Ituran Location and Control Ltd (ITRN) 2012 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Ituran second quarter 2012 results conference call. All participants are at present in listen only mode. Following management's formal presentation instructions will be given for the question and answer session. (Operator Instructions). As a reminder, this conference is being recorded, August 15, 2012.

You should have all received by now the Company's press release. If you have not received it, please call CCG Investor Relations at 1-646-201-9246. I will now hand the call over to Mr. Kenny Green of CCG Investor Relations. Mr. Green, would you like to begin?

Thank you, operator. Good day to all of you and welcome to Ituran's conference call to discuss the second quarter 2012 results. I would like to thank Ituran's management for hosting this conference call.

With me on the call today are Mr. Eyal Sheratzky, Co-CEO; Mr. Eli Kamer, CFO; and Mr. Udi Mizrahi, VP Finance. Eyal will begin with a summary of 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.

I'd like to remind everyone the Safe Harbor statement in today's press release also covers the content of this call. And now, Eyal, would you like to begin please?

Thank you, Kenny. I'd like to welcome all of you and thank you for joining us today. Overall we are pleased with the results of the second quarter. We are particularly pleased that the growth rate in our subscriber base in Brazil finally returned back to its long-term growth rate and we believe this is a positive sign for the coming quarters.

Our subscriber base, which now stands at 639,000, grew by 11,000 in the quarter. Reported revenues of $37.6 million in the quarter, if we were to report our revenues in the local currencies in which they are generated, revenues would have grown around 4% over those of last year. The decline is solidly due to the increasing strength of the US dollar against the currencies in which we operate, mainly the Brazilian real, Israeli shekel and Argentinean peso.

It should be noted that based on today's exchange rates there will be an additional currency effect in the third quarter. We also generated strong cash flow in the quarter at $12.4 million.

I'd like to provide you an update with regard to our performance in our two main regions, Brazil and Israel. In Brazil our business is continuing to grow strongly. The changes we made last year in our subscriber base by making it less worthwhile to disconnect by charging for installations, aiming to increase the average amount of the time subscribers will stay with us is now benefiting us. This is visible in the general growth in subscriber base in the quarter.

We continue to increase our sales direct to the private sector in Brazil which is enabling us to increase our ARPU and grow our margins in the region over the long term. The 245 regulation, obliging all new vehicles to incorporate antitheft devices, has been delayed until January and the plan now calls for the changes to be phased in relevant to be implemented in one go.

We believe that as the region is finally implemented it will derive an additional acceleration in our business in the region. Overall, our relationship with the insurance companies and the car companies continues to expand and we are increasingly cementing ourselves as market leader in the region. In Israel business remains strong and cash generating.

In summary, our business performance remains on solid footing. We continued to share the fruits of our efforts and performance with our shareholders providing $5.1 million in dividends or half of our net profit to shareholders for the quarter. I will now hand the call over to Eli for the financial reviews. Eli?

Thanks, Eyal. Revenues for the second quarter of 2012 reached $37.6 million representing 8.7% decrease in revenue compared with $41.1 million in the second quarter of 2011.

Revenue breakdown for the quarter was $28.1 million coming from subscription fees from our Location-Based Services, a 10.9% decrease year over year. The decrease in subscription fees was due to a weakening of the Brazilian real, Israeli shekel and Argentinean peso against the US dollar.

In local currency terms subscription revenue grew by 4% compared with the second quarter of last year due to the increase in the subscriber base, which expanded from 615,000 as of June 30, 2011 to 639,000 as of June 30, 2012.

Product revenues were $9.4 million which was a 1.6% decrease over the same quarter last year. The geographic breakdown of revenues in the quarter was as follows -- Israel 50%; Brazil 38%; United States 3%; and Argentina 9%.

Gross margin in the quarter was 49.1% compared with a gross margin of 48.5% in the second quarter of last year. Operating profit for the second quarter of 2012 was $7.1 million or 18.9% of revenue, a decrease of 18.8% compared with an operating profit of $8.7 million or 21.2% of revenues in the second quarter of 2011.

The decrease in operating profit compared with last year was due to the above-mentioned currency effect and a one-time expense relating to an arbitration with Telematics at the amount of approximately $500,000. EBITDA for the quarter was $10.5 million or 28.1% of revenues compared to an EBITDA of $13 million or 31.5% of revenues in the second quarter of 2011.

Financial income in the second quarter of 2012 was $809,000 compared with the financial income of $339,000 in the second quarter of 2011. During the quarter we reported other income of $6.8 million which was primarily the settlement with Leonardo. This added a onetime income of approximately $5 million to its rough net profit.

Net profit was $10.1 million in the second quarter of 2012 or 27% of revenue compared with a net profit of $6.6 million or 16% of revenues as reported in the second quarter of 2011.

Fully diluted EPS in the second quarter of 2012 was $0.48 compared with fully diluted EPS of $0.31 in the second quarter of 2011. Cash flow from operating during the quarter was $12.4 million.

As of June 30, 2012 the Company had net cash including marketable securities and deposits for short and long term of $22.9 million or $1.09 per share. This is compared with $39.7 million or $1.89 per share as of December 31, 2011.

During this quarter the Company paid out $28.1 million in dividends relating to the results of the full year of 2011 and for the first quarter of 2012. Our average fully diluted number of shares for the quarter was 20.98 million.

The Board of Directors announced a dividend amounting to $5.1 million or $0.24 per share. The dividend's record date is September 24, 2012 and the dividend will be paid on October 10, 2012 net of taxes and (inaudible) at a rate of 25%. And with that I would like to hand you back over to Eyal. Eyal?

Thank you, Eli. Looking ahead we see continued potential growth, especially in Brazil, and our business performance remains on solid footing. We remain very well-positioned as the leader in our main two markets in Israel and Brazil.

Ituran remains on the right track as a stable, profitable and cash generating company and we expect this to remain true for the coming quarters and years, whatever changes the global economy may bring. And with that I would now be happy to take your questions. Operator?

(Operator Instructions). There are no further questions at this time. Before I ask Mr. Sheratzky to go ahead with his closing statement, I'd like to remind participants that a replay of this call will be available tomorrow on Ituran's website, www.Ituran.co.il. Mr. Sheratzky, would you like to make your concluding statement?

Thanks. On behalf of the management of Ituran I would like to thank you for your continued interest and long-term support for our business. I do look forward to speaking with you and updating you again next quarter. Thanks and have a good day.

Thank you. This concludes the Ituran second quarter 2012 results conference call. Thank you for your participation, you may go ahead and disconnect.