Autoscope Technologies Corporation
Q1 2016 Earnings Call Transcript

Published: 13 May 2016

[Operator:]

Good day, and welcome to the Image Sensing Systems First Quarter Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Al Galgano, Investor Relations for Image Sensing Systems. Please go ahead, sir.

[Al Galgano:]

Thank you, Ron. Joining me on today's call is Dale Parker, Image Sensing Systems' Interim CEO and CFO; and Rich Ehrich, Corporate Controller. Dale and Rich will discuss Image Sensing Systems' performance for the quarter as well as provide a product and operational update. We will then open up the call for your questions. But before I turn the call over to Dale, I'd like to preface all remarks with the customary Safe Harbor statement. Today's conference call contains certain forward-looking statements. These statements, by their nature, involve substantial risks and uncertainties. Actual results may differ materially depending on a variety of factors. Additional information with respect to the risks and uncertainties faced by Image Sensing Systems maybe found in the Company's Securities and Exchange Commission reports, including the latest Annual Report on Form 10-K filed in March of 2016. With that, I'd like to turn the call over to Dale. Dale?

[Dale Parker:]

Thanks Al, and thank you everyone for joining us this afternoon. On today's call I will summarize our first quarter 2016 operational performance before turning the call over to Rich to provide more detail regarding our financial performance. After Rich discusses the financial results, I will return to recap our ongoing initiatives for future growth and then we'll open it up to your questions. Before I begin, let me briefly summarize how we view the marketplace so you have some context from my comments. We separate our core business into two segments. Intersection and Highway. Autoscope video is our machine vision product line, is normally sold in the Intersection segment. The RTMS is our radar product line and is sold in the Highway segment. And finally on July 9, 2015, we completed the sale of our LPR business to TagMaster AV for 4.2 million in cash. The sale of this non-strategic asset further reduces our operating expense base, while enhancing our balance sheet position to allow more focused investment in the future. This transaction accelerates our return to profitability and sustained growth, creating long-term shareholder value. Please note that all comments made on today's call will reference performance of our continuing operations, which excludes the LPR business. Prior year periods have been restated to remove the financial results of the LPR business from continuing operations. However, we continue to operate in the remaining segments and integrate hardware and software technologies across those segments in order to provide more comprehensive solution to our customers. I hope that this gives you a better picture of how we view our business and have organized Image Sensing Systems around our marketing opportunities. With this as a backdrop, let me give you a little more detail on our first quarter operations. In general, we were very pleased as our performance in the first quarter and believe that it provides a solid base to build on in 2016. In the quarter we saw a stabilization of year-over-year revenue level, continued improvements on our expense base and strategic investments in our new technologies and product platform. On the other hand, we were not so satisfied with decline in the year-over-year royalty income and we are working closely with Econolite to address both near and long-term market opportunities. Product sales increased to 1.6 million, a 33% increase from 1.2 million in the first quarter of 2015. The increase in product sales is a result of accelerated adoption of the company's Sx-300 RTMS and expect an expanded customer relationship into region that were previously under served by the company such as the Middle East. The Sx-300 has also demonstrated our commitment to quality, as our warranty claim rate continues to decline in a historical low rate. Overall our performance was in line with our expectation and reflects the way we have structured our business around the seasonal trends. Rich will provide a little more detail on other operating metrics in a few moments. On the product perspective, we continue to invest in our next generation of video detection technology. This new technology will leverage all new groundbreaking features and functions to give traffic engineers unparalleled information, enabling greater control of the intersection. We are looking forward to the release of our next generation video detection product and believe that it will be a game changer in that market. But the operating prevalence made in the past few quarters, a best in class product and service offerings and our focus on sales execution, we are well positioned for the future and we will see improvements in operating income throughout the year. Now, I would like to turn the call over to Rich to cover the financials. Rich?

[Rich Ehrich:]

Thank you, Dale. Good afternoon everyone. In the first quarter, revenue from continuing operations totaled $3.2 million, unchanged from the prior year. Radar product sales were $1.3 million in the first quarter, compared to 1.1 million in the prior year. Autoscope Video product sales and royalties were $280,000 and $1.6 million respectively in the first quarter of 2016. We saw sales gross margins from continuing operations of approximately 72% in the first quarter of 2016, a decrease from the prior year period. The decrease as a result of a higher year-over-year concentration of lower margin product sales in the first quarter of 2016. We expect product gross margins to improve throughout 2016. As Dale pointed out, we are working with the Econolite to address the decrease in the royalty income and identify areas to accelerate growth in that category in 2016. I should note for you that, during the 2016 first quarter we capitalized approximately $600,000 of software development cost, bringing our investment in new video detection product to a total of $1.8 million. As we near completion of our next generation video detection, we would expect this rate of investment to decrease dramatically. On a non-GAAP basis, excluding intangible asset, amortization, depreciation and restructuring expenses, the first quarter net operating loss from continuing operations was $88,000, a decrease from a non-GAAP operating income from continuing operations of $64,000 in the first quarter of 2015. On the balance sheet, cash at March 31, 2016 totaled approximately $1.4 million down from $2.6 million at the end. The decline in cash is the result of temporary changes in our working capital mix. Finally our strong balance sheet which contains no debt, allows flexibility as circumstances dictate. With that I'd like to turn the call back over to Dale for some final thoughts. Dale?

[Dale Parker:]

Thanks Rich. Before we open up the call to your questions, let me reiterate how encouraged we are with the progress made thus far in 2016 and the growth opportunities we see before us. We expect the compelling value of our technology offerings combined with the strength of investments being made in R&D and new product development to create new market opportunities and create a unique competitive differentiator for us and our chosen market. From a products and solution portfolio perspective, we are focused on user and customer needs and believe that our offering is a strategic value add to our customers' operations in the ITS market. With the leading product and service offering in the industry, a renewed focus on execution, strong strategic partnerships, and the company now operationally and financially positioned for long-term profitable growth, we believe we can take advantage of the market opportunities that will return the company to historic income levels and long-term growth to shareholder value. Thank you again for joining us today. I look forward to updating you on our next call. And at this time I'd like to open up the call for questions.

[Al Galgano:]

Thank you, Ron. And thank you for everyone for joining us on today's call. We look forward to updating you on our progress and our second quarter 2016 financial results in late August. Thank you for joining us today.

[Operator:]

This concludes today's call. Thank you for your participation and you may now disconnect your lines.