GlobeNewswire Inc | Aug 12, 2020 04:25PM EDT

August 12, 2020

SAINT PAUL, Minn., , Aug. 12, 2020 (GLOBE NEWSWIRE) -- Image Sensing Systems, Inc. (Nasdaq: ISNS) today announced results for itsquarter and first halfendedJune 30, 2020.

Second Quarter 2020Financial Summary

-- Secondquarter royalties remained consistent at $2.2 million when compared tothe same period in the prior year. -- Second quarter product sales were $1.2 million, adecrease of 42percent from the same period in the prior year. -- Operating expenses totaled $2.4 million in thesecond quarter of 2020, anincrease of 1 percent from the prior year period. -- There were no capitalized software costs in thesecondquarter of 2020 compared to $343,000 in the prior year period. -- Net income for thesecond quarter of 2020 totaled $150,000compared to net income of $647,000for the same period in the prior year. -- The Company received funding of $924,000 under the Paycheck Protection Program in the form of a loan. -- Cash balance increased to $6.8 million at June 30, 2020, up from $5.4 million at the end of the first quarter of 2020.

FirstHalf2020Financial Summary

-- Royalties for the first half of 2020 were $4.3million, anincreaseof 9percent from the same period in the prior year. -- Productsales for the first half of 2020 were $2.2million, adecreaseof 39percent from the same period in the prior year. -- Operating expenses totaled $5.2million in the first half of2020, anincreaseof12percent from the prior year period. -- Capitalized software costs in the first half of 2020 were$22,000compared to $762,000in the prior year period. -- Net income for the first half of2020totaled $39,000 compared to net income of $955,000 for the same period in the prior year. -- Cash balance increased to $6.8 million at June 30, 2020, up from $5.1 million when compared to the cash balance at December 31,2019.

Second-Quarter Results:

Second quarter revenue for Image Sensing Systems, Inc. ("ISS," the "Company," "us," "we," or "our") in 2020 was $3.4million compared to $4.2million in the second quarter of 2019.Revenue from royalties was consistent at $2.2million in thesecondquarter of2020compared tothesecondquarter of2019.Product sales decreased to $1.2million in thesecondquarter of2020, a42percentdecreasefrom $2.0million in thesecondquarter of2019.Autoscopevideo product sales and royalties were $250,000and $2.2million, respectively, and RTMS radar product sales were $922,000in thesecondquarter of2020.

Gross margin for thesecond quarter of 2020was 82percent, a 10percentage point or 14 percentincreasefrom a gross margin of 72percent for the same period in 2019. Gross margin from royalties was consistent at 96 percent in the second quarter of 2020 compared to 95 percent in the second quarter of 2019.Product sales gross margin for thesecondquarter of2020was56percent compared to45percent in the prior year period.The increasein the gross margin percent was primarily the result of a larger portion of total revenue generated from royalties in the second quarter of 2020 compared to the second quarter of 2019 and there was an individually significant, low margin sale into the Middle East region in the second quarter of 2019.

The2020secondquarter net income includes operating expenses of $2.4million, a1percentincreasefrom thesecondquarter of2019. The increase is primarily due to the decrease in capitalized costs in the second quarter of 2020 compared to the second quarter of 2019 and higher legal and outside consulting costs related to the Company's exploration of strategic alternatives announced in January 2020. During thesecondquarter of2020, the Companycapitalized no internal software development costs compared to $343,000in the prior year period.The Company'snet income for thesecond quarter was $150,000, or $0.03 per diluted share, compared to netincome of $647,000, or $0.12per diluted share, in the prior year period.

On a non-GAAP basis, excluding the amortization of intangible assets and depreciation for the applicable periods, the operating income for thesecond quarter of 2020was $621,000compared to operating income of $844,000 in the prior year period.

During the second quarter of 2020, ISS received funding of $924,000 from the United States Small Business Administration (SBA) in the form of a PPP loan. ISS plans to apply for forgiveness of the loan because the proceeds were used for payroll related costs, rent, and utilities. Upon the expected forgiveness, the Company will recognize the loan as other non-operating income.

Year-to-Date Results:

ISSrevenue for the firstsix monthsof2020was $6.5million, a14percentdecreasefrom revenue of $7.6million in the firstsix monthsof2019. Sales gross margin for the firstsix monthsof2020was81percent, a7percentage point or 10 percentincreasefrom the prior year period. The increase in gross margin was the result of a combination of a higher percentage of revenue from royalties in the first halfof 2020 and the aforementioned significant low margin sale in the Middle East in 2019. Revenue from royalties was $4.3million in the firstsix monthsof2020compared to $4.0million in the same period in2019, a 9percentincrease. Product sales were $2.2million in the firstsix monthsof2020, a39percentdecreasefrom $3.6million in the firstsix monthsof2019.

The firstsix monthsof revenue for2020included Autoscopevideo product sales and royalties of $391,000 and $4.3million, respectively, and RTMS radar product sales of $1.8 million. Product sales gross margin for the firstsix monthsof2020was 53 percent,a 2 percentage point or 4 percent increase compared to the same period in the prior year.

The Companys net income for the firstsix monthsof2020was $39,000, or $0.01per diluted share, compared to a net income of $955,000, or $0.18per diluted share, in the firstsix monthsof2019. The firstsix monthsof2020net income includes operating expenses of $5.2million, a12percentincreasefrom the same period in2019. During the firstsix monthsof2020, the Company capitalized $22,000of software development costs compared to $762,000 in the firstsix monthsof2019.

On a non-GAAP basis, excluding intangible asset amortization, depreciation and restructuring charges for the applicable periods, operating income for the firstsix monthsof2020was $576,000compared to an operating income of $1.4 million in the firstsix monthsof2019.

"Royalty revenue continued to be strong in the second quarter of 2020, while our product revenue was impacted to a greater degree by COVID-19. This was especially true for our international market segments due to their early and aggressive reaction to COVID-19, resulting in lockdowns of many regions. In reaction to market uncertainty, we worked to execute a conservative operating plan that eliminated discretionary spending and deferred programmatic expense to the second half of 2020. In total, we reduced our second quarter operatingexpenses by approximately $350,000 year-over-year when adjusted for 2019 software capitalization. These actions, combined with the PPP loan proceeds applied to payroll, rent, and utilities allowed us to retain all of our talented employees,"said ChadStelzig, CEO for ISS.

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, regulations, and orders, including as a result of the COVID-19 pandemic causedby the coronavirus; international presence; tariffsand other trade barriers; our success in integrating any acquisitions; potential disruptions to our supply chains (including disruptions caused by geopolitical events, military actions, work stoppages, nature disasters, or international health emergencies, such as the COVID-19 pandemic) 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, 2019 filed on March 12, 2020.

Contact: Frank Hallowell, Chief Financial Officer Image Sensing Systems, Inc. Phone:651.603.7744

Image Sensing Systems, Inc.Condensed Consolidated Statements of Operations(in thousands, except per share information)(unaudited)

Three-Month Periods Six-Month Period Ended June 30, Ended June 30, 2020 2019 2020 2019 Revenue Product sales $ 1,172 $ 2,020 $ 2,222 $ 3,641 Royalties 2,215 2,205 4,324 3,956 3,387 4,225 6,546 7,597 Cost of revenue 611 1,199 1,234 1,976 Gross profit 2,776 3,026 5,312 5,621 Operating expenses Selling, general and 1,563 1,682 3,472 3,349 administrativeResearch and development 842 697 1,744 1,317 2,405 2,379 5,216 4,666 Income from operations 371 647 96 955 before income taxesIncome tax expense 221 - 57 - Net income $ 150 $ 647 $ 39 $ 955 Basic net income per $ 0.03 $ 0.12 $ 0.01 $ 0.18 share Diluted net income $ 0.03 $ 0.12 $ 0.01 $ 0.18 per share Weighted shares - basic 5,296 5,244 5,281 5,234 Weighted shares - 5,299 5,259 5,299 5,248 diluted

Image Sensing Systems, Inc.Condensed Consolidated Balance Sheets(in thousands)(unaudited)

June 30, December 31, 2020 2019Assets Current assets Cash and cash equivalents $ 6,834 $ 5,118Receivables, net 2,629 3,126Inventories 640 781Prepaid expenses and other current assets 512 463 10,615 9,488Property and equipment, net 385 419Intangible assets, net 3,535 3,875Deferred taxes 5,219 5,220Operating lease asset, net 245 181 $ 19,999 $ 19,183Liabilities and Shareholders? Equity Current liabilities Accounts payable $ 253 $ 373 Short-term debt 402 -Warranty and other current liabilities 767 858 1,422 1,231 Non-current liabilities Operating lease obligation 28 19Long-term debt 522 - 550 19 Shareholders? equity 18,027 17,933 $ 19,999 $ 19,183



Image Sensing Systems, Inc.Condensed Consolidated Statements of Cash Flows(in thousands)(unaudited)

Six-Month Periods Ended June 30, 2020 2019 Operating activities Net income $ 39 $ 955 Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization 480 398 Stock option expense 113 104 Changes in operating assets and liabilities 337 (513 )Net cash provided by operating activities 969 944 Investing activities Capitalized software development costs (22 ) (762 )Purchases of property and equipment (102 ) (160 )Net cash used for investing activities (124 ) (922 ) Financing activities Stock for tax withholding and options (6 ) (17 )exercised Proceeds from PPP Loan 924 - Net cash provided by (used for) financing activities 918 (17 ) Effect of exchange rate changes on cash (47 ) (12 )Increase (decrease) in cash and cash equivalents 1,716 (7 ) Cash and cash equivalents at beginning of period 5,118 4,236 Cash and cash equivalents at end of period $ 6,834 $ 4,229 Non-Cash investing and financing activities: Purchase of property and equipment in accounts payable $ - $ 5

Image Sensing Systems, Inc.Non-GAAP Income from Continuing Operations(in thousands)(unaudited)

We define non-GAAP income from operations as income from operations before amortization of intangible assets, depreciation, and restructuring charges for the applicable periods. Management believes non-GAAP income 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 from operations may not be comparable to similarly titled definitions used by other companies. The table below reconciles non-GAAP income from operations, which is a non-GAAP financial measure, to comparable GAAP financial measures:

Three-Month Periods Ended Six-Month Period June 30, Ended June 30, 2020 2019 2020 2019Income from operations $ 371 $ 647 $ 96 $ 955Amortization of 188 149 362 299intangible assetsDepreciation 62 48 118 99Restructuring charges - - - 2Non-GAAP income from $ 621 $ 844 $ 576 $ 1,355operations

Note Our calculation of non-GAAP income 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.