GlobeNewswire Inc | Nov 10, 2020 04:15PM EST

November 10, 2020

SAINT PAUL, Minn., Nov. 10, 2020 (GLOBE NEWSWIRE) -- Image Sensing Systems, Inc. (Nasdaq: ISNS) today announced results for itsthirdquarter and nine months endedSeptember 30, 2020.

Third Quarter 2020Financial Summary

-- Thirdquarter royalties were $2.2 million, a decrease of 7 percent from the same period in the prior year. -- Third quarter product sales were $1.5 million, anincrease of 18percent from the same period in the prior year. -- Operating expenses totaled $2.2 million in thethird quarter of 2020, adecrease of 1 percent from the prior year period. -- There were no capitalized software costs in thethirdquarter of 2020 compared to $281,000 in the prior year period. -- Net income for thethird quarter of 2020 totaled $659,000compared to net income of $6.1 million for the same period in the prior year. -- A non-recurring, non-cash $5.2 million tax benefit was recorded during the third quarter of 2019. -- Cash balance increased to $7.5 million at September 30, 2020, up from $6.8million at the end of the second quarter of 2020.

2020Year-to-Date Financial Summary

-- Royalties for the first nine months of 2020 were $6.5million, anincreaseof 3percent from the same period in the prior year. -- Productsales for the first nine months of 2020 were $3.8million, adecreaseof 24percent from the same period in the prior year. -- Operating expenses totaled $7.4million in the first nine months of2020, anincreaseof8percent from the prior year period. -- Capitalized software costs in the first nine months of 2020 were$22,000compared to $1.0 million in the prior year period. -- Net income for the first nine months of2020totaled $698,000 compared to net income of $7.1 million for the same period in the prior year. -- The Company received funding of $924,000under the Paycheck Protection Program in the form of a loan in April 2020. -- Cash balance increased to $7.5 million at September 30, 2020, up from $5.1 million when compared to the cash balance at December 31,2019.

Third-Quarter Results:

Third quarter revenue for Image Sensing Systems, Inc. ("ISS," the "Company," "us," "we," or "our") in 2020 was $3.8million compared to $3.7million in the third quarter of 2019.Revenue from royalties was $2.2million in thethirdquarter of2020compared to $2.4million thethirdquarter of2019.Product sales increased to $1.5million in thethirdquarter of2020, an18percentincreasefrom $1.3million in thethirdquarter of2019.Autoscopevideo product sales and royalties were $290,000and $2.2million, respectively, and RTMS radar product sales were $1.2million in thethirdquarter of2020.

Gross margin for thethird quarter of 2020was 76percent, a 10percentage point or 12 percentdecreasefrom a gross margin of 86percent for the same period in 2019. Gross margin from royalties was consistent at 96 percent in the third quarter of 2020 compared to 96 percent in the third quarter of 2019.Product sales gross margin for thethirdquarter of2020was49percent compared to68percent in the prior year period.The decrease in the gross margin percent was primarily the result of a reduction in warranty reserve and revenues related to consulting services in the thirdquarter of 2019.

The2020thirdquarter net income includes operating expenses of $2.2million, a1percentdecreasefrom thethirdquarter of2019. The decrease is primarily due to the decrease in capitalized software costs offset by lower operating expenses due to limited travel and decreased headcount in the third quarter of 2020 compared to the third quarter of 2019.During thethirdquarter of2020, the Companycapitalized no internal software development costs compared to $281,000in the prior year period.The Company'snet income for thethird quarter was $659,000, or $0.12 per diluted share, compared to netincome of $6.1million, or $1.17per diluted share, in the prior year period. The third quarter 2019 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 and depreciation for the applicable periods, the operating income for thethird quarter of 2020was $886,000compared to operating income of $1.1 million in the prior year period.

Year-to-Date Results:

ISSrevenue for the firstnine monthsof2020was $10.3million, a9percentdecreasefrom revenue of $11.3million in the firstnine monthsof2019. Sales gross margin for the firstnine monthsof2020was79percent, a1percentage point or 1 percentincreasefrom the prior year period. The increase in gross margin was the result of a higher percentage of revenue from royalties in the first nine months of 2020compared to the first nine months of2019. Revenue from royalties was $6.5million in the firstnine monthsof2020compared to $6.3million in the same period in2019, a 3 percentincrease. Product sales were $3.8million in the firstnine monthsof2020, a24percentdecreasefrom $4.9million in the firstnine monthsof2019.

The firstnine monthsof revenue for2020included Autoscopevideo product sales and royalties of $681,000 and $6.5million, respectively, and RTMS radar product sales of $3.1 million. Product sales gross margin for the firstnine monthsof2020was 51 percent,a 4 percentage point or 7 percent decrease compared to the same period in the prior year.

The Companys net income for the firstnine monthsof2020was $698,000, or $0.13per diluted share, compared to a net income of $7.1 million, or $1.35per diluted share, in the firstnine monthsof2019. The firstnine monthsof2020net income includes operating expenses of $7.4million, an8percentincreasefrom the same period in2019. During the firstnine monthsof2020, the Company capitalized $22,000of software development costs compared to $1.0million in the firstnine monthsof2019. The third quarter 2019 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 intangible asset amortization, depreciation and restructuring charges for the applicable periods, operating income for the firstnine monthsof2020was $1.5 million compared to an operating income of $2.5 million in the firstnine monthsof2019.

During the secondquarter of2020, ISS received funding of $924,000from 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 amount of the loan forgiven as other non-operating income.

"During the COVID-19 pandemic, agencies continue to recognize the importance of safety and efficiency at the intersection and the value provided by Autoscope. Advancement of new projects and maintenance of established systems has driven year over year growth into our royalty revenue during these challenging times," said Chad Stelzig, CEO for ISS.

"The improvement in product revenue was driven by winning several opportunities previously delayed by COVID-19 and the sales teams focused market engagement with partners and end customers. Additionally, through aggressive promotion, webinar content, and roundtables with industry experts, we have created a sizable pipeline of opportunities for our latest product, RTMS Echo. This trend reinforces our belief that Echo will become the foundation for organic growth in the coming years," concluded Mr. Stelzig.

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.

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

Three-Month Periods Nine-Month Period Ended September 30, Ended September 30, 2020 2019 2020 2019Revenue Product sales $ 1,538 $ 1,299 $ 3,760 $ 4,940 Royalties 2,212 2,390 6,536 6,346 3,750 3,689 10,296 11,286 Cost of revenue 883 513 2,117 2,489 Gross profit 2,867 3,176 8,179 8,797 Operating expenses Selling, general 1,422 1,560 4,894 4,909 and administrativeResearch and 804 691 2,548 2,008 development 2,226 2,251 7,442 6,917 Income fromoperations before 641 925 737 1,880 income taxesIncome tax expense (18 ) (5,205 ) 39 (5,205 )(benefit)Net income $ 659 $ 6,130 $ 698 $ 7,085 Basic net income $ 0.12 $ 1.17 $ 0.13 $ 1.35 per share Diluted net $ 0.12 $ 1.16 $ 0.13 $ 1.35 income per share Weighted shares - 5,306 5,252 5,290 5,240 basicWeighted shares - 5,311 5,270 5,306 5,259 diluted

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

September 30, December 31, 2020 2019Assets Current assets Cash and cash equivalents $ 7,470 $ 5,118Receivables, net 3,220 3,126Inventories 415 781Prepaid expenses and other current assets 499 463 11,604 9,488Property and equipment, net 339 419Intangible assets, net 3,348 3,875Deferred taxes 5,219 5,220Operating lease asset, net 191 181 $ 20,701 $ 19,183Liabilities and Shareholders? Equity Current liabilities Accounts payable $ 276 $ 373 Short-term debt 556 -Warranty and other current liabilities 657 858 1,489 1,231 Non-current liabilities Operating lease obligation 10 19Long-term debt 367 - 377 19 Shareholders? equity 18,835 17,933 $ 20,701 $ 19,183



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

Nine-Month Periods Ended September 30, 2020 2019Operating activities Net income $ 698 $ 7,085 Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization 725 597 Stock option expense 168 162 Deferred income tax benefit - (5,200 )Loss on disposal of assets 5 - Changes in operating assets and liabilities (76 ) (765 )Net cash provided by operating activities 1,520 1,879 Investing activities Capitalized software development costs (22 ) (1,042 )Purchases of property and equipment (112 ) (239 )Net cash used for investing activities (134 ) (1,281 ) Financing activities Stock for tax withholding and (6 ) (21 )options exercised Proceeds from PPP Loan 924 - Proceeds from exercise of stock - 4 optionsNet cash provided by (used for) financing 918 (17 )activities Effect of exchange rate changes on cash 48 (94 )Increase in cash and cash equivalents 2,352 487 Cash and cash equivalents at beginning of 5,118 4,236 periodCash and cash equivalents at end of period $ 7,470 $ 4,723 Non-Cash investing and financing activities: Purchase of property and equipment in accounts $ 7 $ 20 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 Nine-Month Period Ended September 30, Ended September 30, 2020 2019 2020 2019Income from operations $ 641 $ 925 $ 737 $ 1,880Amortization of intangible assets 187 149 549 448Depreciation 58 50 176 149Restructuring charges - - - 2Non-GAAP income from operations $ 886 $ 1,124 $ 1,462 $ 2,479

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