Ituran Location and Control Ltd (ITRN) 2007 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Ituran first quarter 2007 results conference call. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded May 29, 2007.

I would like to remind everyone that forward-looking statements for the respective Company's business, financial condition and results of its operations are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated. Such forward-looking statements include but are not limited to product demand, pricing, market acceptance, pending economic conditions, risks in product and technology development, and the effect of the Company's accounting policies, as well as certain other risk factors which are detailed from time to time in the Company's filings with the varied securities authorities.

You should have all received by now the Company's press release. If you have not received it, please call GK Investor Relations at 1.866.704.6710 or 972.3607.4717.

I will now hand over the call to Mr. Ehud Helft of GK Investor Relations. Mr. Helft, would you like to begin?

Thank you. Good day to all of you, and welcome to Ituran's first quarter 2007 results conference call. I would like to thank Ituran management for hosting this conference call to discuss the first quarter 2007 results.

With me today on the call are Mr. Eyal Sheratsky, Co-CEO, Mr. Eli Kamer, the CFO, and Mr. Udi Mizrachi, VP Finance. Eyal with review a summary of the quarter, following by Eli with the financial summary. We'll then open the call for the question and answer session.

Now, Eyal, would you like to begin, please.

Thanks, Ehud. Welcome everyone, and thank you for joining us today.

Again in our first quarter we continued our growth strength, growing revenues by 16%. Our subscription business also continued steady growth, growing by a total of 49,000 subscribers since the end of the first quarter of last year, maintaining its long term growth strength.

As we mentioned in the press release, the profitability levels seen in this quarter were below what we have seen in the last few quarters. But we believe that this is temporary, and we expect that operating margins will register an improvement in the second half of 2007.

I'd like to focus on some recent development, particularly on the M&A front. If you remember, we acquired ERM toward the end of last year. ERM added a number of cutting edge security and tracking solutions to our existing product portfolio, and we can now offer a wider range of solutions to the markets. This is the first quarter that we fully consolidated ERM into our results.

In addition, and following a year of groundwork, research and development, we recently introduced the Ituran GPS car navigation system for use in all regions in which we operate. This system is aimed toward both new subscribers and our existing subscriber base, and we have already seen strong interest in this solution. In the coming months, we expect to commercially launch the system in Israel and in all the regions in which we operate through an intensive marketing campaign. This new offering highly complements our existing services and fits our strategy of continuously expanding the scope of location-based services that we can offer to our customers. I look forward to continue to update you on our progress over the coming quarters.

Only a few weeks ago, we announced the acquisition of Mapa, Israel's leading and largest provider of geographic information, known as GIS, and owner of the only geographic information database for navigation in Israel. The Mapa acquisition represents a major stake for us in strengthening our position in the field of location-based services in Israel. Mapa is uniquely positioned as the main provider of geographic information database for navigation in Israel. These unique capabilities will not only serve Ituran as a location-based service provider, but will also allow us to sell the rights for using the database to other location-based service providers, including the cellular operators in [cities as one of the] fastest growing areas.

I see this as a highly synergetic acquisition for Ituran. Not only does it strengthen our location-based services; it also meets our strategic goal to further expand our service offering in regions in which we already operate, such as value-added services, which we see as one of the Company's growth engines, while at the same time being accretive from day one to the Ituran Group.

Just in order to illustrate, the Company's (inaudible) revenues in 2006 total was about $7.3 million. Gross profit total was $4.4 million, or 60% of revenues. And operating profit total was $2.5 million, or 34% of revenues. The Company grew revenues 25% over those of 2005, and we expect to see this growth continue at least in the (inaudible). In addition, Mapa's business is a strong fit for us. It is based on recurring revenues, similar to our service revenue model.

As part of our growth strategy, we are constantly examining M&A opportunities. As I said in our last conference call, I personally devote a major part of my time to examining opportunities in the market. I have to tell you that there are opportunities globally and on a larger scale than what we've seen before in this evolving market of stolen vehicle recovery and location-based services. As I said in the past, we are committed to doing such deals only if it makes strong business and financial sense, and that takes more time.

A word about Korea. As we already mentioned in the previous conference call and, more specifically, in the press release we issued about two months ago, we had some delays in completing the second and third phase of the project there. And we are working with our client in Korea to solve these problems, which is delaying revenues by a few months. The technical problems are due to externally generated forbidden in-band frequency interference in Seoul, which are unrelated to the Ituran system but do adversely affect our system performance. We have technical teams working to resolve the problem, and they are progressing. Our engineers estimate that we will have a solution during the third quarter, at which point we will begin, hopefully, to recognize revenue again.

It is important to note that we have not lost these revenues. It has only been pushed out. This will lead to an improvement in our financial performance in the second half of 2007 as we recognize the associated revenues and earnings that should have been recognized in the first half of the year.

In the second half of the year, we also expect our recent acquisitions to become accretive to our results and our operation in Rio to approach profitability. We therefore remain excited about our prospects for 2007 and beyond.

With that, I would like to hand over to Eli for the financials.

Thank you, Eyal. As for the financials, revenues for the first quarter of 2007 reached $27.9 million. This represents a 16.2% increase compared with revenues of $24.1 million in the first quarter of last year. Revenue breakdown for the quarter was $14.6 million coming from subscription fees from our location-based services, which shows a year over year growth of 13.9%, and $13.3 million coming from product sales, which shows a year over year growth of 18.8%.

The geographic breakdown of revenues in the year was as follows. Israel - 46%; United States - 18%; Argentina - 8%; Far East project - 3%; Brazil - 25%.

In terms of subscriber number, we reached a total of 407,000 at the end of the first quarter of 2007 compared with 358,000 at the end of the first quarter of 2006. In the quarter, we achieved an additional 11,000 net subscribers, which is in line with our long term growth expectation.

Gross margin in the quarter was 47.3% compared with 48.9% in the first quarter of 2006. Given that our services in Israel are linked to the dollar while our expenses in Israel are in shekels, the recent weakness of the dollar versus the shekel has caused a relative increase in our shekel-related costs, while revenues have not benefited by the dollar fall. This impacts our gross margin to some degree and had an even stronger impact on our operating margins.

Operating profits for the first quarter of 2007 were $6.1 million, or 21.8% of revenues, compared with $5.9 million, or 24.3% of revenues in the first quarter of 2006, representing growth of 4.2%. The low operating margin in the quarter was due to the delay in recognizing revenues from the second and the third stage of the project in Korea, as well as the appreciation of the shekel against the U.S. dollar in the quarter. Excluding these two effects, the operating margin in the quarter would have been 2% higher.

Net profits were $4.4 million in the first quarter of 2007 compared with $4.5 million as reported for the first quarter of 2006. Fully diluted EPS in the first quarter of 2007 was $0.19, at a similar level to the $0.19 of fully diluted share reported in the first quarter of 2006. At the end of the first quarter, we had 23.5 million in fully diluted shares.

Cash flow from operations during the first quarter of 2007 was $1.3 million. As of March 31, 2007, the Company had net cash position, including marketable securities, of $59 million.

I'll now hand back to Eyal.

Thank you, Eli. Our visibility remains excellent, and I do believe that we will continue to grow our business over this year and beyond, maintaining the double digit growth in our top line in 2007 as we have estimated, and increasing profitability, mainly in the second half of this year. Overall, we continue to be pleased with the direction in which the Company is progressing.

With that, I would now be happy to take your questions.

Thank you, sir. (OPERATOR INSTRUCTIONS). The first question is from Maynard Um of UBS. Please go ahead.

From a subscriber standpoint, was there any residual impact from the shutoffs you talked about in the prior quarters, and should we still expect net adds to be kind of in the same range as we've seen last year?

Actually, we still have, I think, the last impact of the (inaudible) in the third quarter of 2006 regarding the large customer that [create a high churn], but it was really much lower numbers. More than that, Q1 in Brazil and Argentina, which was very different last year; but after experience of more than seven years there, Q1 is the summer vacation. It's many days off. So, actually, the 11,000 that we face in Q1 is in line with our expectation.

In terms of future expectation, we are estimating higher numbers but, as it was in the last two years, a higher volatility as well. We're expecting 50,000 to 60,000 total net additions in 2007.

Okay. And in terms of the-- When do you think we might see some of the favorable impact to ARPU from some of the new services you're rolling out?

First of all, we see our ARPU in a world of facing very high competition. We started two or three years ago that we succeed to keep high ARPU and, from time to time, even to increase it. Part of it is the added value services, which we do not divide specifically in our reports. Of course, with Mapa in Israel, with the GPS in Brazil and Argentina, we're expecting that this will increase in the future.

(Inaudible - highly accented language). Those added value services which will allow us to increase the revenue per subscriber also, in some events, will cover gaps of reducing the ARPU of the stolen vehicle recovery when the competition is aggressive, meaning when we offer added value services in one side of the business, it helps to get more (inaudible) subscribers. On the other hand, it's allowed to keep the level of ARPU today. In both times, it's advantage. So, actually, we are already seeing those added value services' contribution, and hopefully we will see it even stronger in the future.

Okay. Lastly, on the DSOs-- DSOs were up significantly in the quarter. What was the primary reason, and should we expect that to return to more normalized levels going forward?

Actually, yes. We have two specific events of payments. It came two days after the end of the last quarter. That was Saturday, and it was actually technical. But you know when we report quarterly results, you cut it on one day, which is the last day of the quarter. So, actually, it's a shift. And this also should be better in the coming quarters.

Maynard, one more thing regarding that. Usually on the first quarter we have higher amounts of customer debits in the beginning of the year because of a lot of customers getting the service on a calendar year basis. So we have-- the customer is increasing while the revenue is just a part of it. That will be also-- will be resolved and getting better, of course, in the next quarter or the next quarters.

Great. Thank you.

The next question is from Paul Coster of JP Morgan. Please go ahead.

A quick question on revenues, first of all. How much revenue did ERM contribute this quarter?

About-- let's say ERM contributed about-- on the range of close to $1.5 or $2 million - in that range.

We are not providing exact numbers; again, just because ERM is not only-- When we acquired them, it was announced that ERM is a supplier of many competitors of Ituran, and it will create damages to ERM if those numbers, of course, will be fully disclosed.

Okay. Well, you just disclosed a range anyway. But can you tell us whether that's a reasonable expectation as a run rate for that business?

In Q1, they showed a high growth compared to the past results, and it's in line with our expectation. And if it will continue, it should contribute, I would say, impressive growth rates.

And you said that the margins for that business are a little lower than you had hoped. What would cause the margin structure for the gross margin structure to improve? Is it just volume, or is it mix or something else?

There are-- ERM is based on selling products. They are not-- their model as a supplier is not involved with recurring revenues or with an operating leverage model. So, in that case, currently, with the levels of revenue that they have, (inaudible) lower than what we get with Ituran product. But, in the future, if they will increase volumes, it, of course, will increase their margins.

And of course it will allow us to get the service beside that with them and over there getting the higher margin than the gross margin and operational margin.

Got it. How is Mapa going to be reported in the future? Is it going to be a separate segment, or is it going to be incorporated into the service revenues?

Can you repeat? We didn't hear it.

Mapa-- how is it going to be reported? Is it going to be a separate revenue line item?

No. Mapa-- The majority of the revenues is coming from recurring revenues because there are-- the model is to sell licenses, which is-- the payments are recurring.

Got it. So it won't be a separate segment; it's going to be incorporated into the service business.

Exactly.

Okay. You talked of $7.3 million in revenue in '06, and that was on 25% year on year growth. Is that a good baseline for projecting out '07 numbers? Should we be sort of straight lining that as our revenue expectations for that business?

Yes. We believe that; yes.

And when did the deal close?

We are waiting for the antitrust and other authorities here in Israel to approve it. We are expecting it in about a month from now.

So it's going to really start to be a 3Q revenue item.

Yes.

Finally, Eyal, you said that, and I quote here, you're "already seeing strong interest" in the GPS service. How are you seeing--? Can you give us a little bit of help in understanding how you're assessing the market demand for that service? And why is it that you're able to offer a service versus where, here in the States, most people will be familiar with GPS, really, as a product sale?

Okay. Actually, GPS-- we will have two-- we have two ways of selling it. To the Ituran customers, there will be a program that will integrate the GPS navigation system of Ituran as part of the (inaudible), which is the added value services solution, in terms of the program, the commitment, the contract and, of course, the hardware which they will have in the car. On the other hand, there will be many customers that will buy the product, of course. But always it will be integrated to the call center of Ituran for support or for additional services. In some parts, we will realize it is revenue from services, and, in some parts, it will be selling hardware, of course.

How have you been able to assess the market interest? Have you done some pilot launches?

Yes. Okay. We are started in Israel and in Brazil. In Brazil, we did a pilot. In Israel, we start-- we are even much-- one level ahead of it. We made the soft launch during the last two months, and we see a lot of interest. Don't forget that we have a strong relationship with, I would say, the majority of the car dealers in Israel, the brains of the car in Israel, and they are enthusiastic to use our system as additional sales when they're selling the cars. In the aftermarket, we have more than 300,000 people coming to our distributors [a year] to check the Ituran system or to check any other security system under the insurance companies' requirements, and those are our distribution channels. Again, we are using them as the distribution channel for the Ituran GPS as well. Up until now, we also had relationship with [corporates]. We had three deals with corporates for a few hundreds of units. But don't forget it's a soft launch only. In about the coming months, we are going to launch a campaign which is going to be quite aggressive here in Israel first. And we have some surveys, and we believe that it will contribute. Don't forget that any new products start with expenses and investment and vision. And it's taking time before you start or you get to the breakeven. That's what I said when I say my words. I said that, in the coming months, we are going to spend and to invest money in penetration. We believe, based on our market knowledge, based on our relation with the solutions, that it will [pace back] very, very fast. But we still will need patience. And I will update you about these issues.

Great. Thank you, Eyal.

The next question is from Yair Reiner of CIBC World Markets. Please go ahead.

First, just a brief follow-up on the last question. The GPS device-- is it like the standard type of devices that we see now with the screen and the navigation visible, or is it more of an OnStar type solution, where an agent tells you how to drive?

First of all, the OnStar type solution is part of Ituran's services for a few years already. It's not related to technology; it's related to the service from the call center that includes operators. This Ituran are doing for a few years, and we have tens of thousands of customers. This is more-- it looks like-- if you want to look for a comparative unit, we have two devices. One device looks like TomTom or Garmin. We have some additional features. But I say again; to compete with TomTom or Garmin in their markets, we are not saying that this is part of our strategy. But to sell it in Brazil, Argentina, Israel and the other emerging markets, we have advantages compared to them.

The other system which we have in companies such as TomTom and Garmin and others are not have it is a system which is integrated in the car system. But, in that case, it should be installed by car installers, by car dealers. It requires installation; it requires license. But, in that case, we have a very unique solution which comes with our advantage, which is the car dealers and the car aftermarket installers. So this is the units that I just mentioned, and it's a navigation system.

Two quick additional follow-ups on that. First of all, what are the ASPs going to be on that? And how should the gross margins compare in the long term with the product margins you currently have?

As in hardware only, we are not yet finalized levels of sales prices. But it's something which is very common. We are competing with other navigation systems. So it's around $500 to $600, with gross margins which is more typical to hardware. But, in some programs, it will be related to services, and the programs will be with a higher profitability.

Got it. And then you expect, again, just to reiterate, that operating margins will increase in the second half of the year--

By the way-- I just want to disturb you. Sorry. The $600 is the consumer price. The $500 to $600 is the consumer price. I just don't want to create any mistake when you will look at it in our results. Prices we will sell it to the distribution and to the sellers will be of course lower than that, and we will keep something around 30% to 35%. This is without the service that's related to that, which will be in some programs.

Understood. Another question that I had is that you expect the growth from the operating margin to expand in the second half, despite the investment you have to make in this new product.

When we said-- in our estimation, we include the results of the more aggressive penetration needs, yes.

Thank you. I'll get back into queue.

The next question is from Jim McIlree of C.E. Unterberg, Towbin. Please go ahead.

What's your expected tax rate for the rest of the year?

Regarding the tax, as we mentioned in the past, also this quarter the shekel versus the dollar, also the currency change was on our side, and also the inter-balances with inter-companies affect us in a way that we have a benefit tax on that. So the tax rate was about 27%, as you saw in the report. I believe that on an annual basis it will be around the range between 28% to 30% tax rate.

Okay. And the expenses that you talked about for the launch of the new services later this year-- can you frame that in terms of a dollar increase that you're looking for to launch those services?

If you're talking about the GPS--

GPS.

I would be conservative in that case since the commercial launch is expecting to be in Q3. I'm talking about fully commercial launch. I would be conservative in our estimation of the contribution of revenues, and profits from this part will not be in 2007. I just emphasize it in order to explain that we will have additional expenses.

Right. No; I understand that. But I'm just trying to get at-- Does that mean that your operating expenses go from $9 million to $11 million, or they go up from $9 million to $9.5 million?

I believe in, really, to give rough numbers because we (inaudible) talking more about budget. It will be about an additional $1 million.

For the year or for the--?

For the coming quarters - between $1 to $1.5 million but not on a quarterly basis. I'm talking for the coming eight months.

Okay. Great. And on the Korea system, I just want to make sure I understand. You're spending money for the engineers to fix the interference issues right now. So you do have some higher level of expenses without revenues. But when the product-- when the systems actually ship, are you going to take a lower margin on those systems as well as the hit you're taking right now? Or is it at the same margins that you previously expected before the interference issues arose?

Our expenses currently-- in order to support the Korean customer, are on a very, very low level. Most of the efforts done by the Korean customer in order to force situation in the bandwidth and with regulation efforts. In our part, it's mainly lower support. We had to change some algorithm, which we are doing it in our laboratory, I would call it. And the costs are not significant. So, in the future, hopefully Q3, when we will renew the project phase 2 and phase 3, it will be the same profitability rates as we had when we realized revenue from the Korean market in the past.

Okay. Terrific. Thank you.

The next question is from Bill Benton of William Blair. Please go ahead.

In terms of the geographic split, I may have missed a little bit there. Did you say Israel was 35% or 45%? I only add it up to 90% when you gave that split.

46% was Israel in Q1. Two things to tell you, Bill. One is that we consolidated ERM fully. So it came only to the Israel part of the ratio. Second, we reduced revenues from Far East very sharply, so it's allocated to other geographies based on the size. So, again, Israel gets a higher percentage from this decrease. So now it may be clear.

Okay. Then, do you--? Before, you thought you'd get the majority of that $10 or so million this year. Do you still feel that's the case, or do feel like it's more likely to slip some of that into 2008?

I believe that, since we are already in the end of May and we still have seven months to the end of the year, and since I don't see it happen before Q3 that part of the Korean project will go to [Q8], I still have hopes and estimations and working days to do to realize the majority of the total project still this year. But we will be more, I would say, wise in a few months from now.

Okay. In terms of Rio, can you just update us on how that's going? It seemed like it was a little bit slower initially. Can you talk about why that has been and maybe review a little history on that and how things might be changing there? I know you said breakeven by end of year, but I just want to get a little more color on that.

Our situation was that we will have breakeven in the end of Q2 or beginning of Q3. And we're facing that it was a small mistake. It seems, based on the growing customer base in Rio, that we will face it in Q4 or in the end of Q4. It's not a very large delay. Always when you are estimating, in some percentage when it's low numbers, you can have a high mistake. Actually, it's in line with our rough expectation, and it's growing. And the line is growing (inaudible).

Okay. Are they as productive, I guess, on the subscriber side as you expected it would be with some of your insurance relationships there?

Yes. We have to say everything is the same, but the procedures are taking more time than we expected.

Okay. Then, could you give us a little update on your water meter reading business with Arad or how that might be proceeding this quarter? I don't know if you got some incremental revenue from there or not.

(Technical difficulty) order as relationship with Master Meter speak about growing numbers in 2007 compared to 2006. What was actually in 2006-- it was-- in the last quarter, I mean, in 2007, it was the numbers of orders and sales as we had in a single quarter in 2006. So as we faced in the past, there is some volatility between quarters. So, actually, currently, Arad's (inaudible) meter are still [determining] that the growth will come in the coming quarters, especially in the second half of this year.

Okay. So they're starting a little slower this year, but you still expect the growth from them?

Yes. We faced this situation in the past many times. It's not slow. It's slow in terms of growth, but it's still a large number, because, in 2006, we had higher growth than everyone expected, including ourselves and including Master Meter. So where it's much difficult to grow with a high rate today, still our customers tell me that the growth will continue and will come mainly in the second half of this year.

Okay. If you could just help me on the Mapa acquisition. You kind of laid out some numbers there, which sounded actually pretty good. (technical difficulty) I don't think is Mapa Israel. I don't know what Tele Atlas has. But with your GPS device and having the map, it seems like you'd be in a relatively good position within Israel. Is this--? A couple of things. Would Mapa be allowing someone to buy a card, like a (inaudible) card and slide it into Garmin or TomTom device to have access, or are you really taking that market with your own devices with that information loaded directly on the devices?

Mapa has many customers for navigation, as well as all the cellular operators in Israel. If you are aware, all the cellular handsets which now distribute by the cellular operators are going to include navigation capabilities. In order to have this capability in Israel, you must buy a license from Mapa. So when we acquired Mapa, we understood two things - one, that navigation is going to be like a digital camera in the handsets or in the car or in the house. So our customers, at least today, also have Mapa. So it contributes us with our customers. But it allows us to enter to new segments, such as other navigation providers, such as cellular providers, because, in Israel, Mapa and, like you mentioned, Tele Atlas-- but Mapa is the larger and currently the only one.

Okay. I guess I'm trying to understand why Mapa sold in your view, given their market position there with NAVTEQ and Tele Atlas focusing on (inaudible) there. They had a very good market position, and wireless operators are rolling things out. Navigation is picking up. I'm just curious of their thinking on timing of selling.

You mean why the owners sold them?

Yes.

I know personal reasons of the owner, but I don't think-- It's a private owner, by the way, a guy that is (inaudible) now. He creates many companies. He's not an Israeli, by the way. He lives overseas. I just can give you some yellow information. He sold the companies for hundreds of millions in his past. So probably it's part of his personal reason. They made like a tender right away. The tender was published in Israel. They got offers in Israel from others as well. But in the field of GIS, the contribution for navigation, location-based services-- as you know, in Israel, Ituran is the leader, and we could pay, although we believe we paid the right price, pay higher than others.

Okay. Great, guys. Thanks a lot.

The next question is from Andrew Spinola of Needham & Company. Please go ahead.

Eyal, did you say Mapa has been growing at 25%, and you believe it could continue to grow at that rate?

Yes.

Thank you. Just on the Ituran GPS product one more time, if I understand it correctly, you're essentially reselling a third-party's hardware for the personal navigation/portable navigation device and also the in-vehicle device that will be integrated into the car and that you will look to essentially make a profit by leveraging your distribution channel and then also reselling value-added services along with the GPS in vehicle product. Is that correct?

It's perfect.

Great. Thanks. Lastly, can just maybe mention your Chinese market and if there's any improved visibility there or any new relationships with the licensee and insurance companies or anything like that? That's it for me. Thank you.

In China, we just have most-- [a small part] of the project, meaning they start by units, and they want to expand their coverage areas in Shanghai and Beijing currently. So they also will buy very shortly additional base stations and maybe even through Q2. But, actually, the big potential beside the end unit is that we have discussions with the Chinese customer also to expand the coverage area. The only question mark that we have currently is that when will be, I would say, the starting point of selling many end units? In that case, we are more dependent on Shanghai. It seems like this. In Shanghai, it's a matter of a very few months. I think that we have higher visibility, that we should expect bigger orders of units. But, again, to be conservative, as we try to be always, I don't have actually any legal purchase order or any specific number in my view. So we will have to wait and see.

I guess just a follow-up. You mentioned that you thought they might look to expand coverage geographically. What would make them do that? Is there some opportunity they're going after, given that they're still in the initial stages with the geographic coverage that they've got?

What happened in China, which is different than Korea-- it's working a little bit different. There is an integrator which creates operators, which is different entities and different shareholders in each province or region. The operator in Shanghai is not the same operator as in Beijing. We are working through one customer which is like an integrator and is creating new joint ventures in other cities. So it's [not depend] on the next region, meaning Beijing can go in one way and can have different policy than the company in Shanghai. And the new one in Xianzhen in Guangzhou, for example, as it seems today, is going to be new company, new entity and different shareholders, which will start even though, in Shanghai, it's still not operating. It's different than in Korea because in Korea, it's the same operator. So they go step after step. So if one step is stuck, they will not go to the second step. Okay? It's different.

Got it. Thank you.

The next question is from [Ziv Tel] of Oscar Gruss. Please go ahead.

Can you please mention a bit about your Argentina markets?

You mean something new?

No; no, in general.

The Argentina market in general is the same, growing numbers, the same potential market as we had in the past; to be more specific, the last two years, meaning around, let's say, estimations of about 20,000 new net subscribers in 2007. We are spending a lot of efforts to launch the added value services out of Buenos Aires based on the ERM products. It's not yet material, but it's growing. That's actually the situation in Argentina.

And with regards to the additional sales and marketing, will that be specifically in Israel?

It will be, let's say-- compared to last year, when we see the material, if I could call it, change, it will be in Israel. But on the consolidated numbers, if you look in the past, you'll see that some quarters, there's more marketing and sales expenses, which comes from Argentina and Brazil. This will be this year as well. But it's part of our current rate of [several] marketing expansions. The majority of the increased numbers will come from Israel; yes.

Okay. Thank you.

Thank you. (OPERATOR INSTRUCTIONS). The next question is from [Don McKinnon of Landbelt Securities]. Please go ahead.

A quick question about your new GPS product in the United States market. Can you tell me the market you'll be going after or your competition, geographically throughout the United States where you plan to market the product? And will it be new car, aftermarket, etcetera?

Actually, our current situation in the U.S. is that we are not facing advantages compared to other navigation system companies. We are more concentrating in the markets that we have strengths, like Israel, Brazil and Argentina. So I think that we will not launch this unit, not at the first stage in the U.S. market.

Thank you.

Thank you. There are no further questions at this time. Before I ask Mr. Sheratsky to go ahead with his closing statements, I would like to remind participants that the replay of this call will be available in three hours on Ituran's Web site, www.Ituran.co.il. Mr. Sheratsky, would you like to make your concluding statements?

Yes. As usual, I would like also to thank you, all the investors and analysts, for supporting us and for joining our conference call to hear what we have to say. Thank you very much. And let's meet again in the next quarter.

Thank you. This concludes Ituran's first quarter 2007 results conference call. Thank you for your participation. You may go ahead and disconnect.