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Image Sensing Systems has had ten consecutive quarters
of increased top-line and bottom-line growth, while investing in innovation to maintain
their technology leadership
Technology
Scientific and Technical Instruments
(ISNS-NASDAQ)
Image Sensing Systems Incorporated
500 Spruce Tree Centre
Saint Paul, MN 55104
Phone: 651-603-7700
James Murdakes
Chairman, President and CEO
Interview conducted by:
Walter Banks, Publisher
CEOCFOinterviews.com
February 10, 2005
BIO:
James Murdakes - CEO and President (72)
Mr. Murdakes has been a Director of the Company since May 1996. Mr. Murdakes was elected
Chairman of the Board in February 2002 and was appointed interim Chief Executive Officer
and President of ISS in April 2002. He served as President and CEO of LSC, Inc., a
Minneapolis-based software company for computer network storage servers, from 1993 through
1996, and was Chairman of the Board of Directors and a management consultant to LSC in
1997. Prior to this he retired from Control Data in 1987 after 25 years and from Raxco
Inc. in 1992. He retired from full-time employment in 1998.
Company Profile:
Image Sensing Systems, Inc. (ISNS-NASD) is the world leader in products applying video
vehicle detection systems (VVDS) market sector of the control electronics industry. The
Company’s cornerstone Autoscope® products provide traffic managers the
means to reduce roadway congestion, improve roadway planning, and increase cost
efficiencies. With 25 years of development experience and equipment installed with over
32,000 cameras in more than 50 countries and most U.S. cities, ISS is considered to be the
world leader in video-based vehicle detection and traffic data collection, with an
extensive network of distributors and agents. Econolite Control Products, Inc., based in
Anaheim, California, has been the exclusive distributor of Autoscope products throughout
North and Central America since 1991 and recently was awarded exclusive sales distribution
for Latin America.
Video image processing, also known as machine vision, is a technology that captures and
analyzes video images through sophisticated algorithms using off-the-shelf components and
dedicated hardware and software. Video and data can be transmitted by using connections as
simple as a phone line, as fast as fiber, or as convenient as wireless and has the
versatility to satisfy incident management applications for bridges, tunnels, and
highways, as well as surveillance applications.
The Autoscope Solo® Pro II is a unique product in the market, setting the industry
standard in video vehicle detection systems for high performance combined with ease of use
and cost-effectiveness. The Autoscope Solo Pro integrates a robust zoom-lens color camera
that can operate in low light with a powerful video image processor. The Autoscope Solo®
Pro NC uses the same high-performance detection algorithms and network communications as
the Autoscope Solo Pro, but in a self-contained unit. The Autoscope RackVision™ is a
single-camera video detection system that is available in two models, Euro Model and US
Model. The Autoscope 2020™ is the successor to the four-camera Autoscope 2004. The
Autoscope 2020 can be shelf or rack mounted in a traffic cabinet or in a central office.
The AIS (Autoscope Image Sensor) Camera™ is a durable, high-resolution traffic camera
specially optimized for the Autoscope RackVision models, Autoscope Solo Pro NC, and
Autoscope 2020. The AIS Camera has a built in zoom lens and color imager with high
sensitivity to ensure accurate vehicle detection at night.
Autoscope Software Suite version 8.10 is now shipping
with all Autoscope products. A major feature of version 8.10 is the Autoscope Wizard/Mouse
Monitor which automates setup and configuration of Autoscope video vehicle detection
systems. This initial version of the Autoscope Wizard simplifies setup for intersection
control stop-line detection applications.
CEOCFOinterviews: Mr. Murdakes, I noticed that you had a
record year when it came to your financials and revenue; would you tell us more about
that?
Mr. Murdakes: "We first spoke back in October 2002 when
the stock was under $1.00. In 2001 we had lost $500,000 dollars. Since then, we have had
ten consecutive quarters and we are working on our eleventh one. We have had steady growth
both at the top and, bottom-line. We have the same number of employees today, as we did
when I first started in April of 2002. The only difference is that the mix has changed. We
have replaced marketing and administration headcount with engineers. It has proved to be a
good thing. As a technology-based company, our investments have been in technology and
innovation. We have done exceedingly well in North America and Europe is doing well. In
Asia we continue to be profitable but currently we are in a transitional mode as we
rebuild our product lines.
Econolite Control Products, Inc., is our exclusive North and Latin American sales force.
They have been growing our revenue steadily between 18 and 24% over the last three years.
That has reflected well for our bottom-line. Since we last talked, ISS has had two major
software releases and at least nine new product offerings. Currently, between Econolite,
ISS and Wireless Technology Inc., our strategic partners, we are spending over thirty
percent on technology. As partners we all invest in technology, which contributes to
leading edge products between the three companies."
CEOCFOinterviews: What
new products have we seen within the past year?
Mr. Murdakes: "We have built, designed and developed the
Autoscope RackVision™ product which we have parlayed that into different offerings.
We continue to add new features to our software. We also have a product for our
international markets, which allows for other manufacturers cameras to run on our
software. That has helped us considerably. We are also test marketing a product in Europe
that addresses the low end of the market."
CEOCFOinterviews: What
is the name of the lower-end product?
Mr. Murdakes: "We only have a code name for it now. We
will start shipping the first half of this year."
CEOCFOinterviews: Did
the low-end product come from one of the R&D people or was it a request from one of
your distributors?
Mr. Murdakes: "It was a requirement from our European
Managing Director, Graham Heywood, who over the past two years, has doubled our European
business. Graham has done an excellent job providing our engineers with market
requirements. Between Graham, Johan Billow, Managing Director-Flow Traffic Limited, and
Econolite, we have quite a bit of market knowledge and intelligence in terms of what the
market needs are. Every two years, you better have two or three new products coming out
because if you don’t, the competitors will. You must also keep driving cost down to
protect your margins and address new applications. As an example, in Europe, Graham wanted
to go after the tunnel market. Albeit we were "Johnny-come-lately", Graham was
still able to capture fifteen new tunnel contracts in the last eighteen months. To meet
tunnel needs, it forced us to develop new hardware and software products. Likewise, with
Johan, it required we develop the Autoscope Solo® Pro NC (No Camera) product along with
other RackVision products for the Asian market. Meanwhile in North America Econolite is
the direct sales organization along with their six distributors. It takes effort and
balance to keep churning out new products to satisfy three markets."
CEOCFOinterviews: How
does the manufacturing work?
Mr. Murdakes: "ISS designs the hardware and develops the
software. We turn over the drawings and BOM to Econolite who is responsible for building
the CPU boards. WTI does the final integration of the SOLO PRO II with the cameras. (Both
Econolite and Wireless Technology are ISO 9000 compliant.) We have sold nearly 10,000 Solo
Pros in the last three years. ISS ships to Econolite the Autoscope software which they
install on each of the Solo Pro products. For international shipments, Econolite will ship
the Autoscope RackVision™ to St. Paul then we ship product to our distributors in
Europe or Asia."
CEOCFOinterviews: Who
are your three strategic distributors in Europe?
Mr. Murdakes: "SWARCO Norge AS Traffic Management in
Denmark, Weiss-Electronics GmbH that distribute Autoscope products mainly throughout its
homeland, Germany, and Tattile in Italy. There are a dozen others in Europe that sell and
distribute Autoscope products."
CEOCFOinterviews: I
noticed you had a nice contract that you were awarded in Slovenia, how did that come
about?
Mr. Murdakes: "As I said earlier, Graham got us into
both the tunnel market and defined the Autoscope RackVision™ product. He is also the
one driving our low-cost product and has defined what software features are needed. Graham
was able to close the Slovenia contract based on his European strategy, tunnel hardware
products and software."
CEOCFOinterviews: What I
find interesting is that you were able to succeed and develop revenues without
diversifying.
Mr. Murdakes: "That is what hurt us the last time. You
might say we got cute back in 2000 and 2001. I believe, you need to stay focused on what
you are good at, and when you don’t stay focused it will cause you to stumble and
cost you money. When we got here three years ago, the name of the game was to focus on
traffic machine vision, grow the top-line, which will take care of the bottom-line, and to
run lean and mean. We eliminated debt and waste which resulted in increased productivity
while growing our cash. We have done pretty much everything we said we were going to do.
We now have twenty engineers. We had eleven when we started. We have very little turnover
in personnel. We hired four engineers in the last quarter. To grow and be profitable in
this market is not easy. Many companies have tried but it takes a unique group of
engineers to understand machine vision in the traffic market. We are blessed with a bunch
of guys that that grew up in the defense industry and have been able to apply this unique
technology to traffic detection.
To grow your engineering team you must blend their experience with younger engineers to
balance your labor costs. As you do this, you are growing these young men and women while
they are maturing at an acceptable pace. You must also create an environment that gives
your people both responsibility and commensurable authority. You asked me in a prior
interview about succession planning; I am more concerned about having depth in the
engineering rather than someone who is sitting around waiting for me to retire. I would
rather hire engineers and grow them because as an engineering based company this is what
we must do. We have done well with this formula; all you have to do is look at the
numbers. It is a good game plan."
CEOCFOinterviews: Are
your products mostly wireless or hardwired?
Mr. Murdakes: "They could be either. Communication is
one of our mainstays. We have product installations that use wireless Ethernet, analog,
GSM, CDPD and CDMA cellular systems as well as installations with dedicated copper wire,
fiber optic cable or telephone lines."
CEOCFOinterviews: In
closing, what would you like to say to potential investors?
Mr. Murdakes: "We are a technology-driven company that
has two strategic partners which we leverage, in sales, support, distribution and
technology. We don’t waste money; we run a lean organization and we are focused. We
are a company that has averaged 20% revenue growth. We have grown this business in 2002
from a loss of half-a-million. Through the first nine months of 2004 we have exceeded 2.3
million net income. We have cash, we manage cash, and we are focused in traffic machine
vision. With Econolite and our international distributors, our goal is to grow 25% to 30%.
Econolite grew almost 25% last year themselves. We are in an emerging growth market. That
can only go one way and that’s up!"
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