Iteris Q4 2021

My portfolio is leaning micro cap, and I am having a ton of fun reading about these businesses. Below is a screenshot of my $ITI holding in my long-term account:

Iteris is a provider of smart mobility infrastructure, and has solutions tailored towards public transportation agencies, municipalities, commercial entities that provide the end user to monitor, visualize, and optimize mobility infrastructure for safe and efficient roads.


So, a bit of background on this name. I was introduced to it by a colleague on Twitter who I have given credit to numerous times, I am not sure if I will include their name in here in case the do not want me to! I like the broader market play here, and Iteris has real market share leadership for smart mobility infrastructure and many strong partnerships with a massive backlog of deals.


They operate in two easy segments, Roadway Sensors and Transportation Systems. The company had a third which was Agricultural and Weather Analytics, but management is fiscally smart and understood this was a money losing segment. They sold this to DTN, LLC which is an operating company of TBG AG (Swiss-based holding company). This occurred on May 2, 2020.

 

If you know me, you know I am obsessed with earnings calls. Over the years I think I found that I learn more through earnings calls, the tone of management, Q&A, than I do almost anywhere else. (Yes, I read a 10-k and 10-Q, the important parts anyway). Something about sitting down with a cup of coffee and reading about the business you own shares of just hits different at 8:30am.


To start, Iteris did initiate a comprehensive review of strategic alternatives, the review is ongoing and management said they are not making any new further announcements until the board approved a course of action. In essence, this feels like a good thing, but could weigh on share-price because of "uncertainty".


Joe Bergera on the call felt upbeat, ready to go. Record fourth quarter revenue and significant improvement in adjusted EBITDA in the face of a tough environment especially for this kind of business. The proceeds from the sale of the Agricultural and Weather segment, was used to fund the TrafficCast acquisition. TrafficCast is already producing financial and strategic benefits to the clear mobility cloud roadmap, coupled with new commercial markets for Iteris to break into.


Key Investor Metrics

Fourth quarter revenue totaled $31.7m and had a record FY revenue of $117.1m, 10% and 9% YoY respectively. The company is showing solid bookings growth as well, backlog represented $78m and that is a 26% increase on a YoY basis. Iteris is guiding for top-line to be between $132-142m, 22% YoY growth at the high end, which should be easily achievable so I would model in around 25%. Double digit top growth with a management team focused on profitability, market share, and expansion? I am in.


Roadway sensors were a bright spot, the Transportation Systems segment had record revenues of $16.8m, a 3% increase YoY which is pretty amazing since they had a very strong prior year comp. Full year revenue in this segment was $60.6m, up 4% YoY.


Two strategic areas of operations and market share leadership are in Texas and Florida. 37% of the fourth quarter bookings are going to be recognized as future ARR --> this is their ultimate goal.


"Notable fourth quarter bookings include our contract of $3.7 million from Pulice-FNF-Flatiron Joint Venture to redesign and expand a critical segment of I-10 freeway adjacent to Phoenix’s Sky Harbor Airport. This contract includes the use of our ClearGuide and ClearRoute software, as well as the use of our Congestion Management Managed Service over the life of the multiyear contract. A $3.2 million task order from the U.S. Department of Transportation to maintain the architecture reference for collaborative and intelligent transportation, which is the nation's reference architecture for connected and automated vehicle enablement."


Roadway Sensors segment reported revenue of $15m, 19% YoY increase, and another record full year of revenue at $56.5m which is a 15% YoY increase. Strong areas of performance include Texas, Northern California, and the Mountain State.


The business is seeing an increased number of commercial entities looking to integrate with Iteris platforms.


Q&A Comments:


Subcontractors are still recovering, not out of the woods yet due to COVID. They are behind in a few job sites. Doug Groves mentions how there is not one segment particularly stronger than the other, management expects to really start seeing the ARR picking up with the software contracts they are getting. Longer-term (three year model), management thinks they can grow top line low double digits. Below you can see Joe's dialogue on supply chain & COVID:

Operating Segments moving forward:


Everyone in general is very laser focused on the infrastructure bill, if that gets passed it will be accretive for Iteris INC, but I have to be able to quantify it. Then there is the FAST act reauthorization, which would also be lucrative for Iteris's business.


TrafficCast is about $4m in to-line to the business in Q4. I think all modeled assumptions could be at the high end from here on out next three years, market does not seem to be reflecting that in my opinion:


Closing Fiducia Thoughts:


Overall I thought the quarter was great, I think they will continue to chug along and become a data powerhouse for smart road infrastructure and they will be the "go-to" for road data.


Portfolio Changes & Update:


I have shaved some more Cloudflare to add to higher conviction names over the next one and two year periods, these include SharpSpring, Iteris, and Mitek. I will be adding to all three of these with the proceeds this week. I will also have a full portfolio quarterly update for everyone ending June. I still post my returns to Twitter monthly, but switched to quarterly portfolio updates.


Within the next two years, there is a high probability I will be manage outside capital. I am uncertain on how I will go about the website (hire someone else to manage it with my oversight, etc). Total assets under management (personally) is $495,666 as of Friday close. It fluctuates a lot, I have bills to pay.

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