Q1 2023 Iteris Inc Earnings Call
[music].
Good day and welcome to the terrorists incorporated fiscal first quarter 2023 financial results Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an.
To ask questions to ask a question you May Press Star then one on your touch down South to withdraw your question. Please press Star then two please note. This event is being recorded I would now.
Now I'd like to turn the conference over to Todd <unk> of <unk>. Please go ahead.
Thank you operator, good afternoon, everyone and thank you for participating in today's conference call to discuss <unk> financial results.
2023 first fiscal quarter.
In the June 32022, joining us today are <unk>, president and CEO .
The company's CFO , Mr. Doug Groves.
Following their 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 guarantees of future.
Thats.
<unk> 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 <unk> refers you to the documents the company files from time to time with the SEC 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 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 a terrorist dot com.
Now I'd like to turn the call over to <unk>, President and CEO , Mr. Joe <unk>. Sir Please proceed.
Thank you Todd and good afternoon to everyone. I appreciate all of you joining us today.
As a reminder, we completed the sale of our agriculture and weather analytics segment to Dts LLC on May five 2020, therefore reporting the results of that segment as discontinued operations for all periods presented in today's earnings announcement.
I'll be discussing only our continuing operations for the remainder of this call.
The company reported fiscal 2023 first quarter total revenue of $33 7 million, representing a 1% decrease year over year.
The decrease is fully attributable to supply chain challenges that prevented us from shipping and recognizing $4 9 million in first quarter revenue on vantage sensor backlog.
If not for the supply chain challenges first quarter total revenue would have increased 13% year over year to $38 6 million.
To avoid confusion I want to be clear that we did not lose the $4 $9 million advantage orders rather these orders slipped to the right and we've already started to fulfill some of the $4 9 million of backlog in the second quarter of fiscal 2023.
I'll discuss our supply chain exposure and the status of our supply chain mitigation program in more detail in a few minutes.
Despite supply chain challenges the customer adoption of our clear mobility platform remains very positive and we continue to strengthen our leadership position in the highly fragmented smart mobility infrastructure management market.
In the first quarter, we reported record total net bookings of $42 6 million, representing an 18% increase compared to the same prior year period.
This brings our trailing 12 months total net bookings to a record $162 1 million, representing a 31% increase relative to the same prior period.
For your reference our trailing 12 month bookings figure does not include a very large opportunity in front of us with the infrastructure investment and jobs Act our Iga.
Under the Iga, a federal funds will flow to local entities through either formula funding our grant funding.
As we've said since the Iga was signed into law on November 15, 2021 Formula funding will begin to show up in state and local budgets in the first fiscal year. After the law went into effect.
For most state and local entities that will be October one 2022.
With respect to grant funding USDA has not issued any intelligent transportation systems related grant funding under the Iga to date. The first tranche of grants will be in support of the U S Department of Transportation's safe streets for all initiatives, meaning they must meet the criteria of this initiative.
These grants won't be awarded until late this calendar year or early next.
At this time various state and local entities have included pricing from my chair.
And their grant applications.
Due to sustained record total net bookings we ended the June 30 period with record total ending backlog of $109 million, representing a 36% increase year over year, and a 9% increase on a sequential basis as.
As always our reported total net bookings and ending backlog figures reflect firm customer orders.
Of our $33 7 million in fiscal 2023 first quarter total revenue, 49% was recorded as product revenue and 51% was recorded as service revenue.
Whereas in our fiscal 2022 first quarter, 53% was recorded as product revenue and 47% was recorded a service revenue.
The mix shift is largely attributable to our fiscal 2023 first quarter supply chain constraints.
Fiscal 2023 first quarter product revenue was $16 4 million versus $18 million in the same prior year period, representing a 9% year over year decline.
Again, if not for supply chain constraints product revenue would have been $4 9 million higher or $21 3 million for the quarter, representing an 18% increase relative to the product revenue in the same prior year period.
The impact of our January one 2022 vantage sensor price increase was de Minimis in the first quarter due to the time lag from quote to order. Therefore first quarter product revenue and unshipped sensor backlog reflect an increase in underlying unit demand.
We continue to experience above the market levels of demand for our sensors, which have historically set the product performance standard for the industry in the first quarter, we extended our product performance lead with the introduction of new artificial intelligence capabilities for our vantage apex sensors as well as the introduction of a new health.
During application Criterias as spectra connected vehicle sensors and for third party roadside units.
Because of our relentless focus on superior product performance, we continue to win virtually every large competitive we sourced intersection detection fixed travel time sensor and cellular <unk> modernization initiative across the country. For example in the first quarter alone. We were selected for the following <unk>.
Notable modernization initiatives.
Our Mississippi Dot's phase one hurricane Zeta restoration program of Florida, <unk> Phase one regional inner city integrated quarter management program, our Colorado <unk> Rural intersection modernization program in Arlington, Virginia Phase II modernization initiative and Pasadena.
<unk> phase II citywide intersection modernization program.
To maximize customer loyalty and consolidate our market share as much as possible in the first quarter, we had to source key components in the secondary market for a total of $5 6 million.
The cost of these components range from two to more than 100 times their normal cost.
To manage the impact of global supply chain challenges and re normalize our business model, we devoted substantial management attention in the first quarter to the implementation of our supply chain mitigation program, which Youll remember we reviewed on our prior earnings call.
During the quarter, we made significant headway toward overcoming these issues more specifically we completed the design of three alternative circuit boards, who will reduce our dependency on specific chipsets going forward. All these boards are in different stages of testing at this time.
We expanded our broker network from 3% to 10 partners, giving us direct access to major brokers in every major electronics market worldwide.
We moved the reporting line for supply chain and manufacturing under Doug groves to create various efficiencies and accelerate lean process automation and improvement.
We sourced and appointed a new strategic hire to lead and enhance our supply chain and manufacturing organization as well as reduce our reliance on outside consultants that Youll remember we engaged earlier this calendar year. This strategic hire reports directly to Doug Groves.
And we continue to build buffer inventory for key components that drove our planned $5 $3 million increase in inventory and will help to unlock our vantage sensor backlog in future quarters.
As Doug will further discuss we expect inventory levels to normalize as we complete the related supply chain mitigation plan.
I'll discuss the next stages of our supply chain program in a few minutes and in the meantime, I want to review the performance of our service lines of business.
Fiscal 2023 first quarter service revenue was $17 3 million versus $16 1 million in the same prior year period, representing a 7% increase year over year.
As a reminder, we recognized two forms of service revenue first there is annual recurring revenue from our software as a service data as a service platform as a service and managed services offerings and second we are project based revenue that is associated with our consulting activities.
Our first quarter annual recurring revenue was $9 4 million, representing an increase of 14% year over year, and representing 58% of our total service revenue with.
Growth in <unk> is mostly attributable to adoption of our SaaS product lines, such as clear guide, which substantially outpaced the rate of growth of our managed services portfolio in the period.
While our IRR revenue line experienced solid growth our first quarter project based revenue was flat year over year due to indirect supply chain constraints.
For example, some large projects for which we function as a systems integrator. We're the program manager were delayed because certain third parties could not deliver critical equipment per the project schedule due to their own supply chain challenges.
While this is frustrating and May continue for the next few quarters. Our exposure is limited to a small number of projects and we have identified and are taking actions to mitigate these disruptions.
In the first quarter, we recorded $22 1 million in net service bookings of which 71% of the net service bookings will be recognized in the future is annual recurring revenue against 71% of the net service bookings will be recognized in the future is annual recurring revenue.
Additionally, we executed several large contracts will convert to future bookings. Some notable recent customer agreements include a multi year contract with the Virginia Department of transportation for traffic Traveler and road infrastructure program or what we call key trip services. This contract has a minimum value of <unk>.
$20 million and we expect the actual value will be approximately $70 million, we recorded a $1 $8 million booking against this contract in our first quarter.
Secondly, we received a $4 $2 million task order from the San Francisco Bay area Metropolitan Transportation Commission to extend the use of our advanced traveler information system clear out.
Third we recorded a multimillion dollar contract extension provide clear data to a large U S based broadcasting company.
Fourth we received a $2 7 million task order from the Bay area Mtc to extend our managed services activities.
Additionally, we received more than $1 2 million in combined task orders for clear guide and more than $1 1 million in combined task orders for our commercial vehicle operations software and finally, we received a contract with a large multi line insurance company to transition a clear data proof of concept.
Into our production deployment for four states.
To support our platform centric business model and our aggressive solutions roadmap, we completed a restructuring in the first quarter to drive better alignment across our software and sensor portfolio to enhance our resource utilization accelerates the development of clear mobility cloud and support our continued organic and inorganic.
Ro.
In addition to the upper mentioned benefit this reorganization will produce an annualized cost savings of approximately $1 2 million to help offset material cost increases until we begin to realize the full benefit of our supply chain mitigation plan.
In summary, customer response to our clear mobility solutions roadmap continues to be very strong, resulting in record first quarter total net bookings as well as record total ending backlog.
All of those supply chain constraints prevented us from shipping $4 9 million of our first quarter vantage sensor backlog, we believe that <unk> continued to outperform our competitors in a difficult environment and we made good progress implementing our supply chain mitigation program, which will begin which will begin to produce financial.
<unk> and our second quarter before I elaborate on those forward expectations I'd like to turn the call over to Doug to provide some more color on our first quarter financials.
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 a further description of matters under discussion during the call today.
As Joe mentioned and as we expected we continue to face several supply chain challenges again this quarter that impacted both the top and bottom line results.
We anticipated these challenges and we continue to see certain components that were not available through our normal channels to that point, we spent approximately $5 6 million in inventory purchases from the secondary market E brokers, which resulted in incremental material cost of $2 4 million in the quarter, which was up from $2 1 million.
In Q4 from a revenue standpoint, there continued to be approximately six core components within our vantage sensor product family that we cannot source in the quantities, we needed from any suppliers and the cost of many components continued to be up to two to 100 times their normal cost this prevented us from manufacturing all the circuit board.
Assemblies necessary to fulfill about 30% of the Q1 vantage sensor shippable backlog or approximately $4 9 million and product sales that slipped out of the quarter.
We had all the components, we needed the year over year revenue growth would've been 13% as Joe mentioned, we have many ongoing initiatives to improve the situation. However, we do not expect there to be continued supply chain pressure. We do expect the continued supply chain pressure. The next few quarters before we realize the full benefits of these initiatives.
On the bright side demand for our products and services continues to be strong as evidenced by our record bookings of $42 6 million and record backlog of $109 million.
Now I'll move on to the details of the first quarter results.
Total revenue for fiscal 2023 first quarter decreased 1% to $33 7 million compared to $34 1 million in the same quarter a year ago, our gross margins in the first quarter decreased $1 110 basis points to 32% compared to 41, 3% from the same quarter last year.
As previously mentioned our revenue was constrained due to the unavailability of certain components in the gross margin pressure was due to the higher cost for those components that were available.
Turning to our revenue mix the product revenues decreased 9% to $16 4 million compared to $18 million in the same quarter last year, taking into account the $4 9 million of revenue that was not recognized because of component shortages. The product revenue growth would have been 18% quarter over quarter.
This clearly underscores our market leading position in the sensor market as we continue to take market share from our competitors.
Product gross margins declined 1820 basis points or 28, 8% compared to 47% from the same quarter last year due to the supply chain cost issues mentioned previously.
On a normalized basis, excluding the supply chain cost issues. The gross margins would've been 43, 5%, which is about the same as our historical average of about 44% to 45%.
Our service revenues increased 7% to $17 3 million compared to $16 1 million in the prior year quarter, primarily driven by stronger software sales.
In the first quarter, 28% of total revenue was annual recurring revenue, which was up from 24% in the same prior year quarter.
As a reminder, our annual recurring revenues are comprised of our software and managed service revenues.
Service gross margins decreased 360 basis points to 31, 4% compared to 35% from the same quarter last year.
This was primarily due to increased labor costs, the timing of certain contract extensions and the contract mix.
Operating expenses in the first quarter were $15 1 million compared to $13 4 million in the same prior year quarter.
G&A expenses were once again flat quarter over quarter, while R&D was up about 400000.
As we continued to invest in building out that clear mobility platform sales and marketing increased 600000, which was related to some key investments in our sales and product support organizations to support our expected double digit future revenue growth and record bookings.
We reported a GAAP operating loss in the first quarter of $5 million compared with a GAAP operating income of 700000 in the same quarter a year ago. The operating loss was driven by the shortfall in product revenue of $4 9 million $2 4 million in incremental.
Product inventory costs and 700000 in restructuring charges, we expect a restructuring charge to reduce our ongoing costs by about $1 2 million over the next four quarters.
The GAAP net loss from continuing operations in the first quarter was $4 9 million or a loss of 11 per share, which compares with a net income from continuing operations of 600000 or a penny per diluted share in the same quarter a year ago.
Adjusted EBITDA for the first quarter was a loss of $2 5 million or seven 3% of revenue, which compares to the positive EBITDA of approximately $2 5 million or seven 4% of revenue in the first quarter of last year. The GAAP operating loss GAAP net loss and adjusted EBITDA loss were all driven by the product revenue.
Short fall restructuring charge and supply chain issues previously noted.
With the supply chain mitigation plans outlined by Joe We anticipate a progressive improvement in our supply chain position beginning in our second quarter with the majority of the improvement occurring in the second half of our fiscal year 2023 since it will take time for the redesign of all the key circuit boards to ship through to our customers we will complete the.
The redesign and deployment of three circuit boards in Q2, and expect to complete the redesign and deployment of another three circuit boards in Q3 and again in Q4, respectively. These key redesign activities should return the product gross margins to about 40% by the fourth quarter of this year.
Now turning to liquidity and capital resources cash cash.
Cash equivalents were $14 8 million at the end of the first quarter and net working capital was $31 8 million to $8 9 million decrease in cash and cash equivalents quarter over quarter was a result of the net loss a planned increase in inventory of $5 3 million to build buffer stock as part of our supply chain recovery plan.
And the repurchase of 900000 in company stock.
As previously mentioned, we procured $5 $6 million in components from the secondary markets. So we were unable to get any extended payment terms, which is normal business practice in these markets to offset the inventory carrying costs and this also negatively impacted our working capital in the quarter.
With the increased volume of inventory purchases in Q1, we do not expect to see such a large increase in inventory in Q2 or the remainder of the year. However, we do expect to still be constrained by the six key components previously mentioned until the redesign of all of the remaining circuit boards is completed.
Lastly, we spent 188000 in purchases of property and equipment in the first quarter, which was up from 67000 in the prior year first quarter. This increase is simply a timing difference and we still expect our full year capex to be less than 1% of revenues, reflecting our asset light business model and.
So in summary, we continue to be laser focused on our supply chain challenges as Joe mentioned, our multi point plan is progressing well with the redesign and deployment of another.
Other three circuit board assemblies in Q2 as part of our mitigation plan, we've already begin buying materials for those new designs. So we are confident we can weather the supply chain storm and come out even stronger on the other side with multiple circuit board designs for our market, leading vantage sensor products and without sacrificing any features and functions.
<unk> that our customers have come to rely upon.
That I will turn the call back over to Joe Joe.
Great. Thank you Doug.
So despite the global pandemic and associated supply chain disruptions terrace 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 flowing from the Iga.
<unk> market access Knowhow and platform based strategy provide degrees of freedom and Optionality and most companies in our market lacked as a result, we remain very optimistic about the opportunity in front of Vitaros and believe the current environment actually improves our clear mobility value proposition.
And competitive position is demonstrated by sustained above market bookings growth. Despite some near term disruption from supply chain constraints.
In fact, the leading indicators we track suggest continued execution of our solutions roadmap, which we outlined on our last earnings call showed sustained future market share growth.
For example, the total value of qualified sales opportunities is up 20% year over year and our proposal win rate has increased over 200 basis points to reach a new record high.
Due to the strength of our demand side performance management is able to remain focused on the execution of our supply chain mitigation program that will unlock our historic backlog and begin to re normalize our cost structure.
And we have identified the following near term supply chain mitigation program objectives, some of which Doug has already mentioned.
First we will begin.
In the second quarter, the production and shipment of the three circuit board prototypes for which the designs were completed in Q1.
Second we will develop three circuit board prototypes in Q2 for production and shipments beginning in Q3 third we'll complete the development of a final set of three additional circuit boards in Q3 for production and shipment beginning in Q4.
Firstly, we will continue to build nine to 12 months of.
Buffer stock for key supply chain components, we should reach that level by December 31 of this year fifth will accelerate our lean manufacturing initiative to drive more efficiency and effectiveness in all our manufacturing and supply chain processes and sixth we will implement an additional morris.
Surgical price increase effective October one we will average about 10% across our vantage sensor portfolio.
Our plan should meaningfully improve our supply chain position as we progress through fiscal 2023, even if the broader global supply chain environment remains largely the same as current conditions in other words, we're insulating ourselves from broader global challenges.
More specifically, we expect the revenue benefits to begin to bleed through our vantage sensor revenue line and our fiscal 2023 second quarter and our gross margin line in our fiscal 2023 third quarter as we rotate through our inventory of secondary market components.
Based on our current record backlog and anticipated future bookings growth, we should resume our year over year revenue growth in our fiscal 2023 second quarter.
And we continue to forecast fiscal 2023 total revenue of $147 million to $155 million, which would represent full year organic growth of 13% at the midpoint of the guidance range.
Likewise, we expect a successive step up in EBITDA margin dollar performance starting in our fiscal second quarter as our supply chain mitigation program begins to produce progressive benefits.
As a result, we continue to forecast full year adjusted EBITDA that should fall within a range of 5% to 6% of full year revenue.
So in closing our fiscal 2023 first quarter was extremely challenging as it has been for most public companies that have reported this period.
That said our supply chain mitigation program offers a clear pathway criteria to navigate this difficult period and we are very pleased with our execution of this program.
Additionally, we believe the sustained high level of market demand validates our platform centric strategy and represents the potential for significant shareholder value as outlined by our vision 2027 operating model.
So with that we'll conclude our prepared remarks, and we'd be delighted to respond to your questions and comments.
Operator, do we have any questions at this time.
Okay, ladies and gentlemen, the floor is now open for questions I'll remind you. If you have questions or comments. Please press star one on your phone at this time, we ask that while posing your question. Please pickup your handset it's listening on speaker phone to provide optimal sound quality. Please hold while we pull for additional questions. We do have some participants already.
In the Q.
So I will join them in at this time.
Our first participant our first questioner is Mike Latimore from Northland capital.
Sir the floor is yours.
Hi, I'm sorry I'm.
I'm sorry, this is Mike <unk> from da Davidson.
Yes, Hey, hi, it's it's micro lithium Davidson, thank you and good afternoon.
Some of the products and sensors that were delayed.
Or were not shipped at the right time I'm, just curious with sort of this there are you under.
Deadlines and those contracts had an investor day.
Hum penalties, if you don't deliver on time or you have to go back to the customer and ask for any kind of changes.
Initial contracts.
Mike This is Joe Thanks for the question and the answer is.
No.
There are certain instances, where we may have specific delivery dates but.
In this particular period, we don't have any risks of that nature and regardless, what the kinds of issues that we're facing are.
Being faced by virtually every participant in the market right now and so all of our customers are extending on substantial latitude. So as I said in my remarks, all of our orders are firm orders in some cases, there may be some delay in terms of when theyre going to be shipped but we will ship all.
The product we have not had any orders canceled and there arent any penalties that we would be responsible for.
Okay great.
My other question is about.
The infrastructure Bill past couple of quarters ago.
I'm curious.
Have you seen any customers with money that has been from that bill or you have any feel for when you might start to see some new projects.
With funding from that build directly hit the.
The RP market.
Sure, Yes, thanks again, Mike.
So as I mentioned in the call that the infrastructure Bill that I think youre, referring to is the infrastructure investment and jobs Act, which was signed in November 15th last year at.
At the time that was signed we.
<unk> told everyone that they shouldnt expect any funds to begin flowing from the IHA a down to the state and local level until the next fiscal year for the respective local entity.
We're just starting to see.
State and local jurisdictions begin their new fiscal year in most cases that new fiscal year. We will start on October one of this year and so we would expect that formula funding will begin to show up in their budgets at that point in time.
Formula funding by the way can get mixed in with other funding so its difficult in some instances to know precisely what the underlying source of the funding is.
The other form of funding is going to come in the form of grants and as I also mentioned.
Grant funding is being doled out in a series of tranches. The first tranche is associated with U S Department of transportation Safe streets for all initiatives and there is currently a call for proposals right now the call for those proposals are the window is going to close on September 15, and we expect.
That there'll be approximately three to six month period for various grant applications to be evaluated for money to be dispersed through those grants. So the answer to your question is that.
Don't believe anybody.
In the Ics market has seen any.
<unk> from the Iga a show up at this point, but we do expect to see that start to happen in the fall and we expect to see it accelerate as we move into the next calendar year and by the way as I also mentioned I called out to make sure that nobody mystic is that as a vendor we're not able.
To submit a grant application ourselves we have to do that in cooperation with the state and local agency or in some instances with a public university that is authorized.
Submit grant applications.
And as I said, we've provided pricing to several state and local agencies as well as universities to.
To support their grant applications and so we would certainly expect that we'll benefit from the grant applications as they are awarded later this year.
Great. Thanks, so much for that color I'll pass it along.
Thanks, Mike.
Our next question comes from Mike Latimore from Northland.
Sir the floor is yours.
Okay.
So I guess just on the EBIT guidance for the year year Youre reiterating your EBIT guidance for the year.
Ill start off with a little bit lower first quarter I think you are talking about.
40% gross margin sort of exiting the year in hardware announced 45, so should we think of that.
Youre, making up the difference here just on some opex savings.
That's correct as we've been <unk> the G&A should be flat this year as it has been in this last quarter over quarter.
We should see some pick up there and then the.
The margin will be a reflection of how.
Passed we can get the new circuit cards into product and shipped to the customer. So I think the combination of both of those gives us the confidence to keep the EBITDA guidance, where it's at.
Got it and.
Yeah.
Should we think about reaching positive EBITDA in <unk>.
Second or third quarter.
Sure so definitely by the third quarter, our plan is to try and get there by the second quarter, but it's going to be a function of the flow through of these expensive.
The components that we bought.
At the tail end of the first quarter. So that will have some but maybe not all of that will filter through to the second quarter. So I think.
Our plan is to try and get there, but we'll have to see how the products shipments.
Yes.
And then.
Alright.
A J a.
Do you have a sense of.
How much.
Yes.
The budgets of your customers will expand because of this it looks like a.
Increase a 20% increase of 50% in any sort of way to quantify how much more resources. Your customers will have for your types of products.
Yes, Mark that's a great question. So the formula to funding is called Formula funding for a reason.
<unk>.
Basically the money gets allocated based on a number of predetermined criteria, which would be alright.
GDP.
Local jurisdiction.
Revenue that flows to the federal government and then it comes back on a percentage basis.
And that.
Overall population the number of road miles among other factors and so given those <unk>.
Writing yet as you might expect.
California, Texas, and Florida are expected to receive the largest share of the formula funding under the JA.
That being said those states also have the largest transportation budget to begin with.
They are smaller states on an absolute basis will receive less but since their budget is less it may on a percentage basis have a larger impact and so you need to really look at it state by state based on the specific specific formula and then also relative to what the current funding level is.
And each of those states in order to understand what the uplift is going to be but that being said I think most <unk>.
<unk> directors of that various state departments of transportation are expecting that over the approximate five year funding window.
<unk> increased our total funding by as much as 20% to 40% now just to be clear the Iga adds a lot of components to it a lot of it is actually directed towards things that are right in <unk> wheelhouse, but there are certainly some funding.
It's going to go to like brick and mortar construction type projects, which would have only a peripheral benefit to <unk>, but the bottom line is this is a huge infusion.
Funding and we expect it to last for a substantial period of time and we're doing everything that we can to maximize our share of that one two trillion dollars in federal funding.
Got it okay.
Great and then on the Virginia deal.
You talked about it I think.
Is it 20 million initially could go to 70, so I guess, just starting with the $20 million is that how much of that is sort of incremental to what you're already doing there.
And then what's the catalyst to get you to that 70 level.
And I guess third would just be how much of how much of your kind of.
Software and software with services involved here.
Yes, I'll really great question so.
The teacher.
Program.
Includes.
Some activity related to the Commonwealth <unk> system, which I think youre getting at we already hold that contract and so by winning the key trip.
Contract, we preserve the work we're already doing that.
We are already doing for the Commonwealth.
I would guess it probably.
To be totally transparent the majority of the $20 million.
As you know.
<unk> replacement revenue because we currently are generating meaningful amount of revenue.
From the Commonwealth related to <unk>.
<unk> program, but I would say that the.
Potential additional $50 million that most of that and thats over.
A five year period, but I would say that that represents upside.
Or that would be incremental new revenue.
So what additional services would you be providing in that $50 million.
So this is a fantastic contract.
As I've mentioned on <unk>.
Prior calls.
Being that.
Due to a variety of factors, including the general migration.
All state agency activities to the cloud, including infrastructure management activities to the cloud and then also related cyber security issues that virtually every state.
Governors office is mandating that the states CIO needs to be involved in the selection of the evaluation and selection and even management of the technologies for all the various departments, including the transportation Department.
So what that means in the case of Virginia is that.
Date CIO office was very involved in this particular contract evaluation process.
We went through and to be honest it took a lot longer to win this contract and we would expect that because of that after the CIO involvement in the contract evaluation process, but the upside to it is this is the only contract related to.
Department of transportation activities in Virginia, that's authorized by the CIO office.
And that also is authorized by the Federal Highway administration.
And as a result, it gives us a wide hunting license to.
To pursue a huge range of technology related activities across the Commonwealth.
So I'm not going to go into the specific details, but we are extremely excited to hold this contract no. Other vendor has a similar contract to date and we expect to see similar contracts being awarded by other states going forward.
Alright.
It will be good reference accounts for sure.
We have a fantastic reference account and this is a really important contract as we've talked about in the past we've been very focused on ensuring that all of our technology meets the requirements of the CIO office is a various states. Because this is a phenomenon that we're seeing happening across the country. This is the first major contract.
It's tight and we're extremely excited to want it.
That's great.
The Disney any of the Iga funding helped us or is that is independent of that.
No. It's a great question, so as I mentioned.
This contract is federalized.
Meaning and not very many contracts are meaning that it was not only approved by the Virginia Department of transportation and that Commonwealth CIO office, but it was also approved by the FH waa, meaning that federal funding can flow directly from the U S Department of transportation or <unk> through this contract <unk>.
<unk> performed various activities.
It does mean that we are likely to receive Iga a funding through this contract because it is federalized, but it's not explicitly called out in the contract.
Sure sure.
Great and then just last on the price increases.
So can you just remind me.
I think you had one already and youre going to do another one.
Can you just talk a little bit about which products are getting a price increase when they should hit revenues and gross margin.
Yes for sure. So the first price increase was across the board, 10% increase on all of our vantage products.
As I mentioned, there is a delay between quote that.
Preparation of our submission of a quote and the actual fulfillment of the order and so we're only beginning right now to see any impact from that 10% across the board price increase that went into effect on January one.
We were pleasantly surprised.
We didn't see a lot of pushback.
To the first price increase and I think it's due to the fact that our products are so highly differentiated from a future performance perspective that we've always had a premium price in the market, but we were able especially under these circumstances.
Take that additional price increase without any real customer pushback and.
In light of the current supply chain challenges and our customers are well aware of it and considering the strength of our market position, we feel that we have the latitude to take an additional price increase to cover.
Continued supply chain cost.
This second price increase would go into effect on October one so it's 10 months after the FERC.
Unlike the first of all it's not going to be across the board.
We're going to take.
Potentially more than 10% increase on some components and then perhaps probably less on others, but it should average out to about another 10%.
Increased across the portfolio, obviously, we're not going to get into specifics about which components, where we're going to increase most at this point, but I will say that the additional price increases go into effect on October one.
Got it.
And then I guess just last one for me.
<unk> agree.
10% I think you said.
And I think the goal is to grow that one that the two times overall company growth rate or can you can you just remind us on kind of what the goal is there and what's the prospects already getting there this year yes.
Yeah, Doug you talked about that sure yes. So.
Yes, your memory is good thats right.
We're expecting <unk> to grow at one five to at least two times, what our normal total revenue growth rate is and as Joe alluded to in his comments in.
And our service bookings the majority of those bookings in the service line, where all are so.
We're seeing the backlog build and the bookings come in to be able to support that.
As you probably know because of the software piece of day or that takes a while to bleed in because that's generally you get 160. It generally speaking when you sign that contract and get it going so it's going to take a while for it to ramp.
That's still our expectation to get north of 30% to 35% in the next couple of years and Mike you May recall that I noted in my comments that the 14% growth.
Included.
Proportionally higher quote on our SaaS product lines and less growth on our managed services.
<unk> line and that was due to timing, we've got big some big managed services contracts and so there can be some timing impacts in that drag dragged down the total rate of growth for our annual recurring revenue, but our software, which isn't subject to those kind of big timing.
Effects.
Very very healthy for the period.
Okay got it.
Thank you.
Good luck this year.
Yes.
Okay.
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