Autoscope Technologies Corporation (AATC) Earnings Call Transcript & Summary

Good morning. This is the call to order for the 2025 Annual Meeting of Stockholders of Autoscope Technologies Corporation. I am Andrew Berger, the Executive Chairman of the company, and I welcome all of you. I'd first like to introduce the officers, directors and senior management of Autoscope who are present today. Directors Jim Bracke; Joe Daly; Zeke” Kruglick; Brian VanDerBosch, and me; and senior management employees of Autoscope; Andy Markese, our Interim President and CEO; and Lori Schug; our CFO. We also have present a representative from our auditor, Boulay PLLP as well as Vincent Pecora from Winthrop & Weinstine, our outside legal counsel. I will next turn over the meeting to Lori Schug in her capacity as Secretary of the official business of meeting. After the business of the meeting, we'll have a company presentation. Lori?

Thanks, Andrew. Good morning, everyone. Throughout the meeting, if you have any questions, type your question in the Ask a Question section and click Submit. We will follow up with a response after this meeting. As provided in the proxy statement for this virtual meeting, shareholders may vote at the meeting over the Internet. Any shareholder who wants to vote at this meeting and has not yet done so should do so now before the polls close by e-mailing [email protected] and submitting their proxy. If you have already voted by proxy, you don't need to vote today unless you would like to change your vote. First, I would like to review the safe harbor for forward-looking statements. The shareholders' meeting and the presentation that follows the conclusion of the meeting may contain forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, and other federal securities laws, including the Private Securities Litigation Reform Act of 1995. Words such as anticipates, expects, intends, goals, plans, believes, seeks, estimates, continues, may, will, would, should, could and variations of such words and similar expressions are intended to identify such forward-looking statements. All statements that we make or incorporate by reference in the presentation other than statements or characterizations of historical fact are forward-looking statements and involve many risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these forward-looking statements. It should be clearly understood that these forward-looking statements and our assumptions about the factors that influence them are based on information available to management at the date of this presentation unless an earlier date is indicated. Such information is subject to change, and we may not inform you when changes occur. We undertake no obligation to revise or update publicly any forward-looking statements to reflect future events or circumstances. Additional information on Autoscope Technologies Corporation, including risk factors that may affect our forward-looking statements, is contained in our annual report for 2024, our quarterly report for the quarter ending March 31, 2025, and our other filings that are available through the OTC Markets website at www.otcmarkets.com and in the Financials section of our website at www.autoscope.com. Now for the official part of the meeting. Autoscope's bylaws provide that every shareholder of record or his or her legal representative as of the record date is entitled at this meeting to 1 vote for each share of common stock standing in his or her name on Autoscope's books. The Board of Directors has set April 21, 2025, as the record date for this meeting. Our records indicate that as of that date, there were 5,485,499 shares outstanding. The record of this meeting should reflect that a notice of Internet availability of proxy materials, a notice of this meeting, a proxy statement and a proxy were filed with the OTCQX on May 8, 2025, and as applicable, mailed beginning on or about May 9, 2025, to shareholders of Autoscope entitled to vote at this meeting. A copy of the notice, proxy statement and proxy will be made a permanent part of our records. Quorum requirements are that at least 2,742,750 shares must be represented at this meeting, either by shareholders present during the meeting or by proxies on file with Autoscope. As of the close of business on June 4, 2025, a quorum has been reached. Therefore, as Autoscope Secretary, I certify that a quorum is present for this meeting. Now that shareholders have had the opportunity to vote, I hereby declare the polls closed. The first proposal is the election of 5 directors. The Board of Directors has nominated the following persons, all of whom are currently serving as directors of Autoscope: Andrew T. Berger; James W. Bracke; Joseph P. Daly; Ezekiel J. Kruglick; Brian J. VanDerBosch. Because of rules enacted in 2010, brokers cannot vote for the election of directors and many other matters on a discretionary basis. This has the natural effect of lowering the number of votes for each of the candidates and these other matters. Based on the number of votes that have been cast by proxy and any votes cast at this meeting, all of the nominees have been elected as directors. The precise voting results will be posted to our website and to the OTC Markets website. The second and final proposal is for the ratification of the appointment by the Audit Committee of the Board of Directors of Boulay PLLP as the independent registered public accounting firm for Autoscope for the year ending December 31, 2025. This is the only matter on which brokers may vote. Based on the number of votes that have been cast by proxy and any votes cast at this meeting, the appointment of Boulay PLLP has been ratified. The precise voting results will be posted to our website and to the OTC Markets website. Thank you for voting and approving the proposals. The formal meeting is now adjourned. The following discussion will cover key financial performance metrics for the 2 most recently reported years ended December 31, 2024 and 2023. Image Sensing Systems, Inc., or ISNS, which is a wholly owned subsidiary of Autoscope is a global company dedicated to providing an above-ground detection technology platform for advanced traffic management systems, traffic data collection applications and data-driven strategies for the Intelligent Transportation Systems or ITS sector. ISNS has pioneered the use of the most advanced detection algorithms in the industry, incorporating artificial intelligence or AI and machine learning into its video image processing for vehicle and pedestrian detection. The company's flagship Autoscope video detection provides highly accurate and reliable intersection, runway detection and transportation data insight solutions. By harnessing AI-driven sensor analysis, Autoscope Technology delivers dynamic real-time traffic monitoring and decision-making capabilities, making it an essential tool for mitigating congestion and reducing traffic-related injuries and fatalities in modern urban environments. These machine learning-powered solutions not only enhance road safety and optimize traffic flow but also continuously improve through data-driven learning, staying ahead of the curve in the rapidly evolving ITS landscape. ISNS believes our solutions are technically superior to those of our competitors because they limit the occurrence of false detection, are generally easier to install with lower cost of ownership and allow end users to manage inputs from a variety of sensors for various tasks. Company's distribution channels, particularly our exclusive agreements with Econolite Control Products, Inc., position us to expand the reach of our technology-driven solutions in the marketplace. Autoscope video products are marketed in the United States, Mexico, Canada and the Caribbean through exclusive agreements with Econolite and through a nonexclusive agreement in the Middle East. For further information on the company's financial performance, please see our filings on otcmarkets.com or on our website at autoscope.com under the Financials section. Now let's review consolidated financial results for the years ended December 31, 2023 and 2024. The financial results reflect continuing operations only, unless otherwise noted. Revenue from continuing operations increased $0.5 million in 2024 compared to 2023. Royalty income increased to $13.2 million in 2024 compared to $13 million in 2023, an increase of 1.9%. The increase in royalty revenue resulted primarily due to timing of sales and the availability of funds for agency projects. Product sales increased to $0.4 million in 2024 from $0.2 million in 2023, an increase of 148%. The increase in product sales was primarily due to increased sales of our wrong-way and Autoscope products and increased sales of our IntelliSight product sold in the Europe, Middle East and Africa markets, which had no sales in 2023. Gross margins from continuing operations increased to 95.3% in 2024 compared to 94.4% in 2023. Gross margins on royalty sales increased to 97.6% in 2024 compared to 96.7% in 2023. Gross profit for royalties in 2024 increased $0.4 million or 2.8% compared to the prior year. The increase in royalty gross profit and percent is primarily the result of more sales of video detection products yielding higher royalty revenues and lower product amortization costs associated with capitalized software development, which became fully amortized in 2024. Gross margin on product sales increased to 24.5% in 2024 from a negative 74% in 2023. Product sales gross profit in 2024 increased $233,000 or 182% compared to the prior year. The increase in product sales gross profit is due to the increase in product sales. Selling, marketing and product support expense in 2024 was $1.2 million or 9.2% of total revenue compared to $1.9 million or 14.2% of total revenue in 2023. The decrease in selling, marketing and product support expenses is primarily due to decreased salaries and benefits due to decreased headcount. The decrease in selling, marketing and product support expense as a percent of revenue is primarily the result of lower selling, marketing and product support expenses and higher revenues in 2024 compared to 2023. General and administrative expense decreased to $3.2 million or 23.2% of total revenue in 2024 compared to $3.3 million or 25.5% of total revenue in 2023. The decrease in general and administrative expense in 2024 over 2023 is primarily the result of decreased salaries and benefits due to decreased headcount, decreased consulting expenses, which were incurred in 2023 due to turnover and decreased spending on building maintenance projects, offset by higher executive incentive compensation. The decrease in general and administrative expense as a percent of revenue is primarily the result of lower general and administrative expenses and higher revenues in 2024 compared to 2023. Research and development expense decreased to $2.4 million or 17.8% of total revenue in 2024 from $2.6 million or 19.6% of total revenue in 2023. The decrease is due to decreased salaries and benefits due to decreased headcount, offset by increased consulting expenses incurred primarily due to sustaining our legacy products. The decrease in research and development expense as a percent of revenue is primarily the result of lower research and development costs and higher revenues in 2024 compared to 2023. Income tax expense on continuing operations of $1.768 million was recorded for the year ended December 31, 2024, compared to $499,000 for the year ended December 31, 2023. The increase in income tax expense is due to higher pretax income in 2024 compared to 2023 and changes in the utilization of our deferred tax assets. Other income decreased by $36,000 in 2024 to $43,000 from $79,000 in 2023. The company recognized investment income of $140,000 for the year ended December 31, 2024, compared to $377,000 for the year ended December 31, 2023. The decrease in investment income is a result of the decreased investments primarily in debt securities. Consolidated net income from continuing operations was $4.5 million or $0.82 per basic and diluted share in 2024 compared to $4.5 million or $0.83 per basic and diluted share in 2023. At December 31, 2024, we had $4.4 million in cash and cash equivalents compared to $6.5 million at December 31, 2023. Net cash provided by operating activities of continuing operations increased to $5.2 million in 2024 compared to $5 million in 2023. This increase is primarily the result of higher accounts receivables and lower accounts payables, offset by lower deferred taxes and lower changes in inventory in 2024 compared to 2023. Net cash provided by investing activities of continuing operations was $2.9 million in 2024 compared to net cash used by investing activities of continuing operations of $2 million in 2023. The increase in the amount of net cash provided for investing activities of continuing operations in 2024 compared to the prior year is primarily the net result of sales and purchases of debt securities previously purchased as investments. Sales of debt securities were $10.5 million during 2024 compared to $8.2 million in 2023, offset by purchases of debt securities of $7.3 million in 2024 and $10.2 million in 2023. Proceeds from the sale of debt securities during 2024 were used to fund the special onetime dividend paid in February 2024. Cash used for purchases of property and equipment increased during 2024 compared to 2023 due to payments made for a new enterprise resource planning system launched in October 2024. Net cash used by financing activities of continuing operations was $10.2 million in 2024 compared to $2.9 million in 2023. This increase is due to the special onetime dividend paid in February 2024 of $1.32 per share totaling $7.2 million. In addition, the company increased the quarterly cash dividend in the fourth quarter of 2024 to $0.15 per share compared to $0.13 per share for each quarterly cash dividend paid during the first 3 quarters of 2024 and compared to quarterly cash dividends of $0.13 per share for each quarter in 2023. We believe that cash and cash equivalents on hand, coupled with readily available investments in debt and equity securities on December 31, 2024, totaling $7.4 million, along with the cash provided by operating activities, will satisfy our projected working capital needs, investing activities and other cash requirements for the foreseeable future. This concludes my remarks concerning recent financial performance. If you have any questions, type your question in the Ask a Question section type, just type a question and click submit. We will follow up with a response after this meeting. Now I will turn things over to Andy Markese for a business update.

Thank you, Lori. ISNS brings over 40 years of deep domain expertise in machine vision, machine learning and artificial intelligence, specifically tailored to roadway transportation challenges. To date, we've deployed more than 180,000 roadway sensors across more than 80 countries, building a global reputation for reliability, accuracy and ease of use. Our consistent performance has earned ISNS a strong and trusted position in the ITS industry. We are especially proud of our 29 dedicated employees worldwide whose talent and commitment drive our innovation and execution. The majority of our team is based in our headquarters in downtown Minneapolis, working in close coordination with our talented colleagues at our subsidiary in Chennai, India. This international collaboration has become a vital part of our operational strength. In 2024, we operated under a 3-pillar focus, organizational, tactical and strategic that guided our progress. Organizationally, we prioritized the successful integration of our India-based engineering team into the broader engineering function. This created a more efficient and aligned operation, increasing both performance and accountability. Tactically, the improved organizational structure enabled us to move forward with new initiatives, particularly in areas that unlock the data and insight potential of our sensing platforms. Strategically, these efforts are laying the groundwork for entirely new business opportunities. By leveraging our proprietary data and advanced analytics, we are overcoming historical platform limitations and positioning our intellectual property to serve a broader range of transportation and mobility applications. Now let's take a closer look at our current offerings and where we're headed strategically. Our solutions provide highly accurate detection, classification and tracking for vehicles, bicycles, pedestrians and other forms of active mobility navigating today's increasingly complex roadways. By enabling smarter traffic decisions, we help cities reduce congestion, lower emissions and enhance safety. The current market lineup is led by Autoscope Vision and remains our flagship product. Vision is now deployed at over 10,000 intersections across North America, and it continues to lead the market in intersection video detection. In 2022, we introduced a new video intersection detection product built on our proprietary IntelliSight platform called Autoscope IntelliSight. This platform is now available internationally with a North American launch slated for 2025 under the new brand name Autoscope OptiVu. OptiVu will ultimately be the replacement and upgrade to Autoscope Vision. We are especially bullish on the IntelliSight platform because it represents a fundamental shift, not just in detection capabilities, but in the depth of insights it enables. Drawing on our historical strengths and enhanced by AI, this platform expands our value proposition well beyond traditional traffic detection. These advancements culminated in the creation of Autoscope Analytics, a major new initiative aimed at transforming our detection products into a scalable insight-driven ecosystem. With Autoscope Analytics, we are helping transportation agencies turn real-world data into actionable intelligence that supports planning, safety and policy decisions. Taken together, this product suite is the most complete and sophisticated offering ISNS has ever delivered. It reflects a focused commitment by our engineering and product teams to build solutions that meet current market demands and anticipate future ones. We remain deeply confident in the strength of our people, products and partnerships. As we continue to align and integrate under Autoscope Technologies Corporation, we are more prepared than ever to deliver innovation, drive growth and create lasting shareholder value. And now I'll hand it back to Andrew Berger.

This represents the conclusion of Autoscope Technology Corporation's Annual Meeting. I'd like to thank everyone for their attendance. Thank you very much.