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» LoJack CEO Discusses Q3 2010 Results – Earnings Call Transcript
I’ll now turn the call over to Rick Riley.Richard Riley Thank you, Jeremy. Good morning, everyone. Thanks for joining us on the call this morning. I’ll begin the call today with a brief introduction of Randy Ortiz and Donald Peck, the newest additions to our senior management team. After that I will provide an overview of our business results for Q3 along with a few observations of the recent trends impacting our domestic and international businesses. I’ll then turn the call over to Don, who will take us through a more detailed financial review of our performance for Q3 along with a quick view of how the remainder of the year is likely to play out. Randy will say a few words about his background and experience in the auto market and then we will open up the call for your questions. On October 17 th we announced the addition of Randy Ortiz as our Chief Executive Officer, and John Peck and Chief Financial Officer and Executive Vice President. Randy’s experience and deep understanding of building and leading successful sales, marketing and service teams within the automotive sector should serve as a tremendous asset to our business. He is a well-known and respected auto industry executive with an extensive background in the auto DR network. His experience in helping to restore Ford’s North America business unit will serve us well as we build on our strong foundation in the domestic auto business. In addition, Don brings extensive senior leadership experience and valuable strategic financial and legal expertise to LoJack. He has an impressive track record of both a Chief Financial Officer and General Counsel over many years. Before I move forward, I do want to take a moment to thank John Barrett and his Finance and Treasury Teams for performing a great job in carrying out the responsibilities of the office of the Chief Financial Officer over the last five months.
Turning to our financial performance in Q3, the overall story is best understood by looking to the four critical factors that drove our results. First, our domestic auto business was once again negatively impacted by brand rotation, driven by inventory shortages of certain import brands in Q3.Second, the uneven quarterly timing of orders from international licensees contributed to a year-over-year decline in revenue of almost $4 million in Q3. Third, the decline in consolidated revenue from prior-year levels generated a related decline in gross margins of approximately $1.6 million during Q3. Finally, incremental legal fees of $2.3 million in Q3 of the current year more than offset the cost savings in all other areas of the business. With that as a backdrop, I thought it might be helpful to provide a little more color and background on our overall results. While domestic revenue for Q3 was up 2% over the prior year, our unit volume was down 6% from prior-year levels. The broader domestic auto market reflected an overall increase of 7% during the quarter; however, the specific performance by auto manufacturers varied widely. LoJack was once again negatively impacted by brand rotation related to the inventory disruptions that resulted from the Japanese earthquake earlier in the year. While this trend has had a negative impact on our business since the first quarter of the year, there are finally some signs of progress on this front with auto manufacturers and industry experts now expecting the inventory shortages to ease in Q4. While our overall revenue performance in the domestic auto market during Q3 was essentially flat with the prior year, we were pleased with the consistent progress we made in each month of the quarter. We wrapped up the quarter with the month of September reflecting an increase in unit volume over the prior year as new promotional programs and sales efforts we referenced on the last call, gained some traction throughout the quarter.
With this progress as a tailwind, the expected improvement in inventory availability of some of the major import brands, and the addition of Randy Ortiz who has extensive experience as a dealer in OEM channels, we should be positioned well for continued progress in Q4.Before I provide an overview on the international business, I wanted to briefly comment on our commercial business. We experienced another strong quarter as year-over-year revenue increased 29% in Q3 in the commercial business. This represents three strong quarters in a row with year-to-date revenue of 53% over prior-year levels. Turning to our international business, revenue in Q3 was down almost $4 million from prior-year levels, as some orders from licensees were delayed into Q4. While we now expect to get most of the Q3 shortfall in the licensee business back in Q4, we do not expect to reverse the full shortfall from the first half of the year. As a result, our full-year revenue from licensees is now expected to be down approx. 10% from prior-year levels. Revenue from our business in Italy in Q3 was strong, reflecting a year-over-year increase of 45%. On a year-to-date basis, revenue in Italy was up 44% over prior-year levels as we continue to build the business through existing distribution channels by adding new dealerships and insurance brokers. We now have nearly 18,000 subscribers in Italy and we expect this growth in subscribers to continue. Read the rest of this transcript for free on seekingalpha.com