Iteris, Inc. (NASDAQ:ITI) Q4 2023 Earnings Call Transcript

Iteris, Inc. (NASDAQ:ITI) Q4 2023 Earnings Call Transcript June 13, 2023

Iteris, Inc. misses on earnings expectations. Reported EPS is $-0.01 EPS, expectations were $0.03.

Operator: Good day and welcome to the Iteris Fiscal 2023 Fourth Quarter and Full-Year Financial Results Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Please note, this conference is being recorded. I would now like to turn the conference over to Todd Kehrli of MKR Investor Relations. Please go ahead.

Todd Kehrli: Thank you, operator. Good afternoon, everyone and thank you for participating in today’s conference call to discuss Iteris’ financial results for its fiscal 2023 fourth quarter and full-year ended March 31, 2023. Joining me today are Iteris’ President and CEO, Mr. Joe Bergera and the company’s CFO, Mr. Kerry Shiba. Following their remarks, we’ll open the call for questions from the company’s covering sell-side analysts. Before we continue, we’d like to remind all participants that during the course of 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 does not undertaking any 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 will find the webcast replay of today’s call on the Investors section of the company’s website at www.iteris.com. Now, I’d like to turn the call over to Iteris’, President and CEO, Mr. Joe Bergera.

Sir, please proceed.

Joe Bergera: Alright. Thank you, Todd and good afternoon to everyone. I appreciate all of you joining us today. Before we begin our regular earnings commentary, I want to apologize for changing the date of our earnings announcement. During his remarks, Kerry will explain the reason for some additional closing procedures that led to this delay. In the meantime, I want to confirm that these additional procedures have resulted in no impact to the company’s income statement for fiscal 2023 or our fiscal 2022 comparisons. So, let’s turn to those results. Iteris reported record fiscal 2023 fourth quarter total revenue of 42.4 million and record fiscal 2023 full-year total revenue of 156.1 million, representing significant growth rates of 24% and 17% year over year respectively.

We attribute the significant growth to a strong demand for our products and services, as well as the progress of our supply chain improvement plan, which mitigated the shipment constraints we experienced in the first half of fiscal 2023, and continues to normalize the economics of our Vantage sensor product lines. Our fiscal 2023 fourth quarter product gross margins improved 172 basis points on a sequential basis as we began to ship Vantage sensor with the alternative circuit boards, that we released to production in our fiscal 2023 third quarter. The product gross margin improvement would have been even greater. However, we shipped more units with high purchase price variances to address customer requirements in the period. While this constrained gross margin improvement in the fourth quarter had helped us flush more purchase price variance to our income statement, which improves our position as we enter fiscal 2024.

As a reminder, the improvement in our fourth quarter follows a sequential improvement and product gross margins in our fiscal 2023 third quarter of 2,640 basis points. In a few minutes, I’ll provide some more color on the status of our supply chain improvement plan and of course Kerry will address our service and product gross margin dynamics in more detail in his comments. Despite concerns about a possible economic slowdown, customer adoption of the ClearMobility Platform remains very strong based on key metrics, including net bookings, competitive win rates, and instances of customers specifying the use of our solutions. For example, we reported record fiscal 2023 total net bookings of 44.4 million, as well as record fiscal 2023 full-year total net bookings of 170.3 million.

Additionally, in fiscal 2023 our win rate in competitive procurements for our service offerings, which include consulting, managed services, and software as a service, hit a new record high of 82%, and our solutions were increasingly specified as requirements by various customers. While there are many examples of customers specifying Iteris technology, we’re particularly pleased to report that Iteris is specified by 5 of 37 agencies who are awarded the first wave of a Safe Streets for all implementation grants. These grants are funded through the Infrastructure Investment in Jobs Act or IIJA. The total combined value of these grants is 94 million or 16% of the total 600 million in initial implementation grants. It’s unclear at this time how much of this funding Iteris will receive, but this result clearly demonstrates a high level of customer preference for Iteris solutions.

Due to strong customer demand, we ended the March 31, 2023 period with a record total ending backlog of 114.2 million, representing a 14% increase year-over-year. As always, our ending backlog figures and net bookings reflect firm customer orders rather than total contract value. The total value of customer contracts, 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. Speaking of our sensors, I’d like to share some detail about the performance of our product portfolio. For our sensors and third party hardware, that we refer to collectively as products, we reported fiscal 2023 fourth quarter revenue of 25.1 million and fiscal 2023 full-year revenue of 85.1 million, representing a 47% and 24% increase year-over-year respectively.

The performance of our sensor portfolio, which represents the majority of our product revenue demonstrate significant share gains in market categories that we estimate grew at about a weighted average in the range of 6% to 8% over the past 12 months. This implies that revenue for our sensors grew more than 3x the market growth rate. We believe our sensors continue to take market share to significant rate, due to both excellent sales execution and superior product performance. And in the fourth quarter, we continue to extend our superior performance with improvements to various detection algorithms such as red light running, queue length, and delay algorithms; enhancements to the setup and ease of use of our video and radar sensors; and optimizations to our connected vehicle sensor process and publish connected vehicle data packets at massive scale to ClearMobility cloud, as well as directly to ecosystem participants.

Due to strong performance advantages of our sensors, we continue to win virtually every large competitively sourced detection, fixed travel time, and cellular vehicle to everything or CV2X sensor initiatives across the country. In the fourth quarter, our sensors were selected for the following representative smart mobility initiatives: an expanded deployment of CV2X sensors on the I-4 between Tampa and Orlando as part of the Florida Regional Advanced Mobility Elements or FRAME program. You may recall that on previous earnings calls, we discussed similar purchases of our Spectra connected vehicle sensors for this large multi scale – this large scale multi-year initiative. Another initiative was a quarter wide deployment in Richardson, Texas of high definition AI based detection sensors.

This is the first large scale deployment of our Vantage Apex sensor. Our corridor deployment in Sunnyvale, California of our hybrid intersection detection sensors, in other words, our Vantage vector sensors using both our video and radar technology that was bundled with our ClearGuide signal and Vantage life cloud software. The corridor deployment in Nashville, Tennessee of our travel time and cellular V2X sensors attached to our cloud-based [Blue ARGUS software] [ph]. The quarter deploying in Fredericksburg, Virginia of our Vantage Vector sensors that are connected by our ClearMobility Cloud to the Virginia Department of Transportation Central Signal System, and the deployment across the segment of the Rio Grande Valley in Texas of our Radar Sensors, which we brand as VantageRadius.

These representative fourth quarter orders demonstrate our progress against the following three strategic priorities that we’ve talked about previously. First, it demonstrates our ability to win a disproportionate share of large scale modernization initiatives; second, to attach annual recurring revenue at the point of sale to our quarter-wide sensor deployments; and third, to leverage our leadership in the intersection detection to penetrate adjacent categories including the emerging CV2X category. For reference at this time, we have more than 3,100 intersections, and 2,100 travel time in CV2X sensors that are connected or in the process of being connected to our ClearMobility Cloud. As mentioned earlier, we continued in the 4th quarter to make excellent progress on our supply chain improvement plan.

And recently we released to production two additional alternative circuit boards, meaning we’ve now released a total of eight alternative circuit boards to production. With this achievement, we’ve now met all the primary goals of our supply chain improvement plan as outlined on our June 1, 2022 earnings call. Besides mitigating supply chain constraints, the alternative circuit boards will improve our ability to source electronics components, optimize the cost of our electronics components, and enhance our ability to level load our manufacturing capacity. Due to the success of our supply chain improvement plan, we have discontinued the use of external resources to help develop alternative circuit boards, and we started to redeploy internal engineering resources to new product development and sustaining engineering activities.

Now, let’s review the performance of our services portfolio. We reported record fiscal 2023 fourth quarter service revenue of 17.4 million in record fiscal 2023 full-year service revenue of 71 million, representing a 1% and 9% increase year-over-year respectively. As a reminder, about 45% of our service revenue line is comprised of project based, in other words consulting revenue and 55% is now comprised of annual recurring revenue associated with our software as a service, data as a service, and managed services offers. In fiscal 2023, our annual recurring revenue increased 17% year-over-year. During fiscal 2023, labor capacity constraints hampered the growth of our consulting revenue and in some instances required us to subcontract activity, due to a shortage of internal resources.

Additionally, we experienced more moderate growth in the fourth quarter, due to customer delays, which affected our ability to meet critical project milestones pushing some service revenue recognition to the right. Despite the delivery delays, the level of demand for our service offerings is historic. In our fiscal 2023 fourth quarter, we reported net service bookings of 25.5 million, representing a 26% increase relative to the same prior year period. We estimate that roughly 16 million or 62% of our fourth quarter net service bookings will be recognized in the future’s annual recurring revenue. In the fourth quarter, our more notable service book included a $6.6 million task order from the Virginia Department of Transportation to extend and expand the scope of activities related to our management of traffic operation centers across the Commonwealth.

Photo by David Martin on Unsplash

A $3 million task order from the Virginia Department of Transportation for Iteris to manage critical activities for the agency’s network operations center, a $1.3 million task order to complete a quarter-wide traffic signal synchronization project for La Habra, California, a $1.2 million task order from the Orange County Transportation Authority to develop the plan, specifications, and estimates to modernize traffic corridors in three cities in Orange County, a $1 million task order with the Florida Department of transportation for integrated quarter management services for key I-94 and I-4 corridors; and an almost $1 million Cloud enabled managed service or process virtualization task order to support the design and construction of the I-494 improvement project in Minnesota.

As demonstrated by the Minnesota project, we continue to increase the attach rate of annual recurring revenue to our consulting projects, which is accelerating the mix of service bookings to be recognized as annual recurring revenue going forward. To sustain strong customer adoption of our ClearMobility Platform, we continued in the fourth quarter to enhance our software as a service, data as a service, and cloud-enabled managed services solutions. For example, we released a new ClearMobility cloud standard component library to improve the ability of software applications to operate together in a seamless manner, and also enable various software development efficiencies. We began to roll-out an enhanced security framework, which will create additional competitive differentiation for our cloud solutions.

We continue to enhance our clear data, data feed, and integrated the enhanced feed with our ClearGuide software to address new used cases. We released an innovative new feature and clear asset that uses artificial intelligence to predict the obsolescence of transportation assets and we introduced a new application programming interface or API to publish travel time and connected vehicle data. In summary, we are very pleased with our record fiscal 2023 fourth quarter and full-year revenue, as well as our record total ending backlog, particularly during a difficult and complicated operating environment. Also, we’re pleased with our ability to deliver against an aggressive solutions roadmap while meeting the critical goals of our supply chain improvement plan.

As a result, we successfully unlocked our product backlog. We continue to service our customers, and we managed to approach a full normalization of our product gross margins. With these financial metrics continue to trend in a favorable direction, we further demonstrated that Iteris has achieved an important financial inflection point. So, on that note, I’d like to turn the call over to Kerry to provide some more color on fourth quarter and also our full-year financial results, after which I’ll come back and I’ll talk further about our fiscal 2024 expectations.

Kerry Shiba: Thank you, Joe, and good afternoon or evening everyone. Before I address our fourth quarter and full-year results, I want to say that I’m very excited to have joined Iteris. We participate in a business environment that is growing and developing technologically to meet evolving needs in the intelligent transportation space. When coupled with our solid market position and breadth of value propositions, it’s great to join an enterprise that has both a firm foundation and a significant opportunity to help shape the marketplace in the future. Working closely with Joe, our Board of Directors and the rest of the Iteris team has been my pleasure. And I look forward to getting to better know our shareholders and the analysts that cover Iteris.

I next would like to speak to what is happening with respect to our year-end reporting cycle. As we just described in a Form 8-K we filed before convening this call, our fiscal year-end closing process has been extended. We are in the process of evaluating previously recorded amounts in the balance sheet from activity that predates current periods, as well as any possible adjustments that may result from this evaluation. This matter was identified recently and the evaluation is not yet complete, but we are focusing on transactions that occurred or may be affected by a data conversion process that began in fiscal year 2018 before the company migrated to our new cloud-based ERP systems at the start of fiscal year 2019. We intend to complete the evaluation and file our annual report on Form 10-K on or before June 29, which would be in compliance with the filing grace period under Rule 12b-25 under the Exchange Act.

We intend to file a Form 12b-25 with the SEC later today or tomorrow. I want to stress again that our evaluation is focused on amounts in the balance sheet related to activity that predates current results, and do not affect our cash balance or financial health of the business should we need to make any adjustments. Okay. Let’s move now on to address some of the underlying details regarding our financial results for the fiscal 2023 fourth quarter and full-year. As Joe noted, we made significant commercial progress in fiscal 2023. While I don’t want to repeat the various accomplishments that Joe highlighted, I do want to underscore that our strength in the market is reflected both in the rate of growth and the nominal value of our revenue backlog and bookings.

Moving down the income statement to the gross profit line, I would like to expand some on the commentary Joe provided, particularly related to the impact of supply chain dynamics on our gross profit performance. In fiscal 2023, we incurred almost $16 million in negative purchase price variance from aftermarket purchases of semiconductors and other electronic components. This amount was on top of negative purchase price variances that we began to incur on purchases made in the back half of fiscal 2022. After initially [flowing] [ph] through the balance sheet, what hit the income statement in fiscal 2023 is we sold product incorporating those components also approximated $16 million. Due to the success of our supply chain improvement plan, we were able to progressively and significantly reduce our aftermarket purchases as the year progressed, due to our introduction of alternative circuit boards, as Joe described.

From a high of almost $5 million per quarter over the first six months, negative purchase price variance incurred for new purchases fell to just over 600,000 in Q4 to fiscal 2023. Given the rapid and dramatic impact of these dynamics, I think it’s important to look at our gross margins on both the year-over-year and a sequential basis. From a year-over-year perspective, fiscal 2023 fourth quarter consolidated gross profit increased $2.4 million or 22%, due largely to the increase in fourth quarter product revenue. However, our consolidated fiscal 2023 fourth quarter gross profit margin of 31.8% did decline 60 basis points year-over-year, due to a specific shift in mix between direct labor and subcontractor content that impacted our service gross margins and to a lesser extent higher cost for purchase data.

We do not believe the labor mix shift is systemic in the long run, but it may persist for two to three quarters until we start to realize the benefit of talent acquisition and talent development initiatives that Joe will touch on in more detail in a few minutes. Likewise, we expect to demonstrate progressive leverage on our debt acquisition agreements as our software as a service and data as a service revenue continues to grow. These sequential gross margin trend also was important to understand. Aggregate gross margin for the fourth quarter of fiscal 2023 of 31.8% improved to 170 basis points over the 29.1% for the prior quarter. The improvements reflect a $2 million decline in the amount of negative purchase price variance hitting the income statement, which also was reflected in the sequential gross margin improvement for the products portfolio.

Partially offsetting this improvement was a 610 basis point decline in gross margins for the services portfolio, which while more pronounced than for the year-to-year comparison resulted primarily from the same factors that I just noted. As Joe mentioned, the amount of negative purchase price variance hitting the income statement in the fourth quarter of fiscal 2023 was higher than originally expected as the mix of sensor products sold shifted some as we pivoted to meet very strong market demand. However, the offsetting good news is that negative price variance remaining on the balance sheet was therefore reduced and now approximates only $600,000. Just to reiterate a comment I made previously, equally important is that the rate of incoming variance on new purchases has abated significantly from prior quarters and currently is expected to remain at levels, the range between $200,000 to $300,000 per quarter based on current market conditions.

As we look at all the factors involved, we expect our aggregate gross margins to improve progressively as we proceed through fiscal 2024. With the fundamental minimization of negative purchase price variance, better leverage on data cost, as software and other related revenues grow, and the better labor mix on consulting projects, we currently expect that our overall gross margins should return to the levels approximating or slightly exceeding 40% in the latter half of the year. Operating expenses in aggregate were 1% lower in the current year fourth quarter when compared to the prior year. And as a percent of sales, declined 820 basis points, reflecting significantly improved leverage on the large revenue increase. The aggregate decline reflects lower G&A expense as spending controls implemented earlier in the fiscal year continued in the fourth quarter.

The G&A reduction was largely offset by higher sales and marketing cost, primarily due to higher sales commissions on a significant increase in sales for the products portfolio. R&D costs incurred were relatively flat nominally with a small increase reflecting some continuing expenses to reengineer product circuit boards, albeit at a lower rate than incurred in the third quarter, as well as continuing development of various ongoing product enhancements. The factors just discussed related to revenue, gross profit, and operating expense, fundamentally explain the major comparisons in operating income, net income, and adjusted EBITDA. For adjusted EBITDA, we delivered 1.4 million in the fourth quarter of this year, which represents a $1.8 million sequential and a $2.5 million year-over-year improvement.

The sequential improvement further underscores that Iteris is poised for adjusted EBITDA and related margin improvement going forward. Total unrestricted cash at the end of 4Q 2023 was 16.6 million, which was $6.4 million higher sequentially and $7.1 million lower compared to last year. While the year-to-year decline reflects the negative impact of the difficult supply chain conditions encountered during fiscal 2023, the sequential improvement is a result of a combination of higher income and strong balance sheet management. Effective accounts receivable collection and reduced inventory investment were key contributors to the improved cash position. While cash trajectory can be affected in the short-term, around balance sheet cutoffs, future earnings improvement and good balance sheet management provide the foundation for continued liquidity improvement going forward.

I’ll now turn the call back over to Joe, who will discuss our fiscal 2024 guidance and provide some closing comments. Joe?

Joe Bergera: Great. Thank you, Kerry. So, the smart mobility infrastructure management market in our opinion represent significant long-term opportunities to both to favorable secular trends and also to historic IIJA funding that has been committed by Congress through 2026. In our opinion, the transportation infrastructure sector is largely insulated from current political [machinations] [ph], though we do expect some temporary market confusion to occur this summer when Congress negotiates how to apply the budget targets established by the recent debt ceiling agreement. As a result, we remain very optimistic about the long-term growth prospects in front of Iteris, and we’re very excited with our supply chain challenges largely behind us to be redirecting management attention and engineering resources back to strategic initiatives.

To that end, Iteris plans to deliver an aggressive fiscal 2024 solutions roadmap that includes the following major releases: First, a next generation travel time and connected vehicle data collection and data presentation system powered by ClearMobility Cloud APIs. Second, a suite of connected vehicle software applications that will leverage our enhanced connected vehicle data collection and presentation capabilities. Third, a state of the industry, cloud based international registration planning, international fuel tax administration system, for commercial vehicles, which among other benefits will capture valuable new datasets for ClearMobility Cloud. Fourth, a new form factor for Vantage Apex to secure additional technical specifications and expand the addressable market for Apex.

And fifth, various releases to enhance our video and radar fusion algorithms. We believe our fiscal 2024 release plan will accelerate the adoption of the ClearMobility Platform, increase the cross-sell of ClearMobility offerings and improve the monetization of our expanding mobility datasets. To capitalize on our release plan, we’ll continue to improve the productivity of our various sales channels. For example, we’ll further optimize the distribution network for our sensor portfolio, create a small dedicated enterprise sales team focused on private sectors segments, and expand our customer success function to maintain a greater than 95% retention rate, and drive more up-sell revenue. In addition to sales channel improvements in fiscal 2024, we’ll implement various talent acquisition and talent development initiatives to improve the labor capacity of our consulting teams.

We’ll focus on the supply of civil and traffic engineering talent, which remains very tight even though we’ve seen some improvement in the software supply of software engineering in data science talent. Our tactics will include enhancing our employer brand presence on select campuses, expanding our existing internship programs, improving our capabilities to source international job candidates, increasing the number of generalists we hire, and increasing the level of technical and professional training that we provide all employees. These initiatives of course are going to require some short-term investment, but they should accelerate the pace of conversion of our historic consulting backlog and perhaps more importantly create operational efficiencies and certain competitive advantages for us going forward.

Given these dynamics, we expect fiscal 2024 revenue to be in the range of 168 million to 175 million, representing organic growth of 10% year-over-year at the mid-point and with the increase in revenue and the normalization of our supply chain, we expect a significant improvement in adjusted EBITDA dollars, even after some investments in talent acquisition and talent development. As a result, we forecast an adjusted EBITDA margin in the range of 7% to 9% of fiscal 2024 revenue and we anticipate a continued improvement in liquidity with fiscal 2024 net cash flow in the range of $12 million to $16 million. Looking beyond fiscal 2024, we believe Iteris remains on track to achieve our vision 2027 targets. In other words, we continue to estimate fiscal 2027 revenue in the range of 245 million to 265 million before any additional acquisitions, representing a five-year organic revenue growth rate of 14% at the midpoint.

With this substantial increase in annual revenue, we also anticipate progressive benefits from scale to result in fiscal 2027 adjusted EBITDA margins in the range of 17% to 19%. Additionally, we anticipate improvements in our liquidity to enable Iteris to resume our acquisition program, which would of course be additive to our organic vision 2027 targets. So, in closing, fiscal 2023 was a difficult period due to COVID and then the subsequent global supply chain constraints. Still, we demonstrated significant agility in the face of those challenges, achieving the objectives of our supply chain improvement plan, and continuing to develop our platform centric business model at the same time. As a result, we now enter fiscal 2024 position to extend our leadership in the smart mobility infrastructure management market, and we are poised to create significant shareholder value for achievement of our Vision 2027 operating targets.

So with that, we’d be delighted to respond to any questions and comments and so, operator, I’d like to open up the line to see if you have any questions for us.

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Q&A Session

Operator: Absolutely. Thank you. [Operator Instructions] The first question is from Jeff Van Sinderen with B. Riley. Jeff, please proceed.

Unidentified Analyst: Hello. This is [Richard Magnusson] [ph] in for Jeff Van Sinderen. Thank you for taking our call. You gave us some color, I believe on gross margin percent, but what other additional color can you give us on expectations around OpEx, quarterly revenue progression, any lumpiness of converting backlog to revenue as we progress through the fiscal year?

Joe Bergera: Sure. Maybe I’ll just kind of talk about quarterly revenue progression and lumpiness [indiscernible] Richard. And then I’ll turn it over, Kerry to talk you to about the gross margin percent and operating expense, if that’s okay. So, in terms of quarterly revenue, as I said, we’re providing guidance for the full-year of 10% growth at the midpoint. We would expect that to look fairly consistent over the fiscal year from quarter-to-quarter. That being said, we are anticipating the possibility of some initial confusion, modest, but potentially some confusion in the first half of the fiscal year, due to the debate that we expect to occur on between Congress and Administration, which has – can create some confusion at the state and local level.

Additionally, for our first and second quarter, we expect to have some modest, not significant, but some modest impact from limitations in terms of our labor capacity. So aside from that, we expect that year-over-year growth in each quarter should be approximately similar as we progress through the year. And again, we’re guiding to 10% growth for the fiscal year at the midpoint of our range. In terms of bookings, which I think perhaps was the point about lumpiness, we do from time-to-time have like some difficult comparison. So, for example, in the fourth quarter for which we’re currently reporting. As a reminder, prior fourth quarter of fiscal 2022, we had almost a $10 million order for our detection product from Miami-Dade. So that represented a challenge for us in terms of product booking in the fourth quarter of fiscal 2023.

And of course, there’ll be certain difficult comparisons going forward that could result in, you know some in terms of year-over-year comparisons, some fluctuations in terms of the rate of bookings growth. But overall, at this point, we’ve been standardly reporting bookings in the, sort of mid-$40 million range. We would expect that to continue to increase as we progress and on a nominal basis to have substantial bookings be able to report substantial bookings growth in each quarter as we progress through fiscal 2024. And Kerry, do you want to talk about gross margins and expense?

Kerry Shiba: Yes, I think directionally, Richard, of course, we’re not releasing quarterly guidance specifically. However, as far as the trajectory, we would expect some steady progress, particularly in the second half of this year when you look at margin projections. And I think as I had discussed, some of that’s going to clearly be evident with regard to increasing leverage on our [software business] [ph] as the revenues continue to grow. So that should start to show through also as we progress. Operating expenses, I think that we will show a little bit of inflation as the year goes on, but it should be somewhat steady and not anything unusual standing out quarter-by-quarter or in the trajectory as we go forward. But again, I think the margin is going to reflect continued sequential progression, particularly in the back half of the year.

The year-over-year comparisons of course are going to be clouded by what came through the cost of sales with regard to all the purchase price variance that hit us as the year went on.

Unidentified Analyst: All right. Thank you.

Joe Bergera : Any additional questions, Richard?

Unidentified Analyst: No, that’s it for now. Thank you.

Joe Bergera: Great. Thank you.

Operator: Okay. The next question is from Mike Latimore with Northland Capital Markets. Please proceed.