Q3 2023 Iteris Inc Earnings Call
[music].
Good afternoon, ladies and gentlemen, and thank you for your patience that conference will begin shortly once again. Thank you for your patience Your conference will begin shortly.
[music].
Good day and welcome to the eye terrorists fiscal third quarter 2023 financial results Conference call.
At this time, all participants have been placed on a listen only mode and we will open the floor for your questions and comments after the presentation.
Please note this event is being recorded.
I'd now like to tell me to turn the conference over to Todd Curly of M. K R. Investor Relations. Please go ahead.
Thank you operator, good afternoon, everyone and thank you for participating in today's conference call to discuss I terraces financial results for its fiscal 2023 third quarter ended December 31 2022, joining.
Joining us today are terrorists as president and CEO , Mr. Joe <unk> and the company's CFO Mr. Doug grows.
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 with during the course of this call. We may make forward looking statements regarding future events or the future performance of the company, which statements made on based on current information are subject to change and are not guarantees of future performance.
Terrorists is not undertaking an obligation to provide updates to these forward looking statements in the future.
Actual results may differ materially 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 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 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 a terrorist dot com.
Now I'd like to turn the call over to <unk>, President and CEO , Mr. Joe for sure Joe. Please proceed.
Super Thank you Todd and good afternoon to everyone.
I appreciate you joining us today.
Before we begin our regular earnings commentary I wanted to make some remarks about today's announcement that Kerry shiba will be joining <unk> terrorists as SVP and Chief Financial Officer effective February three 2023.
Cary brings significant highly relevant experience that we believe will be particularly valuable with vitaros, having achieved a critical inflection point and now poised for its next stage of growth.
I look forward to carry joining our team tomorrow and working with them to execute our business strategy and of course, the increase shareholder value.
Unfortunately with carries a revival will be saying goodbye to Doug Groves.
Doug has made a huge contribution that tariffs over the past three years, which have been extremely challenging due to unanticipated global events largely outside our control.
And I cannot imagine a better partner than Doug to navigate the complexities of COVID-19, and the associated global supply chain crisis.
To ensure an orderly transition Doug is committed to serve as a senior advisor for four months, which will allow him to contribute to the preparation of our 10-K and other critical projects.
Of course, I wish them, the very best in his future endeavors.
Now, let's turn our attention to our third quarter results.
For the fiscal 2023 third quarter <unk> reported record total revenue of $40 7 million, representing a 27% increase year over year.
The growth was due to strong demand for our products and services and the progress of our supply chain improvement program, which began to normalize the underlying economics of our vantage sensor product lines.
More specifically our product gross margins improved 2640 basis points on a sequential basis as we began shipping products with the alternative circuit boards that were released to production in our second quarter.
In a few minutes I'll provide more color on our supply chain initiatives.
Despite concerns about a potential slowdown in the broader economy customer adoption is a clear mobility platform remains very positive in the third quarter. We reported strong total net bookings of $41 1 million, representing a slight increase over the prior year.
We were pleased with the result, given the combination of an unusual prior period comparison.
And the impact of seasonal holidays, which tend to cause procurement delays.
This is the fifth quarter in a row that we've reported bookings of more than $40 million.
Although not included in our third quarter bookings results I am pleased to share that <unk> received a notice of intent to award a multi year multi element contract from a public agency in southern California.
We do not normally comment on notices to award. However, This award is unique for two reasons.
First it includes a healthy mix of both products and services demonstrating the progress of our cross selling efforts and second we expect at least a portion of this project to be funded by the infrastructure investment and jobs Act, making this our first notable award to include Iga funding.
It is likely to take a couple of quarters before this opportunity progresses from notice of award to signed contracts at which time, we will provide additional information.
Due to our sustained strong sales pipeline velocity and total net bookings. We ended the December 31 period with a record total ending backlog of $112 2 million, representing a 22% increase year over year.
As always our reported total net bookings and ending backlog figures reflect firm customer orders with.
The total value of customer contracts, which varies from quarter to quarter averages on a historical basis about 200% of our total ending backlog.
In the fiscal 2023 third quarter product revenue increased 44% year over year to a record $22 9 million demonstrating continued market share gains.
We believe our sensor portfolio continues to take market share due to excellent sales execution and superior product performance and.
And in the third quarter, we extended our product performance lead with further enhancements to our AI based object classification detection systems scalability and security framework.
Due to our strong market position, we continue to win virtually every large competitive we source detection sensor fixed travel time sensor and cellular CV to ask sensor initiatives across the country.
For example in the third quarter.
Our sensors were selected for the following representatives smart mobility initiatives.
Full high definition and AI based detection for phase two.
Could shallow valley Smart region program with an order value of $4 5 million. This is likely the largest single deployment of this form of detection technology in the nation to date.
Cellular Vida acts or CV to act sensors to extend coverage on the I four between Tampa and Orlando as part of the Florida Regional advanced mobility elements are frame program. This is another in a series of Vitaros sensor purchases related to the eye for frame program.
Travel time, and CV to act sensors there'll be deployed as part of and I 275 design build project near Tampa, Florida.
Video based sensors for intersection detection took place in ground wired loops throughout the city of Meridian, Mississippi and.
And video based sensors for intersection detection to replace the prior implementation of a competitor's video sensors across the trap of quarter in Richmond, Virginia.
These represented third quarter orders demonstrate <unk> ability as we've discussed previously to successfully execute on the following five dimensions to expand our market footprint.
First we are executing on our strategy to maximize our win rate of large scale modernization initiatives like C bag that drive region wide standardization of our sensor portfolio.
Second.
We are leveraging our leadership in intersection detection to penetrate adjacent categories, including the emerging CV to act category as we did with the IPO airframe and <unk> 75 deals in Florida.
Third we're attaching annual recurring revenue to each new vantage apex systems and.
Spectra <unk> sensor as occurred with the C bag and Florida orders.
Fourth we're capturing a disproportionate share of migration revenue with customers similar to meridian continue to replace legacy in ground detection with advanced sensors and fifth we continue to displace above ground detection vendors such as we did in Richmond due to our superior product performance total cost of ownership in <unk>.
Customer success model.
Since our last earnings call, we released to production for more alternative circuit boards that will enable further reductions in our aftermarket component purchases better optimization of our component inventory.
Additional improvements in our manufacturing linearity.
And enhanced purchasing power with traditional supply sources.
This brings us to a total of six alternative circuit boards released to production from the inception of our supply chain improvement program.
In a moment, Doug will comment on the implications of these new alternative circuit boards on our fourth quarter purchase price variance and product gross margins going forward.
Now I want to review the performance of our service lines of business fiscal.
Fiscal 2023 third quarter total service revenue was $17 8 million, representing a 10, 5% increase year over year.
In addition, we recorded $16 1 million in net service bookings of which 41% will be recognized in the future is annual recurring revenue.
Notable new customer agreements include a combined $1 $8 million in orders to extend our managed services activities for the Virginia Department of transportation.
A $1 $3 million subscription agreement for clear data from the Utah Department of transportation.
The $1 3 million task order for the second phase of a project to develop and support of Smart County plan for the San Bernardino County Transportation Authority.
$1 million task order from the Florida Department of Transportation District, seven for arterial performance monitoring and management activities.
A $1 million combine a series of.
Words worth a combined $1 million.
Four.
Our subscription agreement for clear guide, including clear guide SPM from various agencies in the U S and Canada and a clear data subscription for a non disclosed value from a confidential commercial customer.
Additionally, we saw an acceleration in the attach rate of connected services, our annual recurring revenue to our infrastructure sensors.
At this time, we have over 3000 intersections in 2000, and travel time and CV to ask sensors, which are either connected or in process of being connected to our clear mobility cloud.
To sustained market share growth, we continued in the third quarter to enhance our software as a service data as a service and cloud enabled managed service solutions. For example, we introduced a new safety related data set that customers can access on a subscription basis through our clear data application programming interface.
And we integrated this new data set into our mobility intelligence software clear guide to address new vision zero and safe streets for all use cases.
Given the strength of our value proposition. We also began to introduce strategic price increases on certain of our software as a service offers.
So in summary, we are pleased with our third quarter record total revenue and record total ending backlog as well as the progress we made on our supply chain improvement program and the associated sequential improvement in cost of goods sold and adjusted EBITDA.
With various financial metrics trending in a favorable direction, we believe <unk> achieved an important financial inflection point in the third quarter consistent with our prior expectations.
On that note I'd like to turn the call over to Doug to provide more color on our third quarter financials, after which I will further discuss our fourth quarter expectations. Thanks, 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.
Hey.
As Joe mentioned and as we expected the third quarter was an inflection point in our hardware business as we began to see the benefits of our supply chain management improvement plan really take hold.
We continue to face supply chain challenges on certain components again, this quarter, but the impacts on the top and bottom line.
Not as severe as the last several quarters to that point, we only spent approximately 970000 inventory purchases from the secondary markets I E brokers, which was down from $8 4 million in Q2.
The impact from previously purchased broker parts in prior quarters was an increase in cost of goods sold of $3 9 million in this quarter, but it was down significantly from $7 8 million in the prior quarter.
From a revenue standpoint, the amount of unshipped backlog decreased from 900000 at the end of Q2 to 100000 in Q3, the orders that didn't ship in the current quarter are expected to ship in Q4.
As Joe mentioned, our ongoing supply chain initiatives are improving the situation, which is why we expect the fourth quarter hardware gross margins to be back to the low 40% range compared to only 26% in the first three quarters of this year.
And for our products and services continues to be strong as evidenced by our record backlog of $112 2 million, which was up 22% over the prior year third quarter.
Now I'll move on to the details of the third quarter results total revenue for the fiscal 2023 third quarter increased 27, 1% to $40 7 million compared to $32 million in the same quarter a year ago, our gross margins in the third quarter decreased 560 basis points to 29, 1% compared to 34, 7% from the <unk>.
Same quarter last year adjusting for the net increase in component costs of approximately $2 4 million quarter over quarter. The gross margins would have been 35% or up 30 basis points compared to the same prior year quarter.
Turning to our revenue mix the product revenues increased 44% to $22 9 million compared to $15 9 million in the same quarter last year. This strong demand underscores our market leading position in the sensor market and as Joe noted we continued to win on all large sensor deals.
Product gross margins decreased 440 basis points and were 31% compared to 34, 5% for the same quarter last year. However, the product gross margins did increase 2640 basis points over the second quarter as our supply chain improvement program continued to make great progress and we continue to.
Deplete the high cost inventory on our balance sheet from previous quarters.
Our service revenues increased 10, 5% to $17 8 million compared to $16 1 million in the prior year quarter, primarily driven by stronger software and managed services revenue in the third quarter, 23% of total revenue was annual recurring revenue. This was down from prior quarters as the revenue mix change with product revenue outpacing that.
Services revenue and as a reminder, our annual recurring revenues are comprised of our software and managed services revenues.
Service gross margins decreased 700 basis points to 27, 8% compared to 34, 8% from the same quarter last year.
This was primarily due to a change in our licensing fee structure from third party data providers on our SaaS platforms and more than usual subcontractor content on our professional services revenue, which tends to be at very low margins.
Operating expenses in the third quarter were up 900000 $14 million in the current quarter General and administrative expenses were down 400000, or seven 4%. While R&D was up 100000, driven primarily by the circuit board redesign efforts sales and marketing cost increased $1 2 million, which was related to increase.
As in our sales and product support head count to support the higher sales this year and going forward.
We reported a GAAP operating loss in the third quarter of $2 2 million compared with a GAAP operating loss of $2 million in the same quarter a year ago. The operating loss was solely attributable to the higher component costs as previously mentioned.
With progress being made on the circuit Board Redesigns, we're anticipating spending less than 600000 broker market components in Q4, which was down 38% when compared to Q3 the.
The GAAP net loss from continuing operations in the third quarter was $2 million or a loss of <unk> <unk> per share, which compares to a net loss from continuing operations of $2 4 million or <unk> <unk> per share in the same quarter a year ago.
<unk> EBITDA for the third quarter was a loss of 400000 or 1% of revenue, which compares to EBITDA of approximately 100000 or 3% 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 issues as previously noted.
Within supply chain improvement plans outlined by Joe We anticipate a continued improvement in our supply chain position in the coming quarters. Since it will take additional time for the redesign of the key circuit boards to ship through to our customers with six alternatives circuit boards released to production inception to date. This has largely mitigated our need to procure components and the broker markets as previously.
Mentioned.
These key redesign activity should return the product gross margins to about 40% in the fourth quarter of this year and improved progressively as the hardware sales volumes increase and additional new circuit boards are introduced.
Turning to liquidity and capital resources cash was $10 2 million at the end of the third quarter and working capital was approximately $24 7 million to $2 2 million increase in cash from the second quarter was a result of the improved profitability due to the lower component costs.
With the expectation that fourth quarter parts purchased in the broker market will continue to decrease this will further improve our working capital and we would expect our ending cash balance this fiscal year to be in the range of $12 million to $14 million as our profitability improves continues to improve and improve and our circuit Board redesign has continued to progress last.
We spent 134000 in purchases of property and equipment in the third quarter and we still expect the full year capex to be less than 1% of revenues, reflecting our asset light business model.
In summary, we continue to be laser focused on our supply chain challenges in our multi point supply chain recovery plan is progressing well, which will return our vantage sensor gross margins back to historical levels.
Lastly, as Joe mentioned at the beginning of the call. This will be my last earnings call with <unk> tariffs.
I want to thank all of our investors and sell side analysts for all the support I've received over the last three years I certainly hope by cross paths with many of you in the future I yet to be finalized next endeavor with that I will turn the call back over to Joe Joe Great. Thank you Doug.
The smart mobility infrastructure management market represents significant long term opportunities due to favorable secular trends and historic new investment from the J a.
And despite the challenges of Covid and the subsequent supply chain constraints, we've continued to strengthen <unk> position in this dynamic market over the last several quarters.
Therefore, given the strength of our position in this large dynamic market, we remain extremely optimistic about the growth opportunity in front of eye terrorists despite potential challenges in the broader economy.
To realize this opportunity I tariffs will continue to deliver on an aggressive solutions roadmap that includes the following fourth quarter planned releases.
Our new connected vehicle safety alert for our spectrum CV sensor that is targeted at both public and private sector markets.
New safety features for our vantage apex sensors will further enhance our safe streets for all value proposition.
New scale ability features for vantage apacs that will enable us to better price differentiate based on certain intersection characteristics.
New safety analytics and connected vehicle reporting features for clear guide our mobility intelligence application and new features to enhance the connected vehicle based transit signal priority solution that we are scheduled to pilot in Florida. This spring.
We believe these new releases will drive further adoption of our clear mobility platform enhance the cross sell of our clear mobility offerings and improve the monetization of our mobility datasets.
In addition, we will continue to execute against our supply chain improvement program with the release to production of four more alternative circuit boards in the fourth quarter.
Upon the release of those boards, we will have achieved all of the objectives of the fiscal 2023 supply chain improvement program that we reviewed on our June one 2022 earnings call.
More importantly, the release of these boards will further reduce our dependence on broker purchase parts, which as Doug mentioned, we estimate will be less than 600000 or fourth quarter.
Given these dynamics for the fiscal 2023 fourth quarter, we anticipate revenue to increase approximately 18% year over year EBIT margins to improve more than 900 basis points on a sequential basis and net cash flow to be in the range of $1 5 million to $3 5 million.
As a result, we are raising the low end of our full year fiscal 2023 revenue guidance with the new range being 152 million to $155 million.
We are lowering the high end of our full year adjusted EBITDA guidance with the new range being negative 2% to negative 3% our full year fiscal 2023 revenue, reflecting the impact of global supply chain constraints on our fiscal 2023 year to date results.
In closing the last several quarters have been difficult due to COVID-19 and subsequent global supply chain constraints. However, we continue to execute against our platform centric business strategy and extended our leadership position in the smart mobility infrastructure management market.
Additionally, our global supply chain improvement program is not only generating significant near term benefits, but lasting value for their company.
Therefore, we believe by terrorists remains poised to create significant shareholder value as outlined by our vision 2027 operating plan.
With that well.
Be delighted to respond to any questions or comments.
Operator are there any questions from our covering analysts.
Absolutely at this time, we'll be conducting a question and answer session. If you have any questions or comments. Please press star one on your phone at this time we.
We do ask that while posing a question. Please pickup your handset if you're listening on speaker phone to provide optimum sound quality.
Once again, if you have any questions or comments. Please press star one on your phone.
Your first question is coming from Jeff Van <unk> from B Riley Your line is live.
Hi, everyone and let me first say, Doug, we'll Miss you and wish you the best in whatever you're doing going forward.
Thank you Jeff I appreciate it.
My first question for you guys is really sort of around the service revenue growth I think it came in around 10% just wondering what your expectations are for growth in that segment of the business over the next few quarters, what do you think that should be.
And.
Maybe just talk about some of the drivers.
That could potentially accelerate that growth rate.
And then sort of I apologize. This is kind of a multipart question here, but I know you said service was down I think you said services.
Down 700 bps in terms of margin and then you had the change in the license fee structure.
I think on SaaS and more sub content included.
So maybe you can touch a little bit on that.
And then I think you did say how much was recurring in Q3, but wondering how much of that was actual SaaS and then what are your thoughts on.
Getting kind of the I guess going forward, what the level of concentration.
Recurring.
Is that you expect over the next few quarters apologize theres a lot in there, but it is kind of a wall.
I think.
I'll help you said right.
Feel free to pipe in if we missed anything so I'll start off and then let Doug add to it. So so yes, I think that the first thing you noted is that service revenue at 10, 5% was not at the same rate of growth that we saw with the hardware coming in at 44%.
And.
So to provide some context there.
There is obviously just a ton of market demand for our traditional detection sensors as well as the new forms of sensors that we've introduced over the last few quarters and so.
Yes that is what drove the tremendous growth and we expect very strong continued sensor growth.
Going forward.
With respect to the service revenue remember that's made up of a couple of different components. Both professional services and then annual recurring revenue and to your point, Jeff annual recurring revenues further made up of two parts managed services and SaaS.
During the third quarter.
Our professional services revenue came in.
Relatively soft not due to a lack of demand, but this is historically a difficult quarter for us most of our professional services revenue is directly tied to the number of billable hours that we have in the quarter and due to the holidays. We have a lot of employees that are taking.
PTO and therefore, theyre not billing too.
Various consulting projects and so thats always throttled, our professional services in the December 31 period and continue to have an impact in the current quarter.
Our annual recurring revenue and specifically our SaaS revenue grew at substantially higher rates in our professional services revenue.
Yes.
The with respect to Q4, I would expect that our services revenue growth will rebound.
We will come in at a higher rate than the $10 five that we had in the third quarter.
With respect to that.
Decrease in the gross margins on the services revenue index reference to that new contracts that we have in place with some of our data providers over the long term. These new agreements are actually a good thing, but in the short term. It did have a negative impact on our gross margins essentially.
Prior structure that we had with our various suppliers was that we were paying.
Essentially I think an incremental fee on.
Each customer deployment for the associated data that we were processing for that particular customer and so our costs were.
For the data, we're continuing to grow.
In relation to the amount of SaaS.
SaaS and data as a service revenue from our various customers.
We renegotiated those contracts. So we basically have an all you can eat type of licensing arrangement with our various data providers as you would expect in order to get that all you can eat agreement we needed to raise the floor. So we now currently have a higher floor than we had that as our <unk>.
Revenue continues to increase we won't have to pay any incremental royalty.
For that data going forward so.
Over the long term this is going to actually benefit our gross margins, but until we reach that threshold you will see a little bit of that impact on our gross margin line.
The bigger impact was actually due to the.
The high percent of sub contract revenue like the professional services revenue that we did recognize in the period a substantial portion of it was sub contractor base and we don't get the same kind of gross margin on subcontractor revenue that we do on direct labor revenue.
Let me stop there and see if Doug do you have anything you want to add any of those points.
I think you hit them all I was writing them down as Jeff was rattling them off but Jeff did we get them all.
No no no you did you guys did great.
Okay I appreciate that just.
I just had sort of a follow up along those and I know you said long term benefit short term.
And a little bit a little bit of pain in the margin but.
I guess sort of any color you can give us on where that threshold is that we will have you in flat too.
<unk>.
Getting that long term benefit do you think thats a quarter out three quarters out.
Any color or metrics, you can give us around yes.
For us to give you that that the.
We have multiple.
Data suppliers.
And that's because different data suppliers are better at different things than others.
And.
As a result of that there's kind of an implication for.
That attach rate that we see.
On certain software products and certain data as a service products, which will impact our ability to hit that critical threshold for these various contracts each of which have different terms.
So the actual makeup of the orders that we see over the next couple of quarters will impact how quickly we would reach that inflection point.
It's a very complicated optimization problem, it's difficult at this point for us to give you know a lot of guidance, but I would generally say that this is not like going to take years to get there I think that it is probably.
On balance a matter of quarters.
Which point, we should start to hit that inflection point.
Okay got it thank you.
Again.
With several hundred basis point decrease again was.
I believe more attributable to the subcontractor content in the professional services revenue than these new agreements I guess I just want to make sure that you understand that.
Okay. That's helpful.
And then if we could shift for a minute I know you mentioned the Socal project that is soon to be a contract.
Any sense, you can give us kind of the size of that project for you in dollars and the timeframe when you can realize that.
Yeah. So we don't want to go she ate against ourselves by making any sort of specific.
Specific comments about any of the financial aspects of the contract, but I would say that this is a relatively large contract for us.
Okay.
Other than that upon need to leave it at that and then further with respect to the timeline.
As I said, we were anticipating that it would probably be a couple of quarters I probably about six months before this progresses from award to contract, but I have to say like.
I always get in trouble when I put out a timeline because it's amazing how long it can take.
In certain circumstances for awards to convert contract reaction you have seen it be in excess of a year, but.
This seems to be moving along pretty quickly and I would anticipate approximately six months.
Okay. That's helpful.
<unk>.
And I guess I'll also say welcome aboard to carry and I guess, he's joined Tommaso take a while for them to get up to speed.
Yes, but I know you'll be interested in meeting all of our analysts and.
And any interested investors.
Well, so I would encourage you and any any investors who would like the opportunity to speak with them to just reach out to Todd or me and we will make sure that.
We make those introductions happen okay.
Okay terrific and then just one more if you don't mind.
Hugh.
You've got a couple more months here to your fiscal year, you got a pretty solid backlog.
Backlog continues to grow.
And I'm not asking you to guide here, but any early thoughts on yes, you are.
Yeah.
Yes.
Yes.
And any well I guess, what I'm trying to get at what I'm trying to get at and now this really isn't quantitative guidance I'm just trying to get a sense. If you think of that.
You can sustain sort of an above market revenue growth rate in fiscal 'twenty four or.
We have a little bit of a little bit of kind of rebound or a pent up effect I guess, you would say at this moment.
Tom.
How are you thinking about that how are you sort of thinking about revenue growth normalizing.
Over the next several quarters.
Other words, what's your guidance so.
As you know, we really tried to make a practice because were pretty small we are a small public company for sure right in.
So small variances.
Right.
In percentage terms can be.
No.
Sizable right. So we really don't want to get ahead of ourselves in as a normal practice.
On our when we do our fourth quarter earnings will provide full year guidance, but just I think youre basically saying like.
Joe like how.
How strong is the market seem what kind of.
How does your pipeline velocity do.
Do you think that overall, our demand signals are they like.
Like strong or weak are you seeing like a change one way or the other and so to try to answer that kind of a qualitative question.
The environment still seems very positive and I think that Thats true.
Really across the broader sector, but I do feel that our product strategy is really resonating well in the marketplace.
And our sense that we're going to continue to take market share.
I can't say exactly for how long, but obviously, we're going to continue to move the ball forward take a leadership position tried to define the competitive landscape.
And as I said in my remarks on todays call and I've said in the past I think that we've got the most productive channel and in.
In the industry and we'll continue to invest in that improve on it.
Okay, great. Thanks, so much for taking my questions and best of luck.
Thank you.
Thank you. Your next question is coming from Mike Latimore from Northland Capital markets. Your line is live.
Alright, great. Thanks.
And Doug Nice nice working with you best of luck in your new ventures.
Thank you.
I guess just a basic question here from.
From an Opex standpoint should we think about opex and sort of remaining stable here from this point for awhile.
Absolutely I mean.
If you look, particularly at the G&A line, they've done a pretty good job of keeping that really flat.
For quite some time and the <unk>.
Sales and marketing was up a little bit this year, but that was a conscious decision to invest in that part of the organization, bringing on new salespeople and product support people and R&D I think will continue to probably hover around that sort of five to five 5% of revenue. So I think with the increase in the revenue we will start to.
We see some leverage in the P&L with the hardware business now getting back on its feet.
Okay great.
In terms of the roadside unit product category.
Yes, do you have a rough range of what that contributed to the quarter.
That's a good question.
Yes, I would.
Yes, because we don't actually break it out that way, but I would guess it would be.
Okay.
And the range of like even like $2 million to $4 million.
Exactly.
Okay, Yes.
10.
20% of our <unk>.
Sensor revenue.
Alright got it.
And remember we only started talking about that on our debt segment that whole product strategy a year ago December .
This is a very early stage market.
We think that the total.
Addressable market in North America, right, now is probably $30 million to $50 million.
But.
Our expectation I think most people's expectation is it over probably a five.
Your timeframe.
That could look like potential billion dollar Tam.
Yes, yes.
Great and then you talked about winning pretty much all large sensor deals is there sort of a consistent message from these customers as to why they are choosing you as the.
Core sensor itself as a software.
Strategy to get attached to the sensor or something else and any kind of a consistent message.
I think it's really all of the above but the way that people express it as that.
The technology just works.
It addresses.
Their business priorities and that's a function of a lot of things the fact that.
I think that we have unique domain expertise and thats, because we benefit from that.
Traffic engineering capability.
This is part of our DNA because of that.
Our leadership in the consulting sector.
And so understanding how people are.
Operator.
These sensors and what kinds of information they need out of it.
Has allowed us.
Build products that.
Meet the needs of the customers and then.
<unk>.
Supplement that with.
We think the best field support in the industry.
So I think again I mean, just generally people are like Wow. This does exactly what I need, whereas I don't.
See this from other vendors, but there's a lot that goes into that right I mean, it sounds easy, but theres a lot of work on the backend.
Yes.
You talked about sort of the data providers, who use our there are a couple that are just clearly the largest data provider your ecosystem.
Yes, so we've put out some announcements about some of those relationships.
Hi.
For a long time, we've talked about our relationship with your technology is you've had a number of announcements with here.
We both utilize cures map in.
Yes.
Within clear mobility cloud because a lot of the data presented in a map format.
But we also ingest data from here and then also we've recently put out announcements about agreements with Huizhou and <unk>.
We do have agreements with various other parties. Some some of them right now are confidential so I can't comment on those.
But.
We received we get data from multiple.
Third party commercial suppliers and then additionally, because of our relationships with agencies, we have unique access to a lot of agency data like there are certain states, where we have access to virtually all of the states Iot devices.
Ploy.
Like the states entire highway system.
And that's a function of our relationship with the agencies now that's not exclusive arrangement of course like the agencies aren't going to enter into exclusive relationship with anybody about their data because they would view it as either proprietary or a public asset but.
Because of our relationships we're in a unique position, we have know how and the relationships to understand how to get access to that data.
So the answer is we get the data from multiple sources, it's uniquely curated but in terms of the.
Commercial arrangements on April to discuss publicly our primary ones at this point would be here, we go out to Momo.
Yes.
Yep.
Super Thanks, a lot.
Thank you. Thank you.
Your next question is coming from Ryan <unk> from Craig Hallum Capital Group. Your line is live.
Good afternoon, guys just one for us.
And can you maybe alluded to this a little bit earlier, but I want to ask it more directly. So you raised the revenue guidance qualitative commentary all seems quite positive, but yet you lowered the EBITDA.
For the year, so what I guess is causing the additional margin pressure relative to your expectations a couple of months ago.
Well I think it's mostly the cost of developing the alternative circuit board some of which we incurred in the third quarter and some in the fourth and Doug maybe you could explain but we we have a dependency on some third parties to develop some of the prototypes and right some of the firm.
We're and there are a lot of other companies in the same position as we are and so we're seeing the availability of those resources getting really scarce.
No Thats exactly right Joe.
So it's just really the.
Cost to get those additional circuit boards into production.
So.
We're competing with a lot of other companies that are using the same resources.
It's costing us a little bit more than we had anticipated.
And so Ryan that's a temporary issue.
As I said, we expect by the end of the fourth quarter, we will have delivered a release to production all of the.
Alternative circuit boards that we originally identified as critical as part of the supply chain improvement programs. So that'll be behind us, it's not to say that we won't.
To develop alternative circuit boards, but we won't be under the same time pressure.
And that should change that.
The pricing.
Scenario.
Specially when we're asking people to do things quickly in order to meet our time frame.
We are incurring.
Various markups in this environment.
Okay. Thanks, guys.
Thank you. Your next question is coming from Tim Moore from E. F. Hutton Your line is live.
Yes.
Thanks, and congratulations on the strong sales growth in the quarter.
I am curious when you compete for attached.
Software services and the bid.
So those type of negotiations and bidding.
A few extra months longer than less bundled services I'm, just trying to think of.
The training or a higher price point as a bundled package.
Triggers a longer lead time to close the award.
Yeah, Tim it's a extremely good observation.
It.
That's an analysis that we do on.
Virtually every opportunity right I mean, our desires to attach.
Annual recurring revenue of our cloud revenue to every sensor sale every professional services engagement that we have but.
Youre exactly right in some cases, you introduce complexity and it can occasionally slow things down.
There are certain.
Actions that we're taking which you don't want to discuss right now.
We've.
We think we have a pretty smart approach.
Try to.
Thread this needle.
Which we don't want to share.
With competitors.
At this point.
We think that Theres, a way around that I mean, not to say that it's going to go away, but we can get better at that and we're going to start.
Implementing some of these sales techniques.
Actually we are in fact, we are in the process of introducing some of those sales techniques right now that doesn't isn't going to completely eliminate.
The issue, but we do think that we have an interesting way to thread the needle and I would say that the good news on the flipside is that when we're able to attach that recurring revenue right then.
The outcome for us on so many levels are so much better than having just <unk>.
<unk>.
Piece of hardware on a transactional basis and then the next time, we are selling to that customer. It's like another transaction sale right. So to the extent that we're able to.
Attach recurring revenue to these units is going to be great over the long term, which obviously you know but.
But again it can create complexity upfront and we think we have a way to mitigate it.
That's very helpful. I appreciate the color on that.
AI powered.
Anthos apacs offering.
Most of those features now available and activate it for customers since December .
I know it was launched a little over a year ago I'm just.
Trying to maybe wrap my head around the answers apex acceleration.
Sales growth potential.
While the other launches you mentioned earlier on the call is they may be.
Came more momentum.
Is that attracting more customers now that features a market. That's another really astute question. So.
We have.
Three.
For generations actually of sensors.
<unk> and sensors in the market right now we have our edge product, which we're in the middle or end of life ing, but.
Through the December 31 period, we were still selling it.
Our next product.
Which today represents by far the largest portion of our detection product sales and then we have apex infusion.
Which were.
And our industry, which moves pretty slowly because it's very risk adverse.
They were introduced just very recently and.
So at this point I think that we have.
Sold.
Our bookings are apex bookings probably.
Represent.
Maybe.
<unk> thousand 2000 units.
And remember there could be multiple units you're talking about in terms of systems would be hundreds of systems.
A couple of thousand sensors, and yeah, and our biggest deal to date is actually that <unk> deal. The Coachella Valley deal that I just mentioned on today's call that represents I think about 125 to 150 intersections and that will be the largest when that will be the largest deployment in the nation.
Hi definition, and AI based detection, but anyway. The point is it's still we're still in the early innings with respect to that product and then on fusion as we've sold even fewer units of that today.
I want make sure that everybody understands that that was our expectation because we found that this market moves very slowly it took us about three years before our next product really became mainstream in the marketplace and so we're right on track with both our apex and our fusion.
But to your point Tim.
We've sold relatively few apex units.
So far.
Thats helpful. I'm sure. There's more features can activate it the customers like it more than words spreads.
Just my next question.
I know your fiscal year ends.
Next month, and you'll probably give guidance on the call for that call.
When I'm looking at.
Back on this fiscal year and I'm, just trying to ballpark.
In my head.
The headwinds that you're going to be lapping on the cost front. It seems like you had.
Not only the development costs of the circuit boards and you know you had maybe at least 70 basis points.
Drag from our supplemental broker costs.
Were there any other big one off costs that you incurred this fiscal year that probably won't repeat next year.
No I think those are the big ones I mean, if you look at the just the purchase price variance numbers, we've been talking about I mean, the full impact this year's to almost $15 million. So.
That's a big number for a company our size so and the development costs as we work through this will come down because as Joe mentioned the majority of the ones that are really going to drive the continued cost improvement. It will be done this year I mean, there always be circuit board Redesigns as part of just the evolution of.
The supply chain and availability, but.
I think those are the two biggest like one off that wouldn't be recurring next year items.
Thanks, that's really helpful.
And my last question is around your acquisition appetite and I'm just wondering.
Has there been a <unk>.
Improved sellers' willingness to founder owned or family owned.
Businesses lately, maybe as the market turn south between the summer and December or have you guys. Just been so busy with organic growth that you really haven't spent much time reasonably and acquisitions.
Well, yes.
Yes.
Unfortunately, it's.
We've been so busy trying to resolve our own supply chain initiatives, we've been very internally focused on getting that right.
And not only to take management attention.
We have worked through those issues, but we've also consumed a lot of cash and also because of the impact on our profitability we have seen.
Negative impact on our share price so for all those reasons it wasn't.
Practical time for us to be focused on acquisitions, but we do feel like we've achieved critical inflection point and you know our circumstances are going to change and I think we'll be in a much better position to.
First start again to pursue acquisitions.
As we progress through our new fiscal year FY 'twenty four it starts on April one in terms of the overall market.
Conditions.
Would say that we probably don't want to buy a business that has like Finch.
Financially non viable so we probably wouldn't be looking at anything thats, a distressed asset anyway.
With respect to the businesses that are more viable.
I don't like these are it's a very fragmented market made up of a lot of really small companies, which are not necessarily that sophisticated so theyre not a ton of product form of processes that are going on but I would say that the few processes that have occurred and then some of the people that have like kind of.
Sniffers out to see if theres a potential buyer I think they've experienced a lot of reticence.
Given the current market conditions, and so I think that people have decided to just kind of keep their heads down and sort of work through their problems. The same way that we have so I don't think we've lost a lot of deals I would expect that the activity will pick up I'm.
Im not sure exactly when but I think generally in the next six to 12 months, which I think aligns pretty well with our own timeline.
Great well, thanks for that color.
Doug.
With your next endeavor.
Thank you very much them.
Thank you once again, if you have any questions or comments. Please press Star then one on your phone at this time.
Please hold while we poll for questions.
Thank you that concludes our Q&A session I will now hand, the conference back to Joe <unk> for closing remarks. Please go ahead.
Super Thanks, Matt I appreciate it so as always I appreciate everybody's support and your thoughtful questions.
The Investor Relations front I wanted to reiterate we plan to host the first in a series of short Investor updates. This quarter, specifically, we are looking at March.
The first update will focus on various aspects of that I JA, such as a breakdown of budget line items and the status of new programs will be created as a result of the legislation.
Additionally, we'll be participating in various investor outreach events and as always.
Always available to speak with investors to do you have any follow up questions. So please feel free to reach out to us in the meantime, we look forward to updating you again on our continued progress when we report on our fiscal 2023 fourth quarter and our full year results. So with that that concludes today's call. Thank you everyone.
Thank you that concludes today's event you may disconnect at this time and have a wonderful day. Thank you for your participation.