Joe Bergera: So I’ll start off by saying we’re only looking at international opportunities opportunistically, you know, as I said, or situationally. It’s not to say that we would never do an international acquisition, but the opportunity in front of us in the North America market is so substantial that that’s really what we’re focused on. And most all the acquisition opportunities that we’re — you know, they’re currently on our radar in North America. Kerry, I don’t know if you want to offer any additional comments with respect to the status of our acquisition activities.
A – Kerry Shiba: Well, I think, and this is really a continuation, I think, of comments last quarter to the pipeline of opportunities continues to be fairly rich. And so I think that our view of kind of overall of the business accomplishing or closing a transaction kind of once every 12 to 18 months is probably still a fair target. I think we’ve talked about kind of the mix of businesses that are out there and some of the challenges the SaaS businesses still have a challenge with regard to valuation or pricing relative to what our multiples are at. So we have to be very cognizant of that. And they tend to be much smaller and therefore time consuming. And even if they can augment our IP in some way, it’s still pretty typical.
These are small, typically kind of venture capital-back businesses, pre-revenue or early revenue stages, and therefore still relying some cash portal on the way. So we’re still focused on trying to ensure that whatever deals we do that they will be immediately accretive. And the marketplace of potential opportunities really hasn’t changed a whole lot from that perspective. But nonetheless, the pipeline of possibles continues to be, I think, pretty full. And so we’re actively looking at things as we sit here today.
Tim Moore: Great. Well, thanks, Joe and Kerry. And that’s it for my questions.
Operator: Thank you. That concludes today’s Q&A. I would now like to turn the call back to Joe Bergera for pre-submitted investor questions.
Joe Bergera: Super. Thank you, operator. Yes, I’d like to address two questions, sort of, that we received prior to today’s call. The first question from an investor was, what steps Iteris taking to assure and show meaningful progress towards achieving the company’s vision 2027 target of 16% to 19% adjusted EBITDA margins? And in response to that question, I want to reconfirm that management, we are extremely focused on delivering EBITDA margins and improvements. And of course, we just announced that our nine-month adjusted EBITDA represents an $18.1 million improvement year-over-year. As we looked 2027, we’re pursuing many initiatives to expand our adjusted EBITDA margins. But I want to share some specific color on four drivers that in our opinion represent meaningful levers for adjusted EBITDA margin improvement.
Some of these we’ve already talked to in response to some of the analyst questions. But first, one area for improvement is related to cloud infrastructure and data acquisition costs for our software as a service and data as a service solution. As I noted just a moment ago, those costs are largely fixed, resulting in gross margins that are currently suboptimal because we’ve got the fixed costs on relatively low revenue. But as that revenue steps up, every million dollars would expect to realize significant cost leverage and associated margin expansion, which will flow through and you’ll begin to see in the income statement. Second, as we mentioned on various calls, including today’s, and even just a couple seconds ago, our current project-based services gross margin, our consulting gross margin has been depressed by the fact that our internal labor capacity is not at the level that we’d like.
We’re continuing to make progress on that, and that’s going to bear some fruit, obviously not to the same degree as we’ll see with respect to the SaaS and DaaS solutions for the reasons I mentioned. But then the third driver that I did want to also note we previously talked about, we didn’t discuss yet on this call, is that, our Vantage Apex product, which is our newest sensor product line, is still relatively new, and the volume on it is relatively low. And that’s because it takes agencies time to review and qualify these new products before they can be installed within their respective jurisdiction. And as the volume of the Apex shipments continues to climb, we’ll realize various internal efficiencies and begin to capture better volume pricing for certain electronics components that we only use on our Vantage Apex’s product line.
And then there are also process benefits that we’ll realize with respect to assembly, test, and shipping of that product line. And then, fourthly, just broadly, an increase in revenue from various other service and product lines will, of course, improve our overhead absorption and yield operating expense leverage. So, all four of those factors are going to drive significant improvements in EBITDA margins through the 2027 horizon. I’m not going to go into all the specific actions that we’re taking to improve our adjusted EBITDA margins, but I do hope that that’ll give you a view of some of the structural dynamics that we expect to benefit us over the next couple of years. The second question, as I said, I’m going to kind of address that was, you know, can you provide some general comments on Iteris’s thinking on M&A, especially given Iteris has a clean balance sheet.
