Good day and welcome to the Iteris Fiscal Second Quarter 2020 Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Todd Kehrli, 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 fiscal second quarter 2020 ended June 30th, 2019. 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 forward-looking statements. I'd like to remind everyone that you'll find a supplementary report on our first quarter financial metrics and a webcast replay of today's call on the Investor Relations section of the company's website at iteris.com. Now, I'd like to turn the call over to Iteris' President and CEO, Mr. Joe Bergera. Please go ahead.

Great. Thank you, Todd and good afternoon everyone. Thanks for joining us today. As you saw at the close of market, we issued a press release announcing the financial results of our fiscal second quarter ended September 30, 2019. In Q2, Iteris continue to experience strong demand for our smart transportation and digital agriculture solutions. We recorded $27.9 million in total revenue bringing our total fiscal first half revenue to $54.5 million. This result represents a 14% increase relative to the prior second quarter revenue and a 9% increase relative to the prior first half revenue. We secured second quarter total net bookings of $34.7 million bring our first half total net bookings to $65.7 million. This represents – I'm sorry, this total net bookings result represents a 3% increase for the quarter and a 7% increase relative to our prior first half, and our total second quarter ending backlog expanded to a record $70.6 million representing an 18% sequential and a 19% year-over-year increase in total ending backlog. Now let me provide a brief overview of performance by segment. In Q2 our transportation system segment recognized $14 million in revenue representing a 14% increase versus the same prior year. For the first half of fiscal year 2020, the segment reported revenue of $26.4 million which is a 3% increase versus the same prior year half. Two factors draw the segment second quarter revenue increase; first our acquisition of Albeck Gerken Inc. on July 2nd contributed $1.7 million in revenue for the quarter. And second the transportation system segment resume slight organic growth as we began slowly to convert prior period bookings to recognize revenue. The segments lower than expected rate of organic growth was due to delays in our receipt of authorization to proceed for five large contracts. Although the cause of the delays varies from contract-to-contract, a common theme is that agencies are struggling in the current tight labor market to recruit and retain employees who had typical performed essential program management and contract administration tasks. Without adequate resource levels, the length of time between contract award and receipt of an authorization to proceed is taking up to three to six months longer than our historical experience. We are closely monitoring the status of authorization to proceed for these five major contracts, and we expect to receive authorization for at least some of these contracts in our third quarter, which would further accelerate the segments rate of revenue growth we progress through our second half. Notwithstanding the delays in revenue conversion the segment reported strong second quarter net bookings of $18.9 million bringing first half net bookings to $36.2 million. The segment's more notable second quarter bookings include $4.3 million in various task orders from the Virginia Department of Transportation and please note these activities or this activity is in addition to our management on a VDOT's traffic operation centers which we discussed on several prior calls. We also received $2.5 million in various task orders from the Florida Department of Transportation, much of which is the result of our acquisition of Albeck Gerken, which has significantly enhance our presence in the Florida market. $2.2 million in various contracts for advanced traveler information system which we provide to agencies on a hosted basis, $1.5 million in software-as-a-service contracts from various agencies for use of our performance solution branded at ClearGuide and for use of our commercial vehicle operations software products. And finally, $600,000 task order for the first phase of a design initiative for a large highway construction project near San Antonio. Additionally, Cisco Systems named Iteris as Cisco Solutions Technology Integration Partner for the Cisco Transportation IoT solutions segment. As a step Iteris is now able to resell Cisco product on a highly favorable basis making attractive for us to bundle Cisco products into our solutions. The new arrangement with Cisco also provides a framework for a higher degree of commercial collaboration between the two companies in certain strategic geographies. Due to segment's strong second quarter booking the total ending backlog for our transportation systems reached a record $58.3 million. In Q2 the Roadway Sensors segment recorded revenue of $12.6 million, representing a 14% year-over-year increase. For the first half of fiscal year 2020 the segment reported revenue of $25.4 million, which is a 16% increase versus the same prior year half. The segment's second quarter results reflect particularly strong performance in the state of Texas, the Pacific Northwest and Southern California. Additionally we saw a continued increasing demand for VantageLive!, our SaaS-based Intersection Analytics Platform, and for VantageRadius, our radar-based intersection detection product line relaunched in fiscal 2018. In Q2 our agriculture and weather analytic segment recognized $1.3 million in revenue, which represent a 20% increase compared to the same prior period quarter. For the first half of fiscal 2020 the segment recorded $2.7 million in revenue representing a 9% increase relative to prior year first half. As mentioned on previous call the segment first half and second quarter revenue in particular is affected by seasonal pricing for our ClearPath Weather product which experiences higher usage during winter months. The segment continued to experience strong bookings performance during the second quarter. In spite of delay they push the renewal of our largest ClearPath Weather contract to October the segment second quarter total net bookings were $2.3 million bringing first half total net bookings to $2.7 million.

BASF Corporation further expanded its use for ClearAg which was already a key component of Xarvio, the company's digital farming solution and ClearAg was selected to enhance the key customer facing application of one of the world largest fertilizer and crop nutrition companies. Now, I'd like to turn the call over to Andy to walk through our financial results/

Thank you, Joe and good afternoon everyone. Following up on Joe's introduction to our financial highlights and summary of key revenue drivers, consistent with past quarters, I'll focus on providing an update of our three business segments from a modeling perspective and finish with our balance sheet highlights. As a reminder, our press release issued today includes financial tables with current quarter and year to-date financial information, their pro forma reconciliation and segment information. As Todd clearly mentioned, we also publish a key financial metrics document which is posted on our website under the Investor Relations link under financial reports which provides a trend view of our key financial metrics. Looking at our Q2 and first half of fiscal 2020, there are two important dynamics to keep in mind. First, we completed a confidentially marketed public offering in Q1, which we discussed during our last quarterly update. In Q2 as Joe noted, we completed our acquisition of Albeck Gerken, specifically we close the acquisition on July 2. As such our current reporting quarter shows a full quarter of revenue and operating expense associated with the acquisition. In addition, we experienced nonrecurring transaction expense related to the acquisition that we call out in our pro forma results detailed in the press release. In all, we recognized approximately $766,000 of one-time third-party acquisition related expense in our GAAP Q2 fiscal 2020 results bringing our total year to-date related expenses to $922,000. Please refer to the non-GAAP reconciliation provided in our press release for more detail. Okay, let's consider our three business segments and business model updates. Staying consistent with Joe's order, I'll start with our transportation system segment. Joe outlined our continued favorable bookings and backlog trends and significant new contract wins. As Joe noted, our current period results include approximately $1.7 million of AGI revenue. Our Q2 year-over-year organic revenue comp is slightly up compared with our prior year period of approximately $12.4 million primarily due to contract delays which Joe outlined. It's important note that the contract start delays do not represent lost revenue but simply a shift to revenue to future quarters. In terms of contribution margin operating cost of $3 million in Q2 includes AGI operating expenses in compares to $2.4 million in the previous year period. In all, Q2 contribution margin of 13.8% compares to 14.3% for the prior year period, however, is an increase from 12.7% in Q1 of the current fiscal year. A key significance, the period ending September 30, is a seasonally low revenue period for AGI due to seasonal tropical storms in Florida region. While revenues are lowest during this period, expenses remain somewhat flat throughout the year. Looking forward we expect the AGI acquisition to contribute more significantly to contribution margins. Switching to our sensors segment, similar to Q1 we saw significant year-over-year growth in the segment led by the comeback of the Texas region, as well as overall strong performance across all regions. The overall product mix in Q2 2020 lean more towards Iteris product versus third-party product resulted in gross margins of 45.5% compared to 42.3% in our Q1 of the current fiscal year. For a Q2 year-over-year perspective gross margins were consistent at 45.5%. Q1 operating expense of $3.5 million compares to $2.5 million in the prior year period. The increase is attributed to increase sales commission on much higher year-over-year sales as well as a slight increase in engineering expense attributed to a shift from capitalized development to sustaining engineering. Putting all together, Q2 contribution margin of 17.7% is within expectations and it compares unfavorably however to 22.6% for the previous year period. It should be noted that our previous year contribution margin percentage benefited from certain favorable nonrecurring accounting adjustments. Switching to Ag and weather. As Joe previously outlined we had very positive bookings and revenue dynamics for the segment for the period and year to-date. Gross margins for Ag and weather 54.5% is within expectations given $1.3 million in revenue for the quarter and compares favorably to 50.7% for the previous year period. Operating expenses continue to improve. Current quarter OpEx of $1.8 million compares favorably to $2.1 million for the previous year period. The segment's contribution loss of approximately $1.1 million for Q2 compares favorably to last year's lost $1.6 million. In all, we continue to pose continuous quarters of improved financial performance in this segment. In terms of corporate expenses which include unallocated public company expense, accounting, finance, IT, marketing, HR, facilities expenses so on, we've essentially stabilized given many growth related transitions. Corporate expense for Q2 of 2020 was approximately $4.2 million net of acquisition expense. While this is up from $3.9 million the previous year, we experience higher than typical proxy related expense this quarter due to a typical shareholder activity. Finally, let me address our balance sheet. Our year to-date fiscal year 2020 is a unique period due to the Q1 capital raise and the Q2 purchase of AGI. In regard to share count we started the fiscal year with 33.4 million shares of common stock outstanding. Are raised added about 6.2 million shares and AGI acquisition included 869,000 shares. Adding then shares attributed to stock option exercises and restricted stock units we ended the period September 30, 2019 with $40.6 million shares outstanding. In terms of cash, we began our fiscal with approximately $9 million in cash and short-term investments. Taking the capital raise and acquisition out of the equation, we only used about $200,000 in cash year-to-date including capital expense. That's a great change of pace for this company. In particular we made great improvements in our working capital position. Inventories associated with our sensors segment have dropped from $2.9 million at the beginning of the year to $2.5 million as a returned -- as we return the scale in that business unit. And in cash and short-term investments at September 30, 2019 was $29.5 million. As a final comment, we saw a non-GAAP operating loss of $322,000 this period. The current period loss does not include internal labor acquisition related effort that will subside throughout the balance of the year. Our year to-date loss of $690,000 is an improvement over fiscal 2019th year to-date non-GAAP loss of $950,000 and we have a clear view of positive non-GAAP operating income for the second half of this fiscal year. At this point, I'll turn the call back to Joe.

Great. Thanks, Andy. So, Iteris remains in a strong position to capitalize on favorable secular trends in smart transportation and digital agriculture. And during the second half of fiscal 2020 we will continue to introduce product and service innovation to expand our addressable market and enhance our competitive differentiation as we further develop highly meaningful high-margin SaaS models in both of our end market. I'll provide some commentary on our approach by segment and our associate expectations for the balance of fiscal year 2020. While bookings growth may fluctuate within any given quarter, the sales pipeline for our transportation system segment continues to reach new highs and our opportunity conversion rates remain favorable. Therefore we continue to anticipate strong bookings for the segment throughout the second half of fiscal year 2020 and beyond with the highest rate of opportunity conversion coming from three areas. First, customer adoption of our software as a service product, in other words ClearGuide, Iteris, SPM and our commercial vehicle operations product family. Second, customer adoption of our business process outsourcing and managed services offerings such as intersection of the service which is the software enabled managed service. And third, additional penetration in the Midwest, Texas and of course Florida where we have significantly enhanced our presence with the recent acquisition of Albeck Gerken. In the second half of fiscal 2020, the transportation system segment realize year-over-year growth in the high-teens at the rate of backlog to revenue conversion increases and we consolidate the financial results of the recent Albeck Gerken acquisition. For your reference, we continue to expect Albeck Gerken to contribute over $4 million in revenue to transportation system segment in our second half. And as our post acquisition integration activities and associated costs should be largely behind us by December 31. We should start to the benefit of the Albeck Gerken acquisition dropped or bottom line beginning our fourth quarter. Now, let's discuss the Roadway Sensor segment. We continue to expect Roadway Sensors segment to report full-year revenue growth of more than 10%. The segment's primary growth drivers include first, several product innovations that further enhance our competitive differentiation. Second, an increase in product revenue and also SaaS revenue attributable to VantageLive! and third implementation of certain programs to enhance productivity of our direct and indirect sales channels including the establishment of a new national sales and customer success organization. Given typical seasonality in a schedule product cycle, we continue to expect second half growth rates to moderate somewhat to the high single-digits. Nonetheless, the segment second half operating income margin should increase somewhat relative to our first half due to product mix and sell efficiencies. As a result we continue to expect the segment's second half and full-year operating income margin dollars to increase relative to last year's annual segment level operating income margin. And finally, let discuss our agriculture and weather analytics business. During the second half of fiscal 2020 we'll continue to strengthen ClearAg market position and increase customer adoption. Our commercial activities will focus on penetration and existing strategic accounts, acquisition of new agribusiness accounts and adoption by allied providers in North America and Europe. Due to continued revenue growth and cost containment in our second half we expect our net investment in ClearAg to further decline resulting in a full year net investment of less than $4 million. So in summary, we continue to anticipate full year fiscal 2020 consolidated enterprise-wide revenue growth in the mid-teens. And we further expect the combined effect of incremental operating margin dollars from the organic revenue growth and our transportation systems in Roadway Sensors segment, a decrease in our net investment in ClearAg and a creative affect to the Albeck Gerken acquisition yield the non-GAAP operating profit for the second half of fiscal 2020 as Andy just said. With that, we'd delighted to respond to your questions and comments. Operator?

Thank you. [Operator Instructions] We'll take our first question from Jeff Van Sinderen of B. Riley FBR.

Everyone. Wanted to start with the bookings, the backlog, you've seen a tremendous increase in booking backlog for transportation systems. And I think you said, you expect to see an increase in rate of conversion on that backlog, seems like we're -- like there were some delays in unlocking that. Is that just the matter of timing? And then I guess how should we think about that hitting the P&L? Anymore color you can give us that as we're thinking about second half.

Yes, Jeff, good great question. Absolutely, we have -- we obviously we've seen really strong booking. We're continuing to experience strong bookings growth. We expect that to continue. Our backlog has grown as a result of that increase bookings. It's also grown because quite candidly, we haven't been able to convert some of the prior period bookings or existing backlog to revenue at the pace we'd expect it. We absolutely expect to start unlocking that in Q3 and we'll see more of that unlock in Q4. As I said in my prepared remarks, the main reason that hasn't occurred at the pace we'd expect is that frankly, like I said, the specifics are different from contract-to-contract, but across all the agencies we're seeing the impact of a really tight labor market and basically key staff that are necessary to perform program management and contract administration tasks are in short supply. In some cases they've reached retirement age and so they moved on and agencies are unable to find people to replace them. Also we're seeing instances where people are leaving agency roles to take jobs in the commercial sector. And so just simply aren't enough people to get some of this work process. That being said, these are firm commitments. It's in our backlog. It will absolutely convert to revenue. It's just simply a matter of time. And just to reiterate, we have good line of sight to at least a couple of the five agencies providing us the necessary authorizations proceed in Q3 potentially all five to come in, but at least a couple of them will. And as a result you'll see an even higher rate of growth in our transportation systems in the second half.

Jeff, this is Andy. Let me kind of add to what Joe has said. What's interesting about these contracts as well is in some cases whether its asked on an optional basis or some times its mandated, even though we don't have the authorization to proceed as Joe just discussed, they require us to technically as we call it work at risk and what that means is, we're already performing certain tasks that are critical to make sure these programs go off when they're ready to actually launch as Joe said in their Q3, maybe all Q3, maybe a combination of Q3 and Q4, but the net kicker is, we we've been actually parking cost that turns into revenue on our balance sheet that's been appropriately authorized by these agencies. So as these projects do get released they actually get off with the kickstart. So not only do we have the staff in place to execute, we also end up with a running start on these projects as we go.

Okay. That's helpful. And then if we could shift a minute to AG, maybe you can speak a little bit more about how that's going? Is it on track? What's left to do as far as integration? What are you seeing with the command center particularly curious about that? Are there some assignments with AG that you're winning already? And then conversely are there some gating factors around that?

Yes. So, great question. So Jeff, just to make sure everybody is on the same page. When you're referring that AG you're referring to Albeck Gerken and not Ag.

Correct.

Yes. And that Albeck Gerken integration is going great. We have a very detailed integration plan. We're actually slightly ahead of schedule on that. As I said, essentially all of the integration work will be completed by December 31. And by the way that will have some benefits in terms of the operating -- the segment level operating income margin or the operating income margin contribution from Albeck Gerken starting in Q4. But with respect to sort of the commercial landscape and what you are calling the command center or the captive traffic management center. We're actually seeing really nice activity already. As I mentioned, we had significant amount of bookings in the Florida market in the most recent quarter and that was due to really the combination of the two companies. There's been a lot of very positive sort of press and kind of just viral kind of communication across the Florida Department Transportation and various municipal agencies in Florida around that unique combined capabilities of the two companies. And so, we saw very, very strong conversion rates on all of the opportunities that we pursued in the Florida market in our second quarter. And again the total value of the contracts we received in Florida in our second quarter was $2.5 million. With respect to the traffic management centre, first of all, I want to just say that as you may remember from prior conversations that one of the things was really exciting about Albeck Gerken is they unlike most business process, outsourcing models or managed services models in our space have their own captive TMC or Traffic Management Center, which results in really highly leveraged model and that's why the historical EBITDA margins have been so fantastic. We plan to absolutely capitalize on that. So far we have deployed our software products, related software products like, for example Iteris, SPM, and VantageLive!, we've made VantageLive! and also ClearGuide, we've made available to all Albeck Gerken staff. And so, it's available and running in their lab and actually in the TMC and they're already starting to take advantage of that. With respect to the – our intention to try to leverage that in future deals and we're bidding on other works such as, for example the Virginia Department Transportation, TOC activity that we perform. There are a number of pending procurements that we are tracking and we do expect as we originally stated to basically leverage or incorporate this captive TMC into our bid on those particular pursuits. But at this point we have yet to win an award because of the length of the sale cycles and so that probably won't occur for another couple of quarters, but again already really strong, very positive commercial collaboration occurring in the Florida market between the two companies. And then secondly, we've already deployed our software and Albeck Gerken's staff is using it in their lab and in their captive TMC already.

And Jeff, just to follow kind of trailing on the integration question. As I mentioned obviously we have x amount of staff, our staff and their staff working on integration efforts. As we go forward that little lesson. And so you'll see more efficiency out of the model and some really good parts. For more detail on our 10-Q we have our first very specific note on the acquisition where you can get more financial information. But what's been great about it as well as we've talked about it previously. This is a small private company. As they integrate into a public company format turns out that in the new rules of ASC 606 are accounting requirements. Their revenue that we've talked to previously translates really dead on with how we actually record revenue and their revenue recognition. Our current quarter again both models are within $80,000 of each other. So everything we talked you previously does translate into public company accounting.

Okay. That's really helpful. And then if I could squeeze in one more maybe just briefly on Cisco. You recently enhanced your relationship with Cisco. So first, is that strategic and then maybe you can just touch on what enables you to do and Cisco to do as you work together in concert?

Yes, sure. So absolutely we see it as highly strategic. I mentioned this but it's worth mentioning again that the interesting thing is that if you look at the traffic infrastructure, the transportation infrastructure across the country, a lot of the devices that have been deployed are not connected necessarily to anything. So for example, in a lot of cases our intersection detection equipment while it's capturing for a particular agency, a lot of really valuable information and intersection because there's no connectivity to that intersection that data is not being ingested into a essentially like a data warehouse to do any kind of historical analysis. The Cisco and other companies recognize that. They see a tremendous opportunity to provide much more significant levels of connectivity to this particular sector. Additionally, the development of connected and automated vehicles is putting a lot of pressure on agencies to even accelerate the pace at which connectivity is provided really across entire transportation infrastructure. And therefore you're seeing a number of technology companies such as Cisco as I said get really focused on this marketplace, because of our experience designing the communication infrastructure for a lot of -- those agents who have the most advanced communication infrastructure, typically they've used that to help design that infrastructure. And so we're very unique position to collaborate the company such as Cisco to increase the penetration of connectivity and specific cloud connectivity across the transportation infrastructure. So that's kind of from a higher level that's what the way Cisco's looking at it. From our perspective, we're very excited about this particular new level of partnership. We have a number of offers like for example intersection of service, where we see a lot of demand for Cisco gear. With this new partnership, we have the ability to effectively function as a Cisco reseller and resell Cisco gear at very attractive prices. So all of a sudden it makes economic sense for us to start including Cisco in the solutions that we're going to market with. That will result in additional revenue for us, as we're successful in pulling Cisco gear through those deals. Additionally, because Cisco already has a really strong interest in this market and they see us as really strong partner for them, this new relationship provides an even stronger and more formalized framework for the two companies to work together and specifically to develop kind of the joint market if you will for Cisco and Iteris primarily in three. It applies nationwide, but they're really three geographic areas that we're especially focused on. One is California. The other is Texas and the third is Florida. And so with Cisco's resources, brand recognition, their own direct sales channel, as well as their other channel partners, we believe that Cisco is going to really help us move the needle. Of course over some period of time it's not going to happen overnight, but over the next couple of years we think this relationship with Cisco can really help us move the needle especially in all three of those markets, but potentially nationwide which obviously have nice financial benefits for us. We think its going to be really important for the broader industry in providing better connectivity for the transportation infrastructure and enabling things like vehicle the infrastructure integration.

Well congratulations on that. Thanks for taking my questions and continued success.

Thank you.

Thank you. We'll take our next question from Steve Dyer of Craig-Hallum Capital Group.

Hey guys. Ryan Sigdahl on for Steve.

Hi, Ryan.

As it relates to transportation systems, so my math implies about flattish revenue for the second half of the year organically if you exclude Albeck Gerken $2 million a quarter there. First, is that correct? And then second I guess, can you help me reconcile the commentary that you expect accelerating growth in backlog conversion and some of these large contracts ramping up in the second half and coming online versus I guess that segment growth in my math of high single or high-teens growth?

Sure. So this is Andy. And I'll start with the -- just the actual performance. Yes, it is flattish for the first half. Keep in mind our first quarter, we have that unfavorable comp where we still are comping year-over-year with the larger VDOT contract that phased out after Q1. So, as we get into our Q2, we're slightly up organically. But -- and again year to-date that's good to be where we are, again at the $12.4 million. What's interesting as we go into our Q3, Q3 is typically is seasonally down quarter for both our transportation units, but in the case of systems likewise regardless of contract starts that Joe has been commenting to that we expect a couple of them that kicked loose, maybe all of them regardless, we don't expect to see seasonality in our third quarter, which is which is a big positive. So again that's another kind of triggered towards how we are very confident. We're going to see strong year-over-year growth starting in our Q4 and certainly continuing into our Q4 as we start seeing these contracts get up and go.

So, Ryan, this is Joe. I think you are saying that doing quick back of envelope math, you were thinking that on an organic basis systems would be flat in the second half. You say first half or the second half?

Yes. I was primarily talking about guidance for the second half. So you commented that you expect high-teens growth in segment in the second half. If you just layer on $4 million on the last year it gets you about there. So I guess the commentary doesn't quite align with kind of those numbers and expectation?

Yes. So we should take that off line and talk to you. But in fact, we are looking at strong organic growth in the second half, excluding the Albeck Gerken impact. So I just I don't want to work -- I want to take up a lot of peoples [ph] time, but I'll just say that no, we absolutely expect organic growth in the second half -- transportation systems organic growth in the second half.

Got you. Yes. Well I will take it off line here.

Okay.

Switching over -- so backlog, I think that includes Albeck Gerken. Do you have what the organic backlog was? Or how much that contributed to it?

Yes, sure do. We're about $51.1 million just organic in terms of ending backlog, which is still up significantly from the $49.5 million we recorded in Q1.

Yes. So, I can just add to that Ryan. So if you exclude Albeck Gerken, our year-over-year backlog would have been up 10%. And on a sequential basis the backlog would have been up 9%.

Got you. And that's just Transportation Systems backlog, right?

I'm sorry that was not an enterprise basis. It probably would be roughly the same for a system. Would you want to add for that, Andy?

Sure. So systems in our Q1 of 2019 was $40 million and we're at $49.4 million in our Q1 and $51.1 million in our Q2, so up very significantly.

Got you. Thank you. And then last one for me is it sounds like the Albeck Gerken integration is going well. What is the acquisitions pipe like going forward look like? And then what is kind of the realistic cadence for potentially layering on more deals in the future from both a human capital as well as just integration and everything? Thanks.

Yes. Sure, great question. So the integration is going really well. We think it would make both strategic and financial sense to potentially do some additional acquisitions and would be our desire to do so. As far as the timing, kind of reverse the order of your question and say that, interestingly in addition doing the Albeck Gerken acquisition and then the integration which is a lot of heavy lifting undermined folks that we have actually taken over the management of traffic operations centers for example in Virginia and then more recently in Florida, which as a result required us to onboard a significant number of employees and then migrate that function to our -- into our infrastructure, our corporate infrastructure and as a result we actually have gotten pretty darn good at doing what effectively looks like post acquisition integration. And in fact as I mentioned the Albeck Gerken integration has been going extremely well and we've kind of largely used the same playbook. And so we definitely have the capability to do. As far as the integration goes, we have the capability to do additional integrations and snap them into our chassis pretty easily at this point. And by the way, I would add that one of the things that's made -- it is making that possible is that we have been making investments over the last couple of years to migrate to a new ERP system to deploy salesforce.com across all of our segments. And so it's used in the general course of business and we've implemented and become proficient in the use of other similar sort of enterprise applications, right. So that's kind of enabled this. But anyway, I don't think the limiting factor in terms of doing additional acquisitions would be our ability to successfully integrate the company. It's going to be a function of finding the right business that makes sense on many levels, right? Does it? Is there a strategic fit when we get it? Can we -- is there a reasonable valuation, expectation on that particular asset. And in some cases there may be some business we would be interested in acquiring, but let's take Albeck Gerken for example which was owned effectively by the founder. And so he had various objectives regarding whether and when he chose to sell that business. And so we need to get alignment around that the desire of the seller to sell in terms of terms that makes sense for us, but also the timeframe that makes sense for us. So the bottom line is that's going to be the major limiting factor. Is our ability to find the right acquisition, the right price and when that's going to happen? If I were to sort of just guess I would think that it's going to be like maybe a sort of every 12 to 18 months over the next couple of years we might be successful in finding another Albeck Gerken closing the transaction and then integrating them into our operation. But there could be periods where things could happen. They could bunch up and be a little bit closer. And there could be no other periods where you could maybe it might stretch out to more like 24 months. But again I think on sort of average out at about like maybe one transaction every 12 to 18 months.

Great. Thanks guys. Good luck.

Thank you. We'll take our next question from Joseph Osha of JMP Securities.

Hi, there. And thanks actually very neatly for queuing up one of the several questions I was going to ask. As you think about that acquisition cadence would it be your intention to try and fund that with whatever you buy with internally generated cash flow or might you contemplate levering the enterprise or doing other things to move that forward?

Andy, you want to talk about it.

Sure. So something that we didn't kind of point out right, but it's pretty obvious for us is another key qualifier for any acquisition it's going to be creative. There's a lot of business out there, a lot of technology that's for sale, that's still in growth kind of development mode where you have a firm mindset on whatever we buy is going to be a creative. We're close to $30 million in cash and that's enough cash to lever the next acquisition in our mind and what we look at. And as we've talked before, we've been looking at acquisitions for a number of years. This is a pipeline type event. And so this is not new to us. We have a good pipeline out there that we're always talking to. But it's a combination of using the cash on hand and as Joe commented before, typically we're talking to people that do actually enjoy the fact that we're a public company. And we create liquidity from that perspective. And they buy into the story of where we're going in terms of the overall strategy and opportunity. So there is typically an expectation of combination of cash we have in the balance sheet combined perhaps with shares that we would issue from the perspective of – it’s a desire of the purchaser to actually have a play in the stock not just cash.

The thing I would add to that to those. As we evolve the financial characteristics of the business meaning that we get to consistent operating income, profitability then that we'll have the ability to use other kinds of financial instruments to do future acquisitions. And so we would certainly plan to do that going forward. The question is like when are we able to pull that lever, right? So we'll have to look at that. But that's certainly our intention.

Sure. Andy, did you just say $30 million that I must have misheard that. What was that reference to?

Approximately $30 million in cash we have in the balance sheet as we talk today. But as Joe said, we're transitioning into cash flow positive performance and so you continue to build that war chest. And what Joe is alluding to as well as obviously we do all our homework and as we get to a solid even the performance, different instruments meaning dead instruments become available to us at the right market prices. So again we have a full array of different financial instruments to put the use in terms of acquisitions.

And Andy you may want to comment to and you're talking about the $30 million cash in form of cash and others in the form of short-term investments. So just to make sure everybody understands that.

Sure. So as Joe pointed out oftentimes I just say cash, but if you look at our balance sheets it's referred to as cash and short-term investments. Two combined by $29.5 million right now.

Right. Okay. Thank you. And then following again on the one of the previous questions and we can take this offline if you want. I too am having difficulty teasing out in transportation systems what we think the organic rate of growth is. So maybe I'll just ask you at a higher level here for that in Roadway Sensors. As we think, not just about the remainder of this fiscal year where we're coming off some easy comps, but you're looking forward in the next fiscal year what kind of organic rates of growth might should we be thinking about for those businesses?

Yes. So for transportation systems we would be looking at growth in the mid to high organic growth in the mid to high single-digits for the first half -- for the second half, I apologize. And then looking ahead as we've said, we think that it's reasonable to expect organic growth in the low-teens and for transportation systems. Now let's talk about Roadway Sensors kind of similarly we would expect that over the long-term you could expect organic growth in the low-teens. In the second half as I said we expect there might be a little bit of moderation in the growth you saw. In the first half that's due to the fact there is a planned product cycle in Q4 and that where we expect result in some like moderation as I said, But if we would still anticipate that the segment's growth will be in the high single digits. So again the organic growth, both of those segments will be – well, transitions in kind of the mid to high single digits, Roadway Sensors in the high single-digits. But for different reasons and we think that's only -- that rate of growth is limited to that period of time. And then again over the longer-term we would expect organic growth of both of those segments to be in the low-teens.

Okay. Thank you. And then the last question for me, I'll try to not hard things here. Is there some point at which you think that net investment that at the EBIT level for AG and weather could get to could get to flat. And how I mean, just to the extent you can communicate, what is your goals around achieving that?

Sure. So as Joe pointed out, we make continuous improvement here. We're looking at next fiscal year again, to continue that improvement to where on a quarterly basis, so it starts running down to zero. So our goal next year is to have that business operating if not flat, definitely under that $1 million burn level so that you're dealing with maybe again in that $250,000 a period, something that's really de minimis. So we see that opportunity to do so and we hit it from both angles. We continue to see this revenue growth and of course it's a SaaS model, so while its sticky as all get out. Again, we essentially with the healthy firms out there, see 100% retention. We're hitting that on both sides. We're looking at that and we continue to look at different expense opportunities as the technology is mature. And so basically from this point on there's just not that high requirement from an R&D perspective. We're choosing to actually manage the expense side from the sales and marketing opportunity. So again, we look at significant improvement year in and year out with next year bringing it down to a point where it just doesn't hit people's radar in terms of any kind of burn.

Okay. Thank you.

[Operator Instructions] We'll take our next question from Mike Shlisky of Dougherty & Company.

Okay. Good afternoon guys. I want to just back up to something you said on Ag in your in your earlier comments. Did you say that one of your larger or your largest customer contract renewal was delayed after the end of the quarter. Was that what you said? And I wanted to just make sure that was in fact signed after the quarter was over. Can you comment also on whether there was any kind of expansion or increase in the pricing or scope of that deal?

,:

Okay. I'm sure, you don't want to say the exact amount, but would you be able to tell us whether the segment backlog would've been up year over year. Had you sign it by the end of the month?

Yes. So, I -- this particular contract I don't really want to disclose the total value, but it is -- I will say it's a seven figure total contract value. And yes the total bookings would have been up with this additional contract in the mix.

Okay. Got it.

And let me further say too that if you just look at the ClearAg bookings alone they were up significantly year-over-year.

Got it. And that actually is my other question. You have commented and we saw in result that this quarter typically there's a step down in the top line for the Ag and weather segment, happened last is happening again this year. But from what you signed, what you've got kind of less upside [ph] to for the back half and for next year, could that seasonality change in fiscal 2021 or is it going to be kind of same going forward?

Yes. I would like to think that it's going to change in for two reasons. One is as ClearAg revenue overtakes ClearPath revenue, that's going to reduce the seasonal effect, because the seasonality is entirely due to ClearPath weather. And remember just for everyone's benefit the primary current use case for ClearPath weather is by snow states that are using the information to help them plan and operate their snow plow operations. And because of that use a lot of states have essentially required that we provide a seasonal pricing model. And because we have this seasonal pricing model we -- even though the contracts are for a full year the usage is in the winter and that's when we recognize the revenue for that contract under the current model. So again, as ClearAg start represent a large and larger portion of the total segment revenue that'll minimize the seasonality. The second thing is that we are doing a lot of work with agencies to find -- state agencies to find year round uses of the environmental information. So you can imagine that like park and recreation departments could use us to help them better optimize their irrigation of like fields for example and also medians along certain roadways. And so as we're successful in selling that additional value add that represents additional revenue total revenue for us. But it'll also smooth this current kind of seasonal pricing effect that we have. So for both those reasons over time absolutely the seasonality will start to decline.

Got it. And then I wanted to just ask follow-up on your comments about some of your customers having some staff shortages and helping some of your deals move forward. I guess I wanted to ask whether your folks, your full staffed when they're ready because you've got some pretty good backlog and growth here. I'm curious to make sure that you've gotten some people to kind of do the work once they actually release the way [ph]?

Mike, that's a really smart question. Yes. So that -- as we think about the second half we're very optimistic, very bullish, because we have a ton of backlog, we have clear line of sight as to getting some of these critical notices to proceed. But there are a couple of questions in our mind. One is do we get two, do we get three or do we get all five of those notices to proceed and when specifically do they come in. And then secondly, do we have the internal labor or do our subcontractors in some cases have the internal labor or the product that we need to fulfill within that window. And so we are being slightly more cautious about the second half today than we were like a quarter ago. But that being said, everything is moving in the right direction, these are firm orders, we're absolutely going to get this revenue. It's just a matter of precisely when does it lay out. And again it is a function of when precisely do you receive those notices to proceed. And as Andy said in some cases that'll allow us to take revenue on work, it's actually already been performed and it's sitting on our balance sheet now. The second thing is exactly what you said it's like what is our staff availability and how does that affect the revenue conversion.

Okay. Okay, great guys. Thanks so much. Appreciate it.

Thank you. I'll now turn it back to management for closing remarks.

Awesome. Great. I appreciate it. So let me just say that with that a lot of great questions. We do have -- I do want to make everybody aware that we've got some stuff going on in Investor Relations front and we are going to be at a couple of conferences actually this month and we'd love to see you. So please look for us at the Craig-Hallum Capital Group 10th Annual Alpha Select Conference in New York City. That's taking place on November 12th. And then also at the Furey Research Hidden Gems 2019 Conference which is also in New York City on November 21. So if any of you are attending these conferences we'd love to see you. Please come see our presentation and/or sign up to visit with us one on one meeting. In the meantime we look forward to updating you guys again on our continued progress and report our results for the third quarter of fiscal 2020. And so with that it concludes today's call.

Thank you ladies and gentlemen, this concludes today's conference. You may now disconnect.