Wednesday, February 23, 2011

Image Sensing Systems ( Nasdaq - ISNS ) -- Gets the Green Light

Image Sensing Systems (ISNS $14.00) reported excellent Q4 results, somewhat above our expectation.  Tighter government budgets at the state and local level prevented an even stronger performance.  Non-GAAP earnings advanced 35% to $.35 a share.  That figure would have $.03 a share higher, except Image Sensing had to pay a higher than expected earn out bonus to the former owners of CitySync, which was acquired during 2010.  Sales of CicySync's license plate reading system were stronger than predicted.  Earnings also were reduced by relatively high input costs at CitiSync.  Image Sensing inherited several supplier contracts, which will expire soon.  The company believes it can reduce those expenses by shifting to its regular suppliers.  Earnings benefited from a lower than expected tax rate, caused largely by the renewal of the R&D tax credit by Congress.  The amount for the full year was recognized in the period.  Earnings for the twelve months finished at $1.04 a share.  Sales finished at $31.7 million.

Earnings promise to advance sharply in 2011.  Sales are likely to reach $40 million, fueled by a full year's contribution from CiySync.  The license plate reading technology is proving to be Image Sensing's fastest growing category, as well.  Traffic management is likely to expand less rapidly, due to the budget deficits that are cropping up around the nation.  But underlying demand remains robust.  Congestion is building as the economy improves.  And computerized intersection management is cheaper alternative to new road construction.  A major new line that combines machine vision with radar is slated for introduction.  That line promises to propel Image Sensing's price performance advantage far beyond its competition, laying the groundwork for significant market share expansion over the next several years.

We estimate 2011 earnings will advance 30% to $1.35 a share.  Sustained above average gains are possible well into the decade as the license plate recognition line achieves wider adoption, and the hybrid product rolls out.  International potential remains huge, particularly in emerging markets.  Image Sensing already has sales offices in place in the Far East.

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