Todd Kehrli - MKR Group Joseph Bergera - President & CEO Andrew Schmidt - CFO

Jeff Van Sinderen - B. Riley & Co. Steve Dyer - Craig-Hallum Mike Latimore - Northland Capital Markets Joseph Osha - JMP Securities

Good day, and welcome to the Iteris Fiscal Fourth Quarter and Full Year 2017 Financial Results Conference Call. As a reminder, today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Todd Kehrli of the MKR Group. Please go ahead, sir.

Thank you, operator. Good afternoon, everyone, and thank you for participating in today's conference call to discuss Iteris' financial results for its 2017 fiscal fourth quarter and full year ended March 31, 2017. Joining us today are Iteris' President and CEO, Mr. Joe Bergera and the company's CFO, Mr. Andy Schmidt. Following their remarks, we'll open the call for your questions. Before we continue, I'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 is not undertaking an 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. I'd like to remind everyone that a webcast replay of today's call will be available via the Investors section of the company's website at www.iteris.com. Now I'd like to turn the call over to our President and CEO, Mr. Joe Bergera. Joe, please proceed.

Great. Thank you, Todd, and good afternoon, everyone. We appreciate you joining us today. As you saw at the close of the market, we issued a press release announcing the financial results for our fiscal fourth quarter and full year ended March 31, 2017. In Q4, Iteris recorded $25.3 million in total revenue, representing 28% year-over-year growth. This solid performance is due to continued strong execution across all three of our reporting segments; Transportation Systems, Roadway Sensors, and Agriculture and Weather Analytics. For the full year, Iteris recorded $96 million in total revenue, which is 24% growth over our prior fiscal year. These revenue results represent both fourth quarter and full year records for the company. In Q4, our Transportation Systems segment recognized $12.6 million in revenue, which is 32% year-over-year growth versus our $9.6 million in the prior year quarter. For the full year, the segment's revenue was $49.3 million versus $34.1 million in the prior year, which is an impressive 45% annual rate of growth for the segment. During Q4, the Transportation Systems segment continued to win new business, securing approximately $12.9 million in new orders. This is an increase against both the $11.8 million in added backlog in the preceding Q3 and the $11.3 million in added backlog in Q4 of last fiscal year. Recent notable wins include an initial design task order for Phase 1 of the Orange County Transportation Authority I-405 project. We're a subcontractor to a joint venture, OC 405 Partners, which was recently selected to complete the I-405 project. This is one of the largest transportation infrastructure project in the nation, with a total estimated value of over $1.1 billion. In addition to the I-405 project, we received sizable new contracts from Caltrans, AC Transit, San Bernardino, and Omaha, among others. The focus on project mix over the past year continues to benefit the financial performance of our Transportation Systems segment. For example, the higher portion of software related consulting services and business process outsourcing backlog, as well as the larger average project size continues to improve revenue predictability and drive other internal efficiencies. In Q4, the segment's operating income was $1.7 million or 13.2% of revenue versus $1.1 million or 11.5% of revenue in the same quarter last year. For the year, the segment's operating income was $8.5 million or 17.2% versus $4.2 million or 12.2% for the full year of FY '16. The 500 basis point improvement in the segment's full year operating income margin demonstrates the ability of the segment to produce significant operating leverage. In Q4, the Roadway Sensors segment recorded $11.3 million in revenue versus $9 million in the prior year quarter, which represents a 25% year-over-year increase. The high rate of growth is due to some catch-up from prior period shipping delay, as well as the realization of strong demand for our various product releases earlier in FY '18. For the full year, the segment's revenue was $42.2 million versus $40.3 million in the prior year. This represents a 5% annual rate of growth for the segment. As you may recall, we expected the annual rate of growth for our Roadway Sensors segment to slow somewhat in FY '17, moving more in line with the market growth rate of about 7%, due to our planned new product introduction cycles. The segment's slightly lower actual revenue performance is largely due to the unforeseen inventory and supply chain issues that we encountered in Q2 and Q3. As mentioned on our last call, we anticipated these issues to be resolved at the start of Q4, and this proves to be the case. We believe the issues are now fully behind us. As a reminder, the Roadway Sensors segment had several important product releases over the past 12 months. The most notable releases include our newly re-platformed Vantage sensors, our new pedestrian tracking capability branded as PedTrax; and our new SaaS-based data analytics service, VantageLive!. Collectively, these product releases expand the breadth of data elements we collect and enhance our position as the leading provider of applied informatics for connected transportation in smart cities. During Q4, the Roadway Sensors segment realized especially strong performance in California, Arizona, Nevada, and Florida. The segment's operating income dollars increased by $1.6 million or 115% as segment operating income margins expanded 1,080 basis points. For the full year, the segment's operating income dollars increased $1.4 million or 17%, and operating income margins increased 230 basis points. In Q4, our Agriculture and Weather Analytics segment recognized $1.4 million in revenue, representing a 16% increase year-over-year. The full -- for the full year, the segment's revenue was $4.5 million versus $3.4 million in the prior year, representing a 34% annual rate of growth. The growth was due to strong performance of both ClearPath and ClearAg, our digital agriculture platform. During the quarter, we closed several net new ClearAg deals with a variety of allied providers who OEM ClearAg into their software and other service solution. Muddy Boots, a European farm management information systems vendor, was a notable recent win. As announced in March, Muddy Boots had committed to a multiyear global subscription for our ClearAg environmental information. While we continue to add new customers, I'm delighted to report that we realized 100%-plus revenue renewal rate from our current customers, and we're making solid progress extending our penetration and closing new business in our largest current accounts. For example, in May, we announced that Syngenta will provide ClearAg to its customers in Italy as part of Syngenta's Mais in Italy program. The combination of both net new ClearAg orders and strong ClearAg renewal rates contributed to the segment's sizable increase in bookings. For the full year, the segment recorded a 56% increase in combined ClearPath and ClearAg new bookings for a total of $6.3 million. We continue to see strong pipeline growth and improved opportunity conversion for both ClearAg and ClearPath Weather. Due to continued strong bookings growth, the segment's annualized revenue run rate has increased 44% from the beginning of our fiscal year, and our run rate is now $5.2 million. We remain very enthusiastic about the opportunity ahead for our Agriculture and Weather Analytics segment. And in the spirit of further improving cost segregation and continuing to provide financial transparency for this highly strategic segment, we recently established a new wholly owned subsidiary, ClearAg Inc. With that, I'd like to turn the call over to Andy to walk through our financial results.

Thank you, and good afternoon. As Joe's introduction showcases, we had yet another strong quarter and, of course, a great year, not just in terms of our strong financial report but in terms of business building, including building our infrastructure to support future growth. I'll discuss highlights of our infrastructure investment shortly. But first, let me take care of the required communications in covering our overall financial highlights. Today's earning release and the related current report on Form 8-K include non-GAAP financial measures. In our press release tables as well as 8-K, we describe how we calculate these non-GAAP financial measures and provide a detailed explanation of our atypical expenses as well as a reconciliation between our non-GAAP financial measures and our most directly comparable GAAP measures. Okay. Quickly recapping our Q4 performance. As Joe noted, Iteris reports revenues of $25.3 million for the quarter, a 28% year-over-year increase. Transportation Systems accounted for $12.6 million in the quarter, a 32% increase year-over-year. Roadway Sensors, $11.3 million, a 25% increase year-over-year. And Ag and Weather Analytics, $1.4 million, a 16% year-over-year increase. Looking at gross margins. Total company saw gross margins of 39.2%. That compares to 40.1% for the prior year period. Considering gross margins by segment. Sensors posted 47.4%, which increased from 46.7% in the prior year period. The increase was due to favourable mix of Iteris product revenue versus third-party distribution revenue. In regard to Transportation Systems, current period gross margin of 31% compares to 34.7% in the previous year period. The unfavourable variance is primarily due to job mix. Looking at Ag and Weather Analytics, we posted gross margins of 47.2% as compared to 51.6% last year. Again, the real key behind the gross margin numbers at this point are accounting rules rather than product or product mix. As we've now matured the delivering and operational SaaS service, we are required to defer certain revenues related to upfront SaaS deployments over future periods as well as capitalize certain software development costs for new functionality or enhancements to our SaaS software engine. And those costs will be amortized into our P&L over future periods as well. By capitalizing certain development costs, we are essentially moving labor costs from R&D expense to the balance sheet as an intangible asset and amortizing those intangibles over several years into cost of sales. In all, we do expect that, at scale, the segment should resemble a typical SaaS software company with 70%-plus gross margins. Our overall solid gross margins led the way to the following operating margin results. For our Transportation businesses, $2.9 million for Sensors and $1.7 million for Systems. Our Ag and Weather Analytics business reported an operating loss of $1.8 million, which is a sequential quarter improvement of approximately $100,000 or 5%. Looking at our total year business unit performance. Systems reported $49.2 million in revenue, a year-over-year increase of 44.5%, and gross margins of 31.5%. Roadway Sensors, $42.2 million, an increase of 5% year-over-year, with a gross margin of 47.1%. And Ag and Weather Analytics posted revenue of $4.5 million, an increase of 34%, with gross margins of 43.9%. In terms of corporate expenses, which include corporate IT, HR, accounting, executive and public company-related expenses, we saw non-GAAP expenses of $4 million in Q4 of fiscal 2017. Total year non-GAAP corporate expenses were $13.7 million, up from $9.5 million in the previous year period. As we commented on our last quarterly call, we expected corporate expenses to stabilize, and they have. But it's important to understand what's driving this number from a year-over-year perspective. Essentially, we're a very different company today. To highlight a few back-end changes we've made over the last 1 to 2 years, consider that we've added approximately 144 employees since the end of fiscal year 2015. While our headcount growth was primarily in response to revenue opportunities in our Systems business and building our first sales and marketing team in our Ag and Weather Analytics segment, we also added 13 people to our corporate staff, which includes human resources, IT, accounting, legal and executive personnel. This increased capability allowed us to scale quickly in terms of on-boarding revenue-generating personnel, support new business models and opportunities as well as meet the statutory requirements of being a $200 million market cap business. By way of example, a key accomplishment this year was that of preparing and implementing the successful Sarbanes-Oxley accelerated filer process. We will be filing our 10-K next week as a first-time SaaS accelerated filer with a clean audit opinion. While we did see a few unexpected events which affected corporate costs, including an extended proxy process and a nuisance class action lawsuit, those events are behind us. All said, year-over-year operating expenses had increased about $4.1 million. In terms of other important infrastructure changes we made during the year, we further refined our SEC segmentation, better clarifying the Ag and Weather Analytics segment. In addition, you will note in our 10-K, as Joe mentioned, that we have now established a new corporate subsidiary called ClearAg Inc. This includes our Ag and Weather businesses. We feel that this new legal entity creates additional strategic optionality for Iteris. Given the re-segmentation and establishing of our ClearAg subsidiary as well as other factors, we felt it prudent to revisit legacy goodwill associated with our acquisition of Meridian Environmental Technologies and Berkeley Transportation Systems. These acquisitions took place in fiscal 2011 and fiscal 2012, respectively. In all, we carried $2.2 million in goodwill associated with these acquisitions and concluded that the legacy goodwill is not representative of our current business model and are choosing to write off those balances at this time. By doing so, that leaves us with the ClearAg subsidiary carrying no goodwill and a cleaner Systems and Ag Weather segment. All said, writing off the goodwill does not affect our current period and total year non-GAAP results, but it does affect our GAAP results. Including the goodwill write-off, our fourth quarter fiscal 2017 loss was $0.10 per share as compared to $0.04 loss last year. From a non-GAAP perspective, our current period loss of $0.04 per share, or the same as last year, is within analyst's expectations. For reference, there were no non-GAAP adjustments in Q4 of 2016. From a total year perspective, our GAAP loss was $0.15 per share compared to a GAAP loss of $0.38 per share in fiscal '16. On a non-GAAP basis, our FY '17 loss was $0.08 per share or within expectations as compared to a non-GAAP loss of $0.06 in FY '16. Non-GAAP adjustments that apply for the total year fiscal 2016 include $150,000 related to audit fee overruns, $88,000 for financial consulting services, $150,000 for executive management severance costs and a $10.1 million charge associated with our valuation allowance on our deferred tax asset. From a balance sheet perspective, a key highlight is our cash balance. We ended fiscal '17 with cash at $18.2 million, a nice increase from $16 million at the start of the year. Also take note of an enhancement that we made to the balance sheet. To better showcase the tech or SaaS nature of our business, we have added a deferred revenue line. And nicely, the balance has almost doubled year-over-year, increasing to $4 million at March the 31, 2017 versus $2.3 million at the start of the year. At this point, I'll turn the call back to Joe for further highlights.

Great. Thank you, Andy. Iteris continues to benefit from improved execution and favourable trends in both transportation and agriculture. And more importantly, our team continues to deliver exciting business and technology innovations in our transportation segment while also developing a highly meaningful, high-margin subscription model in the agriculture market. With continued strong execution, we expect to realize solid organic growth through FY '18, although we do anticipate some shifts in the mix and timing of future growth, which I'll discuss in more detail momentarily. Our Transportation Systems business continues to experience an increase in demand for programs related to smart cities, data analytics and enhanced safety and mobility. As expected, we are also experiencing some initial demand for connected vehicle advisory services and vehicles in infrastructure planning and design projects. We believe the segment will benefit from this favourable shift in transportation infrastructure spending through FY '18. Based upon the continued strength of our backlog and strategic focus on project mix, we'll remain highly strategic throughout FY '18 regarding the new business we pursue. As we did in FY '17, we'll continue to pursue opportunities that, one, enhance our franchise as the leading provider of applied informatics for the transportation infrastructure market. Two, enable us to migrate our software contracts from a managed services model to a more highly leveraged SaaS model; and three, represent sizable multiyear programs with a meaningful level of recurring revenue. As we continue to pursue large strategic projects, we anticipate the length and timing of these procurement cycles will cause the segment's revenue line to move in step functions for the next several quarters. In other words, we anticipate the growth rate for the Transportation Systems segment to move in line with the market's historic growth rate, in other words, to mid-single digit, followed by periods of step function growth as we convert these large procurements. Furthermore, because the timing of these contract renewals and new contract awards can be unpredictable and, certainly, out of our control, we could see some timing anomalies. In FY '18, the Roadway Sensors segment will continue to execute against our strategy of providing the industry the most complete portfolio of detection sensors, increasing the number and value of data elements our sensors collect and developing a recurring revenue stream for monetizing that data. As I mentioned a few minutes ago, we recently launched a new SaaS-based data analytics service branded as VantageLive!. It is our intent to evolve VantageLive! into a robust analytical platform, with the potential to unlock both the strategic and economic value of the data that can be collected by the 130,000 sensors we've installed at intersections across the country. Due to the high level of market interest in VantageLive!, we expect to make some limited investments in the segment sales and customer success organizations in FY '18. These investment areas will include channel and sales enablement as well as customer on-boarding. Based on the introduction of new products in FY '17 and the recent release of VantageLive!, we expect the rate of revenue growth for our Roadway Sensors segment to increase year-over-year and move above the market's historical growth rate of about 7%. This higher level of revenue will increase the segment operating income dollars. However, the anticipated modest investment to capitalize on the high demand for VantageLive! may put some near-term pressure on the segment's operating income margin rate. Notwithstanding this, we continue to believe the VantageLive! product line will realize substantially higher gross margin than we realized on our sensors as the new SaaS product reaches maturity. Now let's discuss our Agriculture and Weather Analytics business. We continue to believe that structural challenges faced by the agricultural sector, for example, scarce water supply, limited arable land, continued population growth, change in consumer preferences and diminishing returns from mechanical innovation, present a substantial market opportunity in the long term for digital agriculture in general and for ClearAg, in particular. In fact, the continued growth and adoption of ClearAg, particularly at the operating company level of some of the world's largest seed and crop protection companies, validates our market assumptions. That said, in the short term, we're finding that the combination of historically low prices for agricultural commodities compounded by industry consolidation is delaying the enterprise-wide adoption of digital agriculture in several of our target crop science accounts. You may recall us saying that we anticipate enterprise agreements at these large crop science customers to average $5 million in annual recurring revenue. So while we've been highly agile since launching ClearAg in July 2015, we expect continue to adapt to marketplace dynamics as we enter FY '18, where we'll target our commercial activities to secure additional orders at the operating company level of existing accounts as well as penetrate new accounts, again, at the operating company level. We expect this activity to generate solid segment level revenue growth, similar to our FY '17 growth rates. Additionally, we continue to anticipate considerable future revenue acceleration as we transition our crop science customers from operating company level agreement to enterprise agreements. However, at this time, we expect to begin to realize that impact in FY '19 rather than FY '18 in light of current market conditions. While we were - while we maintain our strategic focus on the crop science market, we'll also continue to develop our OEM business with allied providers and ag integrators, who embed ClearAg into their solutions, and we'll respond opportunistically to demand in other segments. We continue to believe our scientific and engineering capacity remains sufficient to meet current requirements. We also believe our current total sales and marketing resource level is sufficient to support our FY '18 revenue target, although we may realign some activities to create more focus on account management and account penetration in our largest crop science customers. Therefore, we expect the segment's cost base to remain relatively flat for the next 4 quarters. So in summary, in FY '17, Iteris delivered strong execution across all of our segments. The Transportation Systems segment successfully scaled out its operation to support 45% revenue growth while continuing to secure new business and maintain its backlog as we enter FY '18. Our Roadway Sensors segment re-platformed our Vantage sensor family and launched several new products in FY '17, which we expect to accelerate revenue growth through FY '18. And lastly, we expect to continue to realize significant growth in ClearAg revenue through FY '18, which should support similar levels of growth for Agriculture and Weather Analytics segment to what we recognize in FY '17. Given that we anticipate continued strong performance across all our segments, we expect to realize sufficient net margin dollar growth to more fully offset our annualized agriculture investment going forward. And as a result, we anticipate our FY '18 full year operating loss to decline meaningfully relative to FY '17, even as we continue to develop our digital agriculture business to its full potential. So with that, we'd be delighted to respond to your questions and comments. Operator?

Yes. Thank you. [Operator Instructions] And we'll take our first question from Jeff Van Sinderen with B. Riley & Co.

Good afternoon. Let me say congratulations on your strong business trends. Without giving away too much from a competitive standpoint, can you maybe speak a little bit more about some of the areas of product innovation that we should expect to gain traction this year?

Surely. So, I mean, one of the areas clearly is VantageLive!, Jeff. That's the new SaaS solution that we're wrapping around our sensors. While the revenue from VantageLive! is going to be modest in comparison to the total segment revenue, we think that activity there is highly strategic. One of the other things that's exciting is that we're seeing that customers are interested in VantageLive! because of the analytics capability that provide our -- at least initially, what we're seeing is there's a strong desire to upgrade to our newest sensor technology, which tracks more data elements than our older technology. So we see that being a win-win both in terms of the new recurring SaaS revenue as well as driving new product sales. And then we continue to make significant progress in the Ag and Weather Analytics business. One of the areas where we're starting to see - and we've seen this for the last quarter or 2, but it's starting to kind of transition from market interest into actual customer deployment, is in this area of ClearAg Insights, which is the capability we provide crop science companies to white label ClearAg and then wrap that around their products, which could be, for example, seeds or chemical products. The initial project that we announced in Italy with Syngenta is an example - we're phasing it out. I want to be clear about that. So we haven't completely delivered a fully white label solution as of late, but that is the focus of that initiative, and such is another example of the kind of traction we're getting in that area. And I would expect to see an acceleration in the amount of the ClearAg Insights deployments in FY '18.

Okay, great. That's helpful. And then you mentioned, I think, more happening or starting to happen in the connected vehicle segment, or it sounded more like maybe leading into the autonomous vehicles segment. I think in your prepared remarks, you spoke to that. Maybe you can just touch a little bit more on that and give us a sense of kind of what's happening there that's starting to back your contract outlook?

Yes, sure. So I think most of the hype around autonomous -- well, first of all, a lot of the excitement around connected vehicles was initially just providing Wi-Fi in the vehicle. More recently, we're starting to hear a lot of hype about autonomous vehicles. In the classical autonomous vehicle paradigm, the assumption is that vehicles are going to talk to one another. They're going to track one another through sensors and vehicles to better optimize traffic flow, but it's dependent on communication between those 2 vehicles. What people are starting to recognize is that, and we obviously subscribe to this position, that in order to get widespread adoption of autonomous vehicles, the vehicles not only need to talk to each other, they need to talk to the infrastructure. And so we've been really focused on the vehicle, the infrastructure integration for the last several quarters. We've been plumbing our sensors, for example, to read the SRC, which is the standard communication protocol for connected and autonomous vehicles. We are, in addition to ensuring that our sensors are able to read the SRC and potentially become a logical point of integration between the vehicle and the connected infrastructure. We're also starting to see a lot of interest - it's early interest, but a lot of interest from some of the more progressive municipal and state agencies who are interested in us. In this case, our Transportation Systems segment coming in and helping them develop an overall connected infrastructure strategy, which is essential to unlock the promise of vehicle-to-infrastructure integration, which, as I said, is kind of becoming a bit of a roadblock to the broader adoption of autonomous vehicles. So the bottom line here is that we think that we're in a really unique place because until vehicle-to-infrastructure integration is really sought for, it arguably is a barrier to widespread adoption of autonomous vehicles. And obviously, there's substantial interest from a lot of major players to see that autonomous vehicle market start to mature, so being in that unique position, we think, is highly strategic.

Great to hear. Thanks for taking my questions. I’ll let someone else jump in.

And we'll go next to Steve Dyer with Craig-Hallum.

Thanks. Good afternoon and congratulations on the good results guys.

Thank you.

You gave a lot of information, numbers, et cetera. I may have missed it. Did you give backlog by segments finishing up the fiscal year?

I guess we didn't. Let me help you with that. Let me get that here quickly. And as Joe said, we've had a very solid year in terms of backlog, in terms of maintaining the stability in the backlog and also our ability to actually burn backlog. Give me a second here. Okay. So when you look at our fiscal year-end, we've got total backlog of $64.5 million, of which case, the Systems business, which is the biggest contributor, is $54.3 million, and both those numbers are either up or consistent with our Q3 number. So in other words, we roll forward in a very solid manner.

Great. And then just, I guess, while we're at it, do you have Sensors and Ag and Weather?

Sure. So the Sensors business backlog is $5.8 million. And remember, that's more of a PO-driven business. And then in Ag and Weather, again, there's a technical backlog of $4.3 million. But again, that works more as a SaaS business, but from an accounting perspective, we see this $4.3 million in backlog.

Got it. Just wondering if you could give maybe a little bit more commentary around transportation bills. I know California just passed a large one, and there's obviously been a lot of conversation about what a larger-scale transportation bill may mean. Can you give us a little indication about how near-term some of those things are, how you think you play in that over the next year or 2?

Yes. So the California -- I think you're referring to the gas tax in California, and we'll see how that plays out. But our customers in California, being both state and municipal agency customers, are rather bullish at this point as they anticipate future - even out just like next year, they’re starting to anticipate their substantial budget growth. With respect to any sort of federal contracts, it would be great if we saw an increase. However, I'd say that in our experience, the biggest indicator for us in terms of actual new contract dollars is really what's happening at the state level as opposed to what's happening at the federal. Obviously, we have a significant position in California. To the extent that this new gas tax generates substantial additional tax revenue that's able to fund infrastructure-related activity, we would expect that to have a positive impact on our business.

Got it. Okay. And then you talked in pretty good detail about each of the segments. And I guess trying to tie it all together, what I heard for fiscal '18 is the Sensors business, kind of in the 7% range, Transportation Systems, up sort of mid singles, and then Weather and Ag, up sort of 1 bp, sort of similar growth rate. So when I tie it all together, it gets me sort of mid- to upper single-digit growth. Am I thinking about that right?

Well, I don't want to over-set expectations, but I do want to make sure that everybody understood what I was saying. The reason I talked about 7% historical growth rate is that, typically, we've - the Sensor segment has grown at a substantially higher rate, closer to about 14%, sort of between 12% and 14%. What we said last year is that entering FY '17, because of the new product introduction cycles, we would actually expect to grow closer to the historic growth rate. And as I said, we actually came in at about 5% versus the 7% due to some unforeseen inventory and supply chain issues. What we're saying now, we're not giving explicit guidance, but we are saying that we would expect the Sensors business to grow above the historic market growth rate of 7% as opposed to growing at 7%, which I think is what you're asking, Steve.

Yes, got it. And then what about systems, I guess?

I think your impression of what I said with respect to Systems is correct, but I do want to further bring you back to my comment about timing. There's some degree of unpredictability. Like within a given quarter, it could be significantly favourable. It may even - it could also be unfavourable due to the fact that we can't - we're not really sure on what the dates are going to be for contract renewals as well as for new contract awards. But overall, for the year, your impression of what I said is - I think you picked that up correctly.

Okay, great. Thanks, guys. Good luck.

Thank you.

And we'll go next to Mike Latimore with Northland Capital Markets.

Great. And a very good year, excellent year. I guess just to follow on the guidance, the outline of the year. You did say you expect the fiscal year '18 operating loss to be down materially, did I hear that correctly?

Yes, that's correct.

Got it. And then with Ag business, I think you said that you've seen a nice increase in the pipeline there. Is that, again, more at the optical level, the pipeline build is kind of optical activity?

Yes, it is. And that's great. It's exciting to see the adoption of ClearAg. We're interacting with not only more and more customers, but more broadly across each of our customers. So there's a lot of traction, and we're seeing really positive response to ClearAg, so that's great. But that being said, one of the biggest driver - you guys have asked me, like what's going to be like the biggest opportunity for near-term acceleration. And I think what I generally told everybody is that the biggest opportunity for near term acceleration is going to be converting some of these accounts where we have several operating company level agreements into an enterprise agreement because we could expand the value of that account dramatically. At this point, I think it's going to take, we're thinking, the majority of the year to get there and that any revenue impact from an enterprise agreement is more likely to occur in FY '19 than FY '18. But obviously, we're going to work really hard to try to pull those things forward. As we work our way through the current economic cycle in particularly the agricultural commodities sector, it doesn't apply quite so much to specialty crops or some of the agricultural commodities. But as we start to get their side of that, that could radically or dramatically change things. And then the other thing is as we work through these various mergers that are going on in the crop science space, that could really free up people's attention quickly. And I don't think it's a lack of capital. It's certainly not a lack of strategic interest. It's just a matter of as these companies are in the midst of contemplating post acquisition integration and how that affects their current assets and overall business strategy. We're seeing delays in terms of making enterprise wide global commitment. At the same time, I want to be really clear that all of our customers and we're generally connected in all these accounts at a seen a high level in the global headquarters organization, we continue to see support from that headquarters organization saying, continue to work with the OpCos. This is going to continue to advance our use of your technology in our account. And ultimately, it positions you well for that ultimate enterprise agreement. But right now, we're just - I think it's going to take another couple of quarters before someone's willing to sign up.

Okay. And then on the new analytic service for your Roadway Sensors, what kind of attachment rate are you assuming there? For every 10 sensors that are sold, how many do you think you'll have kind of the analytics service behind them?

Yes, that's a great question, and I'll be honest. I don't think we've gotten that sophisticated yet. So in our current FY '18 plan, the target is more based on the number of discrete opportunities that we're currently tracking, and we're making some assumptions on the conversion rate. But I don't think we're sophisticated enough now to understand what the total overall market conversion rate's going to be or what the conversion rate's going to be per unit. We don't know that. But I will say that we are pursuing all these various initiatives, including VantageLive!, but there are other things that we're looking at doing, with the intent of trying to double or even triple the current TAM that our Sensors business is working against. And as I've said in previous calls, currently, we think that the TAM for the video detection sensor market for intersection management is somewhere in the range of about $350 million to $400 million. And through these various strategic initiatives that we're pursuing, our objective is to grow that TAM to an excess of $1 billion.

Got it. And it sounds like you said that in the near term, just having analytics is driving demand for the new sensors because they generate more data. Is that what you said?

Absolutely, yes. And that's because what we did in FY '18, we've talked about the product introduction cycles, and what that really meant is we were migrating our sensors to a new multi-core processor. One of the reasons we did that is it allows the sensors to collect additional data elements that they weren't previously able to. So now that we've rolled out VantageLive!, a lot of the customers are - who are interested in analytics service want to be able to analyze as many data elements as possible. In order to do that, they need to upgrade to the most current generation of sensors.

Great. Okay, thanks.

Thank you.

[Operator Instructions] We will now go to Joseph Osha with JMP Securities.

Hello, there. My congratulations as well on your numbers. A couple of questions. First, on your - the Ag business. You had mentioned that it looks like, for the next year, operating costs are going to hold roughly flat. I'm just wondering, longer term, as the business scales, what your sense is as to what the revenue fall through might look like as it moves past the $5 million run rate and gets higher. Can you run that business off that same operating base? Or will you need to add to it more?

Sure. Yes, this is Andy. A couple of different ways of thinking about it. In context of the platform that's built, we feel it's complete, and it creates everything we need to go out to market and where we sit today. If we are going to be adding resources, let's say, on the engineering side, it would probably be paid for by customers. In other words, it might be to support a nonrecurring engineering-type path for some of our product offerings and so on. So it would be revenue-driven, if you will. Likewise, on the sales and marketing side, we feel that we have a really good base right now, in which case we continue to adjust our skills, our capabilities. But once again, if the market - and when we look at the market, if we see different opportunities coming forward and we have real-time - real near term ability to convert those deals based on additional resources, we would add them. So again, we're at a point now where it's going to be revenue-driven versus feeling we need to add capability.

Okay. And just on that note, in that business, given how sort of formative the industry still is, are there - do you guys think there are worthwhile tuck-in acquisitions to be done in that space?

Yes. I mean, we're starting to evaluate that. As I've told folks - and so again, in the interest of total transparency and to make sure everyone has the same information. For the last few quarters, we've really been focused on putting the business infrastructure in place and defining our strategic vision so that we have the capability to continue to scale up and scale out the business. I think we're now at a place where if there were the right opportunity. We certainly are - I think we would be able to digest an acquisition. I'll be honest. I don't think we are really there a couple of quarters ago. I do believe we are there now.

Okay. That's great. And then one final question, and I'm sure I'm way off base here, but I want to ask it anyway. I've been hearing a lot about these 900 megahertz RF mesh networks getting stewed up on the particular streetlight infrastructure and so forth, Silver Spring Aquera [ph]. Is that relevant to you guys at all or is that a technology that you would back haul over? And does the fact that this happening impacts your business at all? Thank you.

Yes. So the answer is I don't know, but we do have some companies that play in that space be interested in talking with us, and so we're exploring what that could look like. It's very early right now, and I just - I don't know, and I can't really speculate. But I will say that there has been inbound interest, and people are expressing an interest and, at least, talking to us.

Okay. Thank you very much.

Yes. Thank you.

And that concludes today's question-and-answer session. At this time, I'd like to turn the conference back to management for any additional or closing remarks.

Okay, great. Thank you very much, operator. So we appreciate everyone's support and the great questions. On the Investor Relations front, I just wanted to let everybody know that we'll be presenting at the Canaccord Genuity 37th Annual Growth Conference taking place in Boston on August 9 to 10. So if you're attending the conference, we hope to see you. In the meantime, we look forward to updating you again on our continued progress when we report our results for the first quarter of FY '18. So that concludes today's call. Thank you.

And ladies and gentlemen, that does conclude today's conference call. Thank you for your participation.