Ituran Location and Control Ltd (ITRN) 2012 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Ituran third 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 November 19, 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 1646 201 9246. I'll now hand the call over to Mr. Ehud Helft of CCG Investor Relations. Mr. Helft, would you like to begin?

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

With me today on the line are Mr. Eyal Sheratzky, co-CEO; Mr. Eli Kamer, the 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 that the Safe Harbor in the press release issued earlier today also covers the contents of this conference call. And now I'd like to turn it over to Eyal, Eyal please?

Thank you, Ehud. I would like to welcome all of you and thank you for joining us today. Overall, we are pleased with the results of the third quarter. While the strengthening of the dollar again had a negative effect on our revenues, we are pleased with the general trend coming out of our results.

Looking at our results on a local currency basis, our subscriber revenues grew nicely compared with last year by 9%. This was down to the growth in our subscriber base coming in at a net of 14,000 increase in the quarter which I am pleased to say is a level we are content with.

In addition, our overall gross margins with over 50% at the top end of our historical range. This improvement was driven by an improved gross margin of 62.1% on our subscription fees, a level we haven't seen since 2010.

These improvements are as a result of the fruits of our efforts and the changes we implemented in the past few quarters, which was you can see have a big success. We generated a strong operating cash flow in the quarter at $7.2m. Over the past nine months we have generated $23.6m in cash.

I would 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. 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.

Overall, our relationship with the insurance companies and the car companies continues to expand. And we are increasingly commenting ourselves are market leaders in the region. In Israel we grew our subscriber base in the quarter, and business remained robust and cash generating.

In summary, our business performance remains on a solid footing. We continue to share the fruits of our efforts and performance with our shareholders, providing $2.6m in dividends or half of our net profits to shareholders for the quarter.

I will now hand the call over to Eli for the financial review. Eli?

Thank you, Eyal. Revenues for the third quarter 2012 reached $36.8m representing an 11.7% decrease in revenues compared with $41.6m in the third quarter of 2011.

Revenue breakdown for the quarter was $28.1m coming from subscription fees from our location-based services, a 6.6% decrease year over year. The decrease in subscription fees was due to the weakening of the Brazilian real, Israel shekel and the Argentinean peso against the US dollar.

In local currency terms, subscription revenues grew by 9% compared with the third quarter of last year, due to the increase in the subscriber base which extended from 619,000 as of September 30, 2011 to 653,000 as of September 30, 2012. The growth primarily came from the increase in subscribers in Brazil, following the strategic changes management put in place in past quarters.

Product revenues were $8.7m which was a 25% decrease over the same quarter last year. The decline was primarily due to the currency effects, but in addition in the first quarter of 2011 the company made a large one-time license sale of data from Mapa, amounting to $2.5m approximately.

The geographic breakdown of revenues in the quarter was as follows, Israel 49%, Brazil 39%, USA 3%, Argentina 9%. Gross margin in the quarter was 50.3% compared with a gross margin of 50.2% in the third quarter of last year.

Operating profit for the third quarter of 2012 was $7.4m or 20.1% of revenues, a decrease of 21% compared with the operating profit of $9.3m or 22.3% of revenues in the third quarter of 2011. The decrease in operating profit compared with last year was due to the currency effect and the sale of license data by Mapa which boosted the operating income in the third quarter of last year. Excluding the two effects, operating profit in the third quarter of 2012 would have exceeded operating profit in the third quarter of 2011 by approximately $1.5m.

EBITDA for the quarter was $10.6m, 28.9% of revenues, a decrease of 21.8% compared to an EBITDA of $13.6m or 32.7% of revenues in the third quarter of 2011.

Financial income in the third quarter of 2012 was $196,000 compared with a financial income of $851,000 in the third quarter of 2011. Net profit was $5.2m in the third of 2012 or 14.2% of revenues, compared with a net profit of $6.6m or 15.9% of revenues, as reported in the third quarter of 2011.

Fully-diluted EPS in the third quarter of 2012 was $0.25 compared with fully-diluted EPS of $0.32 in the third quarter of 2011.

Cash flow from operations during the quarter was $7.2m.

As of September 30, 2012 the company had net cash, including deposits for long term of $28m or $1.33 per share. This is compared with $22.9m of $1.09 per share as at June 30, 2012. Our average fully diluted number of shares for the quarter was $20.97m.

For the third quarter of 2012 the dividend -- a dividend of $2.6m was declared in line with the company's stated policy of issuing at least 50% of net profit in a dividend on a quarterly basis.

The Board of Directors announced a dividend amounting to $2.6m or $0.12 per share. The dividend's record date is December 26, 2012 and the dividend will be paid on January 9, 2013 net of taxes and levies at the rate of 25%.

And with that I'd 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 a solid footing. We remain very well positioned as the leader in our main two markets in Israel and in Brazil. We are 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?

Thank you. Ladies and gentlemen, at this time we will begin the question and answer session. (Operator Instructions). Your first question is from Kfir Yagour from Ion. Please go ahead.

Good afternoon. Maybe you can give us some color on how November shapes out now that the incentive, the government incentive scheme is over, and maybe a word about the low CapEx in the quarter. Thank you.

Hi, Kfir, I didn't understand your question. What do you mean government?

There was -- there is a government incentive in the car industry that was over in October as far as I know, I wanted to know if there is any impact on November sales and net adds in your case.

No, we actually didn't see anything which would influence our operation; everything is in the same mode. And of course we cannot provide any data, but there is not something different I would say.

Okay, great, then some -- maybe a word about the very low CapEx in the quarter.

Yes, actually as you saw even if you compared it to last year the CapEx this year is much lower. And the reason is that last year we made big purchases of -- mainly of units in order to prepare also for 2012. And we used those units during this year. I am expecting that next year the level of CapEx will be higher than the level of today.

I see. Okay, thanks, great results. Bye-bye.

Thank you.

(Operator Instructions). 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 tomorrow on Ituran's website www.ituran.co.ir. Mr. Sheratzky, would you like to make your concluding statement?

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

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