Autoscope Technologies Corporation
Q1 2013 Earnings Call Transcript

Published: 1 May 2013

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Image Sensing Systems First Quarter 2013 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded, May 1, 2013. I would now like to turn the conference over to Al Galgano, Investor Relations for Image Sensing Systems. Please go ahead.

[Al Galgano:]

Thank you, operator. Joining me on today's call is Kris Tufto, Image Sensing Systems' President and CEO; and Greg Smith, Chief Financial Officer. Kris and Greg will provide results for Image Sensing Systems' performance for the quarter, as well as a product and operational update. We will then open up the call for your questions. But before I turn the call over to Kris and Greg, I'd like to preface the 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 2013. With that, I'd like to turn the call over to Kris. Kris?

[Kris B. Tufto:]

Thanks, Al, and thank you, everyone, for joining us today. On today's call, I'll summarize our performance in the first quarter of 2013 before asking Greg to give more detail regarding our financials. After Greg speaks, I'll return to recap our upcoming initiatives and set the stage for the year. We'll then take your questions. First quarter revenue of $4.6 million was down from $5.3 million in the prior-year quarter. As we discussed on our last conference call, we expected this quarter to be our low watermark for the year, as first quarter is typically our slowest because of slower activity during the winter months. So the quarter was as we anticipated, with the exception of 2 supplier issues we encountered and have taken steps to rectify. We believe that the revenue from the supplier issues will recoup in the upcoming quarters. We're confident from our progress to the first month of the second quarter as we continue to see increases in our pipeline across all product areas and geographies. We anticipate continued improvement through the remainder of the year, and we continue to be positioned for profitable revenue growth as we move out of our seasonably slow quarter. One thing we're very excited about is our recent integration with Exacq Technologies and the Exacq Vision video management system with our CitySync LPR software. From this integration, users can now utilize CitySync's industry-leading license plate recognition solution directly from the ExacqVision client. This means that license plates are scanned using CitySync's line of specially configured IP cameras and the CitySync software running on a third-party computer or directly on the select Exacq Vision servers. From there, the license plate information is converted to serial data, which can be searched for using the Exacq Vision client. This partnership will provide a highly effective tool that combines both video and data evidence from the same user interface. This integration has already created significant interest at recent trade shows. Over the last month, we've showcased it at 4 shows worldwide, 3 here in the United States and 1 in the U.K. To illustrate the interest we've encountered at our show in Las Vegas, we've participated in over 80 demonstrations in one day. There's palpable excitement over the capabilities of this integration and it's clear that it has peaked the market interest. We expect to see the benefits of this integration as early as second quarter this year, and we're talking to some brand names and Fortune 1000 accounts about this integration. Also, this integration enhances our ability to continue penetrating the license plate recognition market in North America. The technology behind our software and cameras has improved exponentially over time, and we know that we're properly positioned to grow significantly in this space. There are strong new worldwide growth opportunities, and we believe that our current commitment to realignment will bring more value and better retain our existing and future customers. The integration of Exacq Technologies is just one example of our continued commitment to enhancing our products and services and operations. We also see that LPR is making a major wave in the law enforcement market, and we're going to continue to have stories along this line as we go forward, but we believe that this integration with Exacq was what we see coming through our pipeline to open up significant growth opportunities in the second half of 2013. We're also excited about the traction Econolite is getting with our RTMS radar product. This adds to the momentum that ISS has experienced and fuels our optimism as we move into the upcoming quarters. And finally, Autoscope Duo continues to meet the demand of forward-thinking governments and entities that seek effective data risk traffic management solutions. In moving forward to this new technology, they're shifting the dynamic that drives this business. And as always, we remain focused on our mission to clearly position ISS as the market leader, and we are dedicated to innovating and adherence to our core values of integrity and transparency. With that, I'd like to turn it over to Greg.

[Gregory R. L. Smith:]

Thanks, Kris, and good afternoon, everyone. For the first quarter ended March 31, 2013, Image Sensing Systems reported a net loss of $1.5 million or $0.30 per share compared to a net loss of $668,000 or $0.14 per share in the prior-year period. Revenue was $4.6 million compared to $5.3 million for the 2012 quarter. Royalties totaled $2.6 million compared to $2.3 million in the same period of 2012. Product sales were $2 million versus $2.9 million for the period a year ago. Total RTMS product sales and royalties were $566,000 and $207,000, respectively, in the first quarter. Sales of CitySync worldwide for the first quarter were $899,000. As we indicated in our press release, royalties and CitySync revenue were below expectations, and we had a couple of supplier issues which delayed shipping of a number of orders in March. On a non-GAAP basis, excluding investigation costs and intangible asset amortization, all net of tax, net loss for the first quarter was $660,000 or $0.13 per share. Gross margins declined for the quarter, partially due to mix and also due to lower volume impact on fixed costs. Operating costs were on target after taking into account the investigation costs and a severance charge picked up to separate from our former Director of European operations. Kris has some final thoughts. Kris?

[Kris B. Tufto:]

Thanks, Greg. But before I open up the call to questions, I want to reiterate that Image Sensing Systems is built on a legacy of innovation and committed to our core values of honesty, integrity and transparency. We'll continue to manage our cost structure to maximize long-term shareholder value, and we are keenly focused on returning the company to historic profitability levels. Within the current environment, we anticipate great opportunities. We've already seen an increase in market interest due to the partnership with Exacq Technologies, and we expect that trend to continue. We continue to see improvements in international markets, and we anticipate that the increases in our pipeline will materialize in the second half of 2013. We are poised for revenue growth as we move forward through the year. As we expected, our first quarter was challenging from a revenue generation standpoint, given slower spending levels in the winter months. However, as we said, there are great opportunities on the horizon, and we are very well positioned to capitalize on those opportunities. Thank you again for joining us today. We look forward to updating you on our progress throughout the year. At this time, I'd like to open the call up for questions.

[Operator:]

[Operator Instructions] And our first question comes from the line of Brian Yurinich with Craig-Hallum Capital Group.

[Brian Yurinich:]

What -- how -- in terms of kind of the Autoscope revenue in general, what percentage of that would be Duo? And what percent do you think we can grow that, too, by the end of the year?

[Gregory R. L. Smith:]

Well, the revenue for Duo still is -- it's in its earliest stage and it's very small. We have high hopes that it will get traction here as we get into the season. It's been out there for a while and Econolite's been promoting it. And so we hope to see traction here starting in the summertime. In terms of what percentage that will get by the end of the year, that's hard for us to predict, and as you know, we don't like to predict revenue numbers.

[Brian Yurinich:]

If we didn't want to predict and we wanted to think about it more as something you'll be not disappointed in, how much revenue would we have to do in Autoscope for you guys not to be disappointed in it?

[Gregory R. L. Smith:]

Again, Brian, I don't think we could comment exactly on what that figure would be.

[Brian Yurinich:]

All right. How much of the OpEx -- it looks like OpEx is up roughly $500,000 quarter-over-quarter. How much of that was due to the severance?

[Gregory R. L. Smith:]

Again, I don't want to give an exact number but the severance number was substantially enough that we thought we would disclose it as being significant.

[Brian Yurinich:]

Should we expect OpEx to trend down now that we won't have severance? Or does it kind of stay at this run rate going forward?

[Gregory R. L. Smith:]

Well, we have indicated in our various filings that we intended to increase sales and marketing expense and to a lesser extent, our R&D and engineering expenses. So expenses should be higher and they were higher. And also, as we've said in the press release, we would like to continue that trend of higher expenses but we do need to couple it with revenue increases.

[Brian Yurinich:]

So we should expect expenses that you want to increase for strategic reasons to be at least as much as we paid in severance going forward?

[Gregory R. L. Smith:]

Yes, that's a fair statement, yes.

[Operator:]

[Operator Instructions] And our next question comes from the line of Tim Clarkson with Van Clemens.

[Timothy Clarkson:]

Just a couple of more basic questions. Are you getting a sense -- I know that one of the restraining factors on your business has just been governments have not been -- had the money to spend on anything. Do you get a sense that that's starting to lessen, that there's more government money out there to spend on Image Sensing products?

[Kris B. Tufto:]

I would say there's a couple trends there. One is on the MAP-21 side. We're starting to see more and more projects and funds loosening up at the state level. So I think we'll see that in the out quarters on the traffic side. On the license plate recognition side, that business is more -- there's some B2B there. And certainly, on the -- with the Exacq partnership, we're starting to see our pipeline grow there on the B2B side. So I would say the pipeline is growing on both sides of the equation there.

[Timothy Clarkson:]

Okay. And in terms of -- just to go back. You went through some of the new technologies and you're using some of the jargon that you guys know or are familiar with. Just for someone like me who isn't as familiar with the technology, what's the exact value proposition from these new technologies? Why are people excited about some of the new stuff you mentioned early in the call?

[Kris B. Tufto:]

It's more about -- it goes into a couple of different markets. One of it's security and access control. And so they're starting a couple license plate recognition with other security aspects and being able to meld those technologies on the B2B side. So I think -- and I -- not to -- I have a poll sitting in front of me where post the Boston Marathon attack is that many more people are -- in fact, 78% are more for surveillance cameras in public places. And so that's going to be a little fuel to our trend as well.

[Operator:]

Our next question comes from the line of Eileen Segall with Tildenrow Partners.

[Eileen Segall:]

Could you just repeat one more time what the CitySync and RTMS revenues were and international revenues, if you could give that?

[Gregory R. L. Smith:]

Sure. Well, we don't disclose revenue by geographies anymore, Eileen, as you know, but the CitySync sales were $899,000 worldwide, and RTMS was $566,000 for product and $207,000 for royalty.

[Operator:]

Thank you. I'm showing no further questions in the queue at this time. Ladies and gentlemen, this does conclude our conference for today. If you'd like to listen to a replay of today's conference, you may do so by dialing 1 [phone] or [phone] and entering the access code of 4614661 followed by the pound sign. Thank you for your participation. You may now disconnect.