Q1 2025 Iteris Inc Earnings Call

Speaker Change: Okay, and welcome to Iteris fiscal first quarter 2025 conference call.

Operator: At this time, all participants have been placed in 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 would now like to turn the conference over to Jim Byers of MKR Investor Relations. Please go ahead.

Speaker Change: At this time, all participants have been placed on the listen-only mode.

Jim Byers: and we will open the floor for your questions and comments after the presentation. Please note this event is being recorded. I would now like to turn the conference over to Jim Byers of MKR Investor Relations. Please go ahead.

Jim Byers: Thank you, Operator. Good afternoon, everyone, and thank you for participating in today's conference call to discuss Iteris' financial results for its fiscal 2025 first quarter ended June 30, 2024. Joining us today are Iteris's president and CEO, Mr. Joe Bergera, and the company's CFO, Mr. Kerry Shiba. Following their remarks, we'll open the call for questions from the company's covering sell-side analysts. Then we will answer investor questions, if any, that were submitted to the company in advance of the call, per the instructions in our press release dated July 29, 2024.

Jim Byers: Thank you, operator. Good afternoon, everyone, and thank you for participating in today's conference call to discuss Iteris's financial results for its fiscal 2025 first quarter ended June 30, 2024.

Speaker Change: Joining us today are Iteris's president and CEO Mr. Joe Bergera and the company's CFO Mr. Kerry Shiba.

Jim Byers: Following their remarks, we'll open the call for questions from the company's covering sell-side analysts. Then we will answer investor questions, if any, that were submitted to the company in advance of the call, per the instructions in our press release dated July 29, 2024.

Jim Byers: Before we continue, we would like to remind all participants that during this call, we may make forward-looking statements regarding future events or the future performance of the company. These statements are based on current information, are subject to change, and are not guarantees of future performance. Iteris is not undertaking an obligation to provide updates to these forward-looking statements in the future. However, 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.

Speaker Change: Before we continue, we would like to remind all participants that during this call, we may make forward-looking statements regarding future events or the future performance of the company. These statements are based on current information or subject to change and are not guarantees of future performance.

Speaker Change: Iteris is not undertaking an obligation to provide updates to these forward-looking statements in the future.

Speaker Change: 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.

Jim Byers: Iteris refers you to the documents that 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 forward-looking statement. As always, you will find a webcast replay of today's call on the investor section of the company's website at www.iter Now, with that said, I'd like to turn the call over to Iteris' president and CEO, Mr. Joe Bergera.

Speaker Change: Iteris refers you to the documents that the company files from time to time with the SEC.

Speaker Change: 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 forward-looking statements.

Speaker Change: As always you'll find a webcast replay of today's call on the investor section of the company's website at www.iteris.com

Joe Brugera: Now, with that said, I'd like to turn the call over to Iteris's president and CEO , Mr. Joe Brugera.

Joe Bergera: Great. Thank you, Jim, and good afternoon to everyone. I appreciate all of you joining us today. Iteris reported record total revenue of $45.8 million in our fiscal 2025 first quarter, representing an increase of 5% year-over-year. As a reminder, we had an unusually strong prior-year comparison due to the combination of two events that were related to post-COVID recovery. These events were first, the release of a large number of sensor shipments that were delayed as a result of previous supply chain constraints, and second, the achievement of certain milestones for some very large long-term consulting projects in our fiscal 2024 first quarter. Given this unusual prior year comparison, we were particularly pleased with our fiscal 2025 first quarter revenue growth comparison. Customer adoption of the ClearMobility platform remains very strong.

Joe Brugera: Great. Thank you, Jim, and good afternoon to everyone. I appreciate all of you joining us today.

Speaker Change: Iteris reported record total revenue of $45.8 million in our fiscal 2025 first quarter, representing an increase of 5% year-over-year.

Joe Brugera: As a reminder, we had an unusually strong prior year comparison due to the combination of two events that were related to post-COVID recovery.

Joe Brugera: These events were first the release of a large number of sensor shipments that were delayed as a result of previous supply chain constraints, and second, the achievement of certain milestones for some very large long-term consulting projects in our fiscal 2024 first quarter.

Joe Brugera: Given this unusual prior year comparison, we were particularly pleased with our fiscal 2025 first quarter revenue growth comparison.

Joe Brugera: Customer adoption of the ClearMobility platform remains very strong.

Joe Bergera: In our fiscal 2025 first quarter, we reported total net bookings of $48.8 million, resulting in a record trailing six-month total net bookings of $102.1 million, which compares favorably to the $100 million target we set for the first six months of calendar year 2024. On a year-over-year basis, fiscal 2025 first-quarter bookings decreased 8% compared to our second-quarter highest quarterly booking period on record, which included a $15 million four-year SAS order in our fiscal 2024 first quarter.

Joe Brugera: In our fiscal 2025 first quarter, we reported total net bookings of $48.8 million, resulting in record

Joe Brugera: trailing six-month total net bookings of $102.1 million, which compares favorably to the $100 million target we set for the first six months of calendar year 2024.

Joe Brugera: On a year-over-year basis, fiscal 2025 first quarter bookings decreased 8% compared to our second quarter highest quarterly bookings period on record, which included a $15 million four-year SAS order in our fiscal 2024 first quarter.

Joe Bergera: As noted on prior calls, we expect some degree of bookings lumpiness for the next several quarters due to the timing of various large sales opportunities, such as the one recorded in our fiscal 2024 first quarter. Reflective of our sustained strong bookings results, we ended the June 30, 2024 period with a record total ending backlog of $126.8 million, representing a 2% increase year-over-year. As always, our ending backlog and net bookings figures reflect firm customer orders rather than total contract value.

Joe Brugera: As noted on prior calls, we expect some degree of bookings lumpiness for the next several quarters due to the timing of various large sales opportunities, such as the one recorded in our fiscal 2024 first quarter.

Joe Brugera: Reflective of our sustained strong bookings results, we ended the June 30, 2024 period with a record total ending backlog of $126.8 million, representing a 2% increase year-over-year.

Joe Brugera: As always, our ending backlog and net bookings figures reflect firm customer orders rather than total contract value.

Joe Bergera: The total value of customer contracts, which varies from quarter to quarter, averages, on a historical basis, about 200% of our total ending backlog. Also keep in mind that our backlog excludes a portion, which of course, varies from period to period, of our sensor bookings since those orders typically convert to shipments within a single quarter. At this point, I'd like to share some details about the performance of our product portfolio. For our sensors and third-party hardware, which we refer to collectively as products, we reported fiscal 2025 first quarter revenue of $24.4 million, representing a 3% increase year-over-year. As a reminder, the year-over-year comparison was very challenging due to the release of sensor backlog, which had accumulated over prior periods as a result of the global supply chain constraints that we experienced in the prior year.

Joe Brugera: The total value of customer contracts, which varies from quarter to quarter, averages on a historical basis about 200% of our total ending backlog. Also keep in mind that our backlog excludes a portion, which of course varies from period to period, of our censor bookings.

Joe Brugera: since those orders typically convert to shed months within a single quarter.

Joe Brugera: At this point I'd like to share some details about the performance of our product portfolio.

Joe Brugera: For our sensors and third-party hardware, which we refer to collectively as products, we reported fiscal 2025 first quarter revenue of $24.4 million, representing a 3% increase year-over-year.

Joe Brugera: As a reminder, the year-over-year comparison was very challenging due to the release of sensor backlog, which had accumulated over prior periods as a result of global supply chain constraints that we experienced in the prior year.

Joe Bergera: During the first quarter, our teams continued to meet critical commercial and product milestones that will drive future growth. These milestones included the launch of our new Vantage head-safe sensor, which is a product resulting from a technical collaboration with Sumitomo Electric Industries that we discussed on our May earnings call. The release to production of our new Vantage Next and Vantage Radius Advanced Connectivity Solutions that will enhance our Vantage Care offer and accelerate our annual recurring revenue attach rate, and the initiation of field testing for our new Vantage Apex Rack Mount Sensors that are scheduled to start shipping in October 2024.

Joe Brugera: During the first quarter, our teams continue to meet critical commercial and product milestones that will drive future growth.

Joe Brugera: These milestones included the launch of our new Vantage head-safe sensor, which is the product resulting from a technical collaboration with Sumitomo Electric Industries that we discussed on our May earnings call.

Joe Brugera: The release to production of our new Vantage Next and Vantage Radius Advanced Connectivity Solutions will enhance our Vantage Care offer and accelerate our annual recurring revenue attach rate.

Joe Brugera: and the initiation of field testing for our new VANTAGE® APEX™ Rack Mount Sensors that are scheduled to start shipping in October 2024.

Joe Bergera: Now I'd like to review the performance of our services portfolio, which includes our various consulting services, managed services, software as a service, and data as a service offerings. We reported record service revenue of $21.4 million in our fiscal 2025 first quarter, representing an 8% increase year-over-year, and that's despite the challenging comparison I mentioned earlier. This growth is attributable to continued strong demand, particularly for our software as a service solution, ClearGuide. We also benefited from further improvements in our internal labor capacity, reflecting the progress of the various initiatives we've discussed on prior calls.

Joe Brugera: Now I'd like to review the performance of our services portfolio, which includes our various consulting services, managed services, software as a service, and data as a service offerings.

Joe Brugera: We reported record service revenue of $21.4 million in our fiscal 2025 first quarter, representing an 8% increase year-over-year, and that's despite the challenging comparison I mentioned earlier.

Joe Brugera: to continued strong demand, particularly for our software-as-a-service solution, ClearGuide.

Joe Brugera: We also benefited from further improvements in our internal labor capacity, reflecting the progress of the various initiatives we've discussed on prior calls.

Joe Bergera: To sustain strong customer adoption of our services portfolio, we continue to introduce important new enhancements to our clear mobility platform. For example, in the first quarter, we introduced a traffic flow data fusion engine, new intersection risk and work zone impact models using applied AI, and web services and database system enhancements.

Joe Brugera: To sustain strong customer adoption of our services portfolio, we continue to introduce important new enhancements to our ClearMobility platform. For example, in the first quarter, we introduced a traffic flow data fusion engine.

Speaker Change: New Intersection Risk and Work Zone Impact Models using Applied AI and Web Services and Database Systems and Hancements who expect to improve the user experience, increase our cross-sell rate, and lower our cost to get sold.

Joe Bergera: We expect to improve the user experience, increase our cross-sell rate, and lower our cost of goods sold. In summary, we're very pleased with our fiscal 2025 first quarter record revenue, our record trailing six-month net bookings, and our record ending backlog. Additionally, we believe Iteris continues to demonstrate significant progress in evolving to a platform-based business model that will produce significant strategic and financial benefits for the company. As a result, we remain very confident in its position to realize progressive improvements in our financial profile over the next several quarters.

Joe Brugera: In summary, we're very pleased with our fiscal 2025 first quarter record revenue, our record trailing six month net bookings and record ending backlog.

Joe Brugera: Additionally, we believe Iteris continues to demonstrate significant progress in evolving to a platform-based business model that will produce significant strategic and financial benefits for the company.

Joe Brugera: As a result, we remain very confident, I terraces position to realize progressive improvements in our financial profile over the next several quarters.

Joe Bergera: And on that note, I'm going to pass the mic to Kerry to provide more color on our first fiscal 2025 first quarter financial results, and then after that, as I typically do, I'll come back to further discuss our expectations for the second quarter and the full year. Thanks, Joe.

Joe Brugera: And on that note, I'm going to pass the mic to Kerry to provide more color on our first, our fiscal 2025 first quarter financial results, and then after that, as I typically do, I'll come back to further discuss our expectations for the second quarter and the full year.

Kerry Shiba: Thanks Joe and good afternoon or evening to everyone. As you review our first quarter results, I want to reiterate Joe's comments regarding prior year comparisons when assessing the overall momentum of the business. The prior year comparisons have been affected by dynamics stemming from prior global supply chain constraints, particularly for sensor shipments, while we also benefited from certain key milestone achievements for some very large consulting projects in the first quarter last year, which we commented on at the time.

Kerry Shiba: Thanks Joe, and good afternoon or evening everyone. As you review our first quarter results, I want to reiterate Joe's comments regarding prior your comparisons when assessing the overall momentum of the business.

Kerry Shiba: The prior year comparisons have been affected by dynamics stemming from prior global supply chain constraints, particularly for sensor shipments.

Kerry Shiba: Well, we also benefited from certain key milestone achievements for some very large consulting projects in the first quarter last year, which we commented on at the time.

Kerry Shiba: As Joe also described, I want to emphasize that our strength in the market continues to be demonstrated by our record bookings level for the six-month trailing period and our record backlog at the end of the first quarter of this year.

Speaker Change: As Joe also described, I want to underscore that our strength in the market continues to be demonstrated by our record bookings level for the six-month trailing period and our record backlog at the end of the first quarter of this year.

Kerry Shiba: Because Joe already addressed revenue results, I will move down the income statement as usual to the gross profit line and provide some underlying details. On a consolidated basis, the fiscal 2025 first quarter consolidated gross profit reached $17.3 million, an improvement of $500,000 or 3% over last year. The increase was driven by a $900,000 improvement in services, which partially was offset by a decline in product. The services gross profit improvement reflects the 8% year-over-year revenue increase Joe mentioned as well as the benefit of a stronger consulting labor mix resulting from increased internal labor capacity.

Kerry Shiba: Look, because Joe already addressed Revenue Results, I will move down the income statement if you use your old to the gross profit line and provide some underlying details.

Speaker Change: On a consolidated basis, the fiscal 2025 first quarter consolidated gross profit reached $17.3 million and improvement of $500,000 with 3% over last year.

Kerry Shiba: The increase was driven by a $900,000 improvement in services, which partially was offset by decline in products.

Speaker Change: The services gross profit improvement reflects the 8% year-over-year revenue increase Joe mentioned as well as the benefit of stronger consulting labor mix resulting from increased internal labor capacity.

Kerry Shiba: The first quarter decline in product gross profit primarily reflects the impact of product mix and some negative inventory adjustments. Looking at gross margins, the first quarter of this year reached 37.9% in the aggregate, which was 70 basis points lower when compared to the same period last year. Services gross margin improved 220 basis points, reflecting the improvement in labor mix. However, the product's gross margin was 280 basis points lower due to product mix and negative inventory adjustment.

Joe: The first quarter declined in products gross profit, primarily reflects the impact of product mix and some negative inventory adjustments.

Speaker Change: Looking at gross margins, the first quarter of this year reached 37.9% in the aggregate, which was 70 basis points lower when compared to the same period last year.

Speaker Change: Services gross margin improved 220 basis points, reflecting the improvement in labor mix.

Speaker Change: Product gross margin was 280 basis points lower due to product mix and negative inventory adjustments.

Kerry Shiba: Operating expenses in aggregate for the first quarter of fiscal 2025 were $17.1 million, or 15% higher than when compared to the same period last year and 320 basis points higher when measured as a percentage of revenue. The increase was largest in the sales and marketing category and resulted from higher headcount and increased sales and marketing expenses associated with several large sales pursuits. The next highest increase was in research and development, which reflects expected investment growth to support new products.

Speaker Change: operating expenses in aggregate for the first quarter of fiscal 2025 or 17.1 million dollars or 15% higher than when compared to the same period last year and 320 basis points higher when measured as a percentage of revenue

Speaker Change: The increase was largest in the sales and marketing category and resulted from higher headcount and increased sales and marketing expenses associated with several large sales pursuits.

Speaker Change: The next highest increase was in research and development and reflects expected investment growth to support new products.

Kerry Shiba: And finally, higher general and administrative expenses were due to executive severance costs. The factors discussed related to revenue, gross profit, and operating expense fundamentally explain the major comparisons between operating income and net income. For adjusted EBITDA, these same factors also apply, with the exception of the impact of executive severance costs, which were excluded from adjusted EBITDA. As Joe noted, adjusted EBITDA was $2.9 million for the first quarter of fiscal 2025, which compares to $4 million for the same quarter last year.

Speaker Change: and then finally, higher general administrative expense was due to executive severance cotton.

Speaker Change: The factors discussed related to revenue, gross profit, and operating expense fundamentally explain the major comparisons in operating income and net income.

Speaker Change: for adjusted EBITDA. These same factors also apply with the exception of the impact of executive severance costs which was excluded from adjusted EBITDA.

Speaker Change: As Joe noted, adjusted EBITDA was $2.9 million for the first quarter of fiscal 2025, which compares to $4 million for the same quarter last year.

Kerry Shiba: Total cash and cash equivalents at the end of the first quarter of fiscal 2025 were $21.4 million, which compares to $25.9 million at the end of the preceding quarter. The reduction primarily reflects an increase in accounts receivable relating to the timing of sales and collections, in our effort to continue to focus on the range of actions to create shareholder value. We also spent $600,000 to repurchase common stock during the quarter. I now will turn the call back over to Joe, who will discuss our fiscal 2025 guidance and provide closing comments.

Joe: Total cash and cash equivalent at the end of the first quarter, fiscal 2025, we're 21.4 million, which compares to 25.9 million at the end of the preceding quarter.

Speaker Change: The reduction primarily reflects an increase in accounts receivable relating to the timing of sales and collections.

Speaker Change: In our effort to continue to focus on the range of actions to create shareholder value, we also spent $600,000 to repurchase common stock during the quarter.

Speaker Change: I now will turn the call back over to Joe to discuss our fiscal 2025 guidance and provide closing comments.

Joe Bergera: The smart mobility infrastructure management market continues to represent significant long-term opportunities due to favorable technology and market trends. For example, the adoption of cloud infrastructure, artificial intelligence, and connected and automated vehicles will continue to drive significant smart mobility investments by state and local agencies, as well as by various private sector entities.

Joe: Great. Thank you, Kerry.

Joe: The smart mobility infrastructure management market continues to represent significant long-term opportunities due to favorable technology and market trends.

Joe: For example, the adoption of cloud infrastructure, artificial intelligence, and connected and automated vehicles will continue to drive significant smart mobility investments by state and local agencies, as well as by various private sector entities.

Joe Bergera: Therefore, we remain extremely optimistic about the long-term opportunity in front of Iteris, especially given the breadth of our platform, our brand equity, and our customer reach. Over the balance of fiscal 2025, Iteris will continue to deliver against an aggressive solutions roadmap that includes the following major releases, and a new form factor that will significantly expand the serviceable, addressable market for our AI-based detection system, Vantage APEX. A new mobility data set will address various new use cases and will expand the universe of prospective buyers for mobility data, including new commercial entities like the recent deal we announced with Telenav.

Speaker Change: Therefore we remain extremely optimistic about the long-term opportunity in front of Iteris, especially given the breadth of our platform, our brand equity, and our customer reach.

Speaker Change: Over the balance of fiscal 2025, a terrorist will continue to deliver against and aggressive solutions roadmap, then includes the following major releases, a new form factor that will significantly expand the serviceable addressable market for AI-based detection system and HAPECS.

Speaker Change: A new mobility data set will address various new use cases and will expand the universe of prospective buyers for mobility data, including new commercial entities like the recent deal we announced with Telenab.

Joe Bergera: A cloud-connected edge solution provided on a subscription basis for remote monitoring and management of critical third-party assets deployed across local and statewide transportation networks. A combination of new cloud and edge applications will enhance and expand our connected vehicle solution portfolio and will drive both product and annual recurring revenue. And a highly advanced radar-based pedestrian detection system developed in partnership with Sumitomo that will be fully integrated with our ClearMobility platform and is expected to transform pedestrian detection and pedestrian safety in North America.

Speaker Change: A cloud-connected edge solution provided on a subscription basis for remote monitoring and management of critical third-party assets deployed across local and statewide transportation networks.

Speaker Change: A combination of new cloud and edge applications will enhance

Speaker Change: expand our connected vehicle solution portfolio, and we'll drive both product and annual recurring revenue.

Speaker Change: and a highly advanced radar-based pedestrian detection system developed in partnership with Sumitomo that will be fully integrated with our ClearMobility platform and is expected to transform pedestrian detection and pedestrian safety in North America.

Joe Bergera: We believe our fiscal 2025 release plan will increase our total and serviceable addressable markets, accelerate the adoption of our Clear Mobility platform, and improve the monetization of our expanding mobility data sets in fiscal 2025 and beyond. For example, as noted earlier, the release of our new pedestrian detection system, which is scheduled to occur in our fiscal third quarter, will more than double Iteris's total addressable market for detection solutions from approximately $500 million to $1 billion.

Speaker Change: We believe our fiscal 2025 release plan will increase our total and serviceable addressable markets, accelerate the adoption of our clear mobility platform, and improve the monetization of our expanding mobility data sets in fiscal 2025 and beyond.

Speaker Change: For example, as noted earlier, the release of our new pedestrian detection system, which is scheduled to occur in our fiscal third quarter, will more than double ITARIS's total addressable market for detection solutions from approximately $500 million to $1 billion.

Joe Bergera: In addition to the focus on our solutions portfolio, we'll continue to pursue key operational priorities including the productivity of our distribution network, the maturity of our customer success function, and internal labor capacity of our consulting team. As a reminder, the tactics outlined on our prior earnings calls have already produced measurable improvement in our internal labor capacity. Next, I want to address our guidance.

Speaker Change: In addition to the focus on our solutions portfolio, we'll continue to pursue key operational priorities including the productivity of our distribution network, maturity of our customer success function, and internal labor capacity of our consulting teams.

Speaker Change: As a reminder, the tactics outlined on our prior earnings calls have already produced measurable improvement in our internal labor capacity.

Joe Bergera: We continue to expect fiscal 2025 full-year total revenue to be in the range of $188 to $194 million, representing organic growth of 11 percent year-over-year at the midpoint of the guidance range. Due to the volume improvement and our continued cost discipline, we also continue to expect an improvement in our full year adjusted EBITDA margin to be in the range of 8% to 10% of revenue. This would represent a 150 basis point improvement and an adjusted EBITDA margin at the midpoint of the guidance range, even after we continue to invest in talent acquisition and talent development. Although we're not providing net bookings guidance, we do continue to expect some bookings lumpiness over the next several quarters due to the timing of several large pending orders.

Speaker Change: Next, I want to address our guidance.

Speaker Change: We continue to expect fiscal 2025 full-year total revenue to be in the range of 188 to 194 million representing organic growth of 11% year over year at the midpoint of the guidance range.

Speaker Change: Due to the volume improvement and our continued cost discipline, we also continue to expect an improvement in our full year adjusted EBITDA margin to be in the range of 8% to 10% of revenue.

Speaker Change: This would represent 150 basis point improvement and adjusted EBITDA margin at the midpoint of the guidance range, even after we continue to invest in talent acquisition and talent development.

Speaker Change: Although we're not providing that booking guidance, we do continue to expect some booking's lumpiness over the next several quarters to the timing of several large pending orders.

Joe Bergera: With respect to our fiscal 2025 second quarter guidance, we expect total revenue to be in the range of $44 million to $48 million, representing organic growth of 6% year-over-year at the midpoint of the guidance range. This rate of growth is a result of some revenue that was previously expected to occur in our fiscal 2025 second quarter but instead occurred in our fiscal 2025 first quarter. Also, our fiscal 2025 second quarter rate of growth reflects the timing of various new product releases that will not occur until the end of our fiscal 2025 second quarter or the start of our fiscal 2025 third quarter.

Speaker Change: With respect to our fiscal 2025 second quarter guidance, we expect total revenue to be in the range of $44 million to $48 million, representing organic growth of 6% year-over-year at the midpoint of the guidance range.

Speaker Change: This rate of growth is the result of some revenue that was previously expected to occur in our fiscal 2025 second quarter, but instead occurred in our fiscal 2025 first quarter.

Speaker Change: Also, our fiscal 2025 second quarter rate of growth reflects the timing of various new product releases that will not occur until the end of our fiscal 2025 second quarter or the start of our fiscal 2025 third quarter.

Speaker Change: Due to the cost associated with the final development and pre-launch activities for those product releases, we expect fiscal 2025 second quarter adjusted EBITDA margins to be in the range of percent.

Joe Bergera: Due to costs associated with the final development and pre-launch activities for those product releases, we expect fiscal 2025 second quarter adjusted EBITDA margins to be in the range of 6 to 7 percent. The midpoint of the guidance range represents a 20 basis point sequential increase, but a 20 basis point decrease year over year.

Speaker Change: The midpoint of the guidance range represents a 20-basis point sequential increase, but a 20-basis point decrease year-over-year.

Joe Bergera: While we're not providing fiscal 2025 third or fourth quarter guidance at this time, we continue to anticipate sequential improvements and adjusted EBITDA margins, as our fiscal 2025 full-year guidance clearly implies. Due to the forecasted increase in fiscal 2025 total revenue and adjusted EBITDA margin, we anticipate continued improvements in our liquidity, which should provide adequate cash for future tuck-in acquisitions. Additionally, we will continue to evaluate other actions, such as further share repurchases, to return excess liquidity to shareholders.

Speaker Change: While we're not providing fiscal 2025-3rd or 4th quarter guidance at this time, we continue to anticipate sequential improvements in adjusted e-vitamargents as our fiscal 2025-4th year guidance clearly implies.

Speaker Change: Do the forecast it increase in fiscal 2025 total revenue and adjust it even a margin. We anticipate continued improvements in our liquidity, which should provide adequate cash for future tucking acquisitions.

Speaker Change: Additionally, we will continue to evaluate other actions, such as further share repurchases, to return excess liquidity to shareholders.

Joe Bergera: Looking beyond fiscal 2025, we continue to believe Iteris is on track to achieve our Vision 2027 targets. In other words, we continue to estimate fiscal 2027 revenue to be in the range of $245 million to $265 million before any additional acquisitions, which would represent a five-year organic revenue CAGR of nearly 14 percent at the midpoint. With the substantial increase in annual revenue, we also anticipate progressive benefits from scale to result in fiscal 2027 adjusted EBITDA margins in the range of 16 to 19 percent.

Speaker Change: Looking beyond fiscal 2025, we continue to believe our terrorist is on track to achieve our vision twenty twenty seven targets.

Speaker Change: In other words, we continue to estimate fiscal 2027 revenue to be in the range of 245-25 million before any additional acquisitions, which would represent a five-year organic revenue of nearly 14% at the midpoint.

Speaker Change: With this substantial increase in annual revenue, we also anticipate progressive benefits from scale to result in fiscal 2027, and adjust it even in margins in the range of 16 to 19%.

Joe Bergera: And additionally, we anticipate our acquisition program would be additive to our Organic Vision 2027 target. So with that, we would be delighted to respond to any analysts' questions or comments. Operator, are there any questions for us at this time?

Speaker Change: Additionally, we anticipate our acquisition program would be additive to our Organic Vision 2027 targets.

Speaker Change: So with that, we would be delighted to respond to any analysts' questions or comments. Operator, are there any questions for us at this time?

Operator: Yes, and I would just like to remind everyone, if you would like to ask a question, please press star then the number one on your telephone keypad. Your first question comes from the line of Jeff Van Sinderen with Bill Reilly. Please go ahead.

Speaker Change: Yes, and I would just like to remind everyone that you [inaudible]

Speaker Change: We'd like to ask some peace press star then the number one on your telephone keypad.

Speaker Change: Your first question comes from the line of Jeff Van Sinderen with B. Reilly. Please go ahead.

Jeff Van Sinderen: Yes, hi everyone. I just wanted to circle back to the quarterly revenue progression. And I know you gave guidance for Q2, and we see kind of what's implied in the annual revenue guidance. Can you maybe just touch on the timing elements that you're looking at today regarding what the second half revenue cadence might look like?

Speaker Change: Yes, hi everyone. Just wanted to circle back to the quarterly revenue progression, and I know you gave guidance for Q2.

Speaker Change: and we see kind of what's implied in the annual revenue guidance, can you maybe just touch on the timing elements that you're looking at today regarding what the second half revenue cadence might look like?

Joe Bergera: We're obviously implying high teens organic revenue growth in the second half, and I'll just say that that's a function of various products that are being released in September, the beginning of our third quarter. By definition, what I'm suggesting is these tend to be products that are going to generate product revenue. But more specifically, I'm talking about our Apex rack mount sensor and our pedestrian detection sensor.

Speaker Change: We're obviously implying high teens organic revenue growth in the second half, and I'll just say that that's a function of various products that are being released in September , the beginning of our third quarter.

Speaker Change: By definition, what I'm suggesting is these tend to be products, they're going to generate product revenue.

Kerry Shiba: More specifically, I'm talking about our Apex Rack Mount Sensor and our Pedestrian Detection Sensor. The revenue is directly tied to when we begin shipping those products, which we're already selling. But beyond that, Kerry, do you want to talk about what's going to lay out across the third and fourth quarter? Yeah, I think the

Kerry Shiba: The revenue is directly tied to when we begin shipping those products, which we're already selling. But beyond that, Kerry, do you want to talk about what's going to happen across the third and fourth quarters? Yeah.

Operator: at the time all participants have been placed on the list in only mode and will open the floor for your questions and comments after the presentation. Please note this event is being recorded.

Kerry Shiba: Some of it's a little redundant, Jeff, but so releases, especially for the pedestrian radar, will be during the third quarter. It should continue to ramp up in the fourth quarter. And then we still have some of the overall seasonality impact where our fourth quarter clearly would expect to be stronger than our third, just from A Normal Pattern. You know, that should be the cadence, and we should continue to see some, you know, upward trajectory progressively as we go through the year.

Kerry Shiba: Some of it's a little redundant, Jeff, but so releases, especially for the pedestrian radar, will be during the third quarter. It should continue to ramp up in the fourth quarter. And then we still have some of the.

Jim Byers: I would now like to join a conference over to Jim Byers of MKR investor relations. Please go ahead. Thank you operator.

Jim Byers: Good afternoon everyone and thank you for participating in today's conference call to discuss Iteris's financial results for its fiscal 2025 first quarter ended June 30th, 2024.

Kerry Shiba: Overall seasonality impact where our fourth quarter clearly we would expect to be stronger than our third just

Speaker Change: from a normal pattern. So.

Jim Byers: Joining us today are Iteris's president and CEO, Mr. Joe Bergera and the company's CFO, Mr. Kerry Shiba. Following the remarks we'll open the call for questions from the company's covering cell site analysts. Then we will answer investor questions if any that were submitted to the company in advance of the call.

Speaker Change: You know, that should be the cadence and we should consider continuing to see some, you know, offered to directly progressively as we go through the year.

Kerry Shiba: That's helpful, and then as we're thinking about gross margin and modeling that, I know mix is a big play there and you've got some new products launching for the second half. How should we think about kind of the cadence of gross margin? Aw, there's the year.

Speaker Change: That's helpful, and then as we're thinking about gross margin and modeling that, I don't mix with a big play there and you've got some new products launching for a second half. How should we think about kind of the cadence of gross margin?

Jim Byers: Per the instructions in our press release, say to July 29th, 2020. Before we continue we would like to remind all participants that during this call we may make forward looking statements regarding future events or the future performance of the company. These statements are based on current information are subject to change and are not guarantees of future performance. Iteris 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.

Kerry Shiba: Yeah, I think it should similarly be on an upward track as we go along. I think part of that's going to be clearly just revenue leverage that will help us clearly from an EBITDA margin perspective. That would be the case. But even at the gross margin level, I think there should be some directional, you know, small ticks upwards throughout the year.

Speaker Change: Alright, this is the year.

Speaker Change: Yeah, I think it should similarly be on an upward track as we go along. I think part of that's going to be clearly just revenue leverage, that will help us clearly from an even down margin perspective that would be the case.

Speaker Change: But even at the gross margin level, I think there should be some directional, you know, small ticks upwards as the year goes on. And then, Kerry, you might want to comment that there are additionally some products

Kerry Shiba: And then, Kerry, you might want to comment back that there are additionally some product-related and marketing-related investments that are occurring in the first half in anticipation of these product launches too.

Jim Byers: Iteris refers you to the documents that the company files from time to time with the SEC, specifically the company's most recent forms, 10K, 10Q and 8K, which contain an identify important risk factors that could cause actual results to differ materially. The company from those that are contained in any forward looking statements.

Kerry Shiba: Related and...

Kerry Shiba: marketing-related investments that are occurring in the first half.

Kerry Shiba: On the OPEX side, for example, sales and marketing, as I commented, were unusually large because of both proposal activity that is being worked on for some large opportunities we're chasing as well as some other things. Like pre-launch activities, especially these product releases. Yeah.

Kerry Shiba: In anticipation of these product launches, too. Yeah, on the OPEX side, for example, sales and marketing, as I commented, were unusually large because of...

Speaker Change: Both proposal activity that is being worked on for some

Jim Byers: As always you will find a webcast replay of today's call on the investor section of the company's website at www.Iteris.com.

Kerry Shiba: Some large opportunities we're chasing as well as some other things like pre-launch activities, especially these product releases.

Kerry Shiba: Might as well just continue. R&D, we do expect to continue. We have planned on spending more money this year overall. I think the first quarter was reflective of that, Jeff. You know, I would almost use that more as a benchmark than what happened in the prior year. SG&A, we did have a blip this quarter, as I had mentioned.

Joe Bergera: Now with that said I'd like to turn the call over to Iteris's president and CEO Mr. Joe Bridger. Great, thank you Jim and a good afternoon to everyone. I appreciate all of you joining us today. Iteris reported record total revenue of 45.8 million in our fiscal 2025 first quarter representing an increase of 5% over year. As a reminder we had an unusually strong prior year comparison due to the combination of two events that were related to post-COVID recovery.

Kerry Shiba: and my soldiers continue our R&D would expect to continue to. We have planned on spending more money this year overall. I think the first quarter was reflective of that job.

Speaker Change: You know, I would almost use that more as a benchmark than what happened in the prior year. SG&A, we did have a blip this quarter, as I had mentioned.

Kerry Shiba: Okay, so when we're thinking about SG&A, could SG&A dollars be down sequentially in Q2, or should we just think that the rate is going to ease?

Speaker Change: Okay, so when we're thinking about SG&A, so could SG&A dollars be down sequentially in Q2, or should we just think that the rate is going to ease?

Kerry Shiba: I think that you, from a nominal perspective, ought to expect SG&A to be down nominally.

Joe Bergera: These events were first the release of a large number of censorshipments that were delayed as a result of previous supply chain constraints. And second the achievement of certain milestones for some very large long-term consulting projects in our fiscal 2024 first quarter. Given this unusual prior year comparison we were particularly pleased with our fiscal 2025 first quarter revenue growth comparison. Customer adoption of the clear mobility platform remains very strong. In our fiscal 2025 first quarter we reported total net bookings of 48.8 million resulting in record trailing 6 months total net bookings of 102.1 million which compares favorably to the $100 million target we set for the first 6 months of calendar year 2024.

Speaker Change: I think that you, from a nominal perspective, ought to expect SG&A to be down nominally.

Jeff Van Sinderen: And then, if we could, I just wanted to circle back because, since we're on the topic of new products, anything new to add to the pedestrian detection product with Simitomo? I think you said that you're selling that now. Maybe is that out in the field? What does that look like? Anything around that.

Speaker Change: Okay, good.

Speaker Change: Good to know. And then if we could, I just wanted to circle back, since we're on the topic of new products, anything new to add on the pedestrian detection?

Speaker Change: Product with Simitomo, I think you said that you're selling that now, maybe is that out in the field, what does that look like, anything around that?

Joe Bergera: Yeah, so we launched the product earlier this quarter, which means that we're actively selling it, but obviously, we won't recognize revenue until we begin shipping units. Associated with the launch activities, we do have a demonstration product, and we are initiating some pilots with various customers. We are seeing very favorable market response, a high level of customer interest at this time, and we are beginning to take orders.

Speaker Change: Yeah, so we launched the product in earlier this...

Speaker Change: Porter.

Speaker Change: Which means that we're actively selling it, but obviously we won't recognize revenue until we begin shipping units

Joe Bergera: On a year-over-year basis, Fiscal 2025 first-quarter bookings decreased 8 percent compared to our second-quarter highest quarterly bookings period on record, which included a $15 million four-year SaaS order in our Fiscal 2024 first quarter. As noted on prior calls, we expect some degree of bookings lumpiness for the next several quarters due to the timing of various large sales opportunities, such as the one recorded in our Fiscal 2024 first quarter. Reflective of our sustained strong bookings results, we ended the June 30, 2024 period with a record total ending backlog of $126.8 million, representing a 2 percent increase year-over-year.

Speaker Change: I'm associate with the launch activities we do out demonstration product.

Speaker Change: and we are initiating some pilots with various customers. We are seeing very favorable market response, high level of customer interest at this time, and we are beginning to take orders.

Joe Bergera: Great. And then, similarly, on the rack-mount product.

Speaker Change: Okay, great. And then similarly on the Rackamout product.

Joe Bergera: Yeah, so the RackMount product is different, it's that we have, our Apex product is already available in a form factory called ShelfMount. There's no functional difference between the RackMount and the ShelfMount product, however, about half of the country, the jurisdictions have a standard that requires them to utilize the RackMount form factor, which means that we've not been able So we are currently taking orders for the rack-mount version.

Speaker Change: Yeah, so the RackMount product is different, it's that we have, our Apex product is already available in a form factory called ShelfMount.

Speaker Change: The there's no functional difference between the rack mount and the shelf mount product however about half of the country

Joe Bergera: As always, our ending backlog and net bookings figures reflect firm customer orders rather than total contract value. The total value of customer contracts, which varies from quarter to quarter, averages on a historical basis about 200 percent of our total ending backlog. Also keep in mind that our backlog includes a portion, which of course varies from period to period of our sensor bookings, since those orders typically convert to shedments within a single quarter.

Speaker Change: The jurisdictions have a standard which requires them to utilize the rack-mount form factor, which means that we've not been able to sell the Vantage Apex product in at least half of the country.

Speaker Change: So, we are currently taking orders for the rack mount version. Customers are very familiar with the Apex product, and again, there's no functional difference.

Joe Bergera: The customers are very familiar with the Apex product, and again, there's no functional difference. But we significantly increase our serviceable addressable market with the introduction of this new form factor. And that product is scheduled for release in October.

Joe Bergera: Okay.

Speaker Change: But we significantly increase our serviceable, addressable market with introduction of this new form factor. And that product is scheduled for release in October .

Joe Bergera: At this point, I'd like to share some details about performance of our product portfolio. For our sensors and third-party hardware, which we referred to collectively as products, we reported Fiscal 2025 first quarter revenue of $24.4 million, representing a 3 percent increase year-over-year. As a reminder, the year-over-year comparison was very challenging due to the release of sensor backlog, which had accumulated over prior periods as a result of global supply chain constraints that we experienced in the prior year.

Joe Bergera: It's related to the traffic cabinet, basically, which drives the appropriate form factor, right? Correct.

Speaker Change: It's related to the traffic cabinet, basically, which drives the appropriate form factor, right? Correct.

Joe Bergera: Yeah, so I guess the follow-up to that is just, has that been holding you back, the fact that you didn't have a rack-mount unit and now you will, in October, have that shipping? Oh, absolutely.

Speaker Change: Yeah, so I guess the follow-up to that is just as I've been holding you back the fact that you didn't have a rack mount unit and now you will in October Yeah, that's shipping. Oh, absolutely

Joe Bergera: Yeah, it's totally held us back. And those geographies which only use a rack-mount form factor, it's been an obstacle to upgrade people from our Edge or our next product to the Apex family. There's significant demand for the Apex product, and we will be able to begin fulfilling that in our third quarter. Okay, great to hear.

Speaker Change: Yeah, it's totally held us back, and those geographies which only use a rack-mount form factor.

Joe Bergera: During the first quarter, our teams continue to meet critical, commercial, and product milestones that will drive future growth. These milestones included the launch of our new vantage head-safe sensor, which is the product resulting from a technical collaboration with Sumitomo Electric Industries that we discussed on our May earnings call. The release of production of our new vantage next and vantage radius advance connectivity solutions, the enhanced our vantage care offer, and accelerate our annual recurring revenue attach rate, and the initiation of filled testing for a new vantage apex rack-mount sensors that are scheduled to start shipping in October 2024.

Speaker Change: It's been an obstacle to upgrade people from our Edge or our next product to, you know, the Apex family. There's significant demand for the Apex product and we will be able to begin fulfilling that in our third quarter.

Joe Bergera: I think the sequence of release was logical for us to, you know, start with the shelf mount and then move to the rack mount as far as the kind of engineering sequence is concerned, but we're very... Oh, absolutely. I mean, further, just to be totally transparent, we would have had the rack-mount version in the market probably four quarters ago if not for the supply chain issues, you know, which required us to refactor a lot of our circuit boards, and, you know, so it consumed a lot of development capacity. And so we're, you know, we're behind schedule, but we'll be addressing that market demand, you know, in the very near future. Is there just one?

Speaker Change: Okay, great to hear.

Speaker Change: I think it's something you had to release with logical for us to start with a shelf mount and then move to the Rack Mount as far as kind of that.

Speaker Change: Engineering Sequence but we're absolutely, I mean, further just only transparent, I mean, we would have had the rack mount version and market probably four quarters ago, if not for the supply chain issues.

Speaker Change: You know, which required us to refactor a lot of our circuit boards and, you know, so it consumed a lot of development capacity and so we're, you know, we're behind schedule but we'll be addressing that market demand, you know, in the very near future.

Joe Bergera: I'd now like to review the performance of our services portfolio, which includes our various consulting services, managed services, softwares of service, and data of the service offerings. We reported record service revenue of 21.4 million in our fiscal 2025 first quarter, representing an 8% increase year-over-year, and that's despite the challenging comparison I mentioned earlier. This growth is attributable to continued strong demand, particularly for our softwares of service solution clear-guide. We also benefited from further improvements in our internal labor capacity, reflecting the progress of the various initiatives we've discussed on prior calls.

Joe Bergera: Just one last one, if I could squeeze it in, are there any supply chain issues at this point that you're either experiencing, or seeing, or anticipating?

Speaker Change: Are there, just one last one if I could squeeze it in, are there any supply chain issues at this point that you're either experiencing or seeing or anticipating?

Kerry Shiba: not in anything that's... Effecting our ability to manufacture our products, Joe, I don't know if there is anything in the surrounding marketplace that's sort of tracking. Yeah, well, that's true.

Speaker Change: Not in anything that's...

Speaker Change: affecting our ability to manufacture our products.

Speaker Change: Joe, I don't know if there is anything in the...

Joe Bergera: So, to just try to answer your question, like, to kind of apply the prior lens that we were looking at things through, I think the answer is, like, clearly no. You know, we are not experiencing any kind of broad global supply chain constraints similar to what we experienced, you know, several quarters ago. We don't anticipate that happening.

Joe: Surrounding Marketplace, it's sort of great thing, yeah, I was here, I was so sick

Speaker Change: Just try to answer your question, like, to kind of apply, like, the prior lens that we were looking at things through. I think the answer is, like, clearly no. You know, we are not experiencing any kind of broad global supply chain.

Joe Bergera: To sustain strong customer adoption of our services portfolio, we continue to introduce important new enhancements to our clear mobility platform. For example, in the first quarter, we introduced a traffic flow data fusion engine, new intersection risk and work zone impact models using applied AI, and web services and database systems enhancements. We expect to improve the user experience, increase our cross-cell rate, and lower our cost to get sold.

Speaker Change: constraints, similar to what we experienced, you know.

Joe Bergera: There, you know, from time to time, we will receive notification of, like, the end of life of certain components, and so we need to endeavor to figure out how we're going to best replace those products. And then we're always trying to figure out how to optimize our component costs, and so we're also making those changes. I think what Kerry is referring to, which is an excellent point, is that this has nothing to do with our supply chain, which we think is very robust at this point in time, but we do have some third-party dependencies. You know, for example...

Speaker Change: several quarters ago. We don't anticipate that occurring.

Speaker Change: They're, you know, from time to time, we will receive notification of like the end of life of certain components. And so we need to endeavor to figure out how we're going to best replace those products. And then we're always trying to figure out how to optimize our component costs. And so we're also making those changes. I think what Kerry is referring to, which is an excellent point, is this has nothing to do with our supply chain, which we think is...

Joe Bergera: In summary, we're very pleased with our fiscal 2025 first quarter record revenue, our record trailing six month neck bookings, and record ending backlog. Additionally, we believe Iteris continues to demonstrate significant progress and evolving to a platform-based business model that will produce significant strategic and financial benefits for the company. As a result, we remain very confident, Iteris's position to realize progressive improvements in our financial profile over the next several quarters.

Kerry Shiba: is very robust at this point in time, but we do have some third-party dependencies. You know, for example...

Joe Bergera: If an agency has decided to modernize an arterial corridor, which would include kitting the intersection with the newest detection equipment, that's probably going to require them to get a new cabinet and maybe other components, like a new signal controller. We do, from time to time, continue to hear about some delays in those third-party products, and that can have a knock-on consequence for us in just simply delaying projects. But in terms of our supply chain, we are not experiencing any kind of exposure.

Speaker Change: if an agency has

Kerry Shiba: Decided to modernize an arterial corridor, which would include, um, you know, kidding the intersection with the newest detection equipment, that's probably going to require them to get a new cabinet and maybe other components like a new signal controller.

Kerry Shiba: And on that note, I'm going to pass the mic to Kerry to provide more color on our first, our fiscal 2025 first quarter financial result, and then after that, as I typically do, I'll come back to further discuss our expectations for the second quarter in the full year. Thanks, Joe. Good afternoon, or evening to everyone. As you review our first quarter results, I want to reiterate Joe's comments regarding prior your comparisons when assessing the overall momentum of the business.

Speaker Change: You know, we do, from time to time, continue to hear about some delays in those third-party products, and that can have a knock-on consequence for us in just simply delaying projects. But in terms of our supply chain, we are not experiencing any kind of exposure.

Kerry Shiba: The prior your comparisons have been affected by dynamics stemming from prior global supply chain constraints, particularly for sensors shipments. While we also benefited from certain key milestone achievements for some very large consulting projects in the first quarter last year, which we commented on at the time. As Joe also described, I want to underscore that our strength in the market continues to be demonstrated by our record bookings level for the six month trailing period and our record backlog at the end of the first quarter of this year.

Joe Bergera: And we don't think if there's any, you know, existential kind of things going on around us, it's going to affect timing more. We don't think it's going to affect fundamental demand, but sometimes we can't control the timing of everything going on around us.

Speaker Change: and we don't think that, but if there's any.

Speaker Change: You know, existential kind of thing going on around us, it's gonna affect timing, more, we don't think it's gonna affect fundamental demand, but sometimes we can't control the timing of everything going on around us.

Joe Bergera: Yeah, and Jeff, the reason that I think we're still experiencing some delays with these third-party products is that, as you know, we were extremely aggressive in working through our supply chain issues, and so they're well behind us. But I think that there are some other participants in our marketplace that weren't able to move as swiftly as we have, and so they're still getting caught up. And then additionally, as we've talked about, there are labor constraints in the marketplace which can also impact some of these third parties as well. But again, we do not feel any particular exposure to unusual global supply chain constraints ourselves. Okay, great.

Speaker Change: Right. Yeah. And Jeff, the reason I think we're still, from time to time, we will experience some delays with these third-party products is that...

Speaker Change: As you know, we were extremely aggressive in working through our supply chain issues, and so they're well behind us. But I think that there are some other participants in our marketplace that weren't able to move as swiftly as we have, and so they're still getting caught up.

Kerry Shiba: Because Joe already addressed revenue results, I will move down the income statement as usual to the gross profit line and provide some underlying details. On a consolidated basis, the fiscal 2025 first quarter consolidated gross profit reached 17.3 million in improvement of $500,000 or 3% over last year. The increase was driven by $900,000 improvement in services, which partially was offset by decline in products. The services gross profit improvement reflects the 8% year-over-year revenue increase, Joe mentioned, as well as the benefit of stronger consulting labor mix resulting from increased internal labor capacity.

Speaker Change: And then additionally, as we've talked about, there are labor constraints in the marketplace which can also impact some of these third parties as well. But again, we do not feel any particular exposure to unusual global supply chain constraints ourselves.

Jeff Van Sinderen: Okay, great. Thanks for taking my questions. I'll let someone else jump in.

Speaker Change: Okay, great. Thanks for taking my questions. I'll let someone else jump in.

Jeff: Thanks Jeff

Operator: Your next question comes from the line of Michael Latimore with Northland Capital Markets. Please go ahead.

Speaker Change: Thank you.

Speaker Change: Your next question comes from the line of Michael Latimore with Northland Capital Markets. Please go ahead.

Operator: Hey, guys. This is actually Alex Latimore on for Mike Latimore here.

Speaker Change: Hey guys, this is actually Alec Blattimore on for Mike Blattimore here.

Alex Latimore: I just have two questions for you guys. The first one is, you said that you've had a goal of hitting 110% on SASNet dollar retention rates. If you could shed some light, maybe on what it was in this quarter and where you see that level going for fiscal year 25, that would be great.

Kerry Shiba: The first quarter declined in products gross profit primarily reflects the impact of product mix and some negative inventory adjustments. Looking at gross margins, the first quarter of this year reached 37.9% in the aggregate, which was 70 basis points lower when compared to the same period last year. Services gross margin improved 220 basis points, reflecting the improvement in labor mix. Products gross margin was 280 basis points lower due to product mix and negative inventory adjustments.

Alec Blattimore: I just got two questions for you guys. The first one being...

Speaker Change: You said that you'd had a goal of hitting a hundred and ten percent on a satin and dollar retention rates. If you can check some light maybe on what it was in this quarter and where you see that level going for fiscal year 25 that would be great.

Kerry Shiba: That's a good question, Kerry. I don't know if we have our net dollar retention rate for the current quarter handy.

Speaker Change: That's a great question, Kerry. I don't know if we have our net dollar retention rate handy for the current quarter. I hate to quote it because I don't have it in front of me, Alex. Yeah, Alex, if we can get you that number on our follow-up call, it'd probably be better than us speculating.

Kerry Shiba: I hate to quote it because I don't have it in front of me, Alex, that idea. Yeah, Alex, if we can get you that number on our follow-up call, it'd probably be better than us speculating. In terms of Fiscal 25, I don't think that we formulated – well, for the year, our target's 110 percent, but if you're meaning, like, beyond that, I don't think we formulated a view that we'd feel comfortable sharing with people at this point.

Kerry Shiba: Operating expenses in aggregate for the first quarter of fiscal 2025 or 17.1 million dollars, or 15% higher than when compared to the same period last year, and 320 basis points higher when measured as a percentage of revenue. The increase was largest in the sales and marketing category, and resulted from higher head count, and increased sales and marketing expenses associated with several large sales pursuits. The next highest increase was in research and development, and reflects expected investment growth to support new products, and then finally, higher general and administrative expense was due to executive severance costs.

Speaker Change: In terms of fiscal 25, I don't think that we formulated.

Speaker Change: Well, for the year, you know, our target's 110 percent, but if you're meaning, like, beyond that, I don't think we've formulated a view that we'd feel comfortable sharing with people at this point. But I would say that our view is that anything over 105 percent is a very good net dollar retention rate.

Kerry Shiba: But I would say that our view is that anything over 105 percent is a very good net dollar retention rate. Obviously, we endeavor to do better. Don't get me wrong, we want to be best practice or best in class, but our objective is definitely to be north of 105%.

Speaker Change: Obviously, we endeavor to do better. Don't get me wrong. We want to be best practice, or best in class. But our objective is definitely to be north of 105%.

Joe Bergera: Sweet. And then my second question here is do you see the budgets specifically in California, Texas, and Florida for the upcoming year as favorable to your areas, and if so, or if not, why not?

Speaker Change: Sweet. And then my second question here is do you see the budgets specifically in California, Texas, and Florida for the upcoming for the upcoming year as favorable to your areas and if so or if not why?

Kerry Shiba: The factors discussed related to revenue, gross profit, and operating expense, fundamentally explain the major comparisons in operating income and net income. For adjusted EBITDA, these same factors also apply with the exception of the impact of executive severance costs, which was excluded from adjusted EBITDA. As Joe noted, adjusted EBITDA was $2.9 million for the first quarter of fiscal 2025, which compares to $4 million for the same quarter last year. Total cash and cash equivalence at the end of the first quarter, fiscal 2025, for 21.4 million, which compares to 25.9 million at the end of the preceding quarter.

Joe Bergera: Yeah, Alex, I think that's an excellent question. You know, we have not specifically been notified by our customers of any particular budget issues that have resulted in any opportunities that we're pursuing going away or necessarily being pushed out. Now, we do see things moved to the right as a result of a lack of, you know, labor capacity both within agencies and with other third parties, and then some of the components that I talked about.

Speaker Change: Yeah, Alex, I think that's an excellent question.

Speaker Change: You know, we have not specifically been notified of any

Speaker Change: and by our customers of any particular budget issues.

Speaker Change: that have resulted in any opportunities that we're pursuing.

Speaker Change: going away, or necessarily being pushed out. Now, we do see things move to the right as the results of a lack of labor capacity, both in agencies and with other departies, and then some of the components that I talked about. So we do see things pushing to the right. But so far, we haven't seen anything with respect to budget. But that being said, I think everyone is obviously paying close attention to broader economic conditions.

Joe Bergera: So we do see things pushing to the right, but so far, we haven't seen anything with respect to the budget. But that being said, you know, I think everyone is obviously paying close attention to kind of broader economic conditions, and I would say that, you know, our agency customers are certainly mindful of that as well. So far, in the few instances that I'm aware of where there have been budget shortfalls that could have impacted specific projects, in those instances, again, based on what I'm familiar with, the state or local agency has been able to backfill that budget gap with federal funding, which would obviously have been distributed through some kind of IIJA mechanism. It could either be the result of, like, formula funding that provides a backstop, some special grant, or some kind of competitive grant money that they've been able to secure as a backstop.

Kerry Shiba: The reduction primarily reflects an increase in accounts receivable relating to the timing of sales and collections. In our effort to continue to focus on the range of actions to create shareholder value, we also spent $600,000 to repurchase common stock during the quarter.

Speaker Change: and I would say that in our agency customers are certainly mindful of that as well.

Speaker Change: So far, in the few instances that I'm aware of where there have been...

Joe Bergera: I now will turn the call back over to Joe to discuss our fiscal 2025 guidance and provide closing comments. Great. Thank you, Kerry. The smart mobility infrastructure management market continues to represent significant long-term opportunities due to favorable technology and market trends. For example, the adoption of cloud infrastructure, artificial intelligence, and connected and automated vehicles will continue to drive significant smart mobility investments by state and local agencies, as well as by various private sector entities. Therefore, we remain extremely optimistic about the long-term opportunity in front of ITERS, especially given the breadth of our platform, our brand equity, and our customer reach.

Speaker Change: budget shortfalls that could have impacted specific...

Speaker Change: Project.

Speaker Change: In those instances, again, based on what I'm familiar with, the state or local agencies been able to backfill that budget gap with federal funding.

Speaker Change: which would have obviously been distributed through some kind of I-I-J-A mechanism, could either be the result of like formula funding, to provide it a backstop, some special grant, or some kind of competitive grant money that they've been able to secure as a backstop.

Alex Latimore: Okay, perfect. That's a great color there.

Speaker Change: Okay, perfect, that's a great color there. That's all I've got, thanks for your time guys.

Operator: That's all I've got. Thanks for your time, guys.

Operator: Your final question comes from the line of Allen Klee with Maxson Group. Please go ahead.

Speaker Change: Sure and I'll thank you.

Speaker Change: Your final question comes from the line of Allen Cleave with Maxson Group. Please go ahead.

Derek Greenberg: Hey guys, this is Derek Greenberg on for Allen. My first question is just about the Orange County transportation order from a couple months ago, that ten million dollar deal. I was just wondering how that's progressing and how you foresee the impact of that playing out from a timing perspective.

Joe Bergera: Over the balance of fiscal 2025, ITERS will continue to deliver against an aggressive solutions roadmap that includes the following major releases, a new form factor that will significantly expand the serviceable, addressable market for our AI-based detection system, manage APEX. A new mobility data set will address various new use cases and will expand the universe of prospective buyers for mobility data, including new commercial entities, like the recent deal we announced with telenev.

Derek Greenberg: Hey guys, this is Derek Greenberg on for Allen. My first question is just with the Orange County transportation order from a couple months back, that ten million dollar deal, I was just wondering how that's progressing and how you foresee the impact of that playing out from a timing perspective.

Joe Bergera: Yeah, great question. So that project is... On schedule, of the nearly $10 million, about $2 million of it is SAS revenue for our ClearGuide product, and so that's recognized routably over the three-year term. The professional services element, even though the nature of the work changes from phase to phase, the overall sort of estimated labor capacity remains relatively constant over that period. So I don't foresee any particular fluctuations in terms of the revenue recognition against that on that contract, and as I said, you know, it's in, it's on schedule. We are currently recognizing revenue against it, and I'd expect revenue recognition to remain relatively constant for the duration of the contract.

Speaker Change: Yeah, great question. So that project is...

Speaker Change: on schedule. Of the nearly $10 million, about $2 million of it

Joe Bergera: A cloud-connected edge solution provided on a subscription basis for remote monitoring and management of critical third-party assets deployed across local and statewide transportation networks. A combination of new cloud and edge applications will enhance, expand our connected vehicle solution portfolio, and will drive both product and annual recurring revenue, and a highly advanced radar-based pedestrian detection system developed in partnership with Sumitomo, that will be fully integrated with our clear mobility platform and is expected to transform pedestrian detection and pedestrian safety in North America.

Derek Greenberg: is SAS revenue for our ClearGuide product and so that's recognized routably over the three-year term.

Speaker Change: the Professional Services, Element, even though that nature of the work changes.

Derek Greenberg: You know, from phase to phase, the overall sort of estimated labor capacity remains relatively constant over that period. So I don't foresee any particular fluctuations.

Derek Greenberg: And as I said, you know, it's on schedule. We are currently recognizing revenue against it, and I'd expect the revenue recognition to remain relatively constant for the duration of the contract.

Joe Bergera: We believe our fiscal 2025 release plan will increase our total and serviceable addressable markets, accelerate the adoption of our clear mobility platform and improve the monetization of our expanding mobility data sets in fiscal 2025 and beyond.

Joe Bergera: Okay, great. Then maybe just a little bit on the Labor and Talent Acquisition Program you guys have.

Speaker Change: Okay, great. Then maybe just a little bit on the labor and talent acquisition program you guys have.

Joe Bergera: For example, as noted earlier, the release of our new pedestrian detection system, which is scheduled to occur in our fiscal third quarter, will more than double Iteris's total addressable market for detection solutions from approximately 500 million to $1 billion.

Joe Bergera: Yeah, sure. So, as you know, for people who aren't following all this closely, I'll provide some context. You know, obviously, generally, the labor market has been constrained, you know, I think across basically all economic sectors, but it has been particularly constrained in the traffic engineering sector and, more generally, even broadly, the transportation sector. And that's impacted agencies, it's impacted other participants with whom we, in certain instances, have various dependencies, we've talked about, and it's frankly impacted our ability to hire as much talent as we had anticipated, particularly last year.

Speaker Change: Yes, sure. So, for people who aren't following all this close, I'll provide some context.

Speaker Change: You know, obviously, generally, the labor market has been constrained, you know, I think across basically all economic sectors, but it has been particularly constrained in the traffic engineering and we're generally even in probably the transportation sector.

Joe Bergera: In addition to the focus on our solutions portfolio, we'll continue to pursue key operational priorities, including the productivity of our distribution network, the maturity of our customer success function, and the internal labor capacity of our consulting teams. As a reminder, the tactics outlined on our prior earnings calls have already produced measurable improvement in our internal labor capacity.

Speaker Change: And that's impacted agencies, it's impacted other participants with whom we in certain instances have various dependencies we've talked about, and it's frankly impacted our ability to hire as much.

Joe Bergera: Next, I want to address our guidance. We continue to expect fiscal 2025 full year total revenue to be in the range of 188 to 194 million representing organic growth of 11 percent year over year at the midpoint of the guidance range. Due to the volume improvement in our continued cost discipline, we also continue to expect an improvement in our full year adjusted EBITDA margin to be in the range of 8 percent to 10 percent of revenue.

Speaker Change: Talent as we had anticipated particularly last year and as we talked about that was a limit or in terms of, you know, our revenue recognition, our rate of growth.

Joe Bergera: And as we talked about, that was a limiter in terms of, you know, our revenue recognition, and our rate of growth. About the same time last year, we announced that we were going to initiate various programs to try to amp up our talent acquisition capabilities, including sourcing more talent from international markets, which would then require us to spend more from a legal perspective in order to get the appropriate work permits for those individuals.

Speaker Change: About the same time last year, we announced that we were going to initiate various programs to try to

Speaker Change: amp up our talent acquisition capabilities.

Joe Bergera: This would represent 150 basis point improvement in adjusted EBITDA margin at the midpoint of the guidance range, even after we continue to invest in talent acquisition and talent development. Although we're not providing net bookings guidance, we do continue to expect some bookings lumpiness over the next several quarters due to the timing of several large pending orders.

Speaker Change: Including sourcing more talent out of international markets, which then was going to require us to spend more from a legal perspective in order to get the appropriate work permits for those individuals.

Joe Bergera: I would say that, by and large, that program has met our expectations. But I wouldn't say that we're at 100%. But I would say that, you know, we're, I don't know, maybe 60 to 80% of gold. And we feel like our talent pipeline continues to improve. So I would not expect, I mean, as Kerry kind of alluded to, there were some, you know, modest impacts with respect to mix in the most recent periods, and to some degree, that's because there were still instances where we needed to use third-party contractors to perform some work because we didn't have the direct labor capacity.

Speaker Change: I would say that, by and large, that program has met our expectations, I wouldn't say that we're at a hundred percent, but I would say that, you know, we're, you know,

Joe Bergera: With respect to our fiscal 2025 second quarter guidance, we expect total revenue to be in the range of 44 million to 48 million representing organic growth of 6 percent year over year at the midpoint of the guidance range. This rate of growth has resulted some revenue that was previously expected to occur in our fiscal 2025 second quarter, but instead occurred in our fiscal 2025 first quarter. Also, our fiscal 2025 second quarter rate of growth reflects the timing of various new product releases that will not occur until the end of our fiscal 2025 second quarter or the start of our fiscal 2025 third quarter.

Speaker Change: I don't know, maybe like 60 to 80% of gold and you know, we feel like our talent pipeline continues to improve. So I would not expect, I mean, as Kerry, I think kind of alluded to, I mean, there were some...

Joe Bergera: Due to cost associated with the final development and launch activities for those product releases, we expect fiscal 2025 second quarter adjusted EBITDA margins to be in the range of 6 to 7 percent. The midpoint of the guidance range represents a 20 basis point sequential increase, but a 20 basis point decrease year over year.

Kerry Shiba: You know, modest impact.

Speaker Change: with respect to mix in the most recent periods and to some degree that's because there were still instances where we used to use third-party contractors to perform some work so we didn't have to direct labor capacity.

Joe Bergera: But the degree to which that's happening is continuing to get less and less, and we expect that to continue going forward. And I would also say more broadly that while we are concerned, I think everybody is, about what the future economic environment is going to look like, that actually is going to make it easier for us to recruit and maintain talent, so there's a silver lining to that.

Speaker Change: but the degree to which that's happening is continuing to get less and less and we expect that to continue going forward and I would also say more broadly that while we are concerned, I think as everybody is, about what the future economic environment is going to look like, that actually is going to make it easier.

Speaker Change: for us to recruit and maintain talent, so there's a silver lining to that.

Kerry Shiba: I think a knock-on benefit too is that even though attracting talent, finding and then attracting talent at kind of more experienced levels, we have found people that maybe are younger in tenure, younger in experience, they're going to continue to get trained up also. So, progressively over time, their capability is going to continue to improve, so. For sure.

Ben: I think progressively knock on Ben of it too, is that even though

Joe Bergera: While we're not providing fiscal 2025 third or fourth quarter guidance at this time, we continue to anticipate sequential improvements in adjusted EBITDA margins as our fiscal 2025 full year guidance clearly implies. Due to the forecasted increase in fiscal 2025 total revenue and adjusted EBITDA margin, we anticipate continued improvements in our liquidity, which should provide adequate cash for future tuck-in acquisition, and additionally we will continue to evaluate other actions such as further share repurchases to return excess liquidity to shareholders.

Speaker Change: Attracting talent, finding, and then attracting talent at kind of more experienced levels.

Speaker Change: as we have found

Speaker Change: people that maybe are younger in tenure, younger in experience.

Speaker Change: They're going to continue to get trained up also, so progressively over time their capability is going to continue to improve.

Joe Bergera: And it was really that mid-level cohort that was a particular pinch point for us. And that's why trying to access that talent in international markets, so these would be people with like five to ten years of experience that we've been able to pull in from other markets. You know, geography has been extremely beneficial and kind of filled that hole.

Speaker Change: For sure, and it was really that mid-level cohort that was a particular pinch point for us, and that's why

Speaker Change: trying to access that talent and international market. So these would be people with like 5 to 10 years of experience. You know, that we've been able to pull in from other...

Joe Bergera: Looking beyond fiscal 2025, we continue to believe Iteris is on track to achieve our vision 2027 targets. In other words, we continue to estimate fiscal 2027 revenue to be in the range of 245 to 265 million before any additional acquisitions which would represent a five-year organic revenue of nearly 14 percent at the midpoint. With the substantial increase in annual revenue, we also anticipate progressive benefits from scale to result in fiscal 2027 and adjusted EBITDA margins in the range of 16 to 19 percent. And additionally, we anticipate our acquisition program would be additive to our organic vision 2027 targets.

Speaker Change: Geographies has been extremely beneficial and kind of filled that hole.

Derek Greenberg: That's very helpful. My last question is just about the litigation and if there are any updates there.

Speaker Change: Hey, great. Thank you. It's very helpful. My last question is just on the litigation and if there's any updates there.

Joe Bergera: Yeah. A great question.

Joe Bergera: So we had previously said that, you know, we had expected the Wavetronix trial to occur in the April period. But that obviously didn't happen. I think we talked about it on our last call. At that time, we were expecting the trial to occur in early September. At this point, we are working with the court as well as Wavetronix to agree on a particular trial date, and we still expect that to occur in September, but we don't have a specific trial date at this time.

Speaker Change: Yeah, great question. So we had previously said that, you know, we had expected the electronics trial.

Speaker Change: and the April period that obviously didn't happen. I think we talked about on our last call. At that time we were expecting the trial to occur in early September. At this point we are working with the court as well as

Operator: So with that, we would be delighted to respond to any analyst questions or comments. Operator, are there any questions for us at this time? Yes, and I would like to remind everyone if you would like to ask a question, please press star then the number one on your telephone keypad.

Speaker Change: We still expect that to occur in September , but we don't have a specific trial date at this time.

Derek Greenberg: All right, I got it. Thank you.

Speaker Change: All right. Got it. Thank you.

Operator: Thank you. Mr. Becerra, there are no more questions from covering analysts. Would you like to address any investor questions before providing your closing remarks?

Speaker Change: Thank you. Mr. Becerra, there are no more questions from covering analysts. Would you like to address any investor questions before providing your closing remarks?

Jeff Bencinderin: Your first question comes from the line of Jeff Bencinderin with B. Riley, please go ahead. Yes, hi everyone. I just wanted to circle back to the quarterly revenue progression. And I know you gave guidance for Q2 and we see kind of what's implied in the annual revenue guidance. Can you maybe just touch on the timing elements that you're looking at today regarding what the second half revenue cadence might look like? Yes, we're obviously implying like high teens organic revenue growth in the second half.

Joe Bergera: Yeah, sure. Thank you, Operator. Actually, we did receive, in fact, several questions from one investor regarding artificial intelligence. Unfortunately, given the kind of limited amount of time we have on this call and also this particular venue, I'm going to limit today's comments to our AI strategy and the opportunities we believe AI represents for Iteris. As stated in the AI white paper we published last year, I just want to reiterate that we believe Iteris is pursuing the most comprehensive, holistic AI strategy in our end market.

Mr. Becerra: Yeah, sure. Thank you, operator. Actually, we did receive, in fact, several questions from one investor regarding artificial intelligence.

Speaker Change: Unfortunately given the limited amount of time we have on this call and also that

Speaker Change: I'm going to limit today's comments to our AI strategy and the opportunities we believe AI represents for Iteris. As stated in the AI white paper we published last year,

Speaker Change: I just want to reiterate that we believe Iteris is pursuing the most comprehensive, holistic AI strategy in our end market. Our strategy is multi-layered and it leverages various forms of AI and machine learning across all levels of our ClearMobility platform.

Joe Bergera: Our strategy is multi-layered, and it leverages various forms of AI and machine learning across all levels of our ClearMobility platform. For example, we use AI in our edge devices, such as our video sensors, for detailed object classification, which derives valuable metadata and enriches our data lake. Additionally, this object classification data enables agencies to categorize corridors by type of vehicle traffic over time, such as periods of high commercial vehicle traffic, which can then be used to improve traffic flow and reduce noise and air pollution.

Jeff Bencinderin: And I'll just say that that's a function of various products that are being released in September or the beginning of our third quarter. By definition, what I'm suggesting is these tend to be products are going to generate product revenue a bit more specifically, I'm talking about our apex rack mount sensor and our pedestrian detection sensor. The revenue is directly tied to when we begin shipping those products is we're already selling. But beyond that, here do you want to talk about it going to lay out?

Mr. Becerra: For example, we use AI in our Edge devices, such as our video sensors, for detailed object classification, which strives valuable metadata and which is our data lake.

Mr. Becerra: and additionally this object classification data enables agencies to categorize corridors by type of vehicle traffic over time, such as periods of high commercial vehicle traffic that can then be used from proof traffic flow and reducing noise in air pollution.

Jeff Bencinderin: Yeah, I think some of it's a little redone to Jeff, but so releases, especially for the pedestrian radar will be during the third quarter it should continue to ramp up in the fourth quarter. And then we still have some of the overall seasonality impact where our fourth quarter clearly we would expect to be stronger than our third just from a normal pattern. So, you know, that should be the cadence and we should continue to see some upward trajectory progressively as we go through the year.

Joe Bergera: Going forward, we intend to introduce additional AI capabilities in our EDGE devices to address use cases for highway vehicle tracking, pedestrian movement, active use trails, and urban mixed environments. And then at the cloud layers, as opposed to the edge layer, which I just talked about, again, at the cloud layers of our ClearMobility platform, we continue to add more data and more types of data from our entire ecosystem. These constantly growing data sets also enable us to expand our uses of AI.

Mr. Becerra: Going forward, we intend to introduce additional AI capabilities in our edge devices to address use cases for highway vehicle tracking, pedestrian movement, active use trails and urban mixed environments.

Mr. Becerra: And then at the cloud layers, as opposed to the edge layer, which I just talked about, again at the cloud layers of our ClearMobility platform, we continue to add more data and more types of data from our, across our entire ecosystem.

Mr. Becerra: These constantly growing data sets

Jeff Bencinderin: That's helpful. And then as we're thinking about gross margin and modeling that I know mix is a big play there and you've got some new products launching for second half. How should we think about kind of the cadence of gross margin? Yeah, I think it should similarly be on an upward track as we go along. I think part of that's going to be clearly just revenue leverage that will help us clearly from an EBIT down margin perspective, that would be the case.

Joe Bergera: So, for example, the new intersection safety and work zone models, which I mentioned earlier, are a byproduct of our unique access to verified event data and our multi-layered approach to AI. For further context, our AI-based intersection model uses AI to predict accidents and recommend appropriate countermeasures. And likewise, our work zone model identifies various risks and countermeasures to inform work zone design and management.

Mr. Becerra: also enable us to expand our uses of AI. So for example, the new intersection safety and work zone models, which I mentioned earlier, are a byproduct of our unique access to verified event data and our multi-layered approach to AI.

Mr. Becerra: For further context, our AI-based intersection model uses AI to predict accidents and recommend appropriate countermeasures. And likewise, our work zone model identifies various risks and countermeasures to inform work zone design and management.

Joe Bergera: Because we operate in a highly competitive marketplace, as you all know, we're going to continue to be measured in terms of our comments about our AI roadmap. But that being said, I want to confirm that we continue to identify very compelling uses of AI that will create social and economic value for both our public sector and our private sector customers, and we'll continue to provide our investors with more visibility into these specific opportunities in due course.

Jeff Bencinderin: But even at the gross margin level, I think there should be some directional, you know, small ticks upwards as you visit the year. Yeah, and then, actually, you might want to come up, I think there are additionally some products related and marketing related investments that are occurring in the first half in anticipation these product launches, too. Yeah, on the op-x side, for example, sales and marketing as I commented, were unusually large because of both proposal activity that is being worked on for some large opportunities we're chasing as well as some other things like free launch activity.

Mr. Becerra: because we operate in a highly competitive marketplace.

Mr. Becerra: as you all know, we're going to continue to be measured in terms of our comments about our AI roadmap. But that being said, I want to confirm that we continue to identify very compelling uses of AI that will create social and economic value for both our public sector and our private sector customers.

Mr. Becerra: And we'll continue to provide our investors more visibility to these specific opportunities in due course.

Joe Bergera: So with that, I want to just note that we'll be conducting various investor outreach activities over the next few months. And, of course, as always, we're available to speak with investors should you have any follow-up questions. In the meantime, I want to say we look forward to updating you again on our continued progress when we report our fiscal 2025 second quarter results. And with that, we're going to go ahead and conclude today's call. Thank you, everyone.

Mr. Becerra: So, with that, I want to just...

Mr. Becerra: Note that will be conducting various investor outreach activities over the next few months.

Jeff Bencinderin: Yeah, especially these product releases. Yeah, and might as well just continue. Our R&D would expect to continue to, we have planned on spending more money this year overall. I think the first quarter was reflective of that, Jeff. So, you know, I would almost use that more as a benchmark than what happened in the prior year. SG&A, we did have a blip this quarter, as I had mentioned. Okay, so one more thing about SG&A.

Mr. Becerra: And, of course, as always, we're available to speak with investors should you have any follow-up questions. In the meantime, I want to say we look forward to updating you again on our continued progress when we report our fiscal 2025 second quarter results.

Mr. Becerra: With that, we're going to go ahead and conclude today's call. Thank you, everyone.

Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining us. You may now disconnect.

Speaker Change: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Jeff Bencinderin: So, could SG&A dollars be down sequentially in Q2, or should we just think that the rate is going to ease? I think that you from a nominal perspective ought to expect SG&A to be down nominally. Okay, good. Good to know.

Joe Bergera: And then if we could, I just wanted to circle back, because since we're on the topic of new products, anything new to add on the pedestrian detection product with Sumitomo, I think you said that you're selling that now. Maybe is that out in the field? What does that look like? Anything around that? Yeah, so we launched the product in earlier this quarter, which means that we're actively selling it that obviously we won't recognize revenue until we begin shipping units.

Joe Bergera: So, here's the launch activities. We do have demonstration product, and we are initiating some pilots with various customers. We're seeing very favorable market response, a high level of customer interest at this time, and we are beginning to take orders.

Joe Bergera: Okay, great.

Joe Bergera: And then similarly on the RAC amount product. Yeah, so the RAC amount product is different. It's that we have, our APEX product is already available in a form factor called shelf mount. There's no functional difference between the RAC mount and the shelf mount product. However, about half of the country, the jurisdictions have a standard which requires them to utilize the RAC mount form factor, which means that we've not been able to sell the Vantage APEX product in at least half of the country.

Joe Bergera: So, we are currently taking orders for the RAC mount version. The customers are very familiar with the APEX product, and again there's no functional difference. But we significantly increase our serviceable addressable market with introduction to this new form factor. And that product is scheduled It's related to the traffic kit, but it basically drives the appropriate form factor, right?

Joe Bergera: Correct. So I guess the follow-up to that is just, has that been holding you back? The fact that you didn't have a rack mount unit, and now you will in October, and I have that shipping. Oh, absolutely. Yeah, it's totally held us back. And in those geographies, which only use a rack mount form factor, it's been an obstacle to upgrade people from our edge or our next product to, you know, the APEX family.

Joe Bergera: There's significant demand for the APEX product, and we will be able to again, again, fulfilling that in our third quarter. Okay. Great to hear. I think the second release was logical for us to start with a shelf mount, and then move to the rack mount, as far as kind of the engineering sequence, but we're very... Oh, absolutely. I mean, further, just totally transparent. I mean, we would have had the rack mount version in market probably four quarters ago, if not for the supply chain issues, which required us to refactor a lot of our circuit boards. And, you know, so it consumed a lot of development capacity. And so we're behind schedule, but we'll be addressing that market demand in the very near future.

Joe Bergera: Are there just one last one if I could squeeze it in? Are there any supply chain issues at this point that you're either experiencing or seeing or anticipating? Well, not in anything that's affecting our ability to manufacture our products. Joe, I don't know if there is anything in the surrounding market place that's sort of crazy. Yeah, well, so to just try to answer your question, like to kind of apply like the prior lens that we were looking at things through, I think the answer is, like, clearly no.

Joe Bergera: You know, we are not experiencing any kind of broad, global supply chain constraints similar to what we experienced several quarters ago. We don't anticipate that occurring. There, you know, from time to time, we will receive notification of, like, end of life of certain components, and so we need to endeavor to figure out how we're going to best replace those products. And then we're always trying to figure out how to optimize our components cost, and so we're all also making those changes.

Joe Bergera: I think what Carrie's referring to, which is an excellent point, is this has nothing to do with our supply chain, which we think is very robust at this point in time. But we do have some third party dependencies. You know, for example, if an agency has decided to modernize an arterial corridor, which would include, you know, kidding the intersection with the newest detection equipment, that's probably going to require them to get a new cabinet and maybe other components, like a new signal controller, you know, we do, from time to time, continue to hear about some delays in those third party products, and that can't have a knock on consequence for us in just simply delaying projects.

Joe Bergera: But in terms of our supply chain, we are not experiencing any kind of exposure, and we don't think, but if there's any existential kind of things going on around us, it's going to affect timing more, we don't think it's going to affect fundamental demand, but sometimes we can't control the timing of everything going on around us. Right. Yeah, and just the reason that I think we're still, it's from time to time, we will experience in the ways that these third party products is that, as you know, we were extremely aggressive in working through our supply chain issues and so they're well behind us, but I think that there are some of other participants in our marketplace that weren't able to move as swiftly as we have and so they're still getting caught up.

Joe Bergera: And then additionally, as we've talked about, there are labor constraints in the marketplace which can also impact some of these third parties as well. But again, we do not feel any particular exposure to unusual global supply chain constraints ourselves. Okay. Great. Thanks for taking my questions.

Jeff Bencinderin: I'll let someone else jump in.

Operator: Thanks, Jeff.

Michael Latimore: Your next question comes from the line of Michael Latimore with Northland Capital Markets.

Alex Latimore: Please go ahead. Hey, guys, this is actually Alex Latimore on for Mike Latimore here. I just got two questions for you guys. The first one being, you said that you've had a goal of hitting 110% on a staff net dollar retention rates. If you can shed some light maybe on what it was in this quarter and where you see that level going for fiscal year 25, that would be great.

Joe Bergera: That's a good question. I don't know if we have or not net dollar retention rate handy for the current quarter. I hate to quote it because I don't have it in front of me, Alex, if we can get you that number on our follow up call, it'd probably better than us speculating. In terms of fiscal 25, I don't think that we formulated, well, for the year, you know, our target is 110%, but if you're meaning like beyond that, I don't think we formulated a view that we feel comfortable sharing with people at this point.

Joe Bergera: But I would say that our view is that anything over 105% is a very good net dollar retention rate. Okay. Obviously, we endeavor to do better. Don't get me wrong. We want to be best practice or best in class, but our objective is definitely to be north of 105%.

Alex Latimore: Sweet.

Joe Bergera: And then my second question here is do you see the budgets specifically in California, Texas and Florida for the upcoming year as favorable to your areas and if so or if not why? Yeah, Alex, that's an excellent question. And so, you know, we have not specifically been notified of any, you know, by our customers of any particular budget issues that have resulted in any opportunities that we're pursuing, going away or necessarily being pushed out.

Joe Bergera: Now, we do see things move to the right as a result of a lack of, you know, labor capacity both in agencies and with other third parties and then some of the components that I talked about. So, we do see things pushing the right, but so far we haven't seen anything with respect to budget, but that being said, you know, there, I think everyone is obviously paying close attention to kind of broader economic conditions.

Joe Bergera: And I would say that, you know, our agency customers are certainly mindful of that as well. So far in the few instances that I'm aware of where there have been budget shortfalls that could have impacted specific projects. In those instances, again, based on what I'm familiar with, the state or local agencies have been able to backfill that budget gap with federal funding, which would have obviously been distributed through some kind of I.I.J.A, mechanism, could either be the result of like formula funding to provide it a backstop, some special grant or some kind of competitive grant money that they've been able to secure as a backstop.

Alex Latimore: Okay, perfect. That's a great color there.

Joe Bergera: That's all I've got. Thanks for your time, guys. Sure now.

Joe Bergera: Thank you.

Derek Greenberg: Your final question comes from the line of Allen Klee, if it's Maxine Group, please go ahead. Hey guys, this is Derek Greenberg on for Allen. My first question is just with the Orange County Transportation Order from a couple months back, that's $10 million deal. I was just wondering how that's progressing and how you foresee the impact of that playing out from a timing perspective. Yeah, a great question. So that project is on schedule.

Derek Greenberg: You know, of the nearly $10 million, about two million of it is a SaaS revenue for our clear guide product. And so that's recognized radically over the three-year term. The professional services element, even though the nature of the work changes from phase to phase, the overall sort of estimated labor capacity remains relatively constant over that period. So I don't foresee any particular fluctuations in terms of the revenue recognition against that on that contract. And as I said, you know, it's on schedule. We are currently recognizing revenue against it, not expect a revenue recognition to remain relatively constant for the duration of the contract. Okay, great.

Joe Bergera: And then maybe just a little bit on the labor and talent acquisition program you guys have. Yeah, sure.

Joe Bergera: So as for people who aren't following all this close, those provide some context. You know, obviously generally, the labor market has been constrained, you know, I think across basically all economic sectors. But it has been particularly constrained in the traffic engineering and more generally even in broadly the transportation sector. And that's impacted agencies. It's impacted other participants with whom we in certain instances have various dependencies we talked about. And it's frankly impacted our ability to hire as much talent as we had anticipated particularly last year.

Joe Bergera: And as we talked about, that was a limiter in terms of, you know, our revenue recognition, our rate of growth. About the same time last year, we announced that we were going to initiate various programs to try to amp up our talent acquisition capabilities, including sourcing more talent out of international markets, which then was going to require us to spend more from a legal perspective in order to get the appropriate work permits for those for those individuals.

Joe Bergera: I would say that by and large, that program has met our expectations. I wouldn't say that we're at 100%, but I would say that, you know, we're I don't know, maybe like 60 to 80% of goal. And, you know, we feel like our talent pipeline continues to improve. So, I would not expect, I mean, as Kerry, I think kind of alluded to, I mean, there were some, you know, modest impacts in the, with respect to mix in the most recent periods.

Joe Bergera: And to some degree, that's because there were still instances where we used to use third party contractors to perform some works. We didn't have the direct labor capacity, but the degree to which that's happening is continuing to get less and less. And we expect that to continue going forward. And I would also say more broadly, that while we are concerned, I think as everybody is about what the future economic environment is going to look like, that actually is going to make it easier for us to recruit and maintain, you know, talent, which, so there's a silver lining to that.

Joe Bergera: I think progressively, Macon benefit too is that even though attracting talent, finding and then attracting talent at kind of work experience levels, is we have found people that maybe are younger and 10 year younger and experienced, they're going to continue to get trained up also. So progressively over time, their capabilities going to continue to improve. So for sure, and it was really that mid level cohort that was a particular pinch point for us.

Joe Bergera: And that's why I'm trying to access that talent in international markets. So these would be people with like five to 10 years of experience. You know, that we've been able to pull in from other, you know, geographies has been extremely beneficial and kind of filled that whole.

Derek Greenberg: Hey, great. Thank you. It's very helpful.

Joe Bergera: My last question is just on the litigation and if there's any updates there. Yeah, great question. So we had previously said that, you know, we had expected the way Trionics trial to occur in the April period that obviously didn't happen. I think we talked about on our last call. At that time, we were expecting the trial to occur in early September. At this point, we are working with the court as well as wave Trionics to agree on a particular trial date. We still expect that to occur in September, but we don't have a specific trial date at this time. All right. Got it. Thank you.

Operator: Mr. Vashara, there are no more questions from covering analysts.

Joe Bergera: Would you like to ask us any investor questions before providing your closing remarks? Yeah, sure. Thank you, operator.

Joe Bergera: Actually, we did receive in fact several questions from one investor regarding artificial intelligence. Unfortunately, given the kind of limited amount of time we have on this call and also that, you know, this particular venue. I'm going to limit today's comments to our AI strategy and the opportunities we believe AI represents for ITERAS. As stated in the AI white paper we published last year. I just want to reiterate that we believe ITERAS is pursuing the most comprehensive holistic AI strategy in our end market.

Joe Bergera: Our strategy is multi-layered and it leverages various forms of AI and machine learning across all levels of our clear mobility platform. For example, we use AI in our edge devices such as our video sensors for detailed object classification which derives valuable metadata and which is our data lake and additionally this object classification data enables agencies to categorize corridors by type of vehicle traffic over time such as periods of high commercial vehicle traffic that can then be used to improve traffic flow and reduce noise and air pollution.

Joe Bergera: Going forward we intend to introduce additional AI capabilities in our edge devices to address use cases for highway vehicle tracking, pedestrian movement, active use trails and urban mixed environment and then at the cloud layers as opposed to the edge layer which I just talked about again at the cloud layers of our clear mobility platform. We continue to add more data and more types of data from across our entire ecosystem. These constantly growing data sets also enable us to expand our uses of AI.

Joe Bergera: So for example the new intersection safety and work zone models which I mentioned earlier are a byproduct of our unique access to verified event data and our multi layered approach to AI. For further context our AI based intersection model uses AI to predict accidents and recommend appropriate countermeasures and likewise our work zone model identifies various risks and countermeasures to inform work zone design and management. Because we operate in a highly competitive marketplace you all know we're going to continue to be measured in terms of our comments about our AI roadmap.

Joe Bergera: But that being said I want to confirm that we continue to identify very compelling uses of AI will create social and economic value for both our public sector and our private sector customers. And we'll continue to provide our investors more visibility to these specific opportunities and do course.

Joe Bergera: So with that I want to just note that we'll be conducting various investor outreach activities over the next few months. And of course as always we're available to speak with investors should you have any follow up questions.

Joe Bergera: In the meantime I want to say we look forward to updating you again on our continued progress when we report our fiscal 2025 second quarter results and with that we're going to go ahead and conclude today's call.

Operator: Thank you everyone.

Operator: Thank you.