Traffic monitoring specialist Image Sensing Systems
It appears that the Q4 revenue decline was what spooked the market into dropping the stock by 15%, because, overall, the company's fiscal 2004 results looked pretty good. Revenues rose 17% year on year, and profits rose 26% -- a nice divergence there. Profits per diluted share were another story, rising just 18% as diluted shares outstanding continued, expanded by 6% over the past year.
The company noted that its royalty income from Autoscope cameras increased significantly in the U.S. Sales fell this quarter because Image Sensing is switching between its outsourced suppliers of non-Autoscope products. This apparently caused a hiccup in the company's supply chain and, with fewer products produced for sale, fewer sales were made. It was a goof, no doubt about it. But consider switching to a wider lens and looking at the bigger picture here, folks.
Image Sensing described its switch from the old to a new supplier this way: "We have fulfilled our obligation under the contractual agreement with the old supplier." It switched after fulfilling an obligation? To this Fool, that suggests that (a) Image Sensing wasn't totally happy with its now-ex-supplier and was eager to switch, and (b) Image Sensing expects to get a better deal from its new supplier. That could bode well for widening the company's margins in future quarters.
A more serious concern, from an individual investor's standpoint, was the lack of disclosure contained in the company's earnings announcement. Three paragraphs of text, a partial income statement and no balance sheet or cash flow statement -- it hardly seems an adequate way to sum up an entire year's results. Granted, one-third of all the company's shares are owned by insiders who don't really need an update. They know their company pretty well as it is. But more than 40% of shareholders are outsiders like you and me. If Image Sensing wants to attract our investing dollars, it really needs to improve its communication with us.
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Fool contributor Rich Smith has no position in Image Sensing Systems.