LoJack Corporation (LOJN)

Q1 2010 Earnings Call Transcript

May 5, 2010 9:00 am ET

Executives

Paul McMahon – VP, Corporate and Marketing Communications

Ron Waters – President and CEO

Tim O’Connor – SVP and CFO

Analysts

Paul Coster – JPMorgan

Bill Dezellem – Tieton Capital

Garrett King – Truffle Hound

Presentation

Operator

Good morning and welcome to today's LoJack Corporation’s first quarter 2010 conference call. Later, you will have the opportunity to ask questions during our Q&A session. Please note this call will be recorded.

And it is now my pleasure to turn the program over to Mr. Paul McMahon. Please go ahead.

Paul McMahon

Good morning. Thank you for joining us this morning. Our moderator is Ron Waters, President and Chief Executive Officer. He will be joined on the call by Richard Riley, Chairman of the Board; and Tim O’Connor, Senior Vice President and Chief Financial Officer. An archive of the webcast will be available through lojack.com in the Investor Relations section.

Any statements during this call that are not statements of historical fact are forward-looking statements. These forward-looking statements are based on a number of assumptions and involve a number of risks and uncertainties and accordingly, actual results could differ materially.

For further information regarding the forward-looking statements and factors that may cause such differences, please see the warning regarding forward-looking statements in our Form-10K for the year ended December 31st, 2009.

I will now turn the call over to Ron Waters.

Ron Waters

Thank you, Paul. Good morning, everyone. Thank you for joining us today. I will begin today's call with a few comments on our performance. Tim will then provide a detailed overview of our financial results and I will follow up with an operational overview.

As the global improved during the first quarter of this year, our organization was in a position to leverage the positive momentum in both our North America and international markets, delivering 11% increase in consolidated revenue. Though early in the second quarter, we remain cautiously optimistic about our growth expectations for the year based on the recovering U.S. auto market and the strength of orders from our licensees.

Our bottom line performance reflects a mix of one-time and ongoing expenses that Tim will detail in his section. In 2009, we took difficult steps to manage our costs including several reductions in force, suspending the company match to the 401(k) retirement plan, rescinding bonuses, and deferring raises. As the auto industry recovers, we have chosen to reinstate several of our benefits in order to retain employees.

Our programs to drive momentum, which include our bulk installation program in the U.S. and our volume-variable pricing to our international licensees did decrease our gross margin percentage in the quarter, but they are designed to drive momentum, gain market share, and in the longer term, deliver more gross margin dollars.

Our balance sheet remains strong and we are keenly focused on maintaining our liquidity. We will continue to aggressively manage our expenses going forward while we again grow the business.

I'll now turn the call over to Tim.

Tim O’Connor

Thank you, Ron. Good morning, everyone. As I review our first quarter financial results, all comparisons will be against the first quarter of 2009 unless otherwise noted.

Consolidated revenue for the quarter increased 11% to $30.8 million over the prior year. Within our North America segment, U.S. revenue was down slightly and unit shipments were essentially even with the prior year. Average price per unit was 5% lower in the quarter, driven by the higher mix of bulk install units, adversely affecting revenue by $800,000. The mix level of bulk install units in the first quarter reached 24%, a level not seen since mid-2008.

Lower spending on recourse agreements, coupled with royalties related to our agreement with Absolute Software contributed approximately $300,000 of revenue in the quarter. On a constant currency basis, revenue in Canada was essentially even with the prior-year levels as the subscriber base remained stable. North America revenue reflects approximately $500,000 of foreign exchange benefit related to Canada.

Revenue in our international business in the quarter increased $2.9 million or 73% over the prior year to $6.9 million on more than double the volume. The growth was driven by our largest licensees in South Africa and Latin America as buying patterns recovered to normal levels from an historic low in the first quarter of 2009. Prices across our international business in the quarter averaged lower than the prior year, driven by customer mix as large customers benefit from our volume-variable pricing methodology.

Our consolidated gross margin as a percentage of revenue in the quarter was 47%, which was below last year by 200 basis points from 49%. Higher bulk install in the U.S. and the volume-variable pricing with larger international licensees adversely impacted gross margin by slightly over 550 basis points in the quarter.

Additionally, increased warranty expense related to the Boomerang technology in Canada had an adverse effect of approximately 190 basis points in the quarter. A majority of this adverse impact was offset by significant savings in 2010 related to our operations workforce reductions, which took place in the first half of 2009.

Gross margin as a percentage of revenue in the quarter for North America was 47% versus 49% in the first quarter of 2009. Gross margin as a percentage of revenue in the quarter for international was 46% compared to 48% a year ago.

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