performance lead in the market.

Got it got it makes sense.

You mentioned that you're going to be launching a clear mobility cloud service with the customer in the third quarter can you just elaborate on that a little bit you know, what's the entity, what's the use case problem being solved.

Yeah, so for yeah.

For competitive reasons, we're not going to talk about who those specific customer is right now, but you know just as.

As a reminder, and we're going to spend more time with investors to help people better understand what the differences between the criminal Goldie platform in the criminal ability cloud, but I'll just try to briefly explain that the platform includes our various existing solution sets and.

We do.

These are products and services that we've had in the market for a number of years and we continue to provide those solutions on like an all a carte basis to our customers, but one of the things that we're trying to do with our clear mobility platform is create a set of cloud services that allow us to more easily.

Bundled our existing products and services together in unique ways to provide new service capabilities to agencies.

That's one of the reasons, we're talking a lot about our a pea eyes, because it allows for us to more effortlessly integrate our software products with one another and also to provide data from our sensors to our data Lake which.

Allowing our applications to Dan easily consume that that data so anyway, what we're talking about with respect to this particular customer is that we're gonna have a new service that is enabled by clear mobility cloud go lives in that customers operation.

In this quarter.

And we'll be providing more information about that on our next call.

Okay great.

Then just last one you know you highlighted just maybe some macro headwinds.

Headwinds from co made a little bit. Although you know you have you set a great quarter, but a record quarter, but in terms of the influence that you're seeing in attention negative influence from co but is it more on state and local budget and you know the amount of resources available or is it more I'm just kind of accessing the right people and right I can't read.

Sources to get projects done.

Yeah, I would say it's both.

I think.

We probably some more.

Miss communication and.

Dislocation of people in the first quarter than the second you know I think that.

Generally our observation is that agencies have gotten better at operating you know in this this new modes. So there probably was less.

Less impact from just a lack of communication or access to certain resources than we saw in the first quarter. There at this point, we haven't seen a lot of.

Budget evaporate, but we have seen some people are under pressure to.

Kind of slowed down some spending you could put a pause on on certain activities.

Because we think that agencies are trying to better understand you know what there.

Revenue is going to look like going forward and therefore in some instances preserve budget in order to ensure that its program to their highest priorities I will say that in general.

You know what we've been saying is that a lot of activities that we perform are classified as high priority because they are essential to the 24 by seven operation the transportation infrastructure and so you know again, while weve seen agencies kind of go through this this process there have been some things that have been slowed down.

We've seen very little of activities that we perform being outright cancelled.

Uh huh.

[music].

And our next question comes from Jeff Osher with JMP Securities.

Oh, hi, there among other accomplishments in the quarter. My My first question was just John just asked so I want to ask that again, a second one on the on the personnel.

Yeah, My compliments out for two quarters now you seem to be running at a opex level of about 10 and a half million is that sustainable can we think about the enterprise growing Oh and basic we operating spending it that kind of level going forward or are we going to see that opex number moved from move up.

[noise] you know I think Joe this is not to get well it'll move around a little bit, but you know I think that's a reasonable range I mean as you know we've alluded to in our comments. We are extremely focused on managing the cost basis of the of the company you know it fluctuate so depending upon a you know how much sales.

In marketing and proposal efforts you know, we're working on and that ebbs and flows but.

I would say that you know that that's probably a reasonable assumption.

Okay is there a kind of a target now that you've got you know this business kind of where you wanted it we spread the intermediate term is there a target operating model you might want to share with us.

And you know they're a good question and you know we we do you have some thoughts around that I think as we've alluded to in the past you know the the end game here is to grow the topline, which and keeping that Opex line, you know in that $10 million to $11 million range and that will create.

Leverage you know in a in the piano.

As Joe said in the near term here on the top line, we're only going quarter to quarter, but sure.

Sure, Jamie well see things you know.

Pick up and our goal would be to.

Use that leverage and the volume to expand the operating margins.

Okay, Great and now I'm going to shift gears from Ah the mundane to the far out so I have two questions yeah.

I guess, just laughing [laughter]. The first relates to your platform that you've been talking about I'm wondering how the deployment of Fiveg off has the potential to impact us some of the things you could do with that platform and then the second question, which is really far out there you've talked a lot.

Unfortunate enough to see some of that the demonstrations of your ability to acquired an aggregate data and you've got that nice say P.I. sitting in front of it to what extent do.

Do you think that there might be a place for additional predictive analytics or other kind of tools sitting on top of that dataset and those are my questions.

Yeah, So I'll take a crack at that and you know Doug if you want some please feel free to chime in but yeah. I think we're actually first of all we're really excited about fiveg.

Yeah, we've talked a lot about vehicle to infrastructure integration. We think we have a lot of really valuable information.

That.

Yeah, we're in a unique position to collect because of where were deployed in the infrastructure and specifically a lot of the data that we are collecting we think provides important environmental visibility or environmental or contextual understanding regarding you know.

Ways to reduce congestion and improve safety that's valuable not just the agencies, but you know the automotive Oems and potentially you know to the traveling public themselves.

One of the.

Challenges that we have today is actually getting those insights or that data that we have some place sufficiently and so to the extent that fiveg is more broadly available and the cost continues to come down then we think that it will be you know.

More and more easy for people to access our data in there for the insights that we're able to provide so so so I think your question is do we think that the adoption of Fiveg will help our business and the answer is absolutely and then the second thing about the predictive analytics we.

We absolutely think that there's a huge opportunity to apply predictive analytics to that data that data set that I I was just talking about I mean first step is to get easy access to it to that data and then the second one is too.

Run a guy or to run predictive analytics against that information to yield insights is that's going to be valuable. So we think yes, fiveg will help and then secondly, we definitely think that there's an opportunity to perform highly valuable predictive analytics on our data and you'll actually see us start to talk.

More about things that we're doing in that area. As we proceed through the next four quarters.

But do you do you think Youve got this.

The skill sets that you need internally, there's it there's a lot of yeah. There's very highway predict highly specialized predictive analytics skill sets out there or is this something that I guess I'm asking is this a make or buy it kinda situation.

Yeah, and that's a great question. So I think we do have.

Highly skilled hum.

The employees that have a good understanding of AI and data science, but more importantly understand the application of applied AI too.

Traffic and transportation and you know that so I think we're actually in a really good position from that perspective, you know understanding those points of intersection if you will but that being said, there's obviously a lot of really interesting work going on in this space and we by no means to have a monopoly.

On it and so there certainly could be you know opportunities to potentially acquire some of that expertise and also to partner with various people and that's another part of our career mobility cloud strategy is to ensure that our cloud is open and so that'll allow third parties to develop.

Various kinds of solutions on top of our data sets as well in some cases, they may simply be in a better position to do that and you know we want to.

We want to provide the under we want to be part of that value chain, even if we're not getting it necessarily going to be the ones that were formed up on predictive analytics on certain datasets for particular use cases.

Bite so open by that you mean, you're a pie is okay, alright, and then just that yeah, and then just to clarify previous point when you talked about fiveg. It sounds like you're saying that the opportunity is to sort of get those insights backhaul to the vehicle or or whatever to get it back out into the field, where it can be used to is that what you mean, yeah and in some instances to.

Get it from the device that's deployed and the infrastructure to the cloud you know efficiently. So that you can do analysis against that that'd be more for like longitudinal purposes, or if you're doing some kind of sophisticate scenario analysis, and then secondly to get it from the device.

Life to the vehicle in the form of an alert or some.

Contextual information that might be used by an onboard computer vehicle.

Okay, I got it well I didn't take into account.

Yeah. Thanks, Jeff Yeah, that's okay take care. Thank you.

As a reminder to our audience. If you would like to ask a question. Please press star one now.

Our next question comes from Mike Shlisky with Colliers Securities.

Good afternoon guys.

Hi, I thought a few minutes late so if if my questions have been asked and answered please feel free to free me to the to the transcripts.

I guess I'm wondering about your comments a few minutes ago about.

Some some entities are facing some.

Concerns on their budgets or or issues with their budgets yet at the same time you know we have we had record revenues record bookings and I think we had a record backlog two in the quarter.

Can you help us just bridge the gap there between the one comment and the other is just on the bookings winning out against some of the concerns.

Found new customers and kinda wish directionally headed from here I guess I'm kind of curious.

Are you going to continue to grow that top line over the next couple of quarters.

Sure.

Oh, no not really.

Well I'll just give some brief remarks and turn it over to Doug, but no Mike I have to.

Really applaud the team I I think that you know I terrorists is executing incredibly well.

During a really difficult period and so at the end of the day I think the performances, it's due to execution and and I feel that we're on a relative basis performing.

Favorably against our competition and so I'm really proud of the team for that so that's a major factor and we'll continue to do the best we can to execute under really difficult circumstances.

But also there you know there are other dynamics at work, including timing and whatnot. So Doug do you have anything additional that you'd want to elaborate on in response to my question.

No sure just that you know we do like as we had mentioned you know are looking at the business quarter to quarter because things are changing you know so quickly under cold at 19 and that you know for our third quarter. I think you know seasonally it's always down due to just fewer number of work days because of the holidays and because of weather.

And and certain geography is.

You know and I think that.

Looking out you know Pat too far past that is not something that we're just really ready to do which is why we're just guiding corner to corner. You know we have seen some order slip to the right you know and there there there could be more but you know they haven't been significant but that's not to say you know.

Six months from now that that couldn't be the case, depending upon you know what happens with this pandemic and.

You know a lot of other things that are a play in the macro environment.

Oh, Okay all right.

Can we also just touch on some of the time they should have the Oh the day I'm curious.

Any.

Election results last night.

I didn't say president were still up in the air but other local state elections.

Did any of those moving away to other favorable or unfavorable for your business.

Yeah, Mike I would say that we didn't see any impact at the state and local level. It one of the things that a lot of investors have asked us about nuts, and we think about a lot ourselves is.

You know, whether there will be a federal infrastructure, Bill, which you know something that people were talking about four years ago. Now people are still talking about it but they also they've they've added it to the discussion that an infrastructure bill could also provide necessary stimulus.

So you know there's the initial rationale clusters that additional rationale for some kind of infrastructure Bill and so we would like to think that there will be some form of an infrastructure Bill we think the likelihood of that occurring and the size of such a bill would be probably larger under a biden administration than under a Trump.

Administration.

Given the current situation, which I think is very murky for everyone, but I guess, there is a potential scenario, where or Joe biden could win the presidency, but I think it's quite clear that the Republicans are going to retain the Senate and so you know that could portend some degree of gridlock. So.

While we feel pretty confident the body ministration will proceed.

With some form of an infrastructure initiative, we don't know what that would look like.

So that's really the that that that's a question Mark that's what we're wondering about at this point, but as far as state and local election outcomes that we didn't see any anything you know that wouldn't change the landscape in which we operate today.

Okay.

Can you touch on the on the M&A market as well.

Yes, that's cash continues to build here just a great job of course on doing that but.

Hi, I'm curious, whether you've got an interesting deals in the pipeline.

Hey on the size it all back or can or larger that we should be thinking about here and maybe a timeframe as to how soon something might be close at least.

That doug's name on it.

Sure, Yes, so yeah like we continue to have an active pipeline and you know there's ah things of all shapes and sizes that we look at and.

But in terms of something that's that's imminent I wouldn't say that we're there yet but you know we are looking at several opportunities and they are in that you know size range of what Albert Gerken was I mean, you know we like that size from where we're at in our you know evolution on the M&A front are there you know the size that the integration.

As you know relatively small in there you know or both.

Bolt on in nature typically so you know we like those kinds of things and you know its just.

You have to you have to look at a lot of targets before you find one that that checks all the boxes and we're continuing to you know to do that and you know Fortunately we've got the balance sheet to do that so we can you know if we find something we like we can really move quickly on it with you know the castle, we have on the balance sheet.

Okay.

One last one for me I wanted to ask about the human you had with them just finished.

Any specific a few months back it sounds like that's kind of in your driving force for us to Pacific Islands.

She is doing is that larger or opportunity for you and kind of what's the share agreement can you can you share any details with or without being specific about how that's going to work. If there is any new business.

You know one there.

Yeah. So.

We have not I'm actively are focused on the Pacific Islands, we have from time to time, so product there, but we've never had any distribution representing us in that region.

There it it isn't that an enormous market you know, it's not like California, or Texas, or Florida, which are the three largest smart mobility markets front, the infrastructure markets and in the U.S., but that being said it it's not insignificant.

And Ah, we were actually approached by Phoenix, which in our view is one of the leading if not the leading.

Distributors or resellers and integrators in that market broadly for traffic equipment and you know we we were.

We were pleased extremely pleased that they had an interest in representing us in that area and so we have entered into what is an exclusive agreement where they're the only texan detection solution that they're representing in that in that geography and.

You know we expect it to be you know that over time, we'd expect.

That this deal to be additive to our revenue.

But it is and you know it isn't like again, it's not going to be the size of the California, or the Texas market, but it's not insignificant.

And as far as the.

Margins you know, we're not going to disclose like the particulars of any of the distribution agreements that we have but it is similar in structure to the agreements we have with other distributors throughout north American and actually around the world.

Okay. Thank you for that and I appreciate your interest my questions.

For us.

Our next question comes from Brian Sheikdom, Let's Craig Hallum Grant.

Hi, guys. This is actually Matt Wagner on for Brian Thanks for taking our questions.

I think a lot of that kind of the near term colors.

Color you guys touched on you know fiscal third quarter, but I was just looking for a little extra color maybe on the puts and takes of the market opportunity you're going after I think in a recent presentation you talked about you know.

Six and a half billion.

Smart mobility infrastructure opportunity third about recurring.

Just wanted to touch on or ask on just the key drivers within each of those pillars kind of from operations to censorship consulting just where are you guys that are out there where you feel you are at with within each pillar and just kind of where you're most focused.

Yeah, well that is.

A great question and unfortunately, a little bit complicated because this is you know we participate in different market categories and that dynamic like the drivers are different for each and I am sensitive to the fact, we don't have a lot of time here, but I would say that generally what's driving purchase decisions that art.

Customers are making is that they are striving to better manage traffic congestion and to improve safety and so at the end of the day those are kind of quality of life metrics.

That you know, they're trying to manage to and you know it's largely in response to you know that.

The expectations of the the citizens in that geographic area right and so there's like some degree like sort of political pressure you know to solve for those kinds of things one of the motivations and it's kind of a political motivation, but it does have some.

Economic aspect to it is that you know a lot of these regions are competing to retain business or attract new business to their area and you know having a high functioning transportation infrastructure network is.

Considered essential onto the economic health of you know these various regions. So again, it's yeah.

On the most basic level. If these are quality of life measures, but you can think of them in terms of certain economic outcomes as well and then beyond that if you kind of take it down to the next level within like like a specific public works department or like a local agency. They're also trying to do.

Maximize their budget.

And so a lot of times, they see our capabilities being able to help them better manage their operation they could be in the form of improving their planning so they get better return on their longer term capital investments, but also to help them reduce.

Your operating expense or increase their output a lot of times by using.

Our advanced detection devices or operating our software in their operation or in some cases, even outsourcing you know certain activities to us because they believe we can perform at more efficiently. So at the end of the day a lot of it has to do with quality of life. There are certain regional economic factors that would drive purchase decisions.

And then at the individual agency in department level, they view us as helping them improve their productivity.

Great. That's helpful. I'm just quickly on that if you just think about five years ago versus today does it feel like I mean is there a greater desire to you know modernized modernize that.

The infrastructure and roadway adds to generate business interest in the area or.

It just kind of feels like.

It was sensible to.

How the modernized intersection to you know like you said attract and retain business five years ago. So just interested and just how the how the landscape has changed over the last few years.

Yeah, I think it goes back to what I was trying to talk about in my prepared remarks is that we've now.

Seen for decades right. The agencies have focused on building the physical roadway infrastructure and so you know there's been a lot of investment that's gone into pick and shovel projects and they'll continue to be a lot of maintenance and even the build out of some new physical infrastructure, but.

I think in most major areas people realize that a physical roadway infrastructure is largely built out and so that you know that the question then becomes like what more can you do you know to get better throughput at krotz that physical infrastructure.

What can you do to improve the safety you know in these areas that are increasingly congested and the answer you know the people to returning to his technology. So that's kind of changing the orientation of agencies.

Even.

Yeah, just looking at it strictly through the lens of the agency, but then additionally, you've got automotive Oems communication service providers, you know and other parties that are interested in.

Getting 100% adoption of connected vehicles.

People are you starting to see you know adoption of automated vehicles and the promise of those models in a large to a large degree is going to be dependent on vehicle to infrastructure integration.

And you know so.

There's also like a political force than an economic forces at play no that hasn't existed didn't exist five years ago, but now you've got these other major stakeholders that are also changing the orientation of the you know the public works department and the transport.

Station agency budget allocations. So it's those two phenomenons that are kind of occurring at the same time and we see it accelerating as we go forward.

Gotcha last one just kind of as a follow up to that and then I'll I'll hop back in queue. How do you have you been have you had any conversations with any or preliminary kind of business discussions with anyone in the automotive Oems suppliers related to that kind of at the intersection level.

Yes, we have and you know I would expect that we'll be able to talk more about what that could entail.

Sometime in the next you know.

Six months I would expect.

Great. Thanks, guys. Good luck.

Thank you.

This concludes the covering analysts Q and a session I now turn it back to you I Cherish management for <unk>.

All right great I appreciate it.

We had a Alex good.

Committed to investors try to allocate some portion of the Q and eight to respond to questions that were submitted by investors in advance and so if you're on the call I'm in case you didn't notice. This when we issued our press release two weeks ago, we outlined a process to submit such questions.

We did receive a couple of some of them we've already answered in response to the analysts questions. We've already received but there was one additional question that came in from an investor that I want to take a couple of minutes to try to respond to that question was and tell us what states make up more than 5% of your revenue and what are your plans.

To expand your reach into the states that are not on that list and so in response to that question I. Just wanted everyone to know that currently four states, such as California, Texas, Florida, and Virginia represent 5% or more of our total annual revenue we've tended to focus our market development activities on those specific states due to the.

On a budget they dedicate to smart mobility infrastructure management and on a combined basis. Those four states represent about 49% of the entire national expenditure on smart mobility infrastructure.

Other large markets for smart building structure would include Illinois, Michigan in New York.

And we're looking at those various markets generally would prefer to enter a new market through an acquisition such as we did with the Opic Gerken. However, you know we also see opportunities to develop new markets through organic efforts like you know has been our experience successful experience in Texas.

Some of you may remember that we did establish a direct presence in Illinois about two years ago again, that's one of the.

Other large markets out there and you can expect that will continue to build our position in that geography as well as look at opportunities to enter those the other large markets such as Michigan in New York.

So anyway with that I think we are out of time and so I wanted to just thank the operator I'm for her assistance I appreciate everyone's support and thoughtful questions. On this call I did want to say that on the Investor Relations front, we're gonna be presenting at a couple of upcoming conferences more specific.

Lastly, the Craig Hallum Alpha select virtual Investor Conference on November 17th 2020, and at Northland Capital markets, Aiotv, AI and safety Virtual Technology Conference on December 7th 2020, <unk>, if youre participating in either of these conferences. Please schedule a visit with US we would enjoy that for.

You need to talk with you more and in the meantime, we look forward to updating you again on our continued progress when we report our fiscal 2021 third quarter results and with that we'll conclude today's call. Thank you everyone.

Ladies and gentlemen, this concludes today's call. Thank you for your participation you may now disconnect.

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