Ituran Location and Control Ltd (ITRN) 2007 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Ituran Fourth Quarter 2007 Results Conference Call. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded February 21, 2008.

I would like to remind everyone that forward-looking statements for the respective Company's business, financial conditions, 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, in Israel, 972.3.516.7620.

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

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

With me today on the call are Mr. Eyal Sheratzky, co-CEO, and Mr. Eli Kamer, CFO, and Mr. Udi Mizrachi, VP of Finance. Eyal will begin with a summary of the year and the quarter's results, followed by Eli with a summary of the financials. We will then open the call for the question and answer session.

And, now, I'd like to hand the call over to Eyal. Eyal, would you like to begin, please?

Thank you, Kenny. Welcome, everyone. Thank you for joining us today, and thank you for your interest in our Company. Our fourth quarter results end a strong year in terms of revenues and subscriber growth for Ituran. We saw strong growth, recording revenue of $6.1 million (sic - see press release) in the quarter, which still includes the results of Telematics. This represents a year-over-year growth of 25%, driven by the continued growth in the subscriber base and the contribution from ERM and MAPA. Our annual revenue reached $125 million, a 20% increase over 2006 revenue. Note that we managed this growth rate despite the continued delay in revenues from the Far East, which relates to the now-sold Telematics business.

We maintained our trend of continually increasing our customer base and added a net 48,000 new subscribers in the year, 14,000 of those in the fourth quarter, in line with our long-term growth trend.

2007 was a year in which our OpEx saw a step function, increased in order to support future growth. This above-normal increase is required every few years to ensure we maintain a strong infrastructure and engine for continued growth. Part of those expenses were toward the launch of the Ituran GPS in Israel, and we are already seeing traction of the product in the market.

As we mentioned recently, we have expanded our operations to cover the [walls] of Brazil with an additional GPS/GPRS system, as well as our RF system in Sao Paulo and Rio. This has grown our market potential there and is because, first, this brings us access to additional insurance companies; two, an increased volume and broadened relationships with the insurance companies to which we are already selling; and it also allows us to sell to the entire population of Brazil, both insured and uninsured, which now becomes a potential customer of Ituran.

We also began directly approaching car manufacturers in South America, with the aim of having Ituran preinstalled or as a service provider for the new models. This has also contributed to our higher M&S expense level, but we are seeing interest from potential customers. In fact, we very much see our increased expenses as an investment, as the potential from even one deal with a major car manufacturer will more than it pay. We very much expect to see some fruits of our efforts in the coming months.

While we did step up our operating expenses during 2007, we believe the current OpEx levels are now adequate to support our continued growth through 2008 and beyond. We see the operating leverage inherent in our business returning at this point going forward, and we expect our OpEx to increase at a lower rate than our revenues. Hence, we expect our margins to improve.

Strategically, we took a significant step in the fourth quarter. As you know, we signed and recently completed the sale of Telematics. We are now focusing all our efforts on our core competencies, which are providing location-based services and applications. The profit contribution from the sale of Telematics in the fourth quarter was around $50 million, and this increased our cash position to close to $100 million at the beginning of 2008.

We have already used a portion of our cash for purchasing 1.5 million shares of Ituran for a total of $17.6 million. In addition, earlier today we announced a special dividend of $30 million. We believe that this is the right way to share some of our success and reward our shareholders while at the same time maintaining enough cash on our balance sheet for all our future needs. Following this action, our cash position will stand at approximately $50 million. This still puts us in a good position to acquire synergistic businesses once we identify them which can propel our products and services into new regions, which still remains a significant element in our strategic plan.

With that, I will hand over to Eli.

Thank you, Eyal. And for the financials. Revenues for the fourth quarter of 2007 reached $36.1 million. This represents a 24.6% increase compared with revenues of $29 million in the fourth quarter of last year. Revenues for the full year 2007 reached $124.8 million, a 20% increase compared with the revenues of $104.1 million last year.

Revenue breakdown for the quarter was $18.1 million coming from subscription fees from our location-based services, which showed year-over-year growth of 27.7%, and $18 million coming from product sales, which showed a year-over-year growth of 21.6%.

The geographic breakdown of revenues in the quarter was as follows - Israel - 46%; Brazil - 26%; United States - 14%; Argentina - 7%; Far East - 7%.

In terms of subscriber number, we reached 444,000 as of December 31, 2007, an increase of 48,000 from 396,000 subscribers as of December 31, 2006.

Gross margin in the quarter was 47.1% compared with 46.1% in the fourth quarter of 2006.

Operating profit for the fourth quarter of 2007, excluding the other income was $6.8 million, 18.7% of revenues, compared with $6.5 million, or 22.5% of revenues, in the fourth quarter of 2006. Operating profit for the year, excluding the other income, was $23.3 million compared with $24.7 million in 2006. The lower operating margin was in part due to the fact that, as previously announced, the Company increased its investment in sales and marketing in 2007, as well as the devaluation of the U.S. dollar against the Israeli shekel.

EBITDA for the quarter was $8.9 million, which represents 24.5% of revenues, and it compared to $7.8 million, which represents 26.9% of revenues, in the fourth quarter of last year.

Financial income in the quarter was $51,000 as compared with financial income of $734,000 in the fourth quarter of last year. The decrease was primarily as a result of the devaluation of the U.S. dollar against the Company's functional currency, the Israeli shekel. It is important to note that we keep a large portion of our cash in U.S. dollars since we intend to use this cash for acquisitions that will be in U.S. dollars. However, in the meantime, we do suffer from the weaker dollar because the functional currency of our Company is shekels. Therefore, when the dollar weakens against the shekel, as was the case in Q4 and even more so since the beginning of 2008, we record a financial expense. However, this does not have a real impact on our business, and we believe that keeping a large portion of cash in U.S. dollars is the correct strategy for our business.

The Company recorded a one-time other income of $49.5 million from the sale of Telematics on December 31, 2007 and associated tax expense of $13.7 million.

Net profit on a GAAP basis was $39.3 million in the fourth quarter of 2007 compared with $5.2 million as reported in the fourth quarter of 2006.Fully diluted earnings per share on a GAAP basis in the fourth quarter of 2007 was $1.68 compared with $0.22 in the fourth quarter of 2006. Annual net profit on a GAAP basis was $51.5 million in 2007, or earnings per diluted share of $2.2, compared with $19.3 million, or earnings per diluted share of $0.82 as reported in 2006. Excluding the other income and the related tax expense and a one-time write-off related to an affiliate company of $300,000, net profit was $4.2 million in the fourth quarter of 2007, or fully diluted earnings per share of $0.18. For the year, net profit was $16.4 million, or fully diluted earnings per share of $0.70.

At the end of the fourth quarter, we had 23 million fully diluted shares. Our average fully diluted number of shares for the quarter was 23.4 million. The difference is due to the shares that we bought during the last few days of the quarter.

Cash flow from operations during the fourth quarter and the full year of 2007 was $4.8 million and $12.8 million, respectively. As of December 31, 2007, the Company had a net cash position, including multiple securities, of $37.9 million compared with $59.4 million on December 31, 2006. Please note that most of the cash from the Telematics sale, which closed on December 31, 2007, was received at the start of the new year.

Going forward, our results will not include those of Telematics, which we sold at the end of 2007. Therefore, we will also provide our 2007 results on a pro forma basis, excluding the sold Telematics business, to make the comparisons meaningful. Excluding Telematics, the Company would have reported full-year 2007 revenues of $104.7 million, operating income of $17.8 million, and net income of $13.4 million, or fully diluted earnings per share of $0.57, excluding the impact of the above-mentioned one-time items.

And, with that, I would like to hand it back over to Eyal.

Thank you, Eli. 2007 was a year of investment and transformation of Ituran into a linear and more focused company toward one goal. We integrated two businesses, which are already contributing positively to the top line, as well as fully realizing synergy.

We launched new product and increased our investment in growing and retaining our greatest assets, our subscriber base. In 2008, we expect to see the fruits of our investments and expect pro forma double-digit top line growth over the year with renewed growth in our profitability.

Finally, we used our strong cash position to increase value to our shareholders through a share buyback and dividend distribution. Following these transactions, we are still in a very strong position to make significant acquisitions. In this regard, we are continuing to pursue opportunities which will broaden our scope and ability to provide location-based services and enter new territories. I look forward to reporting on our progress.

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

(OPERATOR INSTRUCTIONS). The first question is from Mr. Zvi Tal of Oscar Gruss. Please go ahead.

I was just wondering if you can share with us the target for the year for subscribers. What do you think in terms of your expectations there?

Actually, the new net additional subscribers, which is very close to 50,000, is very common, as it was in 2006 and 2005, which we have between-- more than 50,000 but not much more than this. So, actually, if we are saying that in 2007 we suffered from some retention that started in the end of 2006 in Brazil, of course, it's continued to influence at the first half of 2007 as well. So Brazil, of course, missed some of our expectation at the beginning of 2007. It's improved, I think, even dramatically in the last few months of 2007. Add to this that Israel was without real expectation, but it became a very impressive growth engine of subscribers in 2007, which covered the problem in Brazil. So the total is quite under the expectation plus or minus 10%.

Talking about the future, I think that through Q4, as you can see, additional 14,000 net new subscribers, which in more than a year we didn't achieve these numbers. I think and hope that this is only the beginning of the trend of growing the additional net subscribers higher than it was in the last years.

And, Eyal, can you please talk a little bit about Brazil? You did mention the car manufacturers. How's that continuing? What exactly are you doing? What's the strategy over there?

We had-- During the second half of 2007, we spent a lot of efforts towards two new areas, I can say, or segments. First of all, don't forget that, until recently, our market potential came from Sao Paulo and Rio only. Since we decided to become a pure service-oriented company and not to sacrifice anything in terms of the technology, it started by acquiring ERM, and, today, we are executing their potential by selling GPS/GPRS solutions for the subscribers which are all out of the coverage RF area or for big car industries which cannot work unless the solution covered the entire country. By doing that and by starting executing in the end of 2007, we see growth in these two segments - one, out of Sao Paulo and Rio, which allow us to work with additional insurance companies that their main business is not in the historical areas and, second, to propose or to offer solutions to car manufacturers that, by the same interest, cannot work on a specific area and they want to offer services along Brazil - along the country. Now we don't have any more the limitation, and we see that we are starting reaping the fruit.

Specifically to your question regarding the car manufacturers, I must say that we still don't have any dramatic deal or any material influence, but nothing-- Even Rome nobody built in one day. But as I see the progress, as I see the approach of the car manufacturers - the car companies - towards us, I really believe and I'm optimistic regarding the future in this segment. But, again, it can take more time. It never starts with hundreds of thousands of installations in the first months. But once we will penetrate one car brand or two car brands, of course, the confidence of the future growth will increase dramatically.

Eyal, a last question. What are you hearing from them in approaching the August 1, 2009 deadline? How are they trying to prepare themselves? Are there any other deals on the market? What do you actually hear from them?

First of all, my experience, but I didn't count only on my experience. We met with the Minister of Transportation in Brazil to understand exactly what are their goals and how strongly they are going to enforce this law. So, first of all, even the government is talking about 2010, meaning to start executing the law, which is about a year more than it's stated in the law itself. I find myself not convinced yet that even this date is the last deadline. So the car manufacturers-- Of course, they are considering it seriously, but they are not rushing in their decisions, and they are not rushing in their business partnerships. So, in one hand, of course, it's helping us. It's helping players like to us, because it puts this industry on the map - on the regulation map. On the other hand, nobody is rushing. Nobody is executing any deal too fast. And I think that we don't have to count for 2008 and beginning of 2009.

By the way, the law, for the other people that are not familiar with it on the line-- The regulation stated that every car in Brazil from 2009 will have to be installed with a location solution for security needs - if it's imported cars or if it's cars that are assembled or manufactured in Brazil. So, of course, this law is a strong generator for a company such as Ituran. And, specifically, for Ituran as a market leader - as the strongest brand in Brazil - I think that we are in the best position to enjoy from this regulation. But I'm saying I don't want to create any expectation that tomorrow morning a million cars in Brazil are using our systems. But just look a little bit behind - a little bit, three to five years from now; of course, it will support the future growth.

Thanks, Eyal.

Your next question is from Yair Reiner from Oppenheimer.

First of all, can you tell me what the results of the fourth quarter would have been excluding Telematics?

Excluding Telematics, we gave the result for the full year. If we're talking about just to give you a rough idea, because we do not disclose now that information-- But, just to give you-- Without Telematics, the net profit was $4.2 million, as we mentioned, and $36.1 million revenue. If we're talking about-- Just to give you a rough idea, as we mentioned now in the conversation, most of the, let's say, growth of Telematics in the fourth quarter-- As you can see, it was the Far East, which represents about 7% of our revenues, meaning an additional about $2.5 million to the revenues. And if you'll take roughly-- As we mentioned before, the gross margin is about 40% over there. So Telematics' contribution was about, roughly, $1 million to the operating profit.

And about how much in total revenue contribution? I'm just trying to get a sense of what the baseline is.

As I mentioned, about $6.5 or $7 million contribution.

And, then, I just wanted to ask in terms of the GPS/GPRS solutions that you're now selling in Brazil, can you give us a sense of how much those products added to subscriber growth in the fourth quarter, if you're able to tell-- kind of put your finger on how many of these subscribers are using GPS/GPRS solutions - the old RF solution?

Since it's not many years that we are offering the GPS/GPRS solution, let's talk roughly and let's talk how is the current situation. About 50% of our new subscribers are using the GPS/GPRS, meaning half of our new subscribers are from Rio and Sao Paulo and still using the RF with all the advantages of the RF. And out of Sao Paulo and Rio, all the others are using a GPS/GPRS solution because we don't have any other infrastructure. And this is the right solution to expand our operation and not stay only in Sao Paulo and Rio. So, roughly, it's about 50/50. If you're asking me for the future, I believe that the rest of Brazil is much bigger than only Sao Paulo. So, in the mid and long term, with the belief that the total number will increase exponentially, it even will be more than this.

Got it. That's kind of the potentially big revenue driver for you in 2008.

What?

It seems that that really opens up significant opportunity for you in 2008. A question on the P&D. Can you give us a sense of how much P&D contributed to the quarter? How much is it still weighing on operating profits at this point?

Sorry, Yair, but I didn't understand what it is? P&what?

P&D, the GPS navigation devices. How much is that costing you on the bottom line now?

Okay. The GPS system for the navigation system is not yet profitable, as you can imagine. We just started penetration in the middle of this year, and it still, as a profit unit, is not yet contributing profit. It's contributing losses because most of the penetration requires marketing and advertisement. So our campaign, as we declared in the past, is about $1.5 million, which, divided between three quarters, is still at about one and a half quarters ahead of making this aggressive campaign expenses. Hopefully, in the end of this year, this specific product will be in a breakeven point. Currently, it's still, of course, losing money.

One final question. In terms of gross margin looking ahead to 2008, is the level for the fourth quarter of '07-- Should that be the starting point for 2008, or should there be any kind of meaningful movement in gross margin up or down over the coming months?

If you look at the fourth quarter, as you mentioned, gross margin was about 47%. Looking ahead, the fourth quarter, as I just mentioned before-- The product segment with the Far East project was a higher gross margin over there. So if you're asking me for the future, the gross margin will be more or less the same as we expect leverage in our operation.

Thank you very much.

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

Just to follow on with that, can you help me understand the changes in the gross margin in the location-based services segment, as well as the pretty substantial increase in the ARPU in both the third and fourth quarters?

Yes. If we can see, in the fourth quarter, the gross margin in the service segment was 62%. This gross margin was affected by the devaluation between the shekel and the dollar that hurts us in a way. And therefore it was a decrease in the gross margin. If you are asking me going forward, this gross margin, let's say, with the same level of currency as it is today, I do not see any reason why it should not increase, even to the same levels of last year in the fourth quarter.

And how about your ARPU? I have it at [$1381] per subscriber in the fourth quarter. Can you help me understand why that's gone up so much in the last several quarters, and, also, maybe work into that any way that MAPA is impacting your results? Is that the driver of the ARPU increase?

There are a couple of reasons for that. One, of course, is that we provide today more services than in the past, and we are selling them. And the second reason is that the currency, again, of the dollar against the real was for our benefit, meaning that, in dollar amounts, we received more dollars as revenue. (Inaudible).

In Brazil.

In Brazil. Okay. Moving on then, Eyal, I don't understand that any OEM agreement potentially would be with your ERM, the products that you have from your ERM segment and not from your RF.

Of course, but I wouldn't choose the term OEM because we are-- As we said, we are more focused on the side of the service part. And, just to make some illustration, it's like what the car manufacturers today, specifically in Brazil, are looking for is a solution to keep the relationship with their customers and getting additional benefits from themselves, like GM did it with OnStar in the U.S. This is the model. The model is more to try to be-- They are looking for (inaudible) and services done by outsourcing more than OEM deals in the manufacture itself. I think that the evaluation of it in Brazil will be that we will [win there with] big deals. It will be to offer customers the service based on the dealerships' installations. In the future, it can get to the OEM, but as a service company, the OEM itself-- the installation itself-- we are less (inaudible).

Okay, so more likely through the dealerships than through an OEM agreement.

Yes.

Got it. You mentioned new territories as an opportunity with your cash. Are you at the early or middle stages at this point of launching new markets? And do you think we'll see a new market in '08 or even '09?

Since the Ituran balance sheet and Ituran capability allow us to enjoy current markets without starting from scratch, as I said-- And in some emerging markets there are already markets existing with some players. So we will-- We are trying, really, for a few quarters. But, hopefully, it will end with one or two deals. The main goal is not the acquisition itself but to use the acquisition to penetrate more geographies. So the acquisition that I'm always talking about is, again, to expand. The goal is to expand the geographies that Ituran is in.

Great. And then just a last question from me - two housekeeping-- On tax rate, what do you think the tax rate should be in 2008? And then, also, on capital expenditures, would you expect that to continue to moderate in 2008 or possibly decline? What are your thoughts there? Thank you.

As we mentioned before, there is no change on that in our forecast. It should be between the 28% to 30% tax rate on accounting level. On a cash level, it's going to be also around 27% or 28% as a result of Telematics getting out of our business, and therefore we don't have any more tax benefits.

And capital expenditure in '08?

I think that capital expenditure, as you can see in the report, we have about $2 million per quarter. So on the region between $8 to $10 million, that is reasonable.

Okay. Thanks a lot.

I just want to add to the capital expenditures. At some points, you can be in a situation that you will see a little bit higher than this, and this is thanks because of selling or using some effort - kind of a leasing specifically to insurance companies in Brazil, which is increasing, that we keep it in our balance sheet. And they do not buy it. They use it for three years, of course, with a commitment and no exposure. But the accounting way of showing it is as a capital expenditure. So if there will be some dramatic changes, we will explain it specifically. But, just for your knowledge, the main item in our capital expenditure is because we are not calling it inventory because it's like a way of selling it to the insurance companies in Brazil.

Got it. Thank you.

The next question is from Maynard Um from UBS. Please go ahead.

On the subscriber net adds, I know there was a period of time where the churn had increased, and so the net add numbers had come down. So is the strength a reflection of lower churn or higher gross adds? Secondly, can you talk a little bit about the competitive competition in the market - what you're seeing, what they're doing, and how that is or is not impacting you? Thanks.

First, the situation as we see it now comes from both parts of the mechanism. First, we succeed to reduce a little bit the churn. And, on the other end, much more dramatically, we are succeeding to have new subscribers much stronger - much higher than in the past. So those two parts of the mechanism allow us, I believe or hope, to show in 2008 additional strong growth of net subscribers. This is in terms of the subscribers.

Regarding competition, I must admit I don't see stronger competition. This industry is quite mature for a few years. This is not the first year. And I'm happy that we get to our position today where we are not influenced by new, small competitors or new, aggressive competitors.

And I just want, again, to illustrate a specific situation how we see the market. About six or eight months ago, I'd been asked regarding a deal in (inaudible) in Brazil with a company that's called Crown Telecom, which was a very, very small company to try to beat a company such as Ituran or [Logic] by offering to (inaudible) something irrational in terms of economic-wise. And we didn't want to get into any deal with a lot of losses. So we stayed outside of the game, as well as Logic, by the way. What actually happened is they announced a deal that after three months was crushed. So the situation, like in any industry, companies, specifically in Brazil, Argentina, and even the right in Israel and in other emerging markets, there is a ground floor for the big players, the market leaders, and the most credible companies. And Ituran, I think, if we are not the first, we are among the first. So I think that the competition exists. But we are in the best position to succeed and to win.

Thank you.

The next question is from Jim McIlree of Collins Stewart. Please go ahead.

In response to an earlier question, did you say that $6.5 to $7 million in Q4 was associated with the disposed Telematics business?

Yes, about that. Those are the numbers.

Okay. And about what was the operating income contribution in the quarter?

As I mentioned, about $1 million, roughly.

Okay. Thank you.

The next question is from Jonathan Ho of William Blair. Please go ahead.

Just one quick question on the GPRS/GPS combined solutions. Do you guys charge more to customers for that combined solution, and can you just give us a relative sense of how much more that would be?

First of all, the differentiation between ARPU among the segments is basically what segment it is - if it's the uninsured population, if it's insurance companies, or if it's a bigger customer generator or only one car per person. So this influences the subscriber fees. We are not-- have differences between the technologies.

Okay. And, with regard to the Brazil mandate, are they mandating the equipment or also the service provision side? So is it just a broader mandate that they have the stolen vehicle recovery, I guess, option, or do they also have provisions that you have to maintain that service as well?

There's always maintaining the installation, but the installation will make the price of the car higher. So there is not any sense that the car will be installed with it, you will pay for it, and you will not use the service itself. You already have the technology in your car.

Okay. And, finally, just a housekeeping question. Can you guys give us the subscriber breakdown by region?

We are under some legal policy. We expose it only in our 20 reports, which is yearly around June.

Okay. Thank you.

(OPERATOR INSTRUCTIONS). The next question is from Tsahi Avraham at Clal Finance.

Your DSOs went down in the current quarter. Was it part of the Telematics effect, or it was simply part of business?

Can you repeat again the question?

I'm asking about the DSOs that went down in the fourth quarter.

That was because of the excluding of Telematics.

The Telematics. Okay. Could you tell us what we should expect in the next quarters?

I believe that the same, between 80 to 85 days. That is something which is reasonable. This is something that you should expect.

Okay. And the last question is regarding the growth that you expect in 2008. Should we expect that almost all the growth should come from the service side?

We no longer have anything which is not service side. Don't forget, we have revenues and sales of the wireless products but no longer any wireless products stand alone. So everything that will be growth in Ituran from now on will be based on the service and based on subscribers.

Okay. Thank you.

The next question is a follow-up question from Zvi Tal of Oscar Gruss. Please go ahead.

Two more questions. One, your 7% from Asia Pacific - where is that coming from? Has that been restarted? Where is that coming from?

7% came from a base station that we sold to China - Telematics sold to China.

Okay. And that's a new project, right?

No. It's a project that's an existing project.

I see. Okay. Is that a follow-on order or a new site?

It's a follow-on order.

Okay. Base station, mainly. Another question is the cost of the GPS/GPRS solutions for the subscribers to you. Is that more in terms of your COGS? Do you have to pay more for bandwidth? How exactly does it work?

First of all, regarding infrastructure, don't forget there isn't any infrastructure associated with the GPS/GPRS that we have to invest or to depreciate. Regarding the end unit costs, of course, when we started a few years ago with very, very low numbers - low quantities - the prices were much higher than the RF. But today, with the increasing, and increasing dramatically, numbers, we see today how we succeed to decrease - to reduce the cost of the GPS/GPRS solution. It's become very, very close in terms of cost of goods which we are selling. The difference is not very far.

In the other end, when we are providing the service, we have to pay the cellular providers some amount for (inaudible) package which is between $1 to $4 per subscriber and per region. Of course, we are calculating the subscriber fees a little bit higher as we can because there is a direct cost of $1 to $4. When we use the RF, we just have a direct cost by amortization and not more than this. But, actually, as you can see, it's not dramatic, and it's not very material. And we are quite indifferent to what technology we are selling. We are very not indifferent - that we want to sell as much as we can new subscribers.

Sure. If you're selling the GPS/GPRS units through ERM, would that not be classified under product sales anymore?

It's under product sales; of course.

Okay. Thank you.

But don't forget that in terms of the gross margins, like it was with Telematics, it will continue with ERM. We are sacrificing some of the gross margins of the product to get the return much more strongly from the subscribers' fees. So, even though the wireless product from ERM will increase, the influence on the gross margins will not increase.

Thank you very much.

There are no further questions at this time. Before I ask Mr. Sheratzky to go ahead with his closing statement, I would like to remind participants that a replay of this call will be available in three hours on Ituran's Website, www.Ituran.co.il. Mr. Sheratzky?

Thank you for joining our call today. I'd like to thank all our employees at Telematics for their hard work over the years and look forward to a continuing fruitful working relationship over the coming years. To our investors, I look forward to speaking with you next quarter. Thank you, and have a good day.

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