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July 30, 2015

ISS Announces Second Quarter and First Half Financial Results

  • Second quarter operating loss was $764,000, which includes costs related to the sale of LPR business segment of $751,000
  • Second quarter product sales gross margin was 62 percent, up 25 percentage points from the prior year period product sales gross margin of 37 percent
  • Operating expenses of $5.0 million were down approximately 15 percent from the same period in the prior year
  • Non-GAAP operating income increased to $454,000 in the second quarter of 2015, an increase of $1.4 million from the Non-GAAP operating loss of $984,000 in the same period in the prior year.
  • On July 9, 2015, the Company announced the sale of its LPR business segment to Tagmaster A.B. for $4.2 million

Saint Paul, Minn., July 30, 2015 -- Image Sensing Systems, Inc. (NASDAQ: ISNS) today announced results for its second quarter and first half ended June 30, 2015.

Second Quarter Results:

Image Sensings 2015 second quarter revenue was $5.2 million, a 13 percent decrease from revenue of $5.9 million in the second quarter of 2014. Revenue from royalties was $2.6 million in the second quarter of 2015, compared to $3.3 million in the second quarter of 2014. Product sales decreased to $2.6 million in the quarter, a 3 percent decrease from $2.7 million in the second quarter of 2014.

Second quarter revenue included $774,000 of worldwide sales for Autoscope License Plate Recognition (LPR) products, compared to $1.2 million in the prior year period. Autoscope Video product sales and royalties were $580,000 and $2.6 million, respectively, and RTMS Radar product sales were $1.2 million in the second quarter of 2015. Product sales gross margin for the second quarter of 2015 was 62 percent, an increase of 25 percentage points from the gross margin of 37 percent for the same period in the prior year.

The Companys net loss in the 2015 second quarter was $742,000, or $(0.15) per basic share, compared to a net loss of $1.5 million, or $(0.31) per basic share, in the second quarter of 2014. The second quarter 2015 net loss includes operating expenses of $5.0 million, which is an $853,000 decrease from the second quarter of 2014. Included in the second quarter operating expense is $751,000 in expenses related to the sale of the LPR business unit.

On a non-GAAP basis, excluding intangible asset amortization, depreciation, costs related to the sale of the LPR business segment, costs of the investigation, and restructuring charges for the applicable periods, net operating income for the second quarter of 2015 was $454,000 compared to a net operating loss of $984,000 in the second quarter of 2014.

During the second quarter, we continued to see the results of the actions weve taken over the past few quarters to position ourselves for profitable growth, said Dale Parker, Image Sensing Systems interim chief executive officer. Margin levels improved significantly in the second quarter, and we believe that these levels are sustainable going forward. We have been successful in building scale into our operating platform, and we were particularly pleased to see an adjusted operating profit in the second quarter, reversing prior period trends. We continue to see our breakeven point improve and are confident that we will return the company to historical profitability levels.

Year-to-Date Results:

Image Sensings revenue for the first half of 2015 was $9.5 million, a 7 percent decrease from revenue of $10.3 million in the first half of 2014. Revenue from royalties was $4.6 million in the first six months of 2015, compared to $5.7 million in the same period in 2014. Product sales increased to $4.9 million in the first half of 2015, an 8 percent increase from $4.5 million in the first half of 2014.

The first six months of revenue for 2015 included $1.9 million of worldwide sales for Autoscope LPR products, compared to $2.3 million in the prior year period. Autoscope Video product sales and royalties were $730,000 and $4.6 million, respectively, and RTMS Radar product sales were $2.3 million in the first half of 2015. Product sales gross margin for the first six months of 2015 was 59 percent, an increase of 22 percentage points from the gross margin of 37 percent for the same period in the prior year.

The Companys net loss for the first six months of 2015 was $1.9 million, or $(0.38) per basic share, compared to a net loss of $5.3 million, or $(1.06) per basic share, in the first six months of 2014. The first half of 2015 net loss includes operating expenses of $9.4 million, which is a $3.3 million decrease from the same period in 2014. Included in the 2015 first half operating expenses are $857,000 of expenses related to the sale of the LPR business segment.

On a non-GAAP basis, excluding intangible asset amortization, depreciation, costs related to the sale of the LPR business segment, costs of the investigation, and restructuring charges for the applicable periods, net operating loss for the first half of 2015 was $2,000 compared to a net operating loss of $3.6 million in the first half of 2014.

Sale of License Plate Recognition (LPR) Business Segment:

On July 9, 2015 Image Sensing Systems announced the sale of its LPR business to TagMaster A.B. for the purchase price of $4.2 million in cash. In the first half of 2015, the Company incurred $857,000 of costs related to the disposition.

Further to our mission to position Image Sensing Systems for the future, the decision to sell our LPR business allows us to focus on our core intelligent transportation systems (ITS) market and growing our radar and video product lines, said Dale Parker, interim chief executive officer. This sale further reduces our operating expense base, while enhancing our balance sheet position to allow focused investment in the future. This strategic transaction accelerates our return to historical profitability and sustained growth, creating long-term shareholder value, concluded Parker.

Second Quarter Conference Call and Replay

Image Sensing Systems second quarter earnings conference call will start at 3:45 p.m. Central Time today. To participate, dial 888-208-1812 and reference conference ID 2018907. Please dial in at least 10 minutes prior to the call. A replay of the second quarter conference call will be available beginning at 6:45 p.m. Central Time today and is available until 6:45 p.m. Central Time on August 4, 2015. To listen to the replay, dial 888-203-1112 and provide the access code: 2018907.

Non-GAAP Financial Measures:

We provide certain non-GAAP financial information as supplemental information to financial measures calculated and presented in accordance with GAAP (Generally Accepted Accounting Principles in the United States). This non-GAAP information excludes the impact of amortizing intangible assets and depreciation and may exclude other non-recurring items. Management believes that this presentation facilitates the comparison of our current operating results to historical operating results. Management uses this non-GAAP information to evaluate short-term and long-term operating trends in our core operations. Non-GAAP information is not prepared in accordance with GAAP and should not be considered a substitute for or an alternative to GAAP financial measures and maynot be computed the same as similarly titled measures used by other companies.

About Image Sensing Systems

Image Sensing Systems, Inc. is a global company dedicated to helping improve safety and efficiency for cities and highways by developing and delivering above-ground detection technology, applications and solutions. We give Intelligent Transportation Systems (ITS) professionals more precise and accurate information including real-time reaction capabilities and in-depth analytics to make more confident and proactive decisions. We are headquartered in St. Paul, Minnesota. Visit us on the web at imagesensing.com.

Safe Harbor Statement: Statements made in this release concerning the Companys or managements intentions, expectations, or predictions about future results or events are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements reflect managements current expectations or beliefs, and are subject to risks and uncertainties that could cause actual results or events to vary from stated expectations, which variations could be material and adverse. Factors that could produce such a variation include, but are not limited to, the following: the inherent unreliability of earnings, revenue and cash flow predictions due to numerous factors, many of which are beyond the Companys control; developments in the demand for the Companys products and services; relationships with the Companys major customers and suppliers; the mix of and margins on the products we sell; unanticipated delays, costs and expenses inherent in the development and marketing of new products and services; adverse weather conditions in our markets; the impact of governmental laws and regulations; international presence; our success in integrating any acquisitions; and competitive factors. Our forward-looking statements speak only as of the time made, and we assume no obligation to publicly update any such statements. Additional information concerning these and other factors that could cause actual results and events to differ materially from the Companys current expectations are contained in the Companys reports and other documents filed with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2014 filed on March 20, 2015.


Image Sensing Systems, Inc.
Unaudited Condensed Consolidated Statements of Income
(in thousands, except per share information)
Three-Month Periods
Ended June 30
Six-Month Periods Ended June 30
2015
2014
2015
2014
Revenue
Royalties
$2,609
$3,287
$4,620
$5,711
Product sales
2,572
2,651
4,900
4,549
5,181
5,938
9,520
10,260
Cost of revenue
977
1,675
1,996
2,880
Gross profit
4,204
4,263
7,524
7,380
Operating expenses
Selling, marketing and product support
1,322
2,471
2,737
5,191
General and administrative
1,390
1,498
2,762
2,870
Research and development
1,123
1,423
2,200
3,239
Amortization of intangible assets
382
393
763
782
LPR business unit sale cost
751
-
857
-
Restructuring charges
-
-
119
460
Investigation matter
-
36
-
152
4,968
5,821
9,438
12,694
Loss from operations
(764)
(1,558)
(1,914)
(5,314)
Other income
30
15
29
14
Loss before income taxes
(734)
(1,543)
(1,885)
(5,300)
Income tax expense (benefit)
8
(10)
24
(10)
Net loss
$(742)
$(1,533)
$(1,909)
$(5,290)

Net loss per common share
Basic
$(0.15)
$(0.31)
$(0.38)
$(1.06)
Diluted
$(0.15)
$(0.31)
$(0.38)
$(1.06)
Weighted average shares outstanding
Basic
5,008
4,980
5,003
4,978
Diluted
5,008
4,980
5,003
4,978




Image Sensing Systems, Inc.
Unadudited Condensed Consolidated Balance Sheet
(in thousands)
June 30,
2015
December 31,
2014
Assets
Current assets
Cash and cash equivalents
$575
$2,656
Receivables, net
5,102
4,219
Inventories
2,204
2,234
Other current assets
648
871
8,529
9,980
Property and equipment, net 741
861
Intangible assets, net
3,228
3,987
Deferred taxes
61
62
$12,559
$14,890
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable
$3,145
$3,315
Warranty and other current liabilities
2,623
2,783
Accured restructuring
-
216
5,768
6,314
Deferred taxes and other long-term liabilities
246
256
Shareholders' equity
6,545
8,320
$12,559
$14,890



Image Sensing Systems, Inc.
Unaudited Condensed Consolidated Statement of Cash Flows
(in thousands)
Six-Month Period
Ended June 30
2015
2014
Operating activities
Net loss
$(1,909)
$(5,290)
Adjustments to reconcile net loss to net cash provided by (used in) operations
Depreciation and amortization
936
1,080
Stock option expense
151
186
Changes in operating assets and liabilities
(1,178)
440
Net cash used in operating activities
(2,000)
(3,584)
Investing activities
Purchase of property and equipment, net of disposals
(62)
(196)
Capitalized software development costs
-
(42)
Sale of investments
-
2,639
Net cash provided by investing activities
(62)
2,401
.
Effect of exchange rate changes on cash
(19)
195
Decrease in cash and cash equivalents
(2,081)
(988)
Cash and cash equivalents, beginning of period
2,656
3,564
Cash and cash equivalents, end of period
$575
2,576


Image Sensing Systems, Inc.
Non-GAAP Loss from Operations
(in thousands)
(unaudited)
We define Non-GAAP income (Loss) from Operations as loss from operations before amortization of intangible assets, depreciation, investigation matter expense, and restructuring charges for the applicable periods. Management believes Non-GAAP Income (Loss) from Operations is a useful indicator of our financial performance and our ability to generate cash flows from operations. Our definition of Non-GAAP Income (Loss) from Operations may not be comparable to similarly titled definitions used by other companies. The table below reconciles Non-GAAP Income (Loss) from Operations, which is a non-GAAP financial measure, to comparable GAAP financial measures:
Three-month Period
Ended June 30,
Six-Month Period
Ended June 30,
2015
2014
2015
2014
Loss from operations
$(764)
$(1,558)
$(1,914)
$(5,314)
Amortization of intangible assets
382
393
763
782
Depreciation
85
145
173
298
LPR business unit sale costs
751
-
857
-
Restructuring charges
-
-
119
460
Investigation matter
-
36
-
152
Non-GAAP income (loss) from operations
$454
$(984)
$(2)
$(3,622)

Note Our calculation of Non-GAAP Income (Loss) from Operations is considered a non-GAAP financial measure and is not in accordance with, or preferable to, as reported, or GAAP financial data. However, we are providing this information, as we believe it facilitates analysis of the Companys financial performance by investors and financial analysts.


Image Sensing Systems, Inc.
Unaudited Pro Forma Consolidated Financial Information

The following unaudited pro forma statement on income gives effect to the disposition of the Image Sensing Systems LPR business segment and any associated transaction costs incurred in the second quarter as if the disposition occurred on April 1, 2015. The pro forma adjustments, described in the related notes, are based on the best available information and certain assumptions that ISS management believes are reasonable.

The unaudited consolidated pro forma financial information is presented for illustrative purposes only and does not purport to be indicative of the operating results or financial position that would have occurred if the transaction described above had occurred as presented in such statement. For example, this financial information does not reflect any potential earnings or other impacts from the use of the proceeds from the disposition or cost reductions previously allocated corporate costs and potential subsequent restructuring charges.

Image Sensing Systems, Inc.
Unaudited Pro Forma Consolidated Statement of Operations for the three months Ended June 30, 2015
(in thousands, except per share information)
Image Sensing Systems Consolidated Historical
Pro Forma Adjustments LPR Disposition
Image Sensing Systems Pro Forma Consolidated
Consolidated Statement of Operations Data:
Revenue
Product sales
$2,572
$774
(a)
$1,798
Royalities
2,609
-
2,609
5,181
774
4,407
Cost of revenue:
Product sales
977
121
(a)
856
977
121
856
Gross profit
4,204
653
3,551
Operating expenses:
Selling, marketing and product support
1,322
466
(b)
856
General and administrative
1,390
410
(b)
980
Research and development
1,123
164
(b)
959
Amortization of intangible assets
382
259
(b)
123
LPR business unit sale cost
751
751
(c)
-
4,968
2,050
2,918
Income (Loss) from operations
(764)
(1,397)
633
Other expense, net
30
-
30
Loss before income taxes
(734)
(1,397)
663
Income tax expense
8
-
8
Net income (loss)
$(742)
$(1,397)
655
Net loss per share:
Basic
($0.15)
($0.28)
$0.13
Diluted
($0.15)
($0.28)
$0.13
Weighted average number of common shares outstanding:
Basic
5,008
5,008
5,008
Diluted
5,008
5,008
5,008

Notes:
(a) Represents the decrease of LPR revenue and cost of sales as if the divestiture occurred on April 1, 2015.
(b) Represents the pro forma decrease of operating cost as if the LPR divestiture occurred on April 1, 2015.
(c) Represents the LPR business unit sale costs.