Ituran Location and Control Ltd. (ITRN)

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Ituran Location & Control Ltd. (ITRN)

Q3 2008 Earnings Call

November 24, 2008 10:00 am pm ET


Kenny Green – GK Investor Relations

Eyal Sheratzky – Co-Chief Executive Officer

Udi Mizrahi – Vice President of Finance


Maynard Um – UBS

Paul Coster – JP Morgan

Yair Reiner – Oppenheimer & Co.

Ziv Tal – Oscar Gruss

Jeff Rath - Canacord Adams



Welcome to the Ituran third quarter 2008 results conference call. (Operator instructions) As a reminder, this conference is being recorded November 24, 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 9723-607-4717.

I would now like to hand over the call to Mr. Kenny Green of GK Investor Relations.

Kenny Green

Good day to all of you, and welcome to Ituran's conference call to discuss the third quarter 2008 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. Udi Mizrahi, Vice President of Finance. Eyal will begin with a summary of the quarter's results, followed by Udi 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 statements in the press release also refer to the contents of this conference call. And, now, Eyal, would you like to begin, please?

Eyal Sheratzky

Welcome everyone. Thank you for joining us today and thank you for your interest in our company.

We are happy with our third quarter results, in particular with regards to our strong profitability and bottom line. Now given that we sold Telematics at the end of December last year, myself, and Udi will be analyzing the results on a pro forma basis, which focuses on the core business, excluding Telematics, and removes Telematics contribution to last year’s results.

We believe that this enables investors to better compare Ituran’s historical results with current results on a similar basis. Our revenue growth was 28% over the last year to $35.2 million in the quarter. This was primarily driven by the continued growth in the subscriber base over last year. In fact, we ended the quarter just shy of the 0.5 million-mark standing at 495,000 subscribers while at the same time last year we had 430,000 subscribers. In the quarter we grew by a net 16,000 subscribers, our normal quarterly expectation.

I would like to take a moment to make an important point with regard to our subscriber base in Israel and how large exchange rates swings affect our results. As of the start of the first quarter we began charging our Israeli subscriber base in the local currency, the Israeli sheqel, rather than the U.S. dollar.

The reason we decided to do this was in order to better hedge ourselves against future exchange rate movements, which makes a lot of sense from a business perspective. In Israel our cost base is in sheqels and it makes sense, therefore, to charge our members in Israeli sheqels.

We used an exchange of four, which is about 14% higher than the actual exchange rate in the quarter, averaging around 3.5. We felt this was closer to the historic norm and would be acceptable to our subscriber base. Thus we benefited by this in the third quarter.

However, it is very important to note that as of this quarter all of our revenues and expenses are now dominated in the currencies of the geographies in which we operate and our GAAP results are a simple translation from this foreign currency into U.S. dollars. The strong increase in the U.S. dollar against the Israeli sheqel and the Brazilian real, such as been the case in the fourth quarter so farhowever,ited by this in the tq.oser to the historic norm and would be acceptable to our subscriber base. thus lot of sense f, will have the effect of defaulting our results in dollars and therefore [inaudible].

There is another exchange rate issue related to our financial income, which hedged the above affect and I discussed this last quarter. Again, I see this as a purely cosmetic issue and doesn’t play a role in any strategic or business planning.

As I mentioned, given that our functional currency in Israel is the Israeli sheqel, for reporting purposes the company’s accounts in Israel are prepared in sheqels and then translated to U.S. dollars. Given the fact that most of our cash is held in dollars, for strategic reasons, and I note, not for financial reasons, an increase in the dollar versus the sheqel provides us with a dollar financial income.

Assuming the dollar-sheqel exchange rates ends the quarter at current levels, we will see a relatively large U.S. dollar financial income in the fourth quarter.

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