Iteris, Inc.

Good day and welcome to the ITERIS Fiscal First Quarter 2024 Financial Results Conference Call. At this time, all participants have been placed on a listen-only mode and we will open the floor for your questions and comments after the presentation. Please note this event is being recorded. I would now like to turn the conference over to Todd Curley of MKR Investor Relations. Please go ahead.

Thank you, Operator. Good afternoon, everyone, and thank you for participating in today's conference call to discuss Iteris' financial results for its fiscal 2024 first quarter and in June 30, 2023. Joining us today are Iteris' President and CEO, Mr. Joe Bergera, and the company's CFO, Mr. Kari Shiba. Following the remarks, we'll open the call for questions from the company's Covering Cell Side Analyst. Then we will answer investor questions that were submitted to the company in advance of the call per the instructions in our press release dated July 25th, 2023. Before we continue, we'd 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, 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 update 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 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 statements. 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. Now, I'd like to turn the call over to ITERIS's president and CEO, Mr. Joe Brugera. Sir, please proceed.

Great. Thank you, Todd, and good afternoon to everyone. I appreciate all of you joining us today. ITERIS reported record total revenue of $43.5 million in our fiscal 2024 first quarter, representing an increase of 29% year-over-year. We attribute the strong rate of growth to a high level of demand for our products and services, and we also had some consulting projects which had been delayed due to dependencies on subcontractor deliverables achieve key revenue milestones. As of our last earnings call, we were not expecting these subcontractors to be able to achieve these revenue milestones until our fiscal 2024 second half. Our fiscal 2024 first quarter gross margins rose 840 basis points on a year-over-year basis and 680 basis points on a sequential basis. demonstrating that the high purchase price variance associated with our prior supply chain issues are now behind us. As a result of the gross margin improvement and our continued focus on operating efficiency, we reported record adjusted EBITDA of 3.7 million, representing a $6.1 million improvement year over year. In a few minutes, Kerry will address our profitability dynamics in more detail. Customer adoption of the Clear Mobility Platform remains very strong. In our fiscal 2024 first quarter, we reported record total net bookings of 53.1 million, representing an increase of 25% year-over-year. Due to strong bookings results, we ended the June 30, 2023 period with a record total ending backlog of 123.8 million, representing a 14% increase year-over-year. As always, our ending backlog and net bookings figures reflect firm customer orders rather than total contract value. The total contract value, 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 varies from period to period, of our sensor bookings, since these orders often 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 2024 first quarter revenue of $23.7 million, representing a 44% increase year over year. The strong year-over-year comparison is due both to continued solid commercial execution and a relatively soft prior year comparison that was impacted by limited component availability resulting from last year's supply chain issues. If you look at product performance on a trailing 12-month basis to adjust for the prior year comparison, product revenue is still up 38% compared to the same prior period. Given the weighted average historical growth rate for the associated market categories is in the range of 6 to 8 percent, our sensors continue to take significant market share, growing more than four times the average market rate of growth. Additionally, our commercial teams continue to make solid progress against key commercial priorities that include winning a disproportionate share of large-scale modernization initiatives, leveraging our leadership and intersection detection to penetrate adjacent categories, including the emerging cellular V to X category, and attaching annual recurring revenue to our Vantage and Spectra CV sensors. In the fiscal 2024 first quarter, we attached annual recurring revenue to 29% of Vantage Next sensor units sold, which represents another record for Iteris. Now I want to review the performance of our services portfolio, which includes our various consulting service, managed service, software as a service, and data as a service offerings. We reported record service revenue of $19.9 million in our fiscal 2024 first quarter, representing a 15% increase year-over-year. As noted earlier, this growth is attributable to continued strong demand, as well as some previously delayed consulting projects with subcontractor dependencies, which occurred ahead of the revised completion date. During our fiscal 2024 first quarter, we also experienced some improvement in our internal labor capacity due to the initiatives that we discussed on last quarter's earnings call. While additional labor capacity had only a nominal impact on first quarter revenue, and the pace of improvement is still difficult to predict, we expect to realize both revenue and gross margin benefits from the additional labor capacity in future quarters. The level of demand for our service offerings continues to hit new record levels. In our fiscal 2024 first quarter, we reported net service bookings of 34.3 million, representing a 55% increase relative to the same prior year period. We estimate that roughly 24.4 million or 71% of our first quarter net service bookings will be recognized in the future as annual recurring revenue. In the first quarter, our more notable service bookings included a four-year data as a service agreement with a total value of more than $15 million to provide clear data to a confidential private sector entity. An almost $4 million data-as-a-service agreement to provide clear data to an undisclosed media company. A combined $3.6 million in task orders to provide hosted software and related services to the Virginia Department of Transportation. A combined $3.5 million in task orders to provide managed services to operate high-occupancy vehicle toll lanes for the San Francisco Bay Area Metropolitan Transportation Commission. a $1.2 million task order with the City of Yorba Linda, California, to develop and implement a traffic signal synchronization plan, and a $1 million cloud-enabled managed services task order with the City of San Mateo, California, for smart corridor network monitoring. To sustain strong customer adoption of our Clear Mobility platform, we continued to introduce important new solutions and feature enhancements. For example, in the first quarter, we released the alpha version of a next-generation travel time and connected vehicle data collection and presentation system, as well as new transit signal prioritization features in ClearGuide Signals. In summary, we are very pleased with our fiscal 2024 first quarter record revenue, record adjusted EBITDA, record net bookings, and record ending backlog. Additionally, we believe Iteris continues to demonstrate significant progress evolving to a platform-based business model associated with improvements in solution repeatability, collaboration, scalability, and growth. In light of the very high degree of fragmentation and complexity in our end market, we believe this progress is both notable and superior to other companies trying to pursue a similar strategy. So on that note, I'm going to pass the mic to Kerry to provide more color on our fiscal 2024 first quarter financial results, after which I'll come back and further discuss our expectations for the second quarter and full year.