Just ran a search and found this!....I imagine all the things happening in Russia are having an effect on this one!....Look at The Chart, The PE, The Dividend!....Possibly one to watch for a Swing Trade!!!
Valuable Core, Outrageously Cheap Due To Doomed Adventures Of Just Fired CEO Dec. 30, 2014 3:16 PM ET | 7 comments | About: Image Sensing Systems, Inc. (ISNS), Includes: FLIR, ITI Disclosure: The author is long ISNS. (More...) Summary
Valuable Core Business: A co-leader at worst in the camera based traffic control market. Flir Systems paid $46m for co-leader Traficon in December 2012. Enjoys a stable pure profit royalty stream of $10m which must be worth 2-3x their $13m market cap. Value can be unlocked now that they've fired the abysmal CEO who launched enormously costly, doomed forays into markets populated by gigantic incumbents. Believe it or not Image Sensing Systems (NASDAQ:ISNS) has been a great company for most of its history. Between 2001 and 2007 revenue rose organically 15% per year, increasing every year. EPS trended even more strongly. That's what you'd expect from the leading company in the oligopoly that supplies video based intersection control systems, as it rode the gains those techs made against in-ground loops.
By acquiring a complimentary radar based highway detection system maker called RTMS (Remote Traffic Monitoring System), ISNS's EPS bumped from a solid, predictable $0.80 run-rate in 2006-2007 to $1.24 in 2008, which ultimately proved their peak.
The recession forced governmental budgets to tighten, so, by late 2008, we knew the next few years wouldn't be as easy as the last seven. But ISNS should have been able to cope. After all, operating profit was a whopping 27% of revenue, due in part to the 100% margin pure profit stream deriving from licensing fees paid by traffic equipment maker Econolite. That royalty stream, which was $13m in 2008, formed half of ISNS's revenue at the time; $13m which required no manufacturing, marketing, distribution, service, or support.
Coincidentally, ISNS's current market cap is also $13m. That's just 1.3x the $10m current pure profit royalty stream ISNS continues to earn today.
I'm not the first to wonder how ISNS could be worth so little. What would Econolite (or an ISNS competitor) be willing to pay to buy their technology and extinguish the ~$10m they're likely to owe ISNS next year, and the year after that, and so on? Surely the number must be at least $25m, or twice ISNS's market cap. But the problem, as I explained in response to a bullish report written in March 2014, was that ISNS's new CEO was investing heavily in adjacent markets where ISNS was disadvantaged (doomed really), rather than re-focusing on the core that enabled their historical success:
"...the new CEO's (Tufto's) strategy scares me. The market for intersection sensors/LPR might be small and low growth, affected by budgets, etc., but at least ISNS is a real player there, with real share, and real relationships; in short, an incumbent. In contrast, I get that back-office software that analyzes and manages data gleaned from intersection sensors is hot, sexy, high growth; but ISNS is a nobody here, going up against entrenched big-boys. ISNS gaining share in analytics seems implausible. Yet all of Tufto's attention and dollars are being thrown at the latter, with "safe cities", etc. It feels like they're pursuing the attractive *market* with out regard for their own particular assets/competencies... Modest success in sensors beats massive flop in analytics. Again, your thesis can still work, but Tufto scares me and nothing good has happened since he replaced the old CEO. He comes off as too promotional to be trusted, too."
ISNS's board came to agree with me as Tufto was fired in December.
The path forward is obvious: retreat from Tufto's doomed forays back into ISNS's core. Divest non-core assets, sell or close the money hemorrhaging License Plate Recognition company you acquired, abandon Tufto's "safe-cities" back-office traffic management software that pits you against gigantic incumbents, and focus like a laser on your Video (Intersection) and Radar (Highway) cameras. At worst, you're still a co-leader in this oligopolistic market. You still have more installed systems than anybody in the world, including Traficon, whom Flir Systems (NASDAQ:FLIR) paid $46m for two years ago.
If refocusing on the core and cutting the rest isn't sufficient to get ISNS back to profitability, then sell the company to the oligopoly's third leg, Iteris (NYSEMKT:ITI). Surely they must be willing to pay 2-3x ISNS's royalty run-rate (implying 50-130% upside), since it'd be paid back within a few years, and it'd double Iteris' market share, giving them more than half the domestic market and a commanding lead on number two player Traficon (NASDAQ:FLIR).
Look, ISNS's glory days are past. A combination of factors like slower market growth, crimped customer budgets (particularly in vital California), and technological catch-up by peers means we shouldn't expect a return to 15% CAGR's. But ISNS is worth a lot more than $13m! They've sunk this absurdly low only because they responded to headwinds by firing a competent CEO (which triggered resignation by Econolite's rep on their board), and replacing him with a borderline crazy person who thought that if his press releases name-dropped "Google" and "Big Data" enough times and if he exuded enough vague optimism, then ISNS could push into sexy new high growth markets populated by billion dollar incumbents with decades of experience. He was wrong. Predictably. But he's gone now and mundane managerial competence should be sufficient to unlock $4-6 per share of value, or 2-3x the pure profit royalty run-rate ISNS still earns from Econolite.
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