ISS announces 2017 fourth quarter and full-year financial results

Fourth quarter 2017 financial highlights

• Fourth quarter royalties were $2.6 million, an increase of 60 percent from the same period in the prior year.
• Fourth quarter product sales were $1.7 million, an increase of 43 percent from the same period in the prior year.
• Operating expenses totaled $2.7 million in the fourth quarter of 2017, an increase of 25 percent from the prior year period.  Capitalized software costs in the fourth quarter were $181,000 compared to $43,000 in the prior year period.
• Net income for the fourth quarter of 2017 totaled $688,000, a $1.4 million increase from the same period in the prior year.
• Cash balance increased to $3.2 million, up from $2.8 million at the end of the third quarter of 2017.

2017 full year financial highlights

• 2017 royalties were $8.6 million, an increase of 11 percent from the prior year.
• 2017 product sales were $5.9 million, a decrease of 7 percent from the prior year.
• Operating expenses totaled $9.5 million in 2017, an increase of 1 percent from the prior year.  Capitalized software costs in 2017 were $1.1 million compared to $1.7 million in the prior year.
• Net income for 2017 totaled $2.1 million, a $1.4 million increase from the prior year.
• Cash balance increased to $3.2 million, up from $1.5 million at the end of 2017.

Fourth-quarter results:

• Image Sensing Systems' (ISS) 2017 fourth quarter revenue was $4.3 million, compared to $2.8 million in the fourth quarter of 2016. Gross margin from the fourth quarter of 2017 was 79 percent, a 28 percent increase from a gross margin of 51 percent for the same period in 2016.  The increase in the gross margin percent was primarily the result of a $473,000 warranty charge in the prior year period.  Contributing to the gross margin percent increase was a larger portion of sales from royalties during the quarter.  Revenue from royalties was $2.6 million in the fourth quarter of 2017 compared to $1.6 million in the fourth quarter of 2016, a 60 percent increase.  Included in the fourth quarter of 2017 were royalties related to the previously announced Miami-Dade County sales through our exclusive North American video distributor, Econolite Control Products, Inc. (Econolite).
   
• Product sales increased to $1.7 million in the 2017 fourth quarter, a 43 percent increase from $1.2 million in the fourth quarter of 2016. The increase in product sales resulted from higher volumes in Europe, partially offset by lower volumes in North America.  Autoscope video product sales and royalties were $528,000 and $2.6 million, respectively, and RTMS radar product sales were $1.2 million in the fourth quarter of 2017.  Product sales gross margin for the fourth quarter of 2017 was 54 percent, a 62 percent increase from the same period in 2016.  The increase in product gross margin is due to previously discussed individually significant warranty charges in the prior year period.  
   
• The Company’s net income in the fourth quarter was $688,000, or $0.13 per basic share, compared to net loss of $683,000, or $0.14 per basic share, in the prior year period. The fourth quarter 2017 net income includes operating expenses of $2.7 million, a 25 percent increase from the fourth quarter of 2016.  This increase is primarily related to a binding arbitration decision related to the Econolite litigation of approximately $303,000.  During the fourth quarter of 2017, ISS capitalized $181,000 of internal software development costs compared to $43,000 in the prior year period.
   
• On a non-GAAP basis, excluding the amortization of intangible assets, depreciation, restructuring charges and the arbitration decision for the applicable periods, operating income for the fourth quarter of 2017 was $1.2 million compared to a loss of $546,000 in the prior year period.
   
• “It is great to see Autoscope royalties finish strong in the fourth quarter of 2017.  This is due in part to delivery of product for the Miami-Dade adaptive corridor project. While product sales resulted in a year-over-year fourth quarter improvement, we are continuing to identify opportunities to improve our global product offerings. Our continued investment in research and development yielded the launch of our Wrong Way Alerting solution and announcement of the IntellitraffiQ traffic measurement and data collection software.  Our Wrong Way Alerting solution pairs with our RTMS Sx-300 HD CAM offering and leverages video analytics to detect wrong way drivers, initiate warning devices, and alert authorities of the event.  IntellitraffiQ traffic measurement and data collection software offers the end user a rich environment to monitor and gather data from our RTMS products,” said Chad Stelzig, CEO of ISS.  

Full year results:

ISS’ 2017 revenue was $14.5 million, compared to $14.1 million in 2016. Gross margin for 2017 was 80 percent, a 9 percent increase from a gross margin of 71 percent in 2016. The increase in the gross margin percent was primarily the result of the previously discussed warranty charge in the prior year. Contributing to this gross margin percent increase was a larger portion of sales from royalties compared to the prior year.  Revenue from royalties was $8.6 million in 2017 compared to $7.7 million in 2016, an 11 percent increase. The previously announced Miami-Dade County sale through Econolite is included in year-to-date royalties.

Product sales decreased to $5.9 million in 2017, a 7 percent decrease from $6.4 million in 2016. The decrease in product sales resulted from lower volume in North America, partially offset by higher volumes in Europe. Autoscope video product sales and royalties were $1.5 million and $8.6 million, respectively, and RTMS radar product sales were $4.4 million in 2017. Product sales gross margin for 2017 was 57 percent, a 20 percent increase from 2016. The increase in product gross margin is due to previously discussed individually significant warranty charges in the prior year.

The Company’s net income in 2017 was $2.1 million, or $0.41 per basic share, compared to $687,000, or $0.14 per basic share, in the prior year. The 2017 net income includes operating expenses of $9.5 million, a 1 percent increase from 2016. During 2017, ISS capitalized $1.1 million of internal software development costs compared to $1.7 million in 2016.

On a non-GAAP basis, excluding the amortization of intangible assets, depreciation, restructuring charges and the arbitration decision for the applicable periods, operating income for 2017 was $3.0 million compared to $1.2 million in the prior year.

“Even more important than our financial results is the development progress we have made towards the introduction of future ground-breaking products across all market segments that will increase the company’s value proposition and accelerate future growth. As we entered 2017, we set forth a goal to operate within a leaner, more agile corporate structure focused on engineering and technology opportunities essential to this growth. I am happy to report that our efforts resulted in positive cash flow for the first time in 5 years,” concluded Mr. Stelzig.