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Gross margin from continuing operations for the second quarter of 2024 was 95 percent, a 1-percentage point increase from a gross margin of 94 percent for the same period in 2023. Royalty gross margin for the second quarter of 2024 was 97 percent, unchanged from 97 percent in the same period in 2023. As a percent of revenue, product sales gross margins increased to -1 percent in the second quarter of 2024 compared to a -10,000 percent gross profit margin in the second quarter of 2023, which was caused by low sales volume, the amortization of costs associated with capitalized software development which are fixed, and inventory obsolescence recognized for discontinued video products.

Operating expenses were $1.7 million in the second quarter of 2024, an 18% decrease compared to $2.1 million in the same period of 2023. The decrease in operating expenses is primarily due to decreased salaries and benefits due to decreased headcount and legal fees.

The Company recognized a tax expense of $406,000 in the second quarter of 2024, compared to a tax expense of $277,000 in the prior year period. The increased tax expense is primarily due to the higher pre-tax net income from continuing operations.

The Company reported net income from continuing operations for the second quarter of 2024 of $1.5 million or $0.28 per basic and diluted share, compared to a net income of $1.1 million or $0.21 per basic and diluted share in the prior year period. This increase is primarily due to increased profit margins and a decrease in operating expenses during the second quarter of 2024 compared to the same period in 2023.

Year-to-Date Results

AATC’s revenue for the first six months of 2024 was $6.9 million, a 3 percent increase from revenue of $6.7 million in the first six months of 2023. Revenue from royalties increased to $6.8 million in the first six months of 2024 compared to $6.7 million in the same period in 2023. Product sales were $87,000 in the first six months of 2024, a 23 percent increase from $71,000 in the first six months of 2023.

Gross margin for the first six months of 2024 was 95 percent, a 1 percentage point increase from a gross margin of 94 percent for the same period in 2023. Gross margin from royalties increased to 97 percent in the first six months of 2024, unchanged from 97 percent in the first six months of 2023.  Product sales gross margin for the first six months of 2024 was -18 percent compared to -165 percent in the prior year period. Product sales gross margin percentages were negative for the first six months of 2024 and the same period in 2023 due to amortization of capitalized software development, which is fixed. The increase in the product sales gross margin percent was primarily the result of higher product sales and lower costs, primarily due to lower inventory obsolescence recognized for discontinued video products.

Operating expenses were $3.6 million in the first six months of 2024, an 11% decrease compared to $4.0 million in the same period of 2023. The decrease in operating expenses is primarily due to decreased salaries and benefits due to decreased headcount and legal fees.

The Company recognized a tax expense of $669,000 in the first six months of 2024, compared to a tax expense of $500,000 in the prior year period. The increased tax expense is primarily due to the higher pre-tax net income from continuing operations.

The Company’s net income from continuing operations for the first six months of 2024 was $2.4 million, or $0.44 per basic and diluted share, compared to a net income from continuing operations of $2.0 million, or $0.35 per basic and diluted share, in the first six months of 2023.

On a non-GAAP basis, excluding the amortization of intangible assets and depreciation for the applicable periods, operating income from continuing operations for the second quarter of 2024 was $2.0 million compared to operating income from continuing operations of $1.6 million in the prior year period and $3.3 million for the first six months of 2024 compared to $2.8 million in the same period of 2023.

Liquidity and Capital Resources

As of June 30, 2024, we had $1.9 million in cash and cash equivalents compared to $6.5 million on December 31, 2023.

Net cash provided by operating activities of continuing operations was $1.3 million in the first six months of 2024 compared to net cash provided by operating activities of continuing operations of $2.5 million in the same period in 2023.  Net cash provided by operating activities of continuing operations decreased in the first six months of 2024 compared to the same period in 2023 primarily due to increased cash used for accounts payable in 2024 compared to 2023 relating to inventory purchases and increased accounts receivables due to timing of sales.

Net cash provided by investing activities of continuing operations was $2.8 million in the first six months of 2024 compared to net cash provided by investing activities of continuing operations of $0.6 million in the same period in 2023. The increase in net cash provided by investing activities of continuing operations in the first six months of 2024 compared to the same period in the prior year is primarily the result of higher sales of debt securities, net of purchases. Sales of debt securities were $7.3 million in the first six months of 2024 compared to $2.6 million in the first six months of 2023, offset by purchases of debt securities of $4.5 million in the first six months of 2024 and $2.0 million in the first six months of 2023. Proceeds from the sale of debt securities were used to fund the special one-time dividend paid in February 2024.

Net cash used by financing activities of continuing operations was $8.7 million in the first six months of 2024 compared to net cash used by financing activities of continuing operations of $1.4 million in the first six months of 2023. The increase in net cash used for financing activities of continuing operations in 2024 is due to the special one-time dividend paid in February 2024 of $1.32 per share, totaling $7.2 million. There was no special cash dividend paid in the first six months of 2023. The Company made quarterly cash dividend payments of $ $0.13 per share, totaling $1.4 million, in the first six months of 2024 and in the same period of 2023.

“We are pleased by the continued strong demand for Autoscope Vision in the North American market and are encouraged that our disciplined control of operating expenses has netted improvements when measured against comparable periods,” said Andy Markese, Interim CEO of Autoscope Technologies and President and CEO of Image Sensing Systems. “As our newly developed, AI driven, detection platform comes online, we expect our ability to address other safety related segments in our market to significantly increase. Every 13 minutes, someone dies on our roadways. We firmly believe these tragic losses are preventable and are committed to helping communities reverse this trend and realize their Vision Zero goals sooner,” concluded Mr. Markese.

About Autoscope Technologies Corporation

Autoscope Technologies Corporation 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 Minneapolis, Minnesota. Visit us on the web at www.autoscope.com.

Forward-Looking Statements

Certain statements and information included in this Annual Report constitute “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 “believes,” “may,” “will,” “should,” “intends,” “plans,” “estimates,” “expects,” “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 discussed in the forward-looking statements. Some factors that might cause these differences include the factors listed below. Although we have attempted to list these factors comprehensively, we wish to caution investors that other factors may prove to be important in the future and may affect our operating results. New factors may emerge from time to time, and it is not possible to predict all of these factors, nor can we assess the effect each factor or combination of factors may have on our business.

Those risks and uncertainties may include, but are not limited to, our historical dependence on a single product for most of our revenue; competition; potential changes in government spending on transportation technology; acceptance of our product offerings and designs; budget constraints by governmental entities that purchase our products, including constraints caused by declining tax revenue; the continuing ability of Econolite Control Products, Inc. to sell our products and pay royalties owed to us; the mix of and margins on the products we sell; our dependence on third parties for manufacturing and marketing our products; our dependence on single-source suppliers to meet manufacturing needs; our failure to secure adequate protection for our intellectual property rights; our inability to develop new applications and product enhancements; the potential disruptive effect on the markets we serve of new and emerging technologies and applications, including vehicle-to-vehicle communications and autonomous vehicles; unanticipated delays, costs and expenses inherent in the development and marketing of new products; our inability to respond to low-cost local competitors; our inability to properly manage any growth in revenue and/or production requirements; the influence over our voting stock by affiliates; our inability to hire and retain key scientific and technical personnel; the effects of legal matters in which we may become involved; our inability to achieve and maintain effective internal controls; our inability to successfully integrate any acquisitions; tariffs and other trade barriers; our operating results fluctuate from quarter to quarter due to, among other reasons, the fact that our operating costs tend to be fixed, while our revenue tends to be seasonal; any significant variations between actual amounts and the amounts estimated for those matters identified as our critical accounting estimates and other significant accounting estimates made in the preparation of our financial statements; political and economic instability, including continuing volatility in the economic and political environment of the European Union and the war in Ukraine, and the conflict between Israel and Hamas; our inability to comply with international regulatory restrictions over hazardous substances and electronic waste; the impact of international supply chain disruptions and delays; the impact of changes in U.S. federal and state income tax regulations; the impact of inflation and our ability to pass on rising prices to its customers; and conditions beyond our control such as war, terrorist attacks, health epidemics (including the COVID-19 pandemic caused by the coronavirus) and economic recession.

We further caution you not to unduly rely on any forward-looking statements because they reflect our views only as of the date the statements were made. We undertake no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

Autoscope Technologies Corporation
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:   

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 Company’s financial performance by investors and financial analysts.