LoJack Corporation ( LOJN)

Q3 2010 Earnings Call Transcript

October 27, 2010 9:00 am ET

Executives

Paul McMahon – VP, Corporate and Marketing Communications

Richard Riley – Chairman, President and CEO

Timothy O’Connor – EVP and CFO

Analysts

Paul Coster – JPMorgan

Ali Hilaly [ph] – Ingalls & Snyder

Bill Dezellem – Tieton Capital

Bill Soho [ph] – Milwauk Capital [ph]

Jeremy Yaka [ph] – Milwauk Capital [ph]

Presentation

Operator

Welcome to the LoJack Corporation’s third quarter 2010 financial results conference call. Later, you will have the opportunity to ask questions during the question-and-answer session. Please note, this call will be recorded. I’ll be standing by should you need any assistance. It’s now my pleasure to turn the program over to Mr. Paul McMahon. Please go ahead, sir.

Paul McMahon

Good morning, thank you for joining the call today. Our moderator is Richard Riley, Chairman and Chief Executive Officer. He will be joined in the call by Tim O’Connor, Executive Vice President and Chief Financial Officer; and Paul Weichselbaum, Executive Vice President responsible for our domestic and international businesses. 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 10-K for the year ended December 31 st, 2009.

I will now turn the call over to Rich Riley.

Richard Riley

Thank you, Paul. Good morning, everyone. Thanks for joining us on the call this morning. I will begin the call today with a brief overview of our performance for the third quarter, along with our view on the trend in the auto market, in order to provide some background and context for my latter comments. I’ll then turn the call over to Tim, who will take us through a more detailed review of our financial performance for the quarter. Finally, after I provide some perspective on our core business initiatives and our focus for the next few quarters, Tim, Paul and I will open the call for your questions.

In summary, we’re encouraged by our strong progress on several fronts during the third quarter. Revenue in our international segment for the third quarter increased 46% over the prior year, driven primarily by an increase in orders from our licensees in Latin America and South Africa. Our licensees continued the recovery from a difficult 2009 and are returning to historical buying patterns, with year-to-date revenue in this segment up 29% over the first nine months in 2009. Based on our experience this year, and recent discussions with our licensees, we expect to finish up the year with strong growth in the international segment.

Turning to our North America business segment, revenue in the third quarter declined 7% from prior year levels. It’s important to note, however, that this year-over-year decline was driven entirely by the market trends in the U.S. marketplace, where the comparable period in the prior year included the U.S. government sponsored Cash for Clunkers program. This program generated a temporary spike in auto sales in the U.S. during the third quarter in 2009 and made for a challenging comparison for the third quarter this year.

Recovery in the broader U.S. market has been very choppy throughout the year, when viewed on either a monthly or quarterly basis. We’re encouraged, however, by the fact that our unit sales performance in the U.S. for the first nine months of the year has tracked the experience of the broader domestic auto market as a clear indication that we did not give up any ground to competing technologies. Our consistent performance once again demonstrates that our proven proprietary technology remains the standard in the stolen vehicle recovery space.

Our business in Italy continued to gain traction, as we added more than 2,600 customers during the quarter, even with the extremely low sales in the vacation month of August. We finished the quarter with more than 11,000 total subscribers in Italy, as our expanded business development approach drove success on a number of fronts.

Turning to our bottom-line financial performance, our profitability and strong cash flow in the third quarter reflects the aggressive steps we’ve taken to resize the business in a new global auto market. We are encouraged by the fact that we generated operating cash flow of $5.4 million, adjusted EBITDA of $4.9 million, and net income of $2.7 million for the third quarter.

We’ve now generated almost $11million in operating cash flow over the last two quarters alone, a clear indication of the strength of our underlying business model. This is particularly encouraging as we have now sized our operations for a global auto market, which is expected to experience modest growth over the next few years on the heels of a three-year period of unprecedented declines.

Finally, in the area of engineering, we are receiving positive feedback on the introduction of our self-powered technology platform, both domestically and internationally. The power draw of our new LoJack units was reduced by over 90%. The form factor of the unit was changed as part of the process and the interface between our tracking units and the underlying technology infrastructure was completely updated.

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