Autoscope Technologies Corporation
Q3 2014 Earnings Call Transcript

Published: 30 Oct 2014

[Operator:]

Good day, and welcome to the Image Sensing Systems Third Quarter 2014 Earnings 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, Chanel. Joining me on today's call is Kris Tufto, Image Sensing Systems' President and CEO; and Dale Parker, Chief Financial Officer and COO. Kris and Dale 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 Kris, 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 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 2014. With that, I'd like to turn the call over to Kris.

[Kris B. Tufto:]

Thanks, Al, and thank you, everyone, for joining us this afternoon. On today's call, I'll summarize our third quarter 2014 operational performance before turning the call over to Dale to provide more detail regarding our financial performance. After Dale discusses the third quarter financial results, I'll return to recap our ongoing initiatives for future growth and then we'll open it up to your questions. Looking at third quarter, revenue totaled more than $7 million, down 8% from the same period in the prior year, but up more than 20% from our prior quarter. Excluding 2013's third quarter Poland operations revenue of $359,000, 2014's third quarter revenue decreased $242,000 or 3% from the prior-year period. We were also successful in further reducing our operations and related expenditures. And as a result, operating expenses, even including nonrecurring charges related to the transfer of the domestic marketing and manufacturing of Autoscope Radar product line from Econolite, were down sharply on both a year-over-year and sequentially. The improvement in operating expenses was a result of our ongoing cost-reduction initiatives. We believe we will continue to see improvement through the remainder of 2014. And from a product perspective, we're excited to release our new radar product, the Sx-300, and continued strong sales of our CitySync Metro solution as well. So before I give you a little more detail on milestones we achieved in the third quarter, let me briefly summarize for those of you who are new to our -- following our company, how we view the marketplace so you'll have some context for my comments. We separate our business into 3 segments

[Dale E. Parker:]

Thank you, Kris, and good afternoon, everyone. For the third quarter ended September 30, 2014, Image Sensing's revenue totaled $7.1 million. Sequentially, we saw more than 20% increase in total revenue. This was down approximately 3% from last year after adjusting for prior year revenue of $359,000 from the Polish operations, which were closed earlier this year. On a year-to-date basis, revenue totaled $17.4 million, down approximately 6% from 2013 after adjusting for the $1.3 million of prior revenue derived from Poland operations. Revenue from royalties was $2.6 million in the third quarter compared to $3.4 million in the third quarter of 2013. Product sales were $4.5 million, an increase from $4.3 million from the year prior and up from $2.7 million for the prior quarter. Autoscope Radar product sales were $3.1 million in the third quarter, up approximately 24% from 2013 and up substantially from sales of $765,000 in the prior quarter. This increase is attributed to the North American transition of sales from Econolite to Image Sensing. Autoscope Video product sales and royalties were $570,000 and $2.6 million, respectively, in the period. Worldwide sales of Autoscope License Plate Recognition, or LPR, products were $887,000 in this quarter -- in the third quarter. We saw product sales gross margins of approximately 43% in the third quarter of 2014, a sequential increase of nearly 6% and up nearly 11% from the third quarter of 2013. As a result of the radar transition, we assume certain warranty liabilities related to the North American installation base. These changes are nonrecurring -- charges are nonrecurring. Excluding these one-time charges overall, product margins would have been approximately 47%. We were pleased to see this continued improvement in project -- product margins and expect continued improvement. For the quarter, Image Sensing reported a net loss of $553,000 or $0.11 a share compared to a net loss of $1.9 million in the prior year period and a loss of $1.5 million in the prior quarter. The third quarter 2014 net loss includes operating expenses of approximately $5.3 million, down from $6.7 million in the third quarter of 2013 and down approximately $500,000 from the prior quarter. We are pleased as we continue to see the benefits of our cost-reduction initiatives that have taken place over the course of 2014. Also, during the third quarter, we also recognized $150,000 impairment of our investment in MPS. On a non-GAAP basis, excluding intangible asset amortization, impairment charges, restructuring expenses and the cost of the investigation, the net operating loss for the third quarter was $170,000 compared to a net operating loss of $1.1 million in the same period a year ago. These results are even more impressive when you consider that the 2014's third quarter cost included approximately $486,000 of nonrecurring costs associated with transferring the RTM business from Econolite. These expenses include the previously discussed warranty charges and a royalty to Econolite for orders that were received by Econolite but fulfilled by us. On the balance sheet, cash and investments on September 30, 2014, totaled $1.2 million, down from $2.6 million in June 30, 2014. The decrease in cash is primarily attributable to timing of our sales and collections during the quarter. Our ratio of cash and accounts receivable compared to accounts payable was 2.1 at September 30. We believe that, going forward, we have sufficient capital to support our operations. Our strong balance sheet, which contains no debt, allows flexibility if circumstances dictate. With that, I'd like to turn the call back over to Kris for some final thoughts. Kris?

[Kris B. Tufto:]

Thanks, Dale. Before we open up the call to your questions, let me reiterate how encouraged we are as we progress through 2014 and the growth opportunities we see before us. From a product and solution portfolio perspective, we're more focused than ever on user and customer needs and believe that our offering is a strategic value add to our customer operations in the Intersection, Highway and LPR management markets. We see significant gross opportunities in both our domestic and international markets and believe that we are well positioned for the future. With the investigation behind us, the results of our efforts to streamline our organization and the momentum that we're seeing in our markets, we're confident that we'll be able to take advantage of the opportunities that lie ahead. We're excited to have Autoscope Radar product back in the -- in our North American sales portfolio. This transition gives us greater control of our destiny and will continue to be accretive to revenue. We're focused on returning the company to historical profitability levels and growing 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 your questions.

[Operator:]

[Operator Instructions] And there are no questions in the queue at this time.

[Dale E. Parker:]

Okay. If there are no calls, we'll wrap up the call. Well, thank you, everyone, for joining us on the third quarter conference call today. We look forward to updating you for the fourth quarter early in 2015. Thank you.

[Operator:]

That does conclude today's conference. Thank you for your participation.