LoJack Corp. (LOJN)

Q2 2010 Earnings Call

August 4, 2010; 09:00 am ET

Management

Richard Riley - Chairman & Chief Executive Officer

Tim O’Connor - Executive Vice President & Chief Financial Officer

Paul Weichselbaum - Executive Vice President,

Paul McMahon - Vice President, Corporate & Marketing Communications

Analyst

Paul Coster - JP Morgan

Presentation

Operator

Good day everyone and welcome to the LoJack Corporation’s second quarter 2010 financial results conference call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. Please note, this call may be recorded and I will be standing by if you should need any assistance.

It is now my pleasure to hand the call over to Paul McMahon. Please go ahead sir.

Paul McMahon

Good morning and thank you for joining on our call this morning. Our moderator is Richard Riley, Chairman and Chief Executive Officer. He will be joined on the call by Tim O’Connor, Executive Vice President and Chief Financial Officer; and Paul Weichselbaum, Executive Vice President, who is responsible for domestic and international businesses. An archive of the webcast will be available through www.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 31, 2009.

I will now turn the call over to Richard Riley.

Richard Riley

Thank you, Paul. Good morning everyone. Thanks for joining us on the call this morning. I will start the call today with a brief overview of our performance in the second quarter touching on the broader domestic auto market in order to provide some context for my comments on our performance and expectations for the remainder of the year. I will then turn over to Tim who will take you through a more detailed review of the financial performance for the quarter. Then, I thought it will be helpful to review our key business initiatives for the immediate future. Finally, Tim or I will take your questions.

The second quarter was another important milestone for the domestic auto industry and by expansion for LoJack. After almost two and a half years of consistently disappointing news in the broader auto market, the first two quarters of this year reflected a healthy year-over-year increase in total light car and truck sales.

It’s important to note, however, that the trend for the first half of the year reflects a larger increase in fleet sales than sure retail sales, which is where we generate our business. Industry expert for now has remained at 11 million to 11.5 million total light cars and trucks will be sold in the U.S. in 2010, up from the 10.4 million vehicles sold in 2009.

As a point of reference for our business, the corresponding estimate for retail sales in 2010 by industry experts is in the range of 9 million to 9.4 million vehicles, up from 8.6 million vehicles in 2009. Our experience in the second quarter was consistent with the progress and the broader retail auto market in the US. We generated an increase in domestic revenue for the quarter of 3% of our prior-year levels driven by year-over-year increase of 13% in total units.

Tim will provide additional insight into the average revenue per unit dynamics during his comments. With the double digit increase on unit sales during the second quarter, our penetration rates remained stable despite the continued tight credit markets. This is encouraging news for us. The growth in our unit sales is driven primarily by the bulk install program, which continues to build as confidence begins to return in many dealerships.

Our international business for the quarter was also up 3% of our prior-year levels, as our licensees return to more normal buying patterns. In addition, several of our newer businesses, particularly LoJack Italia, cargo and SafetyNet contributed to the overall 6% increase in consolidated revenue for the quarter.

We continue to manage our cost structure very aggressively during the second quarter. As previously disclosed, we completed a strategic restructuring during the quarter, which resulted in approximately $2.4 million in severance cost. The restructuring will result in a benefit of approximately $3.9 million over the remainder of the year with annual savings of more than $7 million for the full year in 2011.

Finally, we established reserve against our U.S. deferred tax assets of $15.1 million in the second quarter due to the performance of our domestic business and the uncertain US auto industry over the last three years. The charge is a non-cash charge and it is important to know that this adjustment is for GAAP purposes with the assets still available for use from a tax perspective.

Tim will provide more insight during his comments. During the second quarter, we delivered positive operating cash flow of $5.5 million and ended the quarter with a cash balance of $33 million. What that as a backdrop, I will turn the call over to Tim.

Tim O’Connor

Thank you, Rich. Good morning, everyone. Before I review the operating financial results for the second quarter, I would first like to review the impact of the non-cash tax charge on our reported financial results. The company recorded a $16.1 million provision for income taxes in the second quarter of 2010. This includes the establishment of valuation allowance or reserve of $15.1 million against our US deferred tax assets.

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