Autoscope Technologies Corporation
Q3 2015 Earnings Call Transcript

Published: 8 Nov 2015

[Operator:]

Good day and welcome to the Image Sensing Systems Third Quarter 2015 Earnings Conference. Today’s conference is being recorded. At this time, I would like to turn the conference over to Al Galgano, Investor Relations for Image Sensing Systems, please go ahead sir.

[Al Galgano:]

Thank you, Jerry. Joining me on today's call are 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. Before I turn the call over to Dale, I'd like to preface all remarks with 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 may be found in the Company's Security and Exchange Commission reports, including the latest Annual Report on Form 10-K filed in March of 2015. With that, I'd like to turn the call over to Dale.

[Dale Parker:]

Thanks Al and thank you everyone for joining us this afternoon. On today’s call, I will summarize our third quarter 2015 operational performance before turning the call over to Rich to provide more detail regarding our financial performance. After Rich discusses the financial results, I'll return to recap our ongoing initiatives for future growth and then we'll open it up to your questions. For those of you, who are new to following our Company, let me briefly summarize how we view the marketplace, so you have some context for my comments. We separate our business into three segments; Intersection, Highway and License Plate Recognition or for short LPR. 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 lastly, License Plate Recognition is our LPR product line. During the third quarter, we completed the sale of the LPR business unit. We’ll discuss this transaction in more detail in a moment. Please note that all comments made on today’s call will reference performance of our continuing operations which excludes the LPR business sold in July of the current year. Current and prior year periods have been restated to remove the financial result of the LPR on continuing operations. We will continue to only reference continued operations as a result of the sale of that business. We continue to integrate our hardware and software technologies across our 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 in existing Image Sensing Systems around our market opportunities. With that as a backdrop, let me give you a little more detail on our third quarter operations. Looking at the third quarter revenue from continuing operations totaled 4.1 million, down from 6.3 million for the same period in the prior year. The decrease is due to higher royalty income and product sales in the prior year go-period. The lower royalty income is disappointing and we are working closely with the Econolite to address both near and long term market opportunities. These decrease in product sales as a result of the withdraw from the Asian market in 2015. As previously mentioned, we closed our office in Asia at the beginning of 2015. However, we continue to evaluate opportunities to expand our distributors in the Asia [ph]. This performance was in lined with our expectations in reflexive way we have restructured our business and seasonality trends. Third quarter continuing operations gross margin was 77%, up 8 percentage points from the gross margin of 69% in the same period in the prior year. Additionally, we saw further reductions in our continuing operation expense and as a result operating were down approximately 909,000 or 24% from the same period in the prior year. As a result of improved margins and reductions in operating expenses, net income for continuing operations was 290,000 in the third quarter. We believe operating income will continue to improve that we progress through 2015. As previously announced on July 9th, 2015 Image Sensing completed the sale of our LPR business to Tagmaster A.B. for the purchase price of 4.2 million in cash. For the season to sell our LPR business was part of our long term strategy to divest non-strategic assets and allow us to focus on our core ITS market in growing our radar and video product line. This sale further reduces our operating expense on enhancing our balance sheet provision to allow strategic investment for the future. The transaction accelerates our return to profitability in sustain growth creating long term share value. I’d also like to mention our strategic partnership with Trafficnow an innovative provider of Bluetooth sensors for traffic manager. Image Sensing recently announced arrangement to sell Trafficnow’s DeepBlue Sensor North America into Middle East. This partnership will allow customers to leverage RTMS radar detection technology and Trafficnow’s DeepBlue Sensor. The combination of these sensors provides a complete picture of traffic information by being a big data source for up to 12 lines of continues traffic. As traffic continues to grow and travel times increase, the monitoring public is getting frustrated and demanding the travel information is available. To this partnership, traffic management professionals can now relay on the most accurate real time data and analytics. Image Sensing Systems will be featuring the RTMS Sx-300 in the DeepBlue Sensor at upcoming industry meetings and exhibitions. Before I turn the call over to Rich to review the financials in more detail, I’d also like to remind everyone of our recent announcement that Andrew T. Berger has been appointed to our Board of Directors. Mr. Berger is a managing member of AB Value Management LLC, which serves as a general partner of AB Value Partners, LP. He has nearly two decades of experiencing investment allowances and investment managing and business consulting. We’re happy to have his leadership and counsel on our Board of Directors. We believe that our strong leadership industry leading product offerings and market strategy positions Image Sensing to generate profitable growth in our four markets. With the operating improvements made in the past few quarters, a best-in-class product and service offerings, our focus on sales execution, we believe we are well positioned for the future. Now, I’d like to turn the call over to Rich to cover the financials. Rich?

[Rich Ehrich:]

Thank you, Dale. Good afternoon, everyone. For the third quarter ended September 30, 2015, Image Sensing Systems revenue from continuing operations totaled $4.1 million, down from $6.3 million from the same period in the prior year. Revenue from royalties was $2.2 million in the third quarter compared to $2.6 million in the third quarter of 2014. Product sales from continuing operations for $1.8 million compared to $3.6 million in the same period in the prior year. Radar product sales were $1.2 million in the third quarter compared to $3.1 million in the same period in the prior year. Included in the prior year period, was $1.1 million or radar product revenue drives from Asian operations. As previously mentioned, these offices were closed in the first quarter of 2015. Autoscope video product sales and royalties were $607,000 and $2.2 million respectively in the second quarter. As Dale outlined, we saw a sales gross margins from continuing operations of approximately 77% in the third quarter of 2015. This increase of approximately 8 percentage points than there is 66% margin experienced in the same period in the prior year. From the product perspective, we had product sales gross margins from continuing operations of approximately 49% in the third quarter of 2015, an increase of 2 percentage points from the same period in the prior year. We believe that gross margins are sustainable at these levels going forward. These increases are primarily due to the combination of a great percentage of higher margin sales and continued improvements in our warranty claim rates. Operating expenses from continuing operations were $2.8 million or 24% decrease compared to the prior year period. All the quarter, we’re reported a net income from continuing operations of $290,000. On a year-to-date basis, revenue from continuing operations totaled $11.5 million, down approximately 80% from $14.2 in the prior year period. Included in the prior year period, was $1.7 million of revenue derived from Asian operations. Revenue from royalties were $6.9 in the first nine months of 2015 compared to $8.3 million in the same period in the prior year. The decrease is primarily related to the North American radar royalties of $709 we received in the first nine months of 2014. And it highly handled all North American radar sales prior to transfer domestic sales and marketing activities in the third quarter of 2014. Product sales from continuing operations were $4.8 million compared to $5.9 million in the same period in the prior year. Radar product sales were $3.5 million in the first nine months of the year, down approximately 22% from 2014. The decrease in radar product sales is due to $1.6 million of radar product sales derived from Asian operations in 2014. As previously mentioned, these offices were closed in the first quarter of 2015. Autoscope video product sales and royalties were $1.3 million and $6.9 million respectively for the first nine months of 2015. Sales gross margins from continuing operations for the first nine months of 2015 were 80%, an increase of approximately 4 percentage points from the 76% margin experienced in the same period in the prior year. Product sales gross margins from continuing operations for the first nine months were approximately 51%, an increase of approximately 9 percentage points from the 42% margin experienced in the same period in the prior year. These increases were primarily due to the combination of a greater percentage higher margin sales and continued improvement in our warranty claim rates. Operating expenses from continuing operations were $8.5 million in the first nine months of the year or a 28% decrease from the same period in the prior year. On a year-to-date basis, net income from continuing operations totaled $785,000. Overall, we are please see improvement in the third quarter and year-to-date operating income from continuing operations. Not only we’ve completed the sale of LPR, we’ve returned to company to profitability and expect to return the company to historical income levels. On a non-GAAP basis, excluding intangible asset amortization, depreciation, cost of the investigation, impairment on the investment and restructuring expenses. In the third quarter, net operating income from continuing operations was $483,000 compared to a non-GAAP operating income from continuing operations of $923,000 in the same period in the prior year. For the first nine months, the non-GAAP net operating income from continuing operations was $1.5 million compared to a non-GAAP operating income from continuing operations of $361,000 in the first nine months of 2014. On the balance sheet, cash and investments at September 20 totaled approximately $2.7 million unchanged from $2.7 million at the end of the third quarter of 2014. Our balance sheet which contains no debt allows the 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 encourage we are with the progress made in the first nine months in the grow opportunities which we force. From a product and solution portfolio perspective, we are focused on user and customer needs and believe that our offering is a strategic value add to our customer’s operations in the ITS market. We see significant growth opportunities in both our domestic and international markets and believe that we are well positioned for the future. With a leading product and service offerings in the industry and we need to focus on execution, strong strategic partnerships and the company now operational and financially provision for long term profitable growth, we believe we can take advantage of the market opportunities that would return to the company to historical income levels and grow shareholder value. Again, thank you for joining us today. And look forward up updating you on our next call. At this time, I’d like to open up the call for your questions. [Operator Instructions] We have no questions at this time. I’d like to turn things back over to Mr. Al Galgano for any additional or closing remarks.

[Al Galgano:]

Thanks, Terry. And thanks everyone for joining us on today’s call. And we look forward to updating you on our fourth quarter performance in March of 2016. This concludes today’s call. You can now disconnect.

[Operator:]

That does conclude today’s conference. Thanks you for participation.