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

Tim Moore: Great. That makes sense. We’ll expect obviously gross margin to improve and then just get that extra super boost. When you get to maybe that 10 million extra revenue?

Joe Bergera: And Tim, also just to provide a little bit more clarification, people are wondering like, well, what does that inflection point look like? So, in terms of our SaaS product lines, as we’ve said previously, we believe that at scale, we should be able to realize 70% plus gross margins on our SaaS product lines. When I was saying, we need probably an additional 10 million in revenue, I was meaning like more specifically as relates to those SaaS products. That’s where you’re going to see like a big step-up from like gross margins in the mid-40% to mid-50% moving to 70% plus. But we will have incremental improvement as we move towards that incremental 10 million in revenue.

Tim Moore: That’s great. Thanks for that color and that elaboration. Maybe just switching gears, your positive adjusted EBITDA in the quarter and pretty much nearly breakeven operating income if you ignore that more [off expense] [ph]. I was just trying to wrap my head around maybe the SG&A expense timing, it sounded like there’s going to be some labor hiring and the training investments. You want to get away from that higher cost labor for subcontractors. So, if we just take it to another level, I know we talked about incremental gross margin sequentially as the quarters unfold this year. How do you think about achieving positive adjusted EBITDA and maybe the magnitude of that? Do you think the September quarter will still be positive EBITDA or will it be a drag from that labor hiring and training?

Joe Bergera: So, I’ll just kind of provide some context and let Kerry talk about specifically. But absolutely, we expect positive adjusted EBITDA in our fiscal first quarter and second quarter. And also just to make sure that everybody understands that the mix of product that we shipped in the fourth quarter was different than what we had expected because we were responding to customer requirements, which are fluid. And that resulted in about a 300 basis point negative impact, if you will, against what the original expectation was in terms of our EBITDA margins. And then the service revenue, which was a function of two things, some delays and then also the labor capacity constraint resulted in another approximate 300 basis point impact.

So, I just want to make sure you guys understood both things. Those are both temporary issues that we’ve put behind us. So, we do not expect to see that kind of impact, going forward. But anyway, with that, Kerry, do you want to talk more specifically about what the expectation should be?

Kerry Shiba: Well, I think – and Tim, you touched on this, but the investments Joe mentioned in labor-related initiatives for training and recruiting are really focused on improving our ability to access people skills related to our services business. So, you have to think about the fact that these are really customer-facing and revenue-producing positions. So, while there’ll be a little bit of cost increase that will probably proceed converting these resources into producing revenue and margin. By and large, you should think of it from that perspective. With regard to other types of costs that are more fixed in nature, we would hope to continue to improve our leverage on those aspects of operating expenses as the revenue continues to grow at a double-digit pace.

Tim Moore: Great. Thanks for quantifying those two sets of the 300 basis point drag each in the March quarter. That’s very helpful. It seems like the bottom there, [easily] [ph] the bottom. But maybe just switching gears, can you elaborate maybe on how some of the [DOT] [ph] agencies are migrating to letting you handle your – the service remotely from your office and new customers are really seeing the overlaying benefit from the centers of excellence that you have in California rather than having people in their office at the agencies? Just kind of this remote migration.