It does remain tight, and it’s something that we’ll remain focused on. But I would say that we’re not overly concerned. I think we feel good about the plan that we outlined. And I think we’re making progress against that plan more or less as we had expected.
Unidentified Analyst: Okay. Great. Thank you.
Operator: Thank you. Our next question is coming from Mike Latimore with Northland. Your line is live.
Aditya Dagaonkar: Hi. This is Aditya on behalf of Mike Latimore. Would you give some color on what percentage of your revenue and bookings were recurring?
Joe Bergera: Yes. Kerry, do you want to talk to that?
Kerry Shiba: I’m sorry. Could you repeat the question again?
Joe Bergera: What percent of revenue and bookings was recurring?
Kerry Shiba: Let’s see. On a recurring revenue basis, we ended up at roughly about 25%. We’re growing our recurring revenues nominally, but as a percentage of total, the very, very high growth rate we’ve been seeing in products tends to mask that when you look at it from that – from a percent of revenues overall.
Joe Bergera: And then also, bookings were – I believe that recurring bookings growth was I think, in the high 20%, maybe the low 30% for the quarter. But as a reminder, they were exceptionally high. I think it was like 65% to 70% growth in the first quarter. So overall, for the first half, I believe that our – the bookings for recurring revenue was well above the current 25% of total revenue, meaning that we are on track to continue to increase the contribution of recurring revenue to total revenue through 2027.
Aditya Dagaonkar: Got it. Any color on the pipeline growth?
Joe Bergera: Yes. The overall, the sales pipeline, yes, so the demand environment remains extremely strong. And as I’ve said before, we think that market interest, market adoption of ClearMobility Platform is consistent with our original expectations, perhaps even exceeding that. So when we look at our overall pipeline, it continues to grow, remains overall extremely healthy. Our win rates remain exceptionally high. I would say that they’re probably best in class in our industry. All that being said, as I’ve said before, as we continue to pursue more and more large transactions, that does make us more susceptible to the impacts of timing on any one or two of those big transactions. The first quarter was a perfect example for us, where we had a couple of extremely large transactions that closed in that period and we had historic bookings growth.
In the second quarter, we again had very strong bookings growth, but we actually pulled some bookings that we had anticipated to occur in the second quarter into the first. And as a result, the rate of bookings growth in the second quarter was lower than it was in the first. But I think you should expect, overall, there will continue to be some degree of lumpiness, especially as we continue to pursue more and more of these large transactions. But again, on a medium-term to long-term basis, we feel very, very confident about our continued bookings growth being in excess of overall market growth rates. And of course, that will drive continued backlog growth and ultimately, superior revenue growth in our market.
Aditya Dagaonkar: Got it. Thank you.
Operator: Thank you. [Operator Instructions] Our next question is coming from Tim Moore with E.F. Hutton. Your line is live.
Tim Moore: Thanks, and congratulations on the top line, beat both products and service sales and the strong half of the year. I mean, a lot of companies, not just you, are facing a difficult lapping period of comps in the next six months. So you’re not an only boat. And I just want to follow up first maybe on a thread from a prior question. Maybe another one for Kerry. From an operational perspective, – when you start – now that you’re pretty much done with the supply chain constraints and really not much of a headwind anymore. You’ve got the in-house circuit boards. And eventually, the subcontractors’ usage margin drag is be mostly maybe minimalized as you finish this internal hiring expansion and training. So I know you’re not giving next year guidance, but do you think a 40% gross margin is not an unrealistic stretch goal when you kind of look out to next summer or June quarter, September quarter after you lapped a tough comp?
Kerry Shiba: Yes. Tim, I think, certainly, we’ll continue to see progression. And for basically, the factors that you mentioned, first off, obviously, the – when you think about the EBITDA margin progression, the continued revenue growth is going to help us get better leverage on OpEx, number one. Number two, we’re continuing to work in our manufacturing and supply chain area to improve our leverage in that area also. And I do think that there are some things that are in the works operationally, which should contribute to improvement in margin progressively on the sensor side of our business. And then as we continue to, I think, improve our labor mix, obviously, that’s going to that’s going to point to a positive also. So I think that there’s wind in the sails clearly directionally with respect to what we would see going forward.
Tim Moore: Good. That’s helpful color. I appreciate it, Kerry. And maybe for Joe, I mean, how would you kind of rate your internal labor hiring and less need for more expensive subcontractors when you kind of get to January or February? Are you – do you think by then, you’ll be 65%, 2/3 of the way accomplished?
Joe Bergera: Yes, I would expect that at that point. We’ve actually begun to see like a higher level of impact, if you will, from the initiatives that we began to introduce in the first quarter because as you would expect, there’s some kind of a lag effect. And so yes, it would be my expectation that we’d be about 2/3 of the way there by January. And this is, of course, just to be clear, it’s something we’re going to have to continue to focus on going forward. We’d expect for the foreseeable future that the labor markets will remain relatively tight. But I don’t – I want to make sure this is not lost on people. Iteris has a fantastic employee brand reputation. And so as we make an effort to engage with more candidates and basically extend our funnel, we’re finding really, really strong interest by those candidates in working with Iteris.
And again, I want to make sure everyone understands that we have probably unusually high attrition rates, generally speaking, and certainly within our industry, especially given what a tight labor market it is. So once we get people here, we keep them around because we’ve been doing a lot of exciting things, and a lot of employees want to be part of our story.
Tim Moore: That’s really helpful color. Next question I have is you – if you and Kerry kind of think back and maybe – I’ve been watching the contract wins and recording them. In the last nine months or so, it’s been very good, even the last 12 months. I think a topic investors are really curious about is when you reached that scale, maybe that $10 million more of recurring revenue you need from cloud-based solutions or process virtualization to really get the gross margin step up given that I think Software as a Service side is at least 65% gross margin. So do you think you can maybe get to that kind of inflection point? Maybe December next year, you may be still on track for that?
Joe Bergera: Well, I’ll offer some comments and then Kerry, I’d like you to chime in. Tim, to be totally transparent, we will continue to make progress between now and next December. And I think it will be notable. I think it will flow through the financial statements. So you guys will be able to see the progress that we’re making. But I’m not sure whether we will hit that critical inflection point as early as next December. I think it’s more likely to be in the beginning of the subsequent fiscal year, which would be the first half of that subsequent fiscal year. So I’d say sometime probably between April and September of the following year.
Kerry Shiba: I don’t think I have anything to add to that or any more color to add to that, Tim.
