Q1 2022 Iteris Inc Earnings Call
Good day and welcome to the terrorists fiscal first quarter 2020 financial results Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Mr. Todd Currently M. K. Our group. Please go ahead Sir.
Good afternoon, everyone and thank you for participating on today's conference call to discuss the terrorists, whose financial result for.
'twenty 'twenty 2 fiscal first quarter ended June 32021.
Joining us today, alright terrorists as president and CEO, Mr delivers era, and the company's CFO Mr. Doug Groves. Following the remarks, we'll open the call for questions from the company's covering sell side analysts, although we invited investors to submit questions short to the company in advance of the call for instructions on our press release date of July 20.
For 2021, we did not receive any written of investor questions.
Before we continue we'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. The terrorists does not undertake the undertaking an obligation to provide.
Updates for these forward looking statements in the future.
Actual results may differ substantially from what is discussed today and no 1 should assume that at a later date the company's comments from today will still be valid. The terrorists refers you to the documents of the company files from time to time with the SEC specifically the company's most recent forms 10-K, 10-Q, and 8-K, which contain and identify important risk.
Factors that could cause actual results to differ materially from those that are contained in the use of forward looking statements as of.
All of these you'll find the webcast replay of today's call on the Investor Relations section of the company's website at Www dot on terrorists dot com with that said I'd now like to turn the call over day terrorists as president and CEO, Mr. Joe <unk>.
Joe.
Great. Thank you Todd and good afternoon to everyone.
I appreciate all of you joining us today.
Before we begin on a regular earnings commentary I want to remind everyone that on March 8.2021 the.
The board announced that I terrorists initiated a comprehensive review of strategic alternatives.
We believe it would disadvantage our shareholders to impose an artificial deadline on this review and at this time the review is still ongoing.
Well there are no material updates to share right now I know that everyone is eager to understand the status. So I'll provide some color on the state of play.
Our board has been highly engaged with the company's external financial legal and other strategic advisors to identify and assess the range of alternatives to enhance the terrorists as value and market position.
All of US the found it very interesting and constructive to conduct an independent assessment of our competitive environment core competencies marketplace dynamics technology trends and relevant public and private market valuations.
This work has reinforced our view that we participate in a large and dynamic market and the terrorists is in a unique position to capitalize on opportunities ahead.
We'll have more to say as we conclude the review and hope to be able to update you with our progress in the near future.
In the meantime, we don't have anything to say beyond what we included in our prepared remarks. So we'd appreciate everyone keeping today's questions focused on our operational and financial performance.
On a separate note I want to remind everyone of 2 events that will impact the presentation of our results.
First we completed the sale of our agriculture and weather analytics segment to D. T N L. L. C on may 5 of 2020.
As such we're reporting the results of that segment as discontinued operations for all periods presented in today's earnings announcement.
And I'll be discussing only our continuing operations for the remainder of this call.
Second on April 1.2021 we reorganized our terrorists to accelerate the development of our platform enabled ecosystem, which we branded the terrorists clear mobility platform.
Our new organization includes 3 product delivery teams applications and cloud solutions advanced sensor technologies and mobility consulting solutions all of which are supported by a new Chief Technology Officer and shared service teams responsible for sales marketing and support activities.
We believe these organization changes will create various development efficiencies increase of our recurring revenue contribution and accelerate the execution of our platform enabled business strategy.
Due to this new structure will be reporting our results of the single reporting segment, which reflects that we've organized all of our product delivery activities around a single unified platform.
With that background, let's discuss the results for the prior or for the period ending June 30, 'twenty 'twenty 1.
So first of all of the terrorists had a solid start to fiscal year 'twenty 'twenty 2.
The company reported record total revenue of $34.1 million in the first quarter of our new fiscal year, representing a 22% year over year increase of about $8.2 million of 24% of our total revenue was reported as annual recurring revenue.
In the first quarter. We also secured total net bookings of $36 million. That's a record bookings result for the company.
The $10.1 million or 28% of our total net bookings will be recorded in the future is annual recurring revenue.
Due to our record net bookings we ended the June 30 period with record total ending backlog of $79.9 million, which is an 18% increase year over year.
The company's record total revenue record net bookings and record ending backlog results reflect solid performance across virtually all product and service lines of business.
And the interest of time I'll take on only a few minutes to provide some color on those products and service lines of business with particularly notable commercial or operational performance in the period after which Doug will discuss our financial results in more detail.
So let's review our product lines of business first.
On our product revenue is composed of 2 components..1 is products, we develop and market in other words those products for which we operate as the original equipment manufacturer and 2 third party products that we distribute deploy and we often integrate with our own products.
Our fiscal 'twenty 'twenty, 2 first quarter product revenue was 18 million versus $14.4 million in the same prior year period, representing a 25% year over year increase.
The sales of the terrorists products represented about $16.2 million or 90% of total product revenue.
And the sales of third party products represented about $1.8 million or the balance of our fiscal 'twenty 'twenty 2 first quarter product revenue.
For the period, we experienced exceptionally strong product sales in our central and eastern regions and.
And we've put a lot of effort over the last several quarters into enhancing our position both of these regions, where we've been historically underpenetrated relative to other regions in which we operate across North America.
Therefore, we're particularly pleased with our first quarter product sales result.
The strong first quarter product sales performance in our opinion was due to 2 factors 1 excellent sales execution, which we'd expect to continue to drive market share gains for the balance of fiscal 'twenty 'twenty, 2 and 2 to continuous innovation across our product portfolio that enables us to continue to set the product.
<unk> standards for the industry.
In the first quarter, we continued to extend our product performance lead on some.
Some of the notable first quarter product innovations include first we validated and began deploying hundreds of our new Spectre of C V or spectrum of connected vehicle devices that enable infrastructure to vehicle are either V connectivity via both D Src and cellular communications.
Across the regions of California, and Florida. This is an extremely important milestone because it establishes I terrorists as the highly credible participant in this new highly dynamic IDB of communications product category and also enables us to capture and ingest valuable proprietary connected vehicle day.
And our clear mobility cloud.
Second we began pilots of various connected vehicle applications that leverage both our new spectrum C V devices and clear mobility cloud to address a number of critical safety of use cases.
Third we completed the official launch of our next generation radar based detection product, which is branded as vantage radius plus among.
Among other new innovations vantage radius plots offers for the high definition forward fire radar up to 600 feet.
And further reinforces that I terrorists as the new performance standard bear in radar as well as video detection of market, which we have we created an of lad for over a decade.
Fourth we began to deploy vantage radius in the highway market, which provides I'd share us with exposure to a sizable new product category.
Additionally, this positions us to capture and publish highly granular of proprietary highway traffic flow data to clear mobility cloud for further monetization.
Now, let's discuss our service lines of business. We recognized 2 forms of service revenue first project based revenue that is associated with our consulting activities and second annual recurring revenue from our software as a service solutions and for more managed services activities.
Our fiscal 'twenty 'twenty, 2 first quarter services revenue was $16.1 million versus $13.6 in the same prior year period, representing an 18% year over year increase.
About $7.8 million of 49% of our services revenue is project based whereas about $8.2 million or 51% of our services revenue was annual recurring revenue.
We continue to work very deliberately to increase the contribution of annual recurring revenue.
There are a number of tactics that were deploying first we're focused on increasing the adoption rate of our family of SaaS solutions second bundling, our SaaS solutions into our multiyear consulting projects third developing and commercializing of portfolio of cloud enabled managed services that leverage our SaaS solutions.
And for evolving our clear mobility platform to support new innovative platform is the service and data platform is the service offers that address the emerging needs of both public agencies and commercial entities, whose business models depend on mobility infrastructure.
Given our strategic focus on the annual recurring revenue, we're delighted to have achieved a key inflection point in the first quarter with our annual recurring revenue exceeding project based revenue for the first time.
As mentioned earlier a are now represents 24% of our total enterprise revenue.
In the fiscal 'twenty 'twenty, 2 first quarter, we saw an increase in both the size and velocity of our sales pipeline for new services. We also seem to experience a modest reduction in the length of time between contract award and contract execution and this is a really important metric for eye terrorists, because we were required to have a fully.
Executing contract for task order in hand of record of service award adds of booking.
In the first quarter, we recorded $16.2 million of net services bookings of which 60% 60% will be recognized as annual recurring revenue in future periods. Some of the notable first services I'm sorry, there's some of the notable first quarter of services bookings include.
The 7 figure of data platform as a service contract extension to provide traffic flow and incident data 2 of North American Media company.
Of 2.4 million dollar extension for of managed services contract with the San Francisco Bay area of Metropolitan Transportation Commission.
Approximately $1.9 million in total task orders for our SaaS based mobility intelligence application clear guide.
Over $1 million in total task orders for advanced traveler information systems that we brand is clear out of.
About 900000 task orders for our SaaS based commercial vehicle operations software.
And approximately 600000 in total task orders related to connected and automated vehicle planning and standards development.
So overall, we had a great start to our fiscal year 'twenty 'twenty 2 as demonstrated by strong sales execution and measurable progress against our platform based business strategy.
And with that I'll turn the call over to Doug.
Well. Thank you Joe Good afternoon, everyone. As a reminder, please see the company's 10-Q filing and press release, which are posted on our IR website for further disrupt description of matters under discussion during the call today.
That's it for the reminder, and as Joe noted, we're now reporting our results on a single reporting segment.
Consistent with the last several quarters' results, we've seen the performance of the business in the first quarter continued to improve with favorable year over year trends and certain key metrics, including top line growth improving operating income margins, improving EBITDA and increasing backlog.
Now I'll move on to the details of the first quarter results.
Revenue for the fiscal 2022 first quarter increased 22% to $34.1 million compared to $28 million on the same quarter a year ago, our gross margins in the first quarter improved 250 basis points to 41.3 per cent compared to 38, 8% from the same quarter last year.
Turning to our revenue mix the product revenues grew 25 per cent for 18 million compared to $14.4 million in the same quarter last year.
Gross margins were 47 per cent compared to 43, 9% from the same quarter last year, driven by higher manufacturing volumes and improved product mix. We're.
We're seeing good market penetration with several of our new products and feature sets that were recently introduced which is driving above market growth rates.
Our service gross revenues grew 18% to $16.1 million compared to $13.6 million in the prior year quarter.
In our services line, we have 51% in annual recurring revenue as compared to 40% on the same quarter last year as a reminder of our annual recurring revenues are comprised of our software and managed services revenues.
Service gross margins improved 150 basis points to 35 per cent compared to 33.5 per cent from the same quarter last year. This was due to a higher percentage of annual recurring revenues versus project related revenues.
Operating expenses in the first quarter were $13.4 million compared to $10.5 million in the same prior year quarter. As a result of the traffic cast acquisition in the third quarter of fiscal year 'twenty 'twenty..1 however, the current quarter was flat on a sequential basis with the fourth quarter of fiscal year 2021 and we.
We continue to be focused on rigorous expense management to improve our operating margins.
We reported GAAP operating income in the first quarter of 683000 compared with GAAP operating income of 382000 in the same quarter a year ago. This was a 47% improvement on the operating margin as a percentage of revenue on a year over year basis.
The GAAP net income from continuing operations in the first quarter was 629000 of 1 cent per diluted share compared with 418000 net income for 1 cent per diluted share last year.
Adjusted EBITDA for the first quarter was $2.5 million or 7.4 per cent of revenue, which compares to $2.3 million or 8.2 per cent of revenue in the first quarter of last year. This wasn't of 11% of route improvement in EBITDA year over year, and we continue to expect EBITA margins as a percentage of revenue to be in the 7 to 8 per cent range.
This fiscal year.
Turning to liquidity and capital resources total cash and short term investments were $31.1 million at the end of the first quarter 2.
$2.8 million increase year over year was the result of increasing profitability and a continued focus on working capital management.
We spent $1.1 million of capital expenditures and capitalized software costs in the quarter, which was up 900000 year over year.
The increase in capitalized software is related to a large new SaaS project, we won several quarters ago and that we expect to go into production in the second half of this year.
As we continue to win new SaaS business. This will require investment to build a new software solution. So this amount will vary from quarter to quarter. However, we do expect for the full year that these investments will be about 1 percentage of total revenue, reflecting our asset light business model.
So in summary, we're pleased to report another solid quarter performance, we remain focused on growing the business and our annual recurring revenue well vigorously managing our working capital on our cost structure to improve margins as we go forward.
For the first quarter of record backlog of $79.9 million this positions us well for the remainder of fiscal year 'twenty, 2 which is why we raised the bottom end of our revenue guidance for $132 million for $134 million with that I'll turn the call back over to Joe Joe.
Great. Thank you Doug.
The smart mobility infrastructure of market is a dynamic sector of characterized by favorable secular trends as well as emerging network effects from the introduction of new forms of mobility.
Various external events are challenging once risk averse and sometimes stodgy transportation agencies to re imagine their internal business processes Interagency collaboration models and interactions with the commercial entities, who are critically dependent on mobility infrastructure.
All of this represents an enormous task and the collective action problem that can only be solved through of platform enabled ecosystem.
With the unique combination of core competencies and market access and what is a highly highly fragmented industry I terrorist is in a particularly strong position with its platform enabled ecosystem to capitalize on the significant market opportunity.
I terrorists as clear mobility platform, which is the foundation of our platform enabled business strategy has already been adopted by a variety of public agencies and ecosystem partners are already integrating our platform into their solutions.
And with the acquisition of traffic cast we've seen an increase in the number and variety of commercial entities seeking to integrate with our platform.
As we look ahead, we believe by terrorists will evolve into a critical mobility infrastructure digital platform. The both benefit society and create significant long term shareholder value.
For the balance of FY 'twenty, 2 will remain particularly focused on the following key initiatives.
First we will drive the adoption of our next generation radar detection system vantage radius, plus and penetrate the adjacent highway mark at the both the expands the Tam for our sensors and produces the digital additional datasets for a clear mobility platform.
Second we will release, our next generation video detection system that will provide the industry's first 10 ADP high definition video and integrated artificial intelligence algorithms for real time deep level object classification. This.
This capability will further differentiate our product performance contribute rich new datasets for a clear mobility platform and enable various applications that will drive growth in our annual recurring revenue.
Third we will continue to develop and commercialize our portfolio of cloud enabled managed services through both planned enhancements and the introduction of new services.
The cloud enabled managed services not only generate new annual recurring revenue, but are extremely important because they are of secondary critical benefit of integrating agency systems, and we're datasets into our clear mobility ecosystem.
Fourth we'll introduce new connected vehicle solutions, including new data platform as a service offers the both monetize our connected vehicle data and drive engagement with the clear mobility platform and fifth we will continue to develop our partner ecosystem and further monetize our existing partnerships through the roof.
Lease of new products with partners, such as Continental and Cisco.
Our overall sales pipeline is already at historic levels and the planned release of significant technology innovations should improve our competitive differentiation in existing markets as well as expand our total addressable market.
Therefore, as we begin the second quarter of fiscal 2022.
We continue to anticipate solid full year bookings growth, even though results may fluctuate in any given quarter, especially as we continue to pursue more multimillion dollar contracts.
Based on our anticipated bookings growth and current record backlog as Doug noted, we're raising the bottom end, where we're raising the midpoint of our full year total year revenue guidance.
The new range is 134 million 242 million, which would represent 15% at the low end and 21% at the high end of the range.
At this time, we would expect supply chain constraints supply chain constraints, rather than demand to be the primary limiting factor for our fiscal 'twenty 'twenty 2 revenue attainment.
In addition to solid total revenue growth for the full year. We also expect the contribution of the annual recurring revenue to increase year over year and fall within a range of 24% to 26% of total revenue.
As a reminder of our estimates of total revenue on an annual recurring revenue mix do not do not include any potential upside from transformational initiatives, which we are pursuing such a strategic partnerships and acquisitions, because we are unable to predict the specific timing of these initiatives.
We continue to anticipate improvements on our full year fiscal 'twenty 'twenty 2 gross profit margin relative to the prior fiscal year due to the increase in our operating scale and the higher concentration of software as a service in sensor revenue as we saw on the first quarter.
In turn this should produce a significant year over year improvement in both net income and adjusted EBITDA for the full fiscal 'twenty 'twenty 2 year.
So with that we'd 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 1 on your telephone keypad, you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach of our equipment and press star 1 to ask a question.
Our first question comes from Ryan signal, Craig Hallum Capital Group.
Yeah.
Good afternoon, guys. Thanks for taking my questions.
For Iran for Hi, Ryan if you could elaborate a little bit on Joe on the impact of Covid kind of the reopening I know what it had delayed some projects previously, but what you're seeing currently and then as well as any indications on maybe what some of these agencies are thinking relative to the delta variants.
Yeah. It's a great question. So there are a couple of parts of that.
In the prior few quarters when we've had these calls.
We felt some uncertainty with respect to agency budgets.
I at this point, we are our concerns are substantially less there's obviously through the federal stimulus programs. There's now a backstop and so at least at this point, we don't have any significant concerns about funding levels.
But.
There is a a human.
Aspect to our business as well and you know there is some concern that with the Delta variant there could be further disruption to internal agency business processes, because certain personnel debt you know in a lot of these agencies still need to perform certain work on site.
And in a lot of instances they require wet signatures and things like that in order to push our business forward. So there could be some disruption I'm still we've actually tried to account for that in the guidance that we provided and so assuming the things don't.
Our road.
We're feeling fairly optimistic about the balance of our fiscal 2022.
Great then just moving over to vantage radius, plus can you elaborate a little bit on the highway traffic monitoring the intersection.
Sensors, and SaaS offerings et cetera that you've had makes sense, but just how that can translate into the adjacent highway traffic monitoring.
Yeah sure. So just as a reminder to everybody.
When we've talked in the past about the addressable market for our detection products, we've focused exclusively on the intersection detection market our products of only been deployed at the intersection and again, we've got a very broad portfolio of products, which include video detection radar.
<unk> hybrid which is the combination of both video and radar and Bluetooth and Wi Fi detection products, but again they.
Historically been deployed only at the intersection of.
With the enhancements that we've been making to our intersection detection products, we're now able to deploy them.
At other locations across the road infrastructure, including.
Yeah.
The across certain highway segments.
There is a fairly sizable market the estimated addressable market for highway radar detection products is somewhere between probably 100 and 200 million in the U S alone.
And that's not a market that we've previously addressed in any way and so we've recently entered that we've now deployed on our vantage radius product on in California, and we're pursuing a similar deployments across the country.
To be clear of the use of this form of a radar detection is not for enforcement purposes. It's to help agencies understand the volume of traffic and the speed of traffic movement from 1 segment to another and area that is of particular.
Killer concern are on ramp and off ramps Wow, there's probe data.
Which we use ourselves, which can provide kind of high level of visibility to basic traffic movement and speed across larger segments agencies are not able to get the level of fidelity that they need from the probe data and so they've historically relied on the.
Radar detection sensors to augment the insights that they're able to collect from Hyatt for from.
From the probe data, which provides more aggregated visibility of traffic movement.
Does that answer your question right Yep.
Yeah, absolutely I'll hop back in the queue. Good luck guys.
Thank you.
Just a reminder to ask a question. Please press star 1 now.
Our next question comes from Mike Latimore Northern capital.
Hi, This is other yeah on behalf of Mike Latimore.
Could you just tell me how much did the traffic costs due to the that.
Revenue in <unk>.
But we're not expecting that to be significant at least not at this point in time as we continue to manage through what's a very difficult situation for a lot of companies.
Alright, alright, thank you.
Again to ask a question please press star 1.
Again to ask the question please credit star 1.
There are no questions in the queue at this time.
Alright, so I assume that's gonna conclude our question and answer session then.
So thank you operator for helping us with that we appreciate everybody's support on the Investor Relations front I wanted everybody to know that will be presenting at the Oppenheimer 24th annual technology Internet and Communications conference from August 9th of August 11th.