GlobeNewswire Inc | Mar 11, 2021 04:25PM EST

March 11, 2021

SAINT PAUL, Minn., March 11, 2021 (GLOBE NEWSWIRE) -- Image Sensing Systems, Inc. (NASDAQ: ISNS) today announced results for itsfourth quarter andyear ended December 31, 2020.

Fourth Quarter 2020 Financial Summary

-- Fourthquarter royalties were $1.8 million, adecrease of8percent from the same period in the prior year. -- Fourth quarter product sales were $1.1 million,adecrease of28 percent from the same period in the prior year. -- Operating expenses totaled $2.3 million in the fourth quarter of 2020, adecrease of 18 percent from the prior year period. -- There were no capitalized software costs in the fourthquarter of 2020 compared to $114,000 in the prior year period. -- Net income for the fourth quarter of 2020 totaled $365,000compared to a net loss of $90,000 for the same period in the prior year. -- Cash balance increased to $8.6 million, up from $7.5 million at the end of the third quarter of 2020.

2020 Full Year Financial Summary

-- 2020royalties of $8.3million were the same as the prior year. -- 2020product sales were $4.8million,adecrease of25percent from the prior year. -- 2020operating expenses of $9.8million remained the same as in the prior year. -- Capitalized software costs in 2020 were $22,000compared to$1.2 million in the prior year. -- Net income for 2020totaled $1.1million, a $5.9milliondecrease from the prior year. -- A non-recurring, non-cash $462,000 tax benefit was recorded during 2020 compared to a tax benefit of $5.2 million in 2019. -- The Company received funding of $924,000 under the Paycheck Protection Program in the form of a loan in April 2020, all of which was forgiven in the first quarter of 2021. -- Cash balance increased to $8.6million, up from $5.1million at the end of 2019.

Fourth-Quarter Results

The2020fourth quarter revenue for Image Sensing Systems, Inc. ("ISS" or the "Company") was $2.9 million compared to $3.4million in the fourth quarter of 2019.Revenue from royalties was $1.8million in the fourth quarter of2020compared to $2.0million in the fourth quarter of2019, an 8percentdecrease.Product sales were $1.1million in the2020fourth quarter compared to $1.5million in the fourth quarter of2019, a 28 percent decrease. The decrease in royalty and product sales during the fourth quarter of 2020 was a result of project timing and COVID-19 challenges.

Gross margin for the fourth quarter of2020was77percent, a4-percentage pointdecreasefrom a gross margin of81percent for the same period in2019. Product sales gross margin for the fourth quarter of 2020 was 46 percent compared to 63 percent in the prior year period. The decrease in the gross margin percent was primarily the result of a reduction of warranty reserve in the fourth quarter of 2019 that lowered the cost of revenue and increased gross margin in 2019.

The Companys net income in the fourth quarter was $365,000, or $0.07per diluted share, compared to net loss of $90,000, or $(0.02) per diluted share, in the prior year period. The fourth quarter 2020 net income includes operating expenses of $2.3million, an18percent decrease from the fourth quarter of 2019. This decrease is partially due to the elimination of administrative expenses related to the review of strategic alternatives to maximize shareholder value, which began in the fourth quarter of 2019 and ended in October 2020, and a reduction in headcount in the fourth quarter of 2020 compared to the prior year. Duringthe fourth quarter of 2020, ISS capitalized nointernal software development costs compared to capitalizing $114,000in internal software development costs in the prior year period.

On a non-GAAP basis, excluding the amortization of intangible assets and depreciation for the applicable periods, operating income for the fourth quarter of 2020 was $96,000compared to $148,000in the prior year period.

Full Year Results

ISS'2020 revenue was $13.2million compared to $14.7million in2019. Gross margin for 2020remained unchanged at79percent when compared to2019. Revenue from royalties remained constant at $8.3million in 2020compared to2019.

Product sales decreased to $4.8million in 2020, a25percent decrease from $6.4million in2019. The decrease in product sales was the result of project timing and global COVID-19 related challenges.Autoscope video product sales and royalties were $957,000and $8.3 million, respectively, in 2020, and RTMS radar product sales were $3.9 million in 2020. Product sales gross margin for 2020decreased to 50 percent compared to 57 percent in 2019.

The Companys net income in 2020 was $1.1million, or $0.20per diluted share, compared to $7.0 million, or $1.33per diluted share, in the prior year. The2020net income includes operating expenses of $9.8million, which remained constant when compared to2019. During 2020, ISS capitalized $22,000of internal software development costs compared to $1.2million in 2019. Prior year net income included a $5.2 million non-cash income tax benefit due to the release of a significant portion of the deferred tax asset valuation allowance of $5.4 million.

On a non-GAAP basis, excluding the amortization of intangible assets, depreciation, and restructuring charges for the applicable periods, operating income for 2020was $1.6millioncompared to $2.6 million in the prior year.

During the secondquarter of2020, the Company received funding of $924,000from the United States Small Business Administration (SBA) in the form of a Paycheck Protection Program ("PPP") loan. The Company applied for forgiveness of the loan because the proceeds were used for payroll related costs, rent, and utilities. On February 2, 2021, the Company was granted forgiveness of all of the PPP loan by the SBA. The Company will recognize the amount of the loan forgiven as other non-operating income in the first quarter of 2021.

"Our business' most significant impact in 2020 was the COVID-19 lockdown leading to uncertain buying and technology deployment cycles. Through effective virtual meetings, webinars, and industry sessions, we were able to stay engaged with our North American market and create a growing pipeline of opportunities. While we did experience a 25% decline in our direct product business, we're optimistic looking toward 2021, fueled by our newly released RTMS Echo radar product that enables us to compete in any market. Early customer feedback is very positive, and we are now earning our first meaningful sales. The combination of pandemic-related economic uncertainty and the decision to explore strategic alternatives required us to adjust our operating plan to a more conservative, cash-focused approach. These actions ensured business continuity in the face of unprecedented economic uncertainty. The Company is well-positioned to make bold moves that will enable growth and diversification in the coming years," said Chad Stelzig, 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 and regulations; international presence; tariffs and 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.

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

Three-Month Periods Years Ended Ended December 31, December 31, 2020 2019 2020 2019Revenue Product sales $ 1,069 $ 1,476 $ 4,829 $ 6,416 Royalties 1,808 1,970 8,344 8,316 2,877 3,446 13,173 14,732 Cost of revenue 668 640 2,785 3,129 Gross profit 2,209 2,806 10,388 11,603 Operating expensesSelling, generaland 1,550 2,028 6,444 6,935 administrativeResearch and 788 828 3,336 2,836 developmentRestructuring - - - 2 charges 2,338 2,856 9,780 9,773 Income (loss) (129 ) (50 ) 608 1,830 from operationsInterest income (7 ) - (7 ) - (expense)Income (loss)before income (136 ) (50 ) 601 1,830 taxesIncome tax (501 ) 40 (462 ) (5,165 )expense (benefit)Net income (loss) $ 365 $ (90 ) $ 1,063 $ 6,995 Basic net income $ 0.07 $ (0.02 ) $ 0.20 $ 1.33 (loss) per shareDiluted netincome (loss) per $ 0.07 $ (0.02 ) $ 0.20 $ 1.33 share Weighted shares - 5,314 5,258 5,296 5,244 basicWeighted shares - 5,328 5,258 5,316 5,268 diluted



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

December 31, December 31, 2020 2019Assets Current assets Cash and cash equivalents $ 8,605 $ 5,118 Receivables, net 2,261 3,126 Inventories 770 781 Prepaid expenses and other current assets 480 463 12,116 9,488 Property and equipment, net 303 419 Intangible assets, net 3,161 3,875 Deferred taxes 5,708 5,220 Operating lease asset, net 136 181 $ 21,424 $ 19,183 Liabilities and Shareholders? Equity Current liabilities Accounts payable $ 547 $ 373 Short-term debt 349 - Warranty and other current liabilities 576 858 1,472 1,231 Non-Current liabilities Operating lease obligation 8 19 Long-term debt 574 - 582 19 Shareholders? equity 19,370 17,933 $ 21,424 $ 19,183



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

Years Ended December 31, 2020 2019Operating activities Net income $ 1,063 $ 6,995 Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization 960 795 Stock option expense 224 219 Loss on disposal of assets 5 - Deferred income tax benefit (489 ) (5,162 )Changes in operating assets and liabilities 797 (597 )Net cash provided by operating activities 2,560 2,250 Investing activities Capitalized software development costs (22 ) (1,156 )Purchases of property and equipment (129 ) (254 )Net cash used for investing activities (151 ) (1,410 ) Financing activities Stock for tax withholding (6 ) (21 )Proceeds from exercise of stock options - 4 Proceeds from PPP Loan 924 - Net cash provided by (used for) financing 918 (17 )activities Effect of exchange rate changes on cash 160 59 Increase in cash and cash equivalents 3,487 882 Cash and cash equivalents at beginning of period 5,118 4,236 Cash and cash equivalents at end of period $ 8,605 $ 5,118 Non-Cash investing and financing activities: Purchase of property and equipment in accounts $ 1 $ 14 payable



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 Years Ended Ended December 31, December 31, 2020 2019 2020 2019Income (loss) from $ (129 ) $ (50 ) $ 608 $ 1,830 operationsAmortization of intangible 187 150 736 598 assetsDepreciation 48 48 224 197 Restructuring charges - - - 2 Non-GAAP income from $ 106 $ 148 $ 1,568 $ 2,627 operations

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.

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