ITRN

Ituran Location and Control Ltd. (ITRN)

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Ituran Location and Control Ltd. (ITRN)

Q2 2008 Earnings Call Transcript

August 12, 2008 10:00 am ET

Executives

Gabriel Frowein – GK Investor Relations

Eyal Sheratzky – Co-CEO

Eli Kamer – Chief Financial Officer

Analysts

Maynard Um – UBS

Paul Coster – JPMorgan

Jonathan Ho – William Blair

Ziv Tal – Oscar Gruss

Kevin Wilder – Minuteman Capital

Yair Reiner – Oppenheimer

Aribi Riza [ph] – Rothschild [ph]

Garet King [ph] – Triple Hong Capital [ph]

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Ituran Second Quarter 2008 Results Conference Call. All participants are present in a listen-only mode. Following the 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 12, 2008.

I would like to remind everyone that forward-looking statements for the respective company's business, financial condition, 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. Gabriel Frowein [ph] of GK Investor Relations. Mr. Frowien, would you like to begin?

Gabriel Frowein

Thank you, operator. Good day to all of you, and welcome to Ituran's conference call to discuss the second 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. Eli Kamer, CFO. 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 a question and answer session. I'd like to remind everyone that the Safe Harbor and the press release also cover the contents of this conference call. And, now, Eyal, would you like to begin, please?

Eyal Sheratzky

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

Our second quarter was a solid continuation of the improvement we already showed last quarter. We achieved record revenue and strong top line growth, as well as strong improvement in profitability. We are very much seeing the fruits of our investment through last year. Note that, given that we sold Telematics at the end of December last year, myself and Eli 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.

We saw strong growth, recording revenue of $35.2 million in the quarter. This represents a year-over-year growth of 45%, which was primarily driven by the continued and strong growth in the subscriber base. We grew by a net 15,000 subscribers during the quarter, which is our quarterly expectation. In Brazil, our services are gaining traction around the country, now that we provide nationwide coverage. In recent months, we have spent significant time and effort building strong relationships with the insurance companies, and we are beginning to see the rewards of this effort now, signing up three new insurance companies since the beginning of this year.

Brazil remains a strong growth engine for us. Recent regulation requiring all new cars from July 2009 to include location technology is becoming a growth engine. And, as one of the leading suppliers of this technology in the country, combined with the relationships we have and are continuing to cultivate, we see ourselves in a prime position to capitalize on this.

In Israel, new car sales have been robust in the past year, and this has increased our potential customer base. In addition, over the past few quarters, we increased focus on customer retention in order to reduce churn, and we can point to success in this regard. This is particularly true given that we also increased our monthly service fee in Israel at the beginning of the year, which had minimal effect on churn, and has been a contributing factor to our ARPU growth and increased revenue. Starting from July 2008, we will be changing the way we charge our membership fee in Israel. At the moment, we are charging in dollars, and we will switch to charging in the local currency, the shekel. The switch will be made according to the exchange rate of ILS 4 to the dollar, which is around 10% higher than the current shekel/dollar exchange rate. We have decided to do this in order to better hedge ourselves against future exchange rate movements. In Israel, our cost base is in shekels, and it makes sense therefore to charge our members in Israel in shekels.

I'd like to address the slowing global economy and how I see Ituran as well positioned to continue its growth in any scenario. History suggests that at times of global economy slowdowns, we have two effects that neutralize each other. On the one hand, there may be a decline in new car sales. But, on the other hand, there is an increase in the rate of car theft and, therefore, more demand for our services, particularly by the insurance companies. In addition, our unique business model is based on recurring revenues from an established and growing customer base with low churn rates. And this underlines our stability and ability to continue growth in any environment. Thus, we expect to continue to show growth in revenues and profit through this year and beyond.

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