Ituran Location and Control Ltd (ITRN) 2007 Q2 法說會逐字稿

Welcome to the Ituran second-quarter 2007 results conference call. All participants are at present in a listen-only mode. Following management's formal presentations, instructions will be given for the question-and-answer session. As a reminder, this conference is being recorded August 20, 2007.

I would like to remind everyone that forward-looking statements with respect to the 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, changing 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 various 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 9-723- 607-4717. I will now hand over the call to Mr. [Kenny Green] of GK Investor Relations. Mr. Green, would you like to begin?

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

With me today on the call our Mr. Eyal Sheratsky, Co-CEO, Mr. Eli Kamer, CFO, and Mr. Udi Mizrachi, VP of Finance. Eyal will begin with a summary of the quarter, followed by Eli with a financial summary. We will then open the call for the Q&A session. And now, Eyal, would you like to begin?

Thank you, Kenny. Welcome everyone and thank you for joining us today. Again in our second-quarter we continue our growth trend with our quarterly revenues at record levels and a growing 17% over last year. We achieve this despite the decrease in revenues from the business in Korea. Our net increase in revenues was driven by the continued growth in the Company's subscriber base, plus an increasing ARPU growth in end unit sales and revenues from the ERM business, which we acquired at the end of 2006.

We saw strong growth in growth in gross subscriber adds in the quarter on a trend of increasing ARPU and on a net basis, we added 11,000 new subscribers. However, as we mentioned in the press release and already talked about last quarter, the profitability levels seen in this quarter below the levels seen in the last few quarters due to higher operating expenses. This was due to the previously-announced delay in recognizing revenues from the second and third phase of the project in Korea. In addition, the Company experienced increased labor costs and other operating expenses. This was due to our decision to invest more in customer retention and marketing.

While we are facing increased cost, our expectation for the second half of the year is that revenues will increase at a faster rate than our expenses. This we expect will improve our operating margins over the second half of the year.

From the start of the third quarter, we have been investing intensively in sales and marketing in order to launch our Ituran GPS system. We have already seen results for strong interest in this solution among our current subscribers. We see this new offering as a complementary to our existing services and fits our strategy of continuously expanding the scope of the location-based services that we can offer to our customers in new segments. We intend to continue to our marketing campaign of the product over the next year and we therefore expect our operating expenses, and in particular sales and marketing expenses, to increase in the coming quarters.

As you know, as of the end of the second-quarter, we completed the acquisition of Mapa, fully integrating the Company into Ituran. The Mapa acquisition represents a major step for us in strengthening our positions in the field of location-based services in Israel. Mapa is uniquely positioned as the main provider of the geographic information database for navigations in Israel. This unique capabilities will not only serve Ituran as the leading location-based service provider, but will also allow us to sell the rights for using the database to other location-based service providers, including cellular operators. We see this as one of the fastest-growing areas. Not only does the Mapa acquisition strengthen our location-based services, it also meets our strategical goal to further expand our service offering in Israel while, at the same time, being accretive from day one to the Ituran group.

As part of our growth strategy, we are constantly examining opportunities for merger and acquisition. Recently, we have looked closely at a few opportunities in the market, but the valuation were not justified in our view. We are unwilling to pay prices that will not leave us with the ability to generate strong value to our shareholders.

I would like to take a few minutes to talk about some of operations around the world. In Shanghai, China our business achieved the milestones with initials sales. We are proud of our achievement there and we hope to bring you more news in the future.

With regard to Korea, we are in the process of solving the technical difficulties in our engineers operations. It is, however, turning out to be a longer process than we have initially thought and we therefore expect a lower amount of revenues than our initial expectation in the current year, with the remainder shifting to the next year. However, we do expect to bring a resolution in the near future.

In summary, while we have faced some bumps in the road in the first half of 2007, we were still able to grow our top line at an impressive rate of 17% over the last year and we remain excited about our prospects for the rest of the year and beyond. With that, I would like to hand over to Eli for the financials. Eli?

Thank you, Eyal. As for the financials, revenues for the second quarter of 2007 reached $29.2 million. This represents a 17% increase compared with revenues of $25 million in the second quarter of last year.

Revenue breakdown for the quarter was $15.4 million coming from subscription fees from our location-based services, which showed a year-over-year growth of 16.8%, and $13.8 million coming from product sales, which showed a year-over-year growth of 17.3%. Geographic breakdown of revenues in the year was as follows -- Isreal, 45%; Brazil, 25%; United States, 17%; Argentina, 11%; and Far East, 2%.

In terms of subscriber number, we reached a total of 418,000 at the end of the second-quarter of 2006 compared with 375,000 at the end of the second-quarter of 2006. In the quarter, we achieve an additional 11,000 net subscribers.

Gross margin in the quarter was 44.3% compared with 49.6% in the second-quarter of 2006. In the second-quarter of 2006, gross margin was unusually high due to a number of one-time events. In addition, gross margin in the current quarter was affected by the delay in South Korea, the change in the project mix during the quarter, and increase in labor costs.

Operating profit for the second-quarter 2007 was $5.1 million, or 17.7% of revenues, compared with $6.1 million, or 24.3%, of revenues in the second-quarter of 2006. Net profit was $4.1 million in the second-quarter of 2007 compared with $4.6 million as reported for the second-quarter of 2006.

Fully diluted EPS in the second-quarter of 2007 was $0.18 compared with $0.20 per fully diluted share reported in the second-quarter 2006. At the end of the second quarter, we had 23.5 million in fully diluted shares.

Since the closing of the acquisition of Mapa was at the end of the second-quarter, its balance sheet was consolidated with Ituran's in the second-quarter, while Mapa's income statement will be consolidated from the beginning of the third quarter.

Cash flow from operations during the quarter was $3.7 million. As of June 30, 2007, the Company had a net cash position, including marketable securities, of $41.4 million compared with $59.4 million on December 31, 2006. The decrease was mainly due to $13 million paid for Mapa and a dividend of $4.8 million that was paid in the second-quarter.

With that I would like to hand back over to Eyal. Eyal?

Thank you, Eli. I do believe that we will continue to grow our business over the year and beyond, maintaining the double-digit growth trend in our top line in 2007 as we have estimated, and increasing profitability in the second half of this year.

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

(OPERATOR INSTRUCTIONS) Maynard Um, UBS.

Sorry, I missed this. Can you just give the break out by geography again?

Yes. Israel, 45%; U.S.A., 17%; Brazil, 25%; Argentina, 10%; and the Far East, 2%

Great. Thanks. Then in May, you gave an annual subscriber target of about 50 to 60,000 subscribers and based on your current run rate to get to the 50,000 by year-end, you would have to see an increased to an average of about 14,000 over the next two quarters. Is that 50,000, or the low end of your 50 to 60,000, still an achievable target?

For sure, we are estimating now that the second half of the year we will show higher net addition. To give the exact number, whether it will be the lower target of the range or the higher, we can't estimate it now. But it probably will be closer to 50.

Okay. Can you just remind us how much Korea revenue there is left in the current contract that hasn't been recognized?

That wasn't recognized, it is about 75% of this third phase, or the second phase, which is about $11 million.

So the contract -- so 75% of the $11 million unrecognized?

No, 75% from the 14.6.

So about $11 million unrecognized?

That is right.

Then just last and then I'll get back in the queue, do you have any expectations in terms of China, the potential buildouts that they are talking about into new regions, [Guang Dong]? Is that built into any of your expectations currently?

We have expectations, we have discussions, but we prefer, again, to be -- to finalize those discussions and really to be in a position that we have a new order in order, of course, to report it. But in terms of expectation, as I said during my speech, is that, first of all, during Q2 we saw new orders for end units in China and a [put-up] some in new trends. Second, we are expecting, as an answer to your question, that at least one more region we'll be for new contracts in China.

Great.

But I'm not sure if it will be integrated into the results of 2007, of course.

Thanks.

Bill Benton, William Blair.

Good morning, guys. Wondering if you could maybe spend a little more time on your gross margins, because I guess on the product side, I know you have cited some difficult comparisons, but even if we look sequentially, we saw a notable decline there down to 23%, it looks like. And on the services side, I think think you probably mentioned labor as getting it down to probably the 63% range. Are we seeing trends on both sides, which sounds to me like it might be a sustained where you might not be looking for a pick up there at the gross margin line and I just want to understand that better?

Just on the product side and as you mentioned, there was a decrease in the margin that includes, actually, two main things. One is the change in the product mix mainly as a result of the delay in the recognition of revenues from the second and third phase in Korea that we had in the first quarter of '07. As you know, we sold 25 base stations with a higher gross margin. And the second thing is that if you compare even to the first quarter, the mix with the higher margin as a percentage, for example the AMR in absolute numbers went up, but as a percentage of the total revenues, that was lower and that affected the gross margin.

And regarding the service segment, as you mentioned, the main reason for the decrease was the increase in the labor loss that we have in the second quarter due to government labor regulations and adding additional manpower in order to continue our revenue growth as we did this quarter.

Okay. Would you expect your gross margins than to improve from these levels as you look at the mix of your business for the back half of a year, on the product side in particular?

On a general basis, absolutely, yes. If you are asking specifically for specific orders, of course there can be some volatility, but as it seems to us today, the gross margins should increase in the coming future.

Okay. Could you give us an update as well on what might be happening with the Rio and how the activity is in Rio and overall -- in your overall business there on the service side, what is going on with customer churm lately?

The situation in Rio is, first of all, it is improved and it is in a growth situation. Although this is the case, Rio de Janeiro is still not in the breakeven point, which as I said in the end of last quarter, we expect the breakeven to be in the end of 2007. But in terms of new subscribers, we are very close to the target, which is around 1000 per month, and it seems that it is achievable and we are in the right trend.

Okay. And then the churn -- just overall customer churn.

In Rio, we're not yet in a situation for churn, we have a few thousand customers and this is their first -- even not the first year of being Ituran customer --

Right, and I'm sorry, I was referring to the overall business.

For the overall business, I would say that the churn situation is stronger than in the past and this is the nature of the business. We are in Brazil fully commercially from the year 2000. It is almost the end of seven years and of course, in that situation, the churn number is increasing and on the other hand, since we are maintaining our position in the marketplace, we see that our total new subscribers is stronger than in the past and even much stronger. So this is something that has encouraged us a lot.

On the other hand, we have to solve the churn a situation, the churn problem, which this is part of a reason that our operational costs are increasing. We hired more people to our control center, more people to maintain customers, more people to support customers, and more people to add the added value services as a complementary to all of the customers. This is why we have a strong feeling that in the future, meaning two or three quarters from now, we will succeed, we will reaping the fruits of this operation to keep customers one or two more years than it is now. And in that case, since our growth in total numbers is very strong, I believe that the net will increase as well in higher numbers.

Okay, great.

Paul Coster, JPMorgan.

It is actually Mark [Strauss] on behalf of Paul. Turning to the AMR, AMI side, when do you expect to have an electric module in the market?

We are not expecting currently, based on our experience, for a specific date. We just know that we have a solution and Arad, which is the only customer, is spending its efforts to deploy our technology and his capabilities into electricity market. Until now, as you know, we don't yet sales and we depend in that case on Arad's capabilities on integrated and up until now, the discussions with companies like [Landis and Gere] or Siemens are existing, but not yet in a situation to finalize or to close the deal.

Then, we are seeing quite a few players in this space. Can you tell us what is want to separate you guys from the Itrons and the Echelons of the world?

Basically, we have a different technology, which allow -- again, allow Arad Master Meter to increase its market share. Our solution, the old one and the new one, which will be solution which will allow to transmit the data from a file networks, which is inside the meter and it has a higher range in a higher density and high credibility since it is part of the meter itself.

Okay, great. Thank you very much.

Yair Reiner, CIBC.

I just want to first of all follow-up, again, on the margin question, operating margins in the quarter (inaudible) about 17%, which is substantially lower than what we have seen in the past. What is, now, your long-term operating margin target and how long do think it will take you to get to that normalized operating margin?

Actually, as I said, and as I repeat myself during this conference call, Ituran is in a mode to increase expenses. In order to maintain our growth, in order to maintain our leadership position in the market, we came to conclusion that we can't only sacrificing everything for the profitability rates, but we have to think more medium and longer-term. So in the short-term, we are absolutely increasing operating expenses and in the coming two quarters, it will be very significant in the marketing and sales side.

So this is in the case of the expenses, but on the other hand, what we are facing today is achieving the goals, meaning our growth in subscribers, our maintained customers, and our added-value services seems to be very success in penetrating the market. And thanks to that, we believe that our margin, our profit margins will increase now.

I wouldn't say whether it will be in the coming month or two or whether it will be in Q4. If you are asking me from my feelings, from Q3 we will show higher profit margin. If you are asking me about my confidence, my confidence is that in the future, and a very short future, our margins will increase and back to higher numbers and in a few quarters from now, hopefully a very close to the margins that we had in the past. The current situation is first we have -- we increase expenses in order to maintain our strategy only when we are talking about organic growth.

Fair enough. A question now on the GPS parts, which is obviously one of the factors increasing your expenses --

We didn't hear you.

Apologies, about the GPS product, when do you expect to have kind of the true commercial launch and when do you expect to really recognize and be able to break out the contribution from those products?

We are in the middle of the situation. We are -- we started soft launch about -- during this quarter and the results and the request for our strength is very strong here in Israel currently. More than that, we even have orders -- and very impressive orders -- for at least one car manufacturer in South America, in Argentina which we signed. Of course, it is not for one-quarter, but it will be realized during the coming quarters, but the feelings are very good.

Regarding the full commercial launch, we started two weeks to go by starting a campaign. Everybody, specifically the Israeli guys, are invited to sit in prime time and challenge you and challenge them and our -- with the big control center here in Israel is facing hundreds of telephone calls every day for the product.

With regard to revenues, of course this is the beginning of the penetration. Hopefully in Q3 we will see some sales, some revenues of some hundreds of units or maybe more than one thousand. In 2008, it will be much more significant after we will penetrate and we will create the brand and we will use other channels that until now Ituran didn't use, which is the retail channels. We are facing 12 years of relationship with the car dealers here in Israel and in Argentina and Brazil, a little bit less years, but still few years.

Now part of our penetration is the retail network such as, for example, in Israel with [Sacal] Group and in Argentina with the two big car assemblers. So we have a very good feelings regarding the contribution of the Ituran GPS to our total revenues in the coming future and much more significant in 2008.

Very good. And should that have a positive, a neutral, or a negative impact on the product gross margins?

Actually, we are talking about product. We have some [bundling] program, which includes also service revenues, which in that case, the service revenues will be additional and of course will increase, I would say increase average ARPU and will increase the margins. But regard to (inaudible) when we are talking about the penetration stage, the price as well as the cost will not contributed positive to our gross margins on the hardware side. For the long-term, of course, after the first penetration, which will take two to three quarter, hopefully we will talk about the higher gross margins, but still, it won't be the gross margins of the service.

One final question for me and that is on M&A. Understood your comments about valuation, should we now expect to that the deal will or will not get done this year?

It is a good question. This year, we still have about four months and my experience shows me that the four months are moving very fast. So if you want to be more concrete, we have discussions, we have -- we are moving. We have a procedure, but now to forcast a specific date for finalizing this kind of a deal -- and I am talking about acquiring companies -- I wouldn't say whether or not it will be finalized in 2007 and to tell you the truth, at the start of the year when we talked, I had a strong confidence that we will achieve it, but the valuations during negotiations increased thanks to prosperity of the market and the equity market. Now I am not, of course, wishing that the market will be in problems, but in some cases, if there will be some decreasing in the equity markets, of course, we as a company with a strong balance sheet, with a strong cash position, with no debt, can find ourself in the best position for opportunities and for lower valuation for acquisition. But the current stage, it is still very difficult to finalize deal with the right value to create to our shareholders.

Thank you and good luck.

Thank you very much.

James McIlree, Unterberg Towbin.

This is [Christine Bay] for Jim. What was organic growth for the quarter without ERM? Can you break that out?

Without ERM?

Yes.

ERM contributed not something significant to the balance, so most of the growth that you saw was coming from the organic.

ERM (multiple speakers) organic.

And ERM is organic from our point of view. The question is to compare it to last year?

Yes.

So if you compare it to last year, and of course we will not disclose the profitability of ERM, but we are talking about something in the range of couple hundreds of thousands of dollars, not in the quarter, of course.

Can you to about the integration of Mapa, will there be any kind of impact to business in Q3 or is this (inaudible).

Of course, Mapa will integrate and will be consolidated fully in Q3, of course, from Q3 and Q4 and we are expecting it to contribute around -- again, it is not public data, but --

I can tell you that, for example, the number that Mapa had in 2006 was about $7.3 million on revenues on the top line and about $2.5 million on the operational profit. And of course this company is growing from year-to-year.

But we have in that case to be aware that under acquisition accounting methods, we will have to modify a significant part of the acquisition based on the [PPA], so it is not the right way to look on the future numbers, it is only to give you a sense of the operational side of the business because the amortization that we have to do is more accounting methods based on intangible assets and not on the operational business.

Okay, I think all my questions have already been answered. Thank you.

[Ziv Tel, Oscar Kruss].

With regards to Korea again, once the situation is solved, when do you actually expect to begin selling end units in Korea?

When actually it will be sold, this will be the right timing, because when it is sold, it is already fully deployed with the system, so in order for the client to start generating revenues, in order also to allow him to finance the next phases. So for them, it is a very, very important to solve the situation and for us more than go and continue the contract, it is also we provide probably orders for the end units.

Okay, thank you very much.

Andrew Spinola, Needham & Company.

Can you elaborate a little on who is causing the interference issues in Korea and why it is not easier to fix?

The interference is coming from other organizations/militaries/communication pirates that they succeeded to finalize some of those interference, but they until now couldn't solve it -- absolutely solve it. We from our side, from our subsidiary, Telematics, made a lot of effort through Q1 and the beginning of Q2 by providing some other algorithms and other support, so in that case, we create a very strong progress and they are satisfied with our support and solution, but it is not enough because they have to take some actions towards the regulators, which is the Radio Communication Agency, as well, if it is needed, other enforcement or communication enforcement units in order to find, to cut and if there is need to punish those so-called pirates.

Up until now, it is not solved which whill allow -- it's not solved to a situation which will allow them to provide a commercial usage. In order to penetrate, first, to all customers, they cannot allow themselves to have holes in the coverage area because if they will have already one million customers and in some specifc area, there will be problems, it can be explained but if you want to start and to begin your penetration, this is a moment that you will not have second chance. This is how they look at it, so this is why they want to solve it 100% and not only 50 or 60% because we had the progress, the progress is around 60 or 70%, meaning there is a solution, they are on the way to solve it, but it can't start until they feel that they will not disappoint even a single customer at the beginning. So it is taking more time, more than we expected and more than they achieved.

I guess considering that the military is involved, are you at all concerned that this can't be fixed?

What we get from -- what we get as a data is that it must be solved first and that it has a solution and they will work it over the government. What we can estimate is only based on technical and engineering know-how, which we have. Based on that, it should be solved, but it is subject to the regulation part. It is like saying that the system can work without frequency license. It can work, but if there is no frequency license, you don't start technical support and this is the case. We are ready and what we did is all that we can and it is a good solution, but we depend now on the customer power to work with all the regulation inside Korea, South Korea.

Fair enough. Can use talk a little bit about why you saw such strong ARPU in the quarter, what caused it, and whether or not it is sustainable?

There are maybe two reasons for them. One is as Eyal mentioned before, we increased our added service values with the good ARPU and the second thing is in Brazil, the currency change helped us. The real has been stronger and therefore the ARPU per subscriber increased also.

Okay. Last question, what was the catalyst for the increased customer retention spending? Are you seeing increased competitive forces in some of your markets?

I would say two things not together. First of all, we are seeing that the competitive landscape is as strong and more intention from potential competitors, but this is not the reason for the churn. The reason that we are facing a higher churn is basically because of the time. No one is -- since the insurance companies are the main customer generator and the main driver, once they are having a solution installing a car, they don't have any incentive to take it out after the paid -- the hardware and paid the service and change. It is not like the competition in the cellular that they can attract you by the handset and by some programs to change, so you go from, I don't know, from Verizon to Cingular, or hear from an [orange juice] to [circle]. There reason is not because of the competition.

So it's two items. One, the competition is higher, but it is not working through churning. It can Influence price and it can influence penetration. But what I can say is that the competitive situation is increasing the market and increasing the awareness of the market and this is what allow us, and I said it in my speech, it allows us to increase our total sales of new subscribers. If the competition would be the reason for lowering our net additional subscribers, it should count from the total, from the new subscribers and this is no different. And this has given us and we have the surveys and we know that our position become stronger.

And I must saying about competition, about a year ago, we faced the competition in different segments and I know that it will take me five minutes, but it is worth it because I have people calling me and ask questions regarding the OEM or car industry specifically in Brazil in Argentina. There was a contract between [Crau] Telecom and Volkswagen. Volkswagen is a very strong player in Brazil, about 600,000 cars assembled in Brazil every year. We are selling news subscribers Volkswagen that hold a Volkswagon car through the insurance companies motivation.

Now, there was a contract between Crau Telecom and Volkswagen, which is a kind of OEM contract and the model of this contract which we could fight on it, we stay aside three or four years ago because we understood that the model that you are financing 6000 units a year and you depend on the end-user if they will decide or if they will find an insurance company that will subsidize the service side, only then Crau Telecom would sell a unit for money, we don't know how to make a business without profits and without positive cash.

What actually happened isn't created dominoes. Two companies now are in Chapter 11, which is a supplier in Canada, the Crau Telecom, and Volkswagen are now suing all the work and its (inaudible) how we say in Hebrew.

We are now in a position to be in a relationship or in a deal with Volkswagen, but next time, it will be a feasible deal with a potential win-win situation for Volkswagon, for the insurance industry, and for us at Ituran. This is the reason, (inaudible) talked to me a year ago very, very frightened what will happen with Volkswagon in Brazil. I said that is deal cannot be longer because there is not economic (inaudible) and econonmic principles of a deals this. Crau Telecom tried to penetrate the market with a lose-lose situation, we wait aside, and now we will get a good deal.

This have been to the competition in Argentina and Brazil. More companies face these failures and we that have a very strong brand in those two countries, very strong relationship with insurance companies, and now as we said, we are increasing our human resources and our marketing toward a new segment, which is the car assemblers and the car manufacturers, or within an aftermarket deals with the assemblers, or even in an OEM service deal in Brazil and in Argentina. And I believe that this new segment, which currently only taking some expenses, is creating expenses to us, but next year or beyond that, hopefully we will become much more stronger in these two markets. Currently, of course, its influence our expenses. Thank you.

Thanks.

(OPERATOR INSTRUCTIONS) There are no further questions at this time. Before I asked Mr. Sheratsky to go ahead with his closing statement, I would ike to remind participants that a replay of this call will be available in three hours on Ituran's Website www.Ituran.co.iI. Mr. Sheratsky, would you like to make a concluding statement?

Yes.

We have another question from [Gilad Belav], Isreal Discount Bank.

I was just going to ask for the ERM number, the contribution in this quarter, again, if you can give the number?

We're not providing this number because we have -- part of it which is a private entity and we are fully consolidated in our numbers. Again, what we can provide, is some rough general information as we provide regards revenues and profits. What you only can do is look in the past before the acquisition when we had based on regulation to provide it.

Didn't you give first-quarter numbers, I believe it was like $1.5 million revenues for ERM, am I correct on that one?

Yes, because it was the first-quarter that we are consolidated.

Can we assume that probably what this contributed in the second-quarter as well?

Yes. For assuming, yes.

All right, fair enough. Thanks.

Thank you.

First of all, I would like to thank all of our employees because it is a very important and it's a very important period to thank them for their hard work in the quarter. I would also like to thank you, our investors, for your support and for joining us today. I would like to mention one more thing that I didn't mention in the past is that when we are managing the Company we are facing periods which are much longer we are much longer and we are a long-players. We are a marthon runners, we are not 60-meters runners and I know that during the last three years and since the IPO on NASDAQ, we showed growth which was supported by growth mainly in the profit and profitability. But in order to continue and not to show only growth and profitability, but flat revenues and flat segments, we understood that we have to increase some divisions and some part and to increase our personnel and professional personnel in our business, which is currently, currently influenced higher expenses as you saw and will see and low margins.

But we are here almost 13 years. We want to be here in additional 13 years and we have to think what we will be in 13 years from now and we can't leave only because we are a publicly traded company q-over-q. Quarter is a very, very short time, has no -- any strategic meaning and any strategic trend for the Company and I can assure and at least that we are doing the best to show you that it will change and we will be back to the right sales in the coming years. Thank you very much.

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