Release Date: June 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Iteris Inc (ITI, Financial) reported fiscal 2024 Q4 total revenue of $42.8 million and full-year total revenue of $172 million, representing growth rates of 1% and 10% year-over-year, respectively.
- Gross margins improved significantly, with a 558 basis points increase in Q4 and 1,063 basis points for the full year.
- Record fiscal 2024 Q4 total net bookings of $53.3 million, increasing 20% year-over-year, and full-year total net bookings of $181.6 million, increasing 7% year-over-year.
- Strong customer adoption of the ClearMobility platform, achieving a best-in-class revenue-based win rate of 69%.
- Iteris Inc (ITI) ended the fiscal year with a total ending backlog of $123.8 million, representing an 8% increase year-over-year.
Negative Points
- Fiscal 2024 Q4 product revenue decreased by 14% year-over-year, impacted by an unusually high prior year result due to shipping a large backlog.
- Operating expenses for Q4 were 14.5% higher compared to the same period last year, and 449 basis points higher when measured as a percentage of revenue.
- Litigation costs related to a contract signed in 2015 significantly impacted G&A expenses, with $2.8 million incurred in fiscal 2024.
- The company expects continued bookings lumpiness over the next several quarters due to the timing of several large pending orders.
- Fiscal 2025 Q1 revenue growth is expected to be modest at 2% year-over-year at the midpoint, reflecting a difficult prior year comparison and timing of new product releases.
Q & A Highlights
Q: Joe, I know you mentioned -- and Kerry, you mentioned too that kind of a tough compare here or the first quarter on revenues, but I guess is there any more color? And I know you said some things about Q2. But any more color you could give us on how you're thinking about kind of the revenue growth progression we should look for this year?
A: Yeah, Jeff, as you know, we've been just providing quarterly guidance. One quarter at a time. But obviously, if you look at the full year guidance and our first quarter guidance, it's obvious we expect that there's going to be a step up in the rate of revenue growth throughout the year. And again, if you look at it relative to the prior year, please keep in mind that our first quarter of fiscal 2024 was an unusually strong period due to the fact that we've continued to ship a lot of backlog that had previously built up as a result of supply chain constraints that we've been experiencing. And then also, we had a couple of milestone achievements which impacted or led to a substantial amount of services revenue recognition in the period so that creates a difficult comparison. We also have a couple of new products which I discussed, which are going to be releasing into the market. I want to be very clear that we will be selling and marketing those activities in the first quarter and the second quarter of the current fiscal year. However, revenue recognition for the sensors won't occur until we actually ship those products, which will occur late in the second quarter and early into the third quarter. And that's going to result in a higher rate of sequential growth and also improve year-over-year revenue growth rates as we progress through the year.
Q: Can you speak a little bit more on the R&D and sales team investments that you've made and how you're supporting the new product introductions?
A: Sure, there is some, I'll say broadly, and then Kerry, I'll turn it over to you to talk to some of the specifics. But there are some external development costs that we're incurring in the third quarter following the release of these products, we will not continue to incur those costs. So it's episodic. There's also similarly some external launch-related investments that are occurring in the first quarter to create assets that will be leveraged when it dry over the course of the launch programs for these various new products. And so again, those are sort of episodic expenses and won't necessarily continue going forward. Kerry, I don't know if there's anything additional that you want to add in response to Jeff's questions.
Q: Just any help you can give us on gross margin progression as the year plays out?
A: Yeah, to be quite candid with you, Jeff. I was caught a little bit by surprise with the fourth quarter gross margin result. We took some charges that fundamentally came out of our year-end physical inventory count. That count, we incurred some shortages that were higher than normal and I would only comment there that it points to the fact that it was a very thorough process of physical capital, also points to the need for some process improvement as we go throughout the year. So that was a little bit higher number than normal. And we also took some obsolescence charges that were identified during that physical count and we got hit in the fourth quarter of this year with roughly about $0.5 million worth of charges that were certainly directionally high for this and as I was talking to you last quarter and they weren't expected to tell you the truth. That number is worth like 220 basis points worth of the products area gross profit, which is where all those inventory items, of course, relate. And on an EBITDA margin perspective, those expenses added up to almost 120 basis points of EBITDA margin. With other noise going back and forth, I wanted to point that item, just to say that really affected kind of the launch pad looking at Q4 of this year as a starting point. As far as the progression next year, I think that I would expect to continue to see directional improvement in gross profit as we go quarter-by-quarter throughout the year. I think it's going to be driven by a couple of areas, I do expect our services area, gross profits to continue to progress upwards. The improvement in the labor mix is going to clearly help. And as we've talked about in the past, the rate of growth in the software products area is going to start to contribute some leverage to the overall gross margins in the services area. On the products area, I would expect the gross margins to be more stable in relative terms, but directionally a small tick upwards as we progress throughout the year, especially if you're looking first half to second half in contrast to a quarter-by-quarter progression there. I think the introduction of the new products that Joe has mentioned, we would expect will help provide the incremental improvement in the gross profit there.
Q: On the last earnings call, when you were talking about bookings for the fourth quarter, you said there might be a potentially a $10 million deal. I guess did that close in the quarter or is that still in the pipeline?
A: Yes. So I'll answer that, Mike. So yeah, but one of those did close that was OCTA deal, which was just under $10 million. I will say that we are tracking a number of other very large orders similar in magnitude to the OCTA contract. They continue to kind of move around. So that timing is somewhat unpredictable, but there we do expect to close them in the relatively near future. There was a possibility when we provided our comments on our last earnings call that in addition to the OCTA transaction, there may be another which could have closed in the March 31 period, but obviously it didn't. And again, we are continuing to track that opportunity as well as others that we do expect to close in the relatively near future.
Q: For your as-a-service offerings, what do you point to as kind of the driver for increased attach rates?
A: Yeah. So it depends. But I'd say first of all, in general, we're just getting better at cross-selling. Our market historically has been super fragmented, and most agencies have just been in this model of buying point solutions. And we're trying to disrupt that model. And I think we've gotten pretty effective at our offering compelling value proposition and also, frankly, overcoming objections and which has allowed us to increasingly sell these larger integrated solutions where we're bundling various capabilities and we expect to continue to do that. The great thing about our market is -- our public sector market is because our project is in the public sector, our agency customers don't compete with one another. And so they're more than happy to share best practices with one another. And so as we're successful executing on this model and then demonstrating value to those agencies, those agencies become great customer references for us and so we see other agencies follow suit. So we think we're really at the early stages in terms of the development of this kind of alternative procurement model. That's it at the end of the day, Allen. It really comes
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
