Q4 2022 Iteris Inc Earnings Call
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Welcome to <unk>, Inc, fiscal fourth quarter and full year 2022 financial results conference call.
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Thank you operator, and good afternoon, everyone and thank you for participating in today's conference call to discuss the terrorists as financial results for 2022 fiscal fourth quarter and full year ended March 31, 2022, joining us today are terrorists as president and CEO, Mr Jokers era and the <unk>.
Company's CFO Mr. Doug grows.
Following their prepared remarks, we'll open the call for questions from the company's covering sell side analysts 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 Gary.
She has a future performance terrorists 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.
Terrorists refers you to the documents the company files from time to time with the Securities and Exchange Commission 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 any of the forward looking statements.
As always you'll find a webcast replay of today's call on the investors section of the company's website at Www Dot I terrorists dotcom.
Now I'd like to turn the call over to <unk>, President and CEO , Mr. Joe for sure.
Please proceed.
Alright, Thank you Todd and good afternoon to everyone.
I appreciate all of you joining us today.
I want to remind everyone that we completed the sale of our agriculture and weather analytics segment said D. T N L. L. C on May five 2020.
Actual reporting the results of that segment as discontinued operations for all periods presented in todays earnings announcement.
I'll be discussing only our continuing operations for the remainder of this call.
The company reported record fiscal 2022 fourth quarter total revenue of $34 2 million and record fiscal 2022 full year total revenue of $133 6 million, representing a respective 8% and 14% year over year increase.
As you'll note. This revenue result is slightly below our full year revenue guidance at 134 million to 136 million.
The revenue variance is fully attributable to supply chain challenges that prevented us from fulfilling and recognizing $2 2 million in fourth quarter revenue on vantage sensor backlog.
These are not lost orders in.
Fact, we've begun fulfilling this $2 2 million an advantaged backlog in the first quarter of fiscal 2023.
I will discuss our supply chain exposure and supply chain mitigation plan in more detail in a few minutes.
Notwithstanding our supply chain challenges customer response to our clear mobility platform is very positive and we continue to strengthen our position of leadership in the smart mobility infrastructure management market.
In the fourth quarter, we reported record total net bookings of $41 9 million, representing a 27% increase compared to the same prior year period.
This brings our full year total net bookings to a record $155 4 million, representing a 28% increase year over year.
Given our sustained record net bookings we ended the March 31 period I'm sorry, we ended the March 31 period with record total ending backlog of $99 9 million, representing a 28% increase year over year, and an 8% increase on a sequential basis.
As always our reported net bookings and ending backlog figures reflect firm customer orders.
Of our $34 2 million in fourth quarter total revenue 49, 9% was reported as product revenue and 51% was reported as service revenue.
As a point of comparison 51, 5% of our $133 6 million and year to date revenue was reported as product revenue and 48, 5% was reported as service revenue the mix shift reflects fourth quarter supply chain constraints.
Our fiscal 2022 fourth quarter product revenue was $17 1 million versus $15 9 million in the same prior year period, representing an 8% increase year over year.
Well this is respectable organic growth. The result was below our expectations due to supply chain constraints that prevented us from shipping $2 2 million in fourth quarter vantage sensor backlog.
If not for the fiscal fourth quarter supply chain constraints, our fourth quarter product revenue would have been $19 3 million or 21% higher than the same prior year period, and our full year product revenue would have been 79 million or 13% higher than the same prior year.
<unk>.
Additionally, please note that our fourth quarter product revenue growth is due to an increase in unit sales in the period since the 10% price increase we implemented for our vantage sensors on January one 2022 has not started to bleed into our revenue results.
As we've talked about on the prior call.
We provide price quotes at least one quarter prior to the receipt of the corresponding sales orders.
Based on our fourth quarter product results, we believe <unk> tariffs continued to navigate the supply chain environment better than our competitors and continue to take market share in the detection market.
For a comparison Autoscope technologies, our only publicly traded competitor to disclose detection product revenue reported a 20% year over year decrease in revenue for their first quarter ended March 31 2022.
A major factor in our market share gains is the superior performance of our sensors, which continue to set the performance standard for the industry.
To that end in the fourth quarter, we announced that <unk> Terrace in partnership with Ford Toyota Qualcomm in Continental AG was awarded a $20 million three year pilot projects to demonstrate the safety potential of connected and automated vehicles operating in cooperation with Vitaros as vantage fusion sensor.
We received statewide approval. Additionally, we receive statewide approval in other words, a hunting license from the New York State Department of transportation to sell and deploy our vantage radius sensor.
And we want a competitive procurement by the Florida Department of Transportation guide at $1 million to deploy our connected vehicle sensor, which we brand as spectra CV that deployment will occur across the corridor in district seven.
Furthermore, our advantaged next sensor was selected as the detection standard for many of the nation's largest signal modernization initiatives, resulting in the following notable fourth quarter purchase orders and $9 $4 million purchase order for Miami Dade, Florida for the first phase of a multi.
Phase project to modernize the county, signalized intersections of $3 million order from Baton Rouge, Louisiana to deploy our advantaged next sensor across cities signalized intersections at $2 million order from Concord, California to modernize the city signalized intersections with our vantage next sensor with.
Video and radar detection.
A $1 $2 million order from Fremont, California, deploy our vantage next sensors and a $500000 order from the Colorado Department of transportation to deploy our vantage next sensor with hybrid video and radar detection.
Unfortunately supply chain challenges not only constrained our ability to fulfill our entire fourth quarter backlog, but these challenges also resulted in significant additional cost to source and to expedite components from alternative suppliers.
Doug will characterize the current and near term impact to supply chain constraints on our growth and EBITDA margins. However, in the meantime, I want to assure you that we've developed a comprehensive supply chain mitigation plan, which we are currently implementing and is intended to progressively improve our supply chain position.
Key elements of the plan include.
One redesign of certain vantage sensor circuit boards to reduce our dependency on specific chipset.
Expansion of our supplier base by negotiating volume and price commitments for alternative chipsets.
Three expansion of our secondary market or our broker network.
For enhancements of certain supply chain and manufacturing business practices with the help of outside advisors and strategic hires.
Fifth increase in our buffer inventory to cover a target 12 to 18 months of key components.
And six implementation of certain additional price increases to further offset materials costs going forward.
Our plan should meaningfully improve our supply chain position as we progress through fiscal 2023.
Even if the global supply chain environment remains largely the same as current conditions.
In other words, the benefits should begin to bleed through our vantage sensor revenue and gross margin lines in our fiscal 2023 second quarter.
In a few minutes, Doug will discuss the financial implications of this mitigation plan in more detail.
In the meantime, I want to review the performance of our service lines of business.
As Youll recall, we recognized two forms of service revenue one project based revenue that is associated with our consulting activities and to annual recurring revenue from our software as a service data as a service platform as a service and managed service offerings.
Our fiscal 2022 fourth quarter service revenue was $17 1 million versus $15 8 million in the same prior year period. This represents an 8% year over year increase on.
On a full year basis fiscal 2022 service revenue was $64 8 million versus $54 2 million in the same prior year period, representing a 20% year over year increase.
Our fourth quarter annual recurring revenue was $8 7 million or 51% of fourth quarter total service revenue and full year annual recurring revenue was $33 5 million or 52% of full year total service revenue.
In the fourth quarter, we recorded $23 million and net service bookings as well as executed several large contracts with the following agreements being some of the more notable.
A three year contract with the Virginia Department of transportation with an unlimited budget sealing for intelligent transportation operations planning and support.
A multiyear contract to provide our data as a service offer to IHOP medias total traffic and weather network for an undisclosed value.
A $5 million multiyear contract with the Florida Department of transportation for Smart mobility safety and sustainability initiatives.
At $3 $8 million task order with the Orange County Transportation authority to conduct a traffic signal synchronization program.
One $6 million task order with La Metro to operate and maintain a next generation signaled priority system, which leverages <unk> asset management cloud enabled managed service solution and infrastructure to vehicle integration expertise.
And more than $1 million in task orders from the Virginia Department of transportation to support a smart mobility safety and sustainability priorities.
In summary, customer response to our clear mobility solutions roadmap continues to be very strong, resulting in record total fourth quarter and full year net bookings as well as record total ending backlog.
Although supply chain constraints prevented us from fulfilling $2 2 million for our fourth quarter vantage sensor backlog. We did report solid organic revenue growth and we made good initial progress implementing our supply chain mitigation plan.
Before I discuss our fiscal 2023 expectations I'd like to turn the call over to Doug.
To provide some more color on our fourth quarter and our full year 2022 financials.
Thanks, Joe Good afternoon, everyone. As a reminder, please see the Companys 10-K filing and press release, which is posted on our IR website for a further description of matters under discussion during the call today.
As Joe mentioned, we faced several supply chain challenges again this quarter that impacted both the top and bottom line results. While we had anticipated some of these challenges certain components that were available last quarter, where suddenly unavailable in the current quarter. So this continues to be a very challenging environment from a revenue standpoint, there were approximately four core <unk>.
Ponant within our vantage sensor product family that we could not source in the quantities we needed from any suppliers.
This prevented us from manufacturing all the circuit card assemblies necessary to fulfill a substantial percent of Q4 sensor backlog. This drove approximately $2 2 million and product sales to slip out of the quarter on the cost of goods sold side. We continue to have multiple components that were not available from our normal suppliers. So we had to access the <unk>.
Dairy markets I E brokers, where we saw prices on these components increase anywhere from two to 100 times their normal course.
These component cost increases coupled with higher freight costs to expedite component shipments impacted the product gross margins by about $2 $1 million or 240 basis points.
As Joe mentioned, we've got many ongoing initiatives to improve the situation. However, we do expect there to be continued supply chain pressure for the next few quarters before we realize the full benefits of these initiatives on.
On the bright side demand for our products and services continues to be strong as evidenced by our record bookings and backlog in the quarter.
Now I will move on to the details of the fourth quarter results.
Total revenue for the fiscal 2022 fourth quarter increased 8% to $34 2 million compared to $31 7 billion in the same quarter a year ago, our gross margins in the fourth quarter decreased 850 points to 32, 4% compared to 49% from the same quarter last year as previously mentioned.
This was all due to higher component and freight costs.
Turning to our revenue mix the product revenues increased 8% to $17 1 million compared to $15 9 million in the same quarter last year, taking into account the $2 2 million of revenue that was not recognized because of component shortages the revenue growth would've been 21% quarter over quarter.
Product gross margins declined 1040 basis points, and 132, 3% compared to 42, 7% from the same quarter last year due to the supply chain cost issues mentioned previously on a normalized basis, excluding the supply chain issues. The gross margins would have been about 45%, which is much closer to their historical average.
Our service gross revenues grew 8% to $17 1 million compared to $15 8 million in the prior year quarter as Joe mentioned in the fourth quarter, 25% of the total revenue was annual recurring revenue, which was consistent with prior quarters.
Service gross margins decreased 680 basis points to 32, 4% compared to 39, 2% from the same quarter last year.
This was due to higher subcontractor costs on several projects in our consulting business in the current quarter when compared to the prior year quarter.
As a reminder, gross margins on most of our subcontractor costs and the consulting business are limited to a 10% or less markup due to the procurement policies of most public agencies. Additionally, there was a slight increase in the licensing costs for some of the data we use in our clear mobility cloud.
Operating expenses in the fourth quarter were $14 1 million compared to $13 4 million in the same prior year quarter.
This increase is a result of higher R&D spending of 262000 as we continue to build out the clear mobility platform and higher sales and marketing expenses of 453000 related to higher bid and proposal costs and sales commissions on higher revenue.
General and administrative expenses were flat year over year, and we continue to be focused on keeping our G&A expenses flat to get more leverage in the P&L.
We reported a GAAP operating loss in the fourth quarter of $3 million compared with a GAAP operating loss of 382000 in the same quarter a year ago.
The GAAP net loss from continuing operations in the fourth quarter was $3 million or a loss of <unk> <unk> per share, which compares with a net loss from continuing operations of 385000 or a loss of a penny a share in the same quarter a year ago.
Adjusted EBITDA for the fourth quarter was a loss of $1 1 million or a negative three 1% of revenue, which compares to $1 8 million or five 5% of revenue in the third quarter of last year. The GAAP operating loss GAAP net loss and adjusted EBITDA loss were driven by the supply chain initiatives as previously noted.
Due to the supply chain mitigation plans outlined by Joe We anticipate a progressive improvement in our supply chain position beginning in the second quarter. This should yield a full year EBITDA margin in the mid single digits with the anticipated improvement in the product gross margins, we are expecting the product most gross.
Margins to return to about 45% as we exit Q4 fiscal year 2023, which again is closer to their historical average.
Turning to liquidity and capital resources total cash and cash equivalents were $23.
$7 million at the end of the year, the $3 $8 million decrease in cash and cash equivalents quarter over quarter was a result of changes in our working capital specifically, we're buying more raw materials as buffer stock to hedge against the ongoing supply chain shortages.
Accounts receivable increased in the quarter due to the timing of our invoicing being later in the quarter for our vantage sensor products due to component shortages.
We spent 130000 in purchases of property and equipment in the fourth quarter and 466000 for the year, which is <unk>, 35% of total revenue, reflecting our asset light business model.
So in summary, we continue to be laser focused on the supply chain challenges and we recognize we're not alone in this situation as many fortune 500 companies have also reported similar experiences given the global shortages on a multitude of products.
As Joe mentioned, we're proactively manage this situation by extending lead times on purchase order buying.
Buying ahead, where we can redesigning aspects of our products to find replacement components for those that are unavailable and enhancing our supply chain capabilities with that I will turn the call back over to Joe Joe.
Great. Thanks, Doug.
So despite the global pandemic and the associated supply chain disruption.
<unk> continues to enhance its position in the large dynamic and highly fragmented smart mobility infrastructure management market.
This market represents significant opportunities due to favorable secular trends as well as historic new investment driven by the recently passed infrastructure investment and jobs Act or Iga.
<unk> market access our Knowhow and our platform based strategy provide degrees of freedom and Optionality that most companies in our market lack.
As a result, we are very optimistic about the opportunity in front of Vitaros and believe the current environment actually improves our clear mobility value proposition and competitive position. Despite some near term disruption from supply chain constraints.
To accelerate the capture these opportunities we will execute an aggressive FY 'twenty three solution roadmap to expand the adoption of the career mobility platform enhance the cross sell of our clear mobility offerings and increase the monetization of our clear mobility datasets.
Key releases will be.
One extending the ability of our vantage sensors to cooperate with connected and automated vehicles.
Two increasing the attach rate of our SaaS solutions to our installed sensors.
Three enhancing the artificial intelligence capability of our vantage sensors.
For creating packaged pre packaged mobility data solutions for new public sector and private sector customer segments.
<unk> introducing nuclear mobility technical features to further enhance and differentiate our economic value proposition for buyers who are increasingly important in our end markets and six continuing to expand and enhance our cloud enabled managed services portfolio, which among other benefits will accelerate the adoption.
Option of our SaaS solutions and allow us to transition certain consulting activities to an annual recurring revenue model.
To support our platform centric business model and our aggressive solutions roadmap, we're consolidating and reorganizing the technical teams that formerly comprised our applications and cloud solutions and advanced sensor technologies business units.
The new structure will be comprised of a single product team responsible for a unified everything as a service and sensor roadmap and a single development team responsible for delivery of the unified roadmap.
The product team will be led by Wil cousins, who has been appointed senior Vice President and Chief product Officer.
Will has recently joined <unk> terrorists from zone, our systems, a subsidiary of Continental AG, where he served as senior Vice President of products design and automotive OEM solutions.
The development team will be led by Todd creator, who has been appointed senior Vice President and Chief Technology Officer.
Previously Todd served as senior Vice President and General manager of our advanced sensor technologies business unit.
This new functional structure will drive better alignment across our software and sensor portfolio enhance resource utilization accelerate the development of clear mobility cloud and support our continued organic and inorganic growth.
As a result of this reorganization I tariffs will take a pre tax restructuring charge of <unk> 7 million and our fiscal 2023 first quarter and generate annualized cost savings of approximately $1 2 million.
Which in addition to the aforementioned benefits will help offset materials cost variances until we begin to realize the full benefit of our supply chain mitigation plan.
Looking ahead the company sales pipeline, which includes both public sector and private sector demand for a clear mobility platform continues to reach new historic levels due to the sustained release of best in class technology.
And our solid sales execution.
Additionally, we expect the Iga a funding to begin to show up in state and local agency budgets in the second half of our fiscal 2023.
Therefore, we anticipate continued bookings growth in our first quarter and beyond even though results may fluctuate from quarter to quarter, especially as we continue to pursue more multimillion dollar contracts, including complex agreements with large private sector entities.
Based on our current record backlog and anticipated bookings growth, we forecast fiscal 2023 total revenue of $147 million to $155 million, which would represent organic growth of 13% at the midpoint of the guidance range.
Also as previously noted our supply chain mitigation plan will begin to produce progressive benefits starting in our second quarter. As a result, we forecast an improvement in full year adjusted EBITDA that should fall within a range of 5% to 6% of full year revenue.
To be clear, we expect our fiscal 2023 first quarter to look similar to our fiscal 2022 fourth quarter after which we'll begin to realize the benefits of our supply chain mitigation plan.
In summary fiscal 2022 was extremely challenging due to the impact of global supply chain issues, but we believe <unk> navigated the period better than most of our competitors and continued to make good progress transitioning <unk> to a platform centric business model.
Therefore, notwithstanding the difficulties of fiscal 2022, we believe by terrorists remains on track to realize our vision 2027 operating model as outlined in our December 2021 technology update.
As a reminder, the target operating model assumes a combination of sustained above market organic revenue growth and two to three tuck in acquisitions will more than double our fiscal 2022 total revenue to $275 million at the midpoint of the range and triple our fiscal 2020 to annual.
Recurring revenue to $100 million at the midpoint of the range by 2027.
Lastly, because your board of directors believes the recent trading range of the company's stock is dissociated from the opportunity in front of Vitaros. The board has authorized a new stock repurchase program, whereby a $10 million in common stock may be repurchased from time to time in the open market.
We believe buying back our own stock as a recognition of the long term prospects of our business and an undervalued price of our stock.
With that.
We'll conclude the prepared remarks, and we'd be delighted to.
To respond to your questions and comments.
Operator, do we have any questions.
Thank you.
Now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset.
Thank you.
To withdraw your question. Please press Star then two.
Our first question comes from Jeff Van.
Thank you Anne.
B Riley. Please go ahead.
Okay great.
Realize it's a fluid situation, but based on what you know today.
What are you contemplating.
For the timing of supply chain normalization, let's call. It and then sort of as a second part of that.
What is the outlook for subcontract work just wondering there was an impact in the quarter.
We anticipate that to just fluctuate or do you have any visibility there.
Just wondering on gross margin impact going forward, there and then I guess when.
When do you anticipate realizing the full impact of the supply chain mitigation plan.
Do you want to take those questions sure. So let's start with the supply chain mitigation plan.
As noted we've got several things underway.
One of the more significant is of course, the redesign of some of our circuit cards, and we're making good progress on that but that is going to take some time, because we've got to not only redesign of product, but we've also got a field test it as Joe noted one of the things that sets us apart from our competitors is the superiority of our product and how it performs in the field.
We're not expecting to see meaningful improvement in the product gross margin until we probably get to the second quarter, and then that gets progressively better quarter over quarter exiting the year back about where the product margins were before this whole supply chain situation got started which is in the kind of mid 40% range.
As far as the sub contractors go that does vary from quarter to quarter.
A lot of the.
Subcontractors that we do work with our of course facing.
Same supply chain constraints that we have so there is variability in how much subcontractor, particularly equipment.
<unk> shipped to the sites, where we're acting as the systems integrator.
It really it's hard to pinpoint that because we don't have good visibility into their supply chains, but.
It's been historically an area that has been impacted by.
Not only just COVID-19, but also the supply chain situation that we have now so we would expect that as things.
Things continue to improve we should see better delivery from our subcontractors, which will drive more revenue, but just highlighting that the revenue and the markup.
A lot of that equipment is not very big so it does create.
A mix problem.
Any given quarter.
So I think I'll add just a couple of quick points to that.
Jeff on the prior calls.
Think youre referencing we've talked about subcontractor delays.
And those took two forms one is related to equipment.
In some cases that was unavailable.
<unk> impacted our ability to recognize forecasted product revenue and also in some cases delayed project implementation. Additionally, we had some supplier delays which were actually personnel related.
Because some of our subcontractors had.
Staffing shortages I do want everyone to be aware that in addition to the supply chain mitigation plan, which we talked about on this call. We've also taken some actions that will allow us to begin to in source.
Some of those activities that were previously outsourced so that will reduce to some degree our dependency on the staffing availability of some of the third party contractors that we previously worked with so that's something that we actually took internally, which will help to mitigate.
Some of the dependency that we have.
The other thing, which you asked about yet which I'm not sure whether we were clear about is what is our overall expectation regarding the broader supply chain issues.
And we obviously don't have a crystal ball.
But our expectation is consistent with what we think most of the experts are saying is that the overall global supply chain environment is going to probably remain difficult through at least the end of this calendar year, perhaps longer but based on the mitigation plan that we put in place. We believe as we said we can.
Improved our supply chain position, even if the global supply chain situation remains the same as it is today. So we're expecting that there'll be a continued problem, but we're taking efforts to mitigate our exposure.
Okay, Great I did we address everything for you Josh.
If you'd like to ask.
No sorry.
You hit on most of the points here I did want to ask you.
These are the stock repurchase that you announced today I'm just wondering.
Does that.
Well, let me see how to ask this I guess, maybe just touch on the.
<unk>.
Timing I think we're at I think we're.
Past 18 months, now, which was kind of the timeframe you were thinking you would be making.
Probably wouldn't stretch a lot beyond that to make another acquisition just wondering.
How youre approaching acquisitions in the near term is that deferred for now.
In other words are you buying back stock in lieu of making an acquisition or what's the thought process around all that.
Yeah, well, obviously, we have a finite amount of capital, but we're continuing to look at potential acquisition targets.
We will continue to develop those wont pursue them, but at this point in time, we actually think that our investors will realize like the highest return on investment by actually doing an acquisition of source, which is acquiring our own stock, but thats not to say that we are doing that in lieu pursuing additional acquisitions, we were very.
We acted in that regard and we'll continue to develop opportunities there or do you want to offer any additional perspective on that.
No I think that's exactly how we're thinking about it in a lot of these opportunities as you can imagine take several.
Several quarters to develop so we've got a funnel of things that we're continually looking at but in the absence of that buying our own stock. It makes the most sensitive.
Look at shuttle and I will say just for background.
At least in our market.
Well remember that we had talked about the fact on our last call, we're actually seeing more deal flow.
Which we took as a very positive thing, but right now there seems to be so much uncertainty in the market and at least some buyers so it seem to be backing away.
And one on one hand, thats kind of arguably potentially good news for us because there may be less accurate less.
Less competition for some of the acquisition. We've also seen sellers start to back away because of the uncertainty regarding their valuations.
Right now, we see a little bit of a pause but.
But we remain active and we're sure that the market will come back it's a very fragmented market and there are lots of targets out there.
Okay fair enough. Thanks for taking my questions.
Our next class, where there any other questions.
Yes. Our next question comes from Ryan <unk> with.
Craig Hallum Capital Group. Please go ahead.
Good afternoon, guys. Thanks for taking my questions.
Hey, Ryan.
Curious you mentioned kind of briefly at the end of your prepared remarks, working on some larger deals with some private entities curious how much or I guess, what part of your mix currently is private versus public and then if you can elaborate kind of on that pipeline a little bit more.
Yes, so right now under 10% of our total revenue would be private sector.
I don't want to.
Mislead people for the next three to five years I'm sure that the majority of our revenue will continue to be in the public sector, but we are seeing a lot of inbound interest from various commercial or private sector entities, who have an interest in certain solutions that we offer through our <unk> mobility plan.
Form and in some cases some of these private sector entities have their own cloud strategies and they're interested in talking to us about cloud to cloud integration to support their broader mobility strategy.
We are I can tell you that the pipeline of opportunities with.
<unk>.
Private sector entities as <unk>.
Rone exponentially.
But one of the kind of Dirty Little secret is that when you are selling to really big private entities, sometimes those sales cycles can be at least as long and even longer than we're seeing in the public sector. So it will take some time before we see meaningful change in the mix, but I can tell you already that.
<unk> of private sector opportunities to our sales pipeline has increased significantly.
And then maybe just expand on that is that primarily on the product side or the service side or both.
So it's both in the sense that when I'm talking about.
Services in this case I'm talking about software as a service and data as a service and in some cases, even cloud enabled managed services that would be providing to public sector entities.
At this point, our private sector sales pipeline does not it does not include any material consulting services for private sector entities. So again, it would be service revenue, but it would be.
SaaS or we also called in.
In my remarks, everything as a service sales opportunities and then Theres also a little bit of product revenue.
Related to the use of our detection sensors and also in some cases.
Our connected vehicle sensors.
Good.
Moving on to kind of guidance, so positive EBITDA for the year, but do you think tariffs will be free cash flow positive this fiscal year.
Absolutely yes.
Sure.
Yeah, as we said in the remarks very focus on getting the supply chain situation.
Progressively better and so I think that we will absolutely be cash flow positive.
Good one more for me just on the operational restructuring good to see the savings. There are inefficiencies you think there is any more opportunity for further consolidations within other parts of the business streamlining cost rationalization or is this kind of the main one point out at this point.
Yes, I mean, we'd make an effort when we take actions like this to try to gang things together.
Things behind us.
Because obviously things like this can be disruptive.
But that being said, while I wouldn't anticipate any other near term restructurings. There are a lot of opportunities for process improvement and for automation and we're always focused on that.
Doug.
Responsible for leading a couple of things one is.
The development and implementation of lean toolkit, which we're rolling out across the company and also as you guys, who don't know our internal.
Information Technology systems group reports to Doug and so maybe you could provide some additional color on some of those.
To Ryan's question.
Sure, Yes, I would say that we're always looking for improvements in automation as Joe referred to.
Sometimes that does result in redundancy in personnel, but to Joe's point I don't think theres anything on the near term, but certainly as we work through this.
Maybe there are opportunities.
To be able to continue to streamline the cost structure of the company.
With better processes, and our automation and usually fall.
And certainly as we've said before the intent is to try to keep our G&A or corporate G&A flat, even as the company continues to grow and a lot of that is coming.
Due to the process automation that we're talking about but certainly there are opportunities with respect to marketing.
Using marketing automation more and more sales automation.
Customer support automation, which will enable us to start to show more operating leverage as the company continues to grow.
Thanks, Joe Doug Good luck guys.
Thank you Ryan Thank you.
Our next question comes from Mike Latimore with Northland Capital markets. Please go ahead.
Great. Thanks, Yeah, good to see the strong bookings there.
I guess.
Among your customers.
I assume they're not.
No.
Sort of.
Talking about some additional.
Hesitancy around because theres, an inflation or talk of recession, and I would imagine your agencies are a little more insulated from that kind of macro theme given where their sources of revenue come from but just curious what youre hearing in that regard.
Yes, that's true the market.
Generally I just mobility overall.
Generally.
From our perspective continues to be very robust we have much more exposure at this point to the public sector and the private so to your question specifically about public sectors.
The discussion about supply chain constraints and inflation is that impacting the sentiment of public agencies and the answer is no.
At least not with respect to the activities that we support.
We were pleasantly surprised that most public agencies came through.
The pandemic and a better budget position than I think a lot of them had anticipated as we have talked about on prior calls one thing that's been benefiting us is that over the last decade state and local agencies have been putting in dedicated revenue sources to support.
Their transportation infrastructure initiatives and what we're finding is that a.
A lot of those revenue sources are seem to be somewhat insulated from economic cycles.
Like use taxes for example vehicle registration fees those kinds of things don't tend to fluctuate that much during economic cycles and so the revenue stream remains pretty strong even during the worst of Covid and then on top of that of course, there was a lot of federal stimulus and is I think a lot of people have been talking about them.
Most recent stimulus, which was enacted last summer only a portion of that has been spent and the expectation is that the feds are going to extend the period.
For state and local agencies to continue to use that funding. So that provides a nice backstop and then additionally, if worse there is iga a on top of it which more than doubles. The funding that was previously available under the fast Act federal.
Surface transportation funding Bill so there is a huge increase in that.
And the fast act requires stay.
State and local agencies to match the funding so there's a huge multiplier effect on the fast act. So overall at least at this point in time the public sector.
Market seems to be extremely robust.
Okay great.
Great.
And then on your service contract I know you well first I know you have a.
Price increase on the centers, but on your service contracts are there.
Any sort of inflation adjustments built into the contracts or are those kind of negotiated nonrenewals.
Yes, so it depends on the products that we've talked about it's relatively easier for a lot of reasons.
Services again, there are different kinds of services, so with respect to software.
And unless we are under contract and we've committed to certain pricing for some period of time over the course of that contract and in the event that there is no.
Escalator in the contract we in that case, we may be prohibited but in terms of increasing our pricing on new opportunities. We do believe that we have flexibility with respect to our software products and also with respect to our cloud enabled managed services now in terms of the consulting.
And our business process outsourcing, where our revenue generally is associated with underlying labor rates and we have to provide a lot of visibility to that there can be more restrictions. We are finding that at least currently agencies are.
Pushing back on that but remember at this point less than 50% of our services revenue is associated with underlying direct labor.
More than 50% of that is.
Associated with software data as a service.
Or service level agreements and in those instances, we have a lot more pricing latitude.
I don't know if you want to add anything additional to that.
No I think that covers it Joe I mean, you summarized it pretty well.
Obviously, you are looking for every opportunity we can to increase.
Our rates increase our revenue and so we do that.
This basis day in and day out as we.
If you look at new work, but also work that's renewing so Mike again in total what that means or in summary about 25% of our total revenue.
Which is tied to direct labor rates, we may have limited latitude, but on 75% of it we've got some degrees of latitude and we will take reasonable actions.
Alright, great and then on the emerging or unifying the cloud and sensor team that does that change any reporting going forward or continue to report the way you are.
No there'll be no changes to how we report this as more of an internal reorganization to a more functional organization.
Okay, great. Thank you.
Awesome. Thanks Mark.
Yeah.
Operator are there any other questions.
There are no further question I would like to turn the conference back over to Mr. Joe <unk>.
For any closing remarks.
Super Great. Thanks, a lot operator, and we appreciate your help today and as always Hey, I really appreciate everybody's support and also the thoughtful analyst questions.
On the Investor Relations front, I want everybody to know that we'll be participating in various investor outreach events this quarter.
Those will in general be done with our various.
And coordination of various covering sell side analysts will also be presenting at the Stifel Cross sector insight Investor Conference in Boston, Massachusetts on June <unk> next week and if you are participating in the Stifel Conference. So please plan to attend our presentation, Andrew or schedule, a meeting with US would love to see you there.
Meantime, we look forward to updating you again on our continued progress when we report our fiscal 2023 first quarter results and with that we'll conclude today's call. Thanks everybody.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.