Executive Summary

Q3 2022 delivered sequential improvement: revenue $3.16M (-3.6% YoY) and diluted EPS $0.12 vs $0.01 in Q2, driven by stronger Autoscope Vision-related royalties despite continued supply chain and labor constraints .
Mix shifted favorable to royalties ($2.61M, +5.7% YoY) while product sales fell to $0.55M (-31.9% YoY) as installation delays and component constraints weighed on direct sales; product gross margin contracted to 17.3% vs 50% in Q2 and 40.4% YoY, while royalty gross margin held at 96.0% .
The Board declared a $0.12 dividend (record Nov 28; payable Dec 5), maintaining the quarterly payout amid lower near-term margins from supply chain and inflation pressures highlighted by management .
CEO transition announced Nov 10: Andrew Berger resigned as CEO (remains Executive Chair); CFO Frank Hallowell named Interim CEO—adding a governance catalyst alongside operational stabilization commentary .

What Went Well and What Went Wrong

What Went Well

Royalties increased to $2.61M (+5.7% YoY), supported by higher Autoscope Vision sales; management: “Overall operating results improved this quarter over the second quarter of 2022… I am pleased by the increase in Autoscope Vision sales” .
Operating expenses fell 9% YoY to $1.80M, reflecting lower SG&A (headcount and rent) and stable R&D with higher capitalized software, improving operating leverage QoQ .
Non-GAAP operating income rose to $1.03M from $0.40M in Q2 and $0.94M YoY, signaling underlying earnings strength despite gross margin headwinds .

What Went Wrong

Product sales declined to $0.55M (-31.9% YoY) due to labor shortages and installation delays, with product gross margin sliding to 17.3% (vs 50% in Q2 and 40.4% YoY) amid higher electronic component costs .
Management cautioned ISS gross margins will be lower than in recent years due to supply chain components and inflation pressures that will not be recovered through prior price increases, tempering near-term profitability expectations .
Highway segment revenue fell to $0.5M (-16.8% YoY), reflecting softer project timing; Intersection segment was flat at $2.7M YoY, highlighting uneven end-market dynamics .

Financial Results

Metric	Q3 2021	Q2 2022	Q3 2022
Revenue ($USD Millions)	$3.272	$2.819	$3.155
Net Income ($USD Millions)	$0.613	$0.074	$0.644
Diluted EPS ($USD)	$0.11	$0.01	$0.12
Operating Income ($USD Millions)	$0.709	$0.145	$0.796

Mix and Margins	Q3 2021	Q2 2022	Q3 2022
Product Sales ($USD Millions)	$0.805	$1.432	$0.548
Royalties ($USD Millions)	$2.467	$1.387	$2.607
Product Gross Margin (%)	40.4%	50%	17.3%
Royalty Gross Margin (%)	95.7%	92%	96.0%

Segment Revenue ($USD Millions)	Q3 2021	Q3 2022
Intersection	$2.7	$2.7
Highway	$0.6	$0.5

KPIs	Q3 2021	Q2 2022	Q3 2022
SG&A ($USD Millions)	$1.334	$1.324	$1.220
R&D ($USD Millions)	$0.644	$0.526	$0.581
Non-GAAP Operating Income ($USD Millions)	$0.941	$0.395	$1.028

Notes: Non-GAAP operating income excludes amortization of intangible assets and depreciation; management provides reconciliation and rationale for comparability analysis .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Dividend per Share	Q4 2022 Payable (Dec 5; record Nov 28)	$0.12 (Q2 declaration; payable Aug 31)	$0.12 declared Nov 8	Maintained
ISS Gross Margins	Near-term	Not quantified	“Lower than in recent years” due to supply chain and inflation pressures not recovered by price increases	Lowered
Product Pipeline	Near-term	Focus on new video detection product line across 2022	Remains focused on launching new video detection product to drive growth	Maintained focus

No formal revenue/EPS quantitative guidance was provided in Q3 materials; only directional commentary on margins and product launches .

Earnings Call Themes & Trends

No earnings call transcript was available for Q3 2022 in the document catalog; themes below reflect management’s press release commentary across Q1–Q3 2022. [Search attempted, none found]

Topic	Previous Mentions (Q1 2022)	Previous Mentions (Q2 2022)	Current Period (Q3 2022)	Trend
Supply chain (components)	Inventories increased; margins slightly lower vs recent years	Component shortages; higher-cost alternatives; delayed fulfillment	Continued disruptions; secured critical components to meet demand	Persistent headwind
Labor/installation delays	Product timing issues; pipeline strong	Product sales down YTD due to labor shortages/project delays	Product sales down 32% YoY due to labor shortages/installation delays	Ongoing constraint
Product performance	Early portfolio reception; trials/testing demand	RTMS Echo adoption driving product sales	Autoscope Vision sales driving higher royalties	Positive adoption; mix pivot to royalties
Margins outlook	Slightly lower vs recent years	Lower than recent years expected	Lower than recent years; price increases insufficient to offset inflation	Deteriorating near term
Capitalized software/R&D	Capitalized software ramping	Capitalized software increased	Higher capitalized software supports lower reported R&D	Ongoing investment
Governance	—	Board resignation (Aug)	CEO resignation; Interim CEO appointed (Nov)	Leadership transition

Management Commentary

“Overall operating results improved this quarter over the second quarter of 2022… I am pleased by the increase in Autoscope Vision sales which contributed to higher royalties during the quarter. We worked in close collaboration with our suppliers and distributors to secure critical components to meet order demand.” — Frank Hallowell, Interim CEO & CFO .
“For the remainder of the year, ISS gross margins will be lower than in recent years due to continuing supply chain component issues and inflationary pressures that will not be recovered through previously announced price increases.” — Frank Hallowell .
“Our results for the quarter reflect the challenging operating environment… global supply chain disruptions led to component shortages and reduced royalties… rebound of our direct product sales due to expanding market acceptance of our Echo product line.” — Andrew Berger, then-CEO (Q2) .
“First-quarter royalty revenue… steady while product sales were hampered by timing of shipments… product revenues poised for a rebound as our sales pipeline is at the highest level in years.” — Andrew Berger (Q1) .

Q&A Highlights

No Q3 2022 earnings call transcript was available; as such, no Q&A highlights or real-time guidance clarifications can be provided from call materials [Search attempted, none found].

Estimates Context

Wall Street consensus estimates (S&P Global) for Q3 2022 EPS and revenue were unavailable for AATC at the time of this analysis due to data access limitations; therefore, comparison to consensus and beat/miss designation cannot be made. Values would ordinarily be retrieved from S&P Global; however, consensus was not accessible for this period. Where estimates may need to adjust: management’s reiterated margin headwinds and the stronger royalty mix suggest near-term gross margin expectations should be revised lower while earnings cadence may hinge on supply chain normalization and installation timing .

Key Takeaways for Investors

Sequential improvement and royalty-driven mix: Q3 EPS rebounded to $0.12 as royalties strengthened, offsetting continued weakness in product sales; near-term profitability will depend on mix and margin resilience under component inflation .
Margin caution persists: Product gross margin fell sharply to 17.3% due to higher component costs; management expects ISS margins to remain below recent years—position portfolios accordingly for lower near-term gross margin assumptions .
Installation and labor bottlenecks remain a drag: Product sales down 31.9% YoY tied to installation delays; monitor project timing and municipal labor trends as potential upside catalysts if constraints ease .
Dividends maintained amid turbulence: $0.12 quarterly dividend was reaffirmed, signaling confidence in liquidity ($3.41M cash and $5.6M cash-plus-securities at Q3) despite working capital and investment outflows .
Leadership transition: Interim CEO (Hallowell) may accelerate operational focus on supply chain and margin management; governance change is a watch item for strategic and capital allocation shifts .
Non-GAAP operating strength: Non-GAAP operating income rose to $1.03M, reflecting core operations stability; use non-GAAP trends to gauge underlying performance through margin volatility .
Medium-term thesis: Growth hinges on Autoscope Vision and the new video detection product launch; track commercialization milestones and pricing power to offset inflationary pressures .

AUTOSCOPE TECHNOLOGIES CORP (AATC)·Q3 2022 Earnings Summary