Executive Summary

Q3 2024 delivered 4% YoY revenue growth to $42.1M, gross margin expanded 780 bps to 36.9%, and adjusted EBITDA rose to $3.1M (7.4% margin), reflecting normalization of supply chain costs and improved mix .
Management tightened FY2024 revenue guidance to $171–$173M (from $171–$175M) and lowered net cash flow guidance to $8–$12M (from $12–$16M) given booking delays, inventory build to shorten sensor lead times, and litigation costs; adjusted EBITDA margin guidance held at 7–9% .
Bookings were lumpy: Q3 net bookings fell to $31.4M, but backlog remained solid at $113.3M and the qualified sales pipeline exceeded $650M with win rates of 66% in Q3 and 67% YTD; management expects strong Q4 bookings .
Catalysts: guidance tightening and cash flow reduction (inventory strategy and litigation fees), plus product releases (Vantage CV, VantageARGUS CV) and ARR attach progress, shape near-term sentiment while Vision 2027 targets (FY27 revenue $245–$265M; EBITDA margins 16–19%) reinforce the medium-term thesis .

What Went Well and What Went Wrong

What Went Well

Strong unit economics: consolidated gross margin rose to 36.9% (+780 bps YoY), driven by product gross margin at 43.9% (+1,380 bps YoY) as supply chain variances normalized; adjusted EBITDA reached $3.1M from a loss last year .
Demand indicators robust: qualified sales pipeline >$650M, win rates of 66% in Q3 and 67% YTD; management continues to “win virtually every large-scale intersection modernization initiative” .
Product and platform momentum: release of integrated detection and connected vehicle safety system (Vantage CV) and VantageARGUS CV travel time platform; partnership with Arity expands mobility data assets .
- Quote: “We continue to win virtually every large-scale intersection modernization initiative… and attached annual recurring revenue to our Vantage and Spectra connected vehicle sensors” .

What Went Wrong

Bookings lumpiness: net bookings fell to $31.4M due to several large orders slipping; one ~$10M signal timing order moved out of Q3; management sees timing issues tied to agency staffing and budget uncertainty .
Operating expense pressure: Q3 OpEx rose 8% YoY to $15.2M; G&A included ~$0.8M in non-routine litigation costs, and R&D increased with software investments .
Services margin still mixed: services gross margin was 28.4%; near-term margins constrained by subcontractor mix and tight traffic engineering labor, though internal capacity is improving .

Financial Results

Metric	Q3 2023	Q2 2024	Q3 2024
Revenue ($USD Millions)	$40.686	$43.563	$42.129
Diluted EPS ($USD)	$(0.05)	$0.01	$0.01
Gross Margin %	29.1% (computed from $11.820/$40.686)	37.3%	36.9%
Adjusted EBITDA ($USD Millions)	$(0.413)	$2.915	$3.107
Adjusted EBITDA Margin %	(1.0)%	6.7%	7.4%
Wall St. Consensus (Revenue)	N/A – S&P Global consensus unavailable	—	N/A – S&P Global consensus unavailable
Wall St. Consensus (EPS)	N/A – S&P Global consensus unavailable	—	N/A – S&P Global consensus unavailable

Notes: S&P Global consensus estimates were unavailable for ITI at the time of analysis due to missing mapping in our SPGI database; we attempted retrieval but could not obtain values.

Segment breakdown

Segment Revenue	Q3 2023	Q2 2024	Q3 2024
Product Revenues ($USD Millions)	$22.852	$23.398	$23.133
Service Revenues ($USD Millions)	$17.834	$20.165	$18.996

KPIs and Operating Metrics

KPI	Q2 2024	Q3 2024
Net Bookings ($USD Millions)	$43.8	$31.4
Ending Backlog ($USD Millions)	$124.0	$113.3
Qualified Sales Pipeline ($USD Millions)	—	>$650
Win Rate (%)	—	66% (Q3), 67% YTD
Cash & Cash Equivalents ($USD Millions)	$20.2	$21.2

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Total Revenue	FY2024	$171.0–$175.0M	$171.0–$173.0M	Tightened range; lowered high end
Adjusted EBITDA Margin	FY2024	7%–9%	7%–9%	Maintained
Net Cash Flow	FY2024	$12.0–$16.0M	$8.0–$12.0M	Lowered
Q3 Revenue (for comparison)	Q3 2024	Guidance $41–$43M	Actual $42.1M	Delivered within range
Gross Margin Outlook	Q4 2024	—	“Stronger than Q3; ~couple hundred bps improvement”	Raised/positive sequential
OpEx Ratios	FY2024	—	G&A 13–15%, S&M 14–15%, R&D 5–7% of revenue	New detail provided

Drivers of guidance changes: bookings delays (timing/lumpiness), inventory investment to reduce sensor lead times, and litigation costs affecting cash conversion .

Earnings Call Themes & Trends

Topic	Q1 2024 (Aug 8, 2023)	Q2 2024 (Nov 9, 2023)	Q3 2024 (Feb 8, 2024)	Trend
AI/Tech initiatives	Next-gen connected vehicle data; AI at edge/cloud; Vantage Fusion features planned	Roadmap reiteration; connected vehicle data system; AI across platform	Vantage CV safety system; VantageARGUS CV travel time platform; more AI planned in ClearMobility	Expanding feature set and commercialization
Supply chain normalization	PPV down; gross margin up 840 bps; supply chain issues “behind us”	Gross margin up 2,060 bps YoY; PPV normalization	Product GM 43.9%; consolidated GM 36.9%; PPV impact behind	Sustained normalization; margins improving
Federal budget uncertainty	Noted IIJA mechanisms; discretionary grants lag 12–36 months	Applied conservatism to guidance due to potential federal budget delays	Budget uncertainty cited in bookings delays; guidance tightened	Persistent near-term timing risk
Product performance	Record sensors; +44% YoY; ARR attach to 29% of Vantage Next units	Sensors +13% YoY; Apex early in scale	Product revenue +1% YoY on tough comp; Apex volumes still low	Healthy, with mix fluctuations
Regional/international	Strong U.S. bookings; early CV data wins	New York DOT adoption (new geography)	Cebu, Philippines ITS master plan; opportunistic int'l	Selective int’l traction
Regulatory/legal	—	G&A included litigation for contract dispute	Other legal expenses $0.8M in Q3; $1.9M YTD; trial scheduled April 2024	Near-term expense headwind
R&D execution	Sequential R&D focus; software investments	Increased R&D for software development	Continued R&D; Q4 releases highlighted	Continued investment
ARR/Recurring revenue	71% of Q1 services bookings as ARR; sensor ARR attach 29%	Recurring revenue ~25% of total; recurring bookings growth high	Sensor ARR attach rate ~20–30%	Growing contribution, masked by product growth
Labor capacity	7% sequential improvement; mid-teens target by year-end	Tight labor markets; internal capacity ~1/3 to target	Traffic engineers tight; internal capacity improving; international sourcing	Improving, still a constraint

Management Commentary

“We are pleased to report… revenue of $42.1 million… Gross margins of 36.9%… Adjusted EBITDA of $3.1 million… Cash and cash equivalents of $21.2 million” .
“Our total qualified sales pipeline now exceeds $650 million… third quarter and year-to-date win rates were 66% and 67%” .
“We’re tightening our full-year revenue guidance to a range of $171 million to $173 million… reiterating our full year adjusted EBITDA margin guidance of 7% to 9%… adjusting our full year net cash flow guidance to $8 million to $12 million” .
Vision 2027: “Fiscal 2027 revenue in the range of $245 million to $265 million… adjusted EBITDA margins in the range of 16% to 19%” .

Q&A Highlights

Bookings outlook: Despite a slipped ~$10M signal timing order and other large delays, management expects “very strong bookings in both the fourth and the first quarter” .
Gross margin and OpEx: Q4 GM expected “stronger than Q3;… a couple of hundred basis points improvement”; FY OpEx ratios: G&A 13–15%, S&M 14–15%, R&D 5–7% .
Labor dynamics: Tech hiring loosening, but traffic engineers remain tight; internal labor capacity improving via recruiting (including international sourcing) .
ARR attach: Sensor deals’ services attach “continues to be really strong… 20% to 30% range” .
Litigation costs and cash: Q3 cash included ~$0.8M non-routine legal fees; inventory build also affected cash trajectory .

Estimates Context

S&P Global consensus estimates for Q3 2024 revenue and EPS were unavailable at the time of analysis due to missing mapping in our SPGI database; we attempted retrieval but could not obtain values. As such, comparisons to Wall Street consensus are not provided herein.

Key Takeaways for Investors

Margin progress is sustainable: supply chain normalization and product mix lifted GM to 36.9% and EBITDA margin to 7.4%; Q4 GM guided up by ~200 bps sequentially .
Demand remains strong despite timing noise: >$650M pipeline, 66–67% win rates, and record multi-quarter backlog underpin FY trajectory; expect bookings rebound in Q4/Q1 .
Guidance reset balances growth with cash discipline: revenue range tightened and net cash flow lowered ($8–$12M) to support faster sensor lead times and fund litigation; EBITDA margin guidance held at 7–9% .
ARR expansion is a medium-term lever: recurring revenue share and attach rates on sensors (20–30%) plus SaaS/DaaS scale should drive services margin uplift and EBITDA leverage over time .
Product roadmap is a catalyst: Vantage CV and VantageARGUS CV releases and AI enhancements can expand addressable market and support above-industry growth .
Watch labor and legal: traffic engineering talent remains tight; internal capacity is improving but remains a near-term constraint; litigation costs will likely continue near term (trial scheduled April 2024) .
Medium-term thesis intact: management reaffirmed Vision 2027 targets (FY27 revenue $245–$265M; EBITDA margin 16–19%), implying scale-driven operating leverage as SaaS/DaaS mix rises .

ITERIS, INC. (ITI)·Q3 2024 Earnings Summary