Ituran Location and Control Ltd. (ITRN)

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Ituran Location & Control Ltd. (ITRN)

Q3 2009 Earnings Call

November 17, 2009; 10:00 am ET


Eyal Sheratzky - Co-Chief Executive Officer

Eli Kamer - Chief Financial Officer

Udi Mizrahi - Vice President of Finance

Ehud Helft - GK Investor Relations


Maynard Um - UBS

Yair Reiner - Oppenheimer & Co.

Ziv Tal - Oscar Gruss

[David Delayo] - Canaccord Adams



Welcome to the Ituran third quarter 2009 results conference call. (Operator Instructions)

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 hand over the call to Mr. Ehud Helft of GK Investor Relations. Mr. Helft would you like to begin?

Ehud Helft

Thank you. Good day to all of you, and welcome to Ituran’s conference call to discuss the third quarter 2009 results. I would like to thank Ituran management for hosting this conference call. With me today on the call are Mr. Eyal Sheratzky, co-CEO, Mr. Eli Kamer the CFO and Mr. Udi Mizrahi, VP of Finance.

Eyal will begin with a summary of the quarter’s main events, followed by Eli with a summary of the financials. We will then open the call for the question-and-answer session. Before we continue I’d like to remind everyone that the Safe Harbor statements in today’s press release also cover the contents of this conference call.

Now Eyal, would you like to begin please?

Eyal Sheratzky

Thank you Ehud. Welcome everyone. Thank you for joining us today and thank you for your interest in our company. This quarter we are especially pleased with our strong growth in subscribers, positive development in Brazil as well as strong generation of cash.

In fact neutralizing currency exchange effect in our business, this quarter would have been a record quarter from the revenue and operating profit point of view. We generated record cash flow of $12.5 million of which four of them was primarily a one time tax refund.

Even if we exclude this additional $4 million dollars our cash flow was still very strong and it is a very strong attribute of the strength of our business. In fact we now end quarter in excess of $17 million in net cash. In the past quarter we have transferred most of our cash holdings from US dollars to Israeli Shekel. These moves will reduce the volatility of the exchange rates on our financial income or expense going forward.

Exchange rates still grew and will continue to affect our top end operating line as we charge our subscribers in their local currencies. Rather than dollar weakens and this currency increase in strength it increase our top line and vice versa. In particular, if we were to neutralize the effect of exchange rates our monthly subscription fees would have grown 15% in local currency terms over last year. We see particularly strong growth in subscribers in Brazil, which drove most of our net subscriber growth in the quarter.

Additionally, we crossed the milestone of 200,000 subscribers in that region in Brazil is approaching half of our subscriber base. We are very proud of our achievements and strong growth in Brazil over the past few years. We also have a stable and large subscriber base and business in Israel which is strong cash generating business for us.

In total, we stand on 549,000 subscribers as for the end of the quarter. With regard to our two main regions in Brazil our business continue to grow strongly, our services are constantly gaining increased traction, we are consistently growing our market share, developing new relationships with insurance companies and increasingly cementing ourselves there as the market leaders.

We won a tender for stolen vehicle recovery services for at least 50,000 vehicle installing over two years with a leading Brazilian insurance company, Sul America and recently signed the agreement. This contract is a demonstration of our market leadership in Brazil and provides us with increased visibility into our long term growth. In addition, after the sharp dip in new car sales at the end of last year and beginning of this year, new car sales in October were at the record in Brazil driving the sector four road and subsequently our business growth there.

We see the reward of our effort and investment in Brazil with continued subscriber growth there. For the foreseeable future, we believe that Brazil with its robust economy and the focus for continued strength in new car sales, we remain a strong growth engine for our company.

In Israel, while at the start of this year, new car sale slowed significantly compared with last year, macro signs are improving and there was a pickup in new car sales in the third quarter. While it is difficult to know, how new car sales in Israel will develop going forward, the third quarter growth in sales translated into a net few thousand new subscribers in third quarter.

This is a good sign for our business potential in Israel which despite the down trend has shown us stability and resilience with the number of net subscribers remaining mostly flat for the past few months.

As the economy in Israel improves the new car sales increase driving our subscriber growth. The significant operating leverage built into our platform that we have nurtured over the past few years would enable us to incrementally add every new subscriber in Israel at almost no cost. This will strongly benefit our cash flow and bottom line.

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