Iteris, Inc.

Good day and welcome to Veritaris Inc. Fiscal Fourth Quarter and Full Year 2022 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Todd Curley of the MKR Group. Please go ahead.

Thank you, Operator. Good afternoon, everyone, and thank you for participating in today's conference call to discuss ITERIS's financial results for its 2022 fiscal fourth quarter and full year ended March 31, 2022. Joining us today are ITERIS's President and CEO, Mr. Joe Bergera, and the company's CFO, Mr. Doug Groves. Following their prepared remarks, we'll open the call for questions from the companies covering sell-side analysts. Before we continue, we'd like to remind all participants that during the course of this call, we may make forward-looking statements regarding future events or the future performance of the company, which statements are based on current information, are subject to change, and are not guarantees of future 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. Iteris refers you to the documents the company files from time to time with the Securities and Exchange Commission, specifically the company's most recent forms 10-K, 10-Q, and 8-K, which contain and identify important risk factors that could cause actual results to differ materially from those that are contained in any of the forward-looking statements. As always, you'll find a webcast replay of today's call on the Investors section of the company's website at www.iteris.com. Now I'd like to turn the call over to ITERIS's President and CEO, Mr. Joe Becerra. Please proceed.

All right, thank you, Todd, and a good afternoon to everyone. I appreciate all of you joining us today. I want to remind everyone that we completed the sale of our agriculture and weather analytics segment to DTN LLC on May 5, 2020. As such, we're reporting the results of that segment as discontinued operations for all periods presented in today's earnings announcement. I'll be discussing only our continuing operations for the remainder of this call. The company reported record fiscal 2022 fourth quarter total revenue of $34.2 million and record fiscal 2022 full year total revenue of $133.6 million, representing a respective 8% and 14% year-over-year increase. As you'll note, this revenue result is slightly below our full year revenue guidance of $134 million to $136 million. The revenue variance is fully attributable to supply chain challenges that prevented us from fulfilling and recognizing 2.2 million in fourth quarter revenue advantage sensor backlog. These are not lost orders. In fact, we've begun fulfilling this 2.2 million advantage backlog in the first quarter of fiscal 2023. I will discuss our supply chain exposure and supply chain mitigation plan in more detail in a few minutes. Notwithstanding our supply chain challenges, customer response to our Clear Mobility platform is very positive, and we continue to strengthen our position of leadership in the smart mobility infrastructure management market. In the fourth quarter, we reported record total net bookings of 41.9 million, representing a 27% increase compared to the same prior year period. This brings our full year total net bookings to a record 155.4 million, representing a 28% increase year over year. Given our sustained record net bookings, we ended the March 31 period, or I'm sorry, we ended the March 31 period with record total ending backlog of 99.9 million, representing a 28% increase year over year and an 8% increase on a sequential basis. As always, our reported net bookings and ending backlog figures reflect firm customer orders. Of our $34.2 million in fourth quarter total revenue, 49.9% was recorded as product revenue and 50.1% was recorded as service revenue. As a point of comparison, 51.5% of our $133.6 million in year-to-date revenue was reported as product revenue and 48.5% was reported as service revenue. The mixed shift reflects fourth quarter supply chain constraints. Our fiscal 2022 fourth quarter product revenue was 17.1 million versus 15.9 million in the same prior year period, representing an 8% increase year over year. While this is respectable organic growth, the result was below our expectations due to supply chain constraints that prevented us from shipping 2.2 million in fourth quarter Vantage sensor backlog. If not for the fiscal fourth quarter supply chain constraints, our fourth quarter product revenue would have been 19.3 million or 21% higher in the same prior year period, and our full year product revenue would have been 70.9 million or 13% higher than the same prior year period. Additionally, please note that our fourth quarter product revenue growth is due to an increase in unit sales in the period since the 10% price increase we implemented for our Vantage sensors on January 1, 2022 has not started to bleed into our revenue results. As we talked about on the prior call, we provide price quotes at least one quarter prior to the receipt of the corresponding sales orders. Based on our fourth quarter product results, we believe Iteris continued to navigate the supply chain environment better than our competitors and continue to take market share in the detection market. For comparison, Autoscope Technologies, our only publicly traded competitor to disclose detection product revenue, reported a 20% year-over-year decrease in revenue for their first quarter ended March 31, 2022. A major factor in our market share gains is the superior performance of our sensors, which continue to set the performance standard for the industry. To that end, in the fourth quarter, we announced that Iteris, in partnership with Ford, Toyota, Qualcomm, and Continental AG, was awarded a $20 million three-year pilot project to demonstrate the safety potential of connected and automated vehicles operating in cooperation with Iteris' Vantage Fusion sensor. We received statewide approval. Additionally, we received statewide approval, in other words, a hunting license from the New York State Department of Transportation to sell and deploy our Vantage Radius sensor. And we want a competitive procurement by the Florida Department of Transportation valued at $1 million to deploy our connected vehicle sensor, which we brand as Spectra CV. That deployment will occur across the corridor in District 7. Furthermore, our Vantage Next sensor was selected as the detection standard for many of the nation's largest signal modernization initiatives, resulting in the following notable fourth quarter purchase orders. A $9.4 million purchase order from Miami-Dade, Florida for the first phase of a multi-phase project to modernize the county signalized intersections. A $3 million order from Baton Rouge, Louisiana to deploy our Vantage Next sensor across the city's signalized intersections. A $2 million order from Concord, California to modernize the city's signalized intersections with our Vantage Next sensor with hybrid video and radar detection. A $1.2 million order from Fremont, California to deploy our Vantage Next sensors. And a $500,000 order from the Colorado Department of Transportation to deploy our Vantage Next sensor with hybrid video and radar detection. Unfortunately, supply chain challenges not only constrained our ability to fulfill our entire fourth quarter backlog, but these challenges also resulted in significant additional costs to source and to expedite components from alternative suppliers. Doug will characterize the current and near-term impact of supply chain constraints on our gross and EBITDA margins However, in the meantime, I want to assure you that we've developed a comprehensive supply chain mitigation plan, which we are currently implementing and is intended to progressively improve our supply chain position. Key elements of the plan include, one, redesign of certain vantage sensor circuit boards to reduce our dependency on specific chipsets. Two, expansion of our supplier base by negotiating volume and price commitments for alternative chipsets. Three, expansion of our secondary market or our broker network. Four, enhancements of certain supply chain and manufacturing business practices with the help of outside advisors and strategic hires. Fifth, increase in our buffer inventory to cover a target 12 to 18 months of key components. And sixth, implementation of certain additional price increases to further offset materials costs going forward. Our plan should meaningfully improve our supply chain position as we progress through fiscal 2023, even if the global supply chain environment remains largely the same as current conditions. In other words, the benefits should begin to bleed through our Vantage sensor revenue and gross margin lines in our fiscal 2023 second quarter. In a few minutes, Doug will discuss the financial implications of this mitigation plan in more detail. In the meantime, I want to review the performance of our service lines of business. As you'll recall, we recognize two forms of service revenue. One, project-based revenue that is associated with our consulting activities, and two, annual recurring revenue from our software as a service, data as a service, platform as a service, and managed service offerings. Our fiscal 2022 fourth quarter service revenue was $17.1 million, versus 15.8 million in the same prior year period. This represents an 8% year-over-year increase. On a full year basis, fiscal 2022 service revenue was 64.8 million versus 54.2 million in the same prior year period, representing a 20% year-over-year increase. Our fourth quarter annual recurring revenue was 8.7 million, or 51% of fourth quarter total service revenue and full-year annual recurring revenue was 33.5 million, or 52% of full-year total service revenue. In the fourth quarter, we recorded 20.3 million in net service bookings, as well as executed several large contracts, with the following agreements being some of the more notable. A three-year contract with the Virginia Department of Transportation with an unlimited budget ceiling for intelligent transportation operations, planning, and support. A multi-year contract to provide our data as a service offer to iHeartMedia's total traffic and weather network for an undisclosed value. A $5 million multi-year contract with the Florida Department of Transportation for smart mobility safety and sustainability initiatives. A $3.8 million task order with the Orange County Transportation Authority to conduct a traffic signal synchronization program, a $1.6 million task order with LA Metro to operate and maintain a next generation signal priority system, which leverages ITERIS's asset management cloud enabled managed service solution and infrastructure to vehicle integration expertise. And more than one million in task orders from the Virginia Department of Transportation to support a smart mobility safety and sustainability priorities. In summary, customer response to our Clear Mobility Solutions roadmap continues to be very strong, resulting in record total fourth quarter and full year net bookings, as well as record total ending backlog. Although supply chain constraints prevented us from fulfilling $2.2 million of our fourth quarter advantage sensor backlog, we did report solid organic revenue growth, and we made good initial progress implementing our supply chain mitigation plan. Before I discuss our fiscal 2023 expectations, I'd like to turn the call over to Doug to provide some more color on our fourth quarter and our full year 2022 financials.