Autoscope Technologies Corporation
Q4 2015 Earnings Call Transcript

Published: 4 Mar 2016

[Operator:]

Good day, and welcome to the Image Sensing Systems Fourth Quarter 2015 Earnings Conference Call. As a reminder, today's call is being recorded. At this time, I’d like to turn today’s conference over to Al Galgano, Investor Relations for Image Sensing Systems. Please go ahead.

[Al Galgano:]

Thank you, Keith. 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 and full year 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 Securities 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'll summarize our 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 will 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 can have some context from my comments. We separate our business into three segments. First is intersection, highway and license plate recognition or 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. On July 09, 2015, we completed the sale of LPR business to TagMaster AV for 4.2 million in cash. The decision to sell our LPR business was part of our long term strategy to the vast non-strategic assets and allow us to focus on our core ITS markets in growing our radar and video product lines. The sale further reduces our operating expense base, while enhancing our balance sheet position to allow strategic investment for the future. This transaction accelerates or 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 continued operations, which excludes the LPR business. Current and prior year periods have been restated to remove the financial results of LPR 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 that as a backdrop, let me give you a little more details on our fourth quarter operations. Look at the fourth quarter, revenue from continued operations totaled $3.5 million down from $3.9 million for the same period in the prior year. We were not satisfied with the decline in year-over-year royalty income and we are working closely with the kind of like to address both near and long-term market opportunities. The decrease in product sales as a result of withdraw from the Asian market in 2015. As previously discussed, we closed our offices in Asia in the beginning of 2015. However, we continue to evaluate opportunities to expand our distributors in the region. This performance was in line with our expectations and reflects the way that we have structured our business and seasonality trends. Excluding the impact of the planned to loss of sales from the Asian market, we experienced an increase in product sales from the fourth quarter of 2014. During the quarter, we saw product, sales gross margin of 42% an increase of 200 basis points from the year ago. Additionally, we saw further reductions in our continuing operating expense and as a result, operating expenses were down approximately $1.1 million or 27% from the same period in the prior year. As a result of improvement in product gross margins and reductions in operating expenses, net loss from continuing operations of $403,000 was a 64% improvement from the $1.1 million loss experienced in the prior year. From a product perspective, we were pleased to announce during the quarter that our RTMSFX-300 products were approved by the Florida DOT traffic. We also expanded our detection portfolio with the launch of our new RTMSFX HD Cam product during the quarter. The combination of the state of the art FX-300 and high-definition camera provides a one of the kind all of one radar sensor that deliver superior detection on roadways giving traffic manage expert to ability to collect traffic data to manage our infrastructure better than ever. We believe that the Florida DOT traffic approval and launch in our new market leading RTMSFX-300 HD Cam product reaffirms our commitment to our core intelligent transportation system or ITS market. But the operating improvements made in the past few quarters, a best-in-class products and served offerings and our focus on sales execution, we believe we are well positioned for the future and we'll continue to see improvements in operating income in 2016. Now, I'd like to turn the call over to Rich to cover financials.

[Rich Ehrich:]

Thank you, Dale. Good afternoon, everyone. For the fourth quarter ended December 31, 2015, Image Sensing System's revenue for continuing operations totaled $3.5 million, down from $3.9 million from the same period in the prior year. Revenue from royalties was $1.6 million compared to $1.9 million in the fourth quarter of 2014. Product sales from continuing operations totaled $1.9 million compared to $2 million in the same period in the prior year. Radar product sales were $1.5 million in the fourth quarter compared to $1.6 million in the same period in the prior year. Autoscope Video product sales and royalties were $375,000 and $1.6 million respectively in the fourth quarter of 2015. We saw sales gross margins from continuing operations of approximately 69% in the fourth quarter of 2015, a slight increase of approximately 1 percentage points from the prior year period. The decrease is a result of a higher year-over-year concentration of product sales in the fourth quarter of 2015. As Dale outlined, we had product sales gross margins from continuing operations of approximately 42% in the fourth quarter of 2015, an increase of 200 basis points from the same period in the prior year. A sharp improvement in year-over-year product gross margin is primarily due to a greater percentage of higher margin sales during the quarter. We expect product gross margins to continue to improve in 2016. Operating expenses from continuing operations were $2.8 million a 27% improvement from the prior year period. For the quarter, we’re reported a net loss from continuing operations of $403,000 an improvement of 64% compared to the prior year period. Looking at our full year performance, revenue from continuing operations totaled $15.2 million in 2015, down approximately 16% from $18.1 million in the prior year. Included in the prior year period, was $1.9 million of revenue derived from Asian operations. Adjusted for the plan exit from the Asian operations the year-over-year revenues contracted approximately 6%. Revenues from royalties were $8.5 in 2015 compared to $10.2 million in 2014 which included $709,000 of radar royalties from the Econolite. In the prior year, we received radar royalties of approximately $709,000 as Econolite and all the North American radar sales prior to the transfer of domestic sales and marketing of the radar product line 2 ISS in July of 2014. As Del pointed out we are working with Econolite to address the decrease in royalty income and identify areas to accelerate growth in that category in 2016. Product sales from continuing operations were $6.7 million compared to $7.9 million in the prior year. Radar product sales were $5 million in 2015 down approximately 21% from 2014. The decrease in radar product sales is due to $1.7 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 $1.7 million and $8.5 million respectively in 2015. Sales gross margins from continuing operations for 2015 were 77%, an increase of approximately 200 basis points from a 75% margin in 2014. Product sales gross margins from continuing operations for 2015 were approximately 48%, an increase of approximately 600 basis points from a 42% margin in 2014. These increases were primarily due to the combination of increasing sales prices and continued reductions in our warranty claim rates. After experiencing a high volume awarded primary strategy we’re happy to report the FX 300 warranty plans of the insignificant to-date. We believe we will continue to see improvement in product sales gross margin throughout 2016. Operating expenses from continuing operations were $11.4 million in 2015 a nearly $4.5 million decrease or more than 28% improvement from the prior year. I should note to you that during the year we capitalized $1.2 million our software development cost related to our new video detection technologies currently in development. The 2015 net income from continuing operations of 383,000 or $0.08 per diluted share compared to a net loss of 2 million or $0.41 per share in the prior year. Overall, we are please see improvement in the fourth quarter and year-to-date operations. On a non-GAAP basis, excluding intangible asset amortization, depreciation, cost of the investigation, impairment on the investment and restructuring expenses the fourth quarter, net operating loss from continuing operations was $231,000 64% improvement from a non-GAAP operating loss from continuing operations of $642,000 in the fourth quarter of 2014. For full year 2015 non-GAAP net operating income from continuing operations was $1.3 million compared to a non-GAAP net operating loss from continuing operations of $281,000 in 2014. On the balance sheet, cash at December 31, 2015 totaled approximately $2.6 million substantially unchanged from $2.7 million at the end of the fourth quarter of 2014. A strong balance sheet which contains no debt allows us flexibility or 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 questions, let me reiterate how encourage we are with the progress made in 2015 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 yield improved financial results. We took major steps in 2015 to streamline our business and transform image sensing to be successful in any environment and take advantage of the growth opportunities across all of our markets. From a products and solution portfolio perspective, we are focused on user and customer need and believe that our offering as a strategic value add to our customer’s operations in the ITS market. Our demonstrated continuing improvement over the course of the year combined with an improving marketing trend give us confidence about our future growth prospects for 2016 and well beyond. With the leading product and service offering in the industry a rigid focus on execution strong strategic partnerships and the company now operationally and finally position 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 grow long-term shareholder value. Thank you again for joining us today. I look forward to update you on our next call. And at this time I like to open up the call for any questions you may have?

[Operator:]

[Operator Instructions] And we can take our first question from Ben Fishman [ph]. Please go ahead. Your line is open.

[Unidentified Analyst:]

Hi. How are you? I've got two questions. Can you speak about the Florida, the permanent traffic approval of the cameras what is that mean what do we make user contracts and do you see expanding towards other states how quickly?

[Rich Ehrich:]

It was approved late last year late 2015. But basically what it allows that is anybody at the State of Florida, Florida to feel comfortable with our product and also we can beyond the approved vendor list. So we expect some pretty quick results from that. It's good news that something we've been working on for about 6 to 8 months and we're very pleased that we've received that so. We're down in the approved vendor list and we look forward to some increased business in Florida.

[Unidentified Analyst:]

And do you see this expanding throughout the states have you been rejected or accepted in any other states?

[Dale Parker:]

Yeah we're trying to do the same thing in the other states. Other states have different rules, regulations with vendor list to obtain at different ways. But Florida is the leader and generally if you approved in Florida you will be approved in most any other place.

[Unidentified Analyst:]

Okay great. Now I just have a personal question is this Dale?

[Dale Parker:]

Yes, it is.

[Unidentified Analyst:]

Okay. Your title is Interim Chief Executive Officer, and you have that title for quite some time. Is there any specific reason, you're interim?

[Dale Parker:]

No, I kind of - I tease with the board a little bit I think the CEO in this country probably is Interim and to be honest with you, if you look at the paper every day, you'll see the somebody is coming and gone. I have a very good relationship with the Board and I've been here for three or four years. And at some points we'll decide to either make me permanent or we'll do something else. And that's not been decided but I would say that our performance for the last 12 months has been pretty good and everybody seems to be happy. So at this point we haven't eliminated the interim part but it frankly doesn't bother me.

[Unidentified Analyst:]

And I ask one final question to my thing I see about 47% of the stock is held by insiders. Majority being, I'm sorry?

[Dale Parker:]

No, it isn't, not insiders. I just want to the first is how you define insiders?

[Unidentified Analyst:]

Well, anybody that owns let's just say an all-over that's over 10% of the stocks.

[Dale Parker:]

Well we have two gentlemen that are investors both in the East Coast that are not insiders that they own roughly 40%. There is one ex - the founder of the company owns about 7% and then the rest of it is far like - primarily in the retail side.

[Unidentified Analyst:]

And that investor is now on the Board right?

[Dale Parker:]

That is correct. One of the investors.

[Unidentified Analyst:]

Good. Then it was Andrew Burger?

[Dale Parker:]

That is correct.

[Unidentified Analyst:]

Okay. Thank you. I'm good.

[Rich Ehrich:]

You're welcome.

[Operator:]

[Operator Instructions] We can go next to Irene Thomas [ph]. Please go ahead.

[Unidentified Analyst:]

Were there any factors other than the like the fact that the internet stocks are take stocks back in mid to third quarter 2014 until my calendar year. The market was rising when this stock was flying up to 7 or 8, were there any financial reasons it was doing that like sales were higher or expect to sales or was it just all matter of that you got caught up with the police beatings and stuff that sort of care, piggy bags to Taser [ph] and digital alley and those type stocks.

[Rich Ehrich:]

There were no financial reasons. We run the company on a very consistent and solid basis. I honestly don't rely the stock when up in that period. I trusted it was some internet web pages or blogs or whatever it might have been happening. But the company and management has nothing to do with. So I honestly don't know why it went up. But it could have been associated with the Missouri situation. But I don't really know to be honest with you.

[Unidentified Analyst:]

I'm asking because that's when I caught [indiscernible] of a stock I started buy and I've accumulated a lot and washed it for 2 years were basically sell down is really never had any, it did go up to 3 or 8 or something last year. But really never got anywhere close. I'm just waiting keep saying hey! This company is going to report some financial that going to make the stock rise with this and look like that happens.

[Dale Parker:]

We are doing the best we can. I think you'll see the numbers. We are getting very close to profitability on every quarter and that's about what I can tell you that we've got a nice solid company in the traffic business and we'll continue to operate the best of ability.

[Unidentified Analyst:]

Okay. One comment to that previous questionnaire is and I don't pay attention to that type of interim that type thing. But it could give a negative kind of connotation some might look and have said, the interim they can't get some work form they got too much turn over. If you've been there 3 or 4 years, it seems like why couldn't they take the title off just for positive reflection to the public as appose to the interim.

[Dale Parker:]

I couldn't answer that question. It's a question that would have to be directed to the board and we are doing the best we can here and I appreciate your comments.

[Unidentified Analyst:]

Okay. Well, this pointed out to him that could be a concern stable.

[Dale Parker:]

Alright, thank you very much.

[Unidentified Analyst:]

Thank you.

[Operator:]

[Operator Instructions] And it appears we have no further questions. At this time, I'll return the floor to your Mr. Galgano for any additional or closing remarks.

[Al Galgano:]

Thanks a lot, Keith. Thank you everyone for joining us on today's call. We look forward to updating you on our progress and our first quarter 2016 financial results in late May. Thanks a lot.

[Operator:]

Okay. This does conclude today's program. Thanks for your participation. You may now disconnect. Have a great day.