Iteris, Inc.

Good day and welcome to the ITERIS Fiscal Second 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 conference is being recorded. I would now like to turn the conference over to Todd Curley of MKR Investor Relations. Sir, 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 second quarter ending on September 30, 2023. Joining us today are Iteris' President and CEO, Mr. Joe Bergera, and the company's CFO, Mr. Kirishiba. Following their remarks, we'll open the call for questions from the company's covering sell-side analysts. Then we will answer investor questions that were submitted to the company in advance of the call for the instructions in our press release dated October 26, 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 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 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 of the 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 Bergera. Joe, please proceed.

Great. Thank you, Todd, and a good afternoon to everyone. I appreciate all of you joining us today. ITERIS reported record fiscal 2024 second quarter total revenue of $43.6 million and fiscal 2024 first half total revenue of $87.1 million, representing an increase of 11 percent and 19 percent year-over-year, respectively. We attribute the strong rate of growth to a high level of demand for our products and services, and we also benefited from a handful of large consulting projects, which were previously delayed due to dependencies on subcontractor deliverables, achieving key revenue milestones in our second quarter and our first half. Our fiscal 2024 second quarter gross margins increased 2,060 basis points, and our fiscal 2024 first half gross margins increased 1,510 basis points on a year-over-year basis, respectively. The gross margin improvement further demonstrates that our supply chain issues are behind us. Due to significant gross margin improvement and our continued focus on operating efficiency, we reported fiscal 2024 second quarter adjusted EBITDA of $2.9 million, and first half adjusted EBITDA of $6.9 million, representing an $8.1 million and $14.6 million improvement year-over-year, respectively. In a few minutes, Kerry will address our profitability dynamics in more detail. Customer adoption of the Clear Mobility platform remains very strong. We reported fiscal 2024 second quarter total net bookings of $43.8 million, and first half total net bookings of 96.9 million, representing an increase of 4% and 14% year-over-year respectively. Due to our strong bookings results, we ended that September 30, 2023 period with a record total ending backlog of 124 million, representing an 11% increase year-over-year. As always, our ending backlog and our net bookings figures reflect firm customer orders rather than total contract value. The total value of customer contracts, which will vary from quarter to quarter, averages on a historical basis about 200% of our total ending backlog. 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 second quarter revenue of $23.4 million and first-half revenue of $47.1 million, representing a 13 percent and 27 percent increase year-over-year respectively. When compared to a 6 to 8 percent average historical growth rate for the related market categories, our sensors continue to take significant market share, growing more than three times the average market rate of growth. The strong rate of growth is due both to continued solid commercial execution and also to superior product features and performance. Indeed, in the fiscal 2024 second quarter and first half, our product teams continue to make solid progress against key business priorities. These priorities include winning a disproportionate share of large-scale modernization initiatives, leveraging our leadership and intersection detection to penetrate adjacent categories, including the emerging cellular vehicle to everything or CV to X category, and attaching annual recurring revenue to our Vantage and our Spectra connected vehicle sensors. For example, some fiscal 2024 second quarter notable customer commitments include a new master purchase agreement with Maricopa County in Arizona, which is the fourth most populous county in the nation, to use our Vantage Next detection system our Blue Toad travel time sensors, and our Vantage Live and ClearGuide signal software for a multi-year comprehensive arterial modernization initiative, which will be executed over the next several years. A new purchase agreement with the City of Cedar Park, Texas, to deploy our Vantage Apex detection system, connected vehicle sensors, and Vantage Live and ClearGuide signal software for a comprehensive citywide intersection modernization initiative. A purchase order for our Vantage Apex detection system and Vantage Live software from the Coachella Valley Association of Governments in California for the second phase of a region-wide intersection modernization initiative. You may recall me speaking about the first phase award recently. A purchase order from Richardson, Texas for the second phase of a city-wide deployment of our Vantage Apex system. and purchase orders from the New York State Department of Transportation for the first deployments in districts one and two of our Vantage Radius plus detection system. As a reminder, the state of New York represents a new geographic market for ITERAS as our Vantage Radius product was first added to the state's qualified product list only last year. Now I want 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 offers. We reported record fiscal 2024 second quarter service revenue of $20.2 million and first half service revenue of $40.1 million, representing a 9% and 12% increase year-over-year, respectively. As noted earlier, our strong service revenue growth is attributable largely to strong customer demand with some timing benefit from a couple large consulting projects with subcontractor dependencies that finally achieved revenue recognition milestones. During our fiscal 2024 second quarter and first half, we continued to make progress on initiatives to improve our internal consulting labor capacity. We also improved our labor utilization, increasing average revenue per headcount. While the pace of improvement remains difficult to predict, we expect the growth in labor capacity to contribute to revenue growth while also improving our labor mix and our gross margins in the future. As with our product portfolio, the level of demand for our services portfolio remains very strong. We reported net service bookings in our fiscal 2024 second quarter of $22.8 million and first half of $57.1 million in representing an 8 percent and a 32 percent increase year-over-year, respectively. In the second quarter alone, we recorded the following notable service bookings. A new $9.5 million contract with the U.S. Department of Transportation to drive the development of the nation's architecture reference for cooperative and intelligent transportation, including the definition of standards for infrastructure to vehicle communication and for vehicle electrification. A $2.2 million task order to provide integrated corridor management services for District 5 of the Florida Department of Transportation. A $1 million plus data as a service and data analytics agreement with Ventura County, California. More than $1 million in software as a service agreements with various state and local agencies for the use of our ClearGuide software. and a new consulting agreement to develop a North American Intelligent Transportation Systems market assessment for a confidential global automotive OEM. These bookings illustrate the unique ability of our ecosystem to not only enable collaboration among mobility infrastructure owner operators, or in other words, various public agencies, but between mobility infrastructure owner operators and mobility infrastructure users, including the traveling public, and various commercial entities. To sustain strong customer adoption of our clear mobility platform, we continue to introduce important new solutions and feature enhancements. For example, in our fiscal 2024 second quarter and first half, 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 and clear guide signals. In summary, we're very pleased with our fiscal 2024 second quarter and our first half revenue, adjusted EBITDA, net bookings, and ending backlog. Additionally, we continue to make significant progress evolving to a platform-based business model, which will enhance solution repeatability, collaboration, scalability, and growth. Due to the very high degree of fragmentation and complexity in our end markets, We continue to believe the progress of our platform strategy will bolster our position as a superior source of value in this industry. On that note, I'll pass the mic to Kerry to provide more color on our fiscal 2024 second quarter and first half financial results, after which I'll come back to further discuss our expectations for the third quarter and for the full year.