IMAGENSING SYSTEMS Overview
General. We are a leading provider of above-ground detection products and solutions for the intelligent transportation systems ("ITS") industry. Our family of products, which we market as Autoscope® video or video products ("Autoscope"), RTMS® radar or radar products ("RTMS"), and IntellitraffiQ® or iQ products, provides end users with the tools needed to optimize traffic flow and enhance driver safety. Our technology analyzes signals from sophisticated sensors and transmits the information to management systems and controllers or directly to users. Our products provide end users with complete solutions for the intersection and transportation markets.
Our technology is a process in which software, rather than humans, examines
outputs from various types of sophisticated sensors to determine what is
happening in a field of view. In the ITS industry, this process is a critical
component of managing congestion and traffic flow. In many cities, it is not
possible to build roads, bridges and highways quickly enough to accommodate the
increasing congestion levels. On average,
We believe our solutions are technically superior to those of our competitors because they have a higher level of accuracy, limit the occurrence of false detection, are generally easier to install with lower costs of ownership, work effectively in a multitude of light and weather conditions, and provide end users the ability to manage inputs from a variety of sensors for a number of tasks. It is our view that the technical advantages of our products make our solutions well suited for use in ITS markets.
We believe the strength of our distribution channels positions us to increase
the penetration of our technologydriven solutions in the marketplace. We market
our Autoscope video products in
We market the RTMS radar systems to a network of distributors globally. On a
limited basis, we may sell directly to the end user. We market our
Autoscope video products outside
The following discussion of period-to-period changes and trends in financial statement results under "Management's Discussion and Analysis of Financial Condition and Results of Operations" aligns with the financial statement presentation discussed above.
Trends and Challenges in Our Business
We believe the expected growth in our business can be attributed primarily to the following global trends:
º worsening traffic caused by increased numbers of vehicles in metropolitan
areas without corresponding expansions of road infrastructure and the need
to automate safety, security and access applications for automobiles and
trucks, which has increased demand for our products;
º advances in information technology, which have made our products easier to
market, implement and integrate;
º the continued funding allocations for centralized traffic management
services and automated enforcement schemes, which have increased the
ability of our primary end users to implement our products; and
º general increases in the cost effectiveness of electronics, which make our
products more affordable for end users.
We believe our continued growth primarily depends upon:
º continued adoption and governmental funding of ITS and other automated
applications for traffic control, safety and enforcement in developed
countries;
º a propensity by traffic engineers to implement lower cost technology-based
solutions rather than civil engineering solutions such as widening
roadways;
º countries in the developing world adopting above-ground detection
technology, such as video or radar, instead of in-pavement loop technology
to manage traffic; and
º our ability to develop new products that provide increasingly accurate
information and enhance the end users' ability to cost-effectively manage
traffic and environmental issues.
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Because the majority of our end users are governmental entities, we are faced
with challenges related to potential delays in purchasing decisions by those
entities and changes in budgetary constraints. These contingencies could result
in significant fluctuations in our revenue among periods. The ongoing economic
environment in
Key Financial Terms and Metrics
Revenue. We derive revenue from two sources: (1) royalties received from
Econolite for sales of the Autoscope video systems in
Cost of Revenue. Software amortization is the sole cost of revenue related to royalties, as virtually all manufacturing, warranty and related costs are incurred by Econolite. Cost of revenue related to product sales consists primarily of the amount charged by our third party contractors to manufacture hardware products, whose costs are influenced mainly by the cost of electronic components. The cost of revenue also includes logistics costs, estimated expenses for product warranties, and inventory obsolescence. The key metric that we follow is achieving certain gross margin percentages on product sales by operating segment.
Operating Expenses. Our operating expenses fall into three categories: (1) selling, marketing and product support; (2) general and administrative; and (3) research and development. Selling, marketing and product support expenses consist of various costs related to sales and support of our products, including salaries, benefits and commissions paid to our personnel; commissions paid to third parties; travel, trade show and advertising costs; second-tier technical support for Econolite; and general product support, where applicable. General and administrative expenses consist of certain corporate and administrative functions that support the development and sales of our products and provide an infrastructure to support future growth. These expenses include management, supervisory and staff salaries and benefits; legal and auditing fees; travel; rent; and costs associated with being a public company, such as board of director fees, listing fees and annual reporting expenses. Research and development expenses consist mainly of salaries and benefits for our engineers and third party costs for consulting and prototyping. We measure all operating expenses against our annually approved budget, which is developed with achieving a certain operating margin as a key focus. We also include any restructuring costs in operating expenses.
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Non-GAAP Operating 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
Reconciliations of GAAP income from operations to non-GAAP income from operations are as follows (in thousands):
Three-Month Period Ended
March 31,
2021 2020
Income (loss) from operations $ 411 $ (275 )
Adjustments to reconcile to non-GAAP income
Amortization of intangible assets 187 174
Depreciation 40 50
Non-GAAP income (loss) from operations $ 638 $ (51 ) Seasonality. Our quarterly revenues and operating results have varied
significantly in the past due to the seasonality of our business. Our first
quarter generally is the weakest due to weather conditions that make roadway
construction more difficult in parts of
Segments. We currently operate in two reportable segments: Intersection and Highway. Autoscope video is our machine-vision product line, and revenue consists of royalties (all of which are received from Econolite), as well as a portion of international product sales. Video products are normally sold in the Intersection segment. RTMS and IntellitraffiQ are our radar product lines, and revenue consists of sales to external customers. Radar products are normally sold in the Highway segment. As a result of business model changes and modifications in how we manage our business, we may reevaluate our segment definitions in the future.
The following table sets forth selected unaudited financial information for each of our reportable segments (in thousands):
Three Months Ended March 31,
Intersection Highway Total
2021 2020 2021 2020 2021 2020
Revenue $ 1,892 $ 2,250 $ 1,087 $ 909 $ 2,979 $ 3,159
Gross profit 1,724 2,069 549 467 2,273 2,536Amortization of intangible assets 92 92 95 82 187 174 Intangible assets
1,407 1,651 1,690 2,071 3,097 3,722
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Results of Operations
The following table sets forth, for the periods indicated, certain statements of operations data as a percent of total revenue and gross profit on product sales and royalties as a percentage of product sales and royalties, respectively.
Three-Month Periods Ended
March 31,
2021 2020
Product sales 39.0 % 33.2 %
Royalties 61.0 66.8
Total revenue 100.0 100.0
Gross profit - product sales 47.3 49.4
Gross profit - royalties 94.9 95.6
Selling, general and administrative 45.9 60.4
Research and development 16.6 28.6
Income (loss) from operations 13.8 (8.7 )
Other income, net 31.1 -
Income tax expense (benefit) 6.9 (5.2 )
Net income (loss) 38.0 (3.5 )
Total revenue decreased to
Revenue for the Intersection segment decreased to
Gross margin percent for product sales decreased to 47.3% in the first three
months of 2021 from 49.4% in the first three months of 2020. Product sales gross
profit increased
Gross margin percent for royalty sales for the three months ended
Selling, general and administrative expense was
Research and development expense decreased to
The Company recognized other income of
There was
Consolidated net income was
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Liquidity and Capital Resources
At
Net cash used for operating activities was
Net cash used for investing activities was
Net cash used for financing activities was
We believe that cash and cash equivalents on hand at
Off-Balance Sheet Arrangements
We do not participate in transactions or have relationships or other arrangements with an unconsolidated entity, including special purpose and similar entities, or other off-balance sheet arrangements.
Critical Accounting Policies
Our significant accounting policies are described in Note 1 to the Consolidated
Financial Statements in our Annual Report on Form 10-K for the year ended
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Cautionary Statement:
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange of 1934, as amended. Forward-looking statements represent our expectations or beliefs concerning future events and can be identified by the use of forward-looking words such as "expects," "believes," "may," "will," "should," "intends," "plans," "estimates," or "anticipates" or other comparable terminology. Forward-looking statements are subject to risks and uncertainties that may cause our actual results to differ materially from the results described in the forward-looking statements. Factors that might cause such differences include, but are not limited to:
º our historical dependence on a single product for most of our revenue;
º budget constraints by governmental entities that purchase our products,
including constraints caused by declining tax revenue;
º the continuing ability of Econolite to pay royalties owed;
º the mix of and margin on the products we sell;
º our dependence on third parties for manufacturing and marketing our
products;
º our dependence on single-source suppliers to meet manufacturing needs;
º our failure to secure adequate protection for our intellectual property
rights;
º our inability to develop new applications and product enhancements;
º the potential disruptive effect on the markets we serve of new and emerging
technologies and applications, including vehicle-to-vehicle communications
and autonomous vehicles;
º unanticipated delays, costs and expenses inherent in the development and
marketing of new products;
º our inability to respond to low-cost local competitors;
º our inability to properly manage any growth in revenue and/or production
requirements;
º the influence over our voting stock by affiliates;
º our inability to hire and retain key scientific and technical personnel;
º the effects of legal matters in which we may become involved;
º our inability to achieve and maintain effective internal controls;
º our inability to successfully integrate any acquisitions;
º tariffs and other trade barriers;
º political and economic instability, including continuing volatility in the
economic and political environment of the European Union ;
º our inability to comply with international regulatory restrictions over
hazardous substances and electronic waste; and
º conditions beyond our control such as war, terrorist attacks, health
epidemics (including the COVID-19 pandemic caused by the coronavirus) and
economic recession.
We caution that the forward-looking statements made in this report or in other
announcements made by us are further qualified by the risk factors set forth in
Item 1A. of our Annual Report on Form 10-K for the fiscal year ended
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