LoJack CEO Discusses Q2 2012 Results - Earnings Call Transcript

LoJack (LOJN)

Q2 2012 Earnings Call

August 6, 2012 05:00 PM ET

Executives

Jeremy Warnick - Corporate Communications Manager

Randy Ortiz - President & CEO

Don Peck - EVP & CFO

Analysts

Bill Dezellem - Titan Capital Management

Chris Owen - Plaisance Fund

Presentation

Operator

Welcome to the LoJack Corporation Second Quarter 2012 Financial Results Conference Call. (Operator Instructions). I would now like to turn the conference over to Jeremy Warnick.

Jeremy Warnick

Good afternoon and thank you everyone for joining the call this afternoon. Our moderator is Randy Ortiz, Chief Executive Officer and President of LoJack. You will be joined on the call by Donald Peck, Chief Financial Officer. An archive of the webcast will be available through LoJack.com in the investor relation 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 that involve a number of risk and uncertainties. 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 on our Form 10-K for the year ended December 31, 2011.

I will now turn the call over to Randy Ortiz.

Randy Ortiz

Thank you Jeremy and good afternoon everybody. We appreciate the opportunity to share with you LoJack second quarter financial and operational results. I will begin this afternoon with an overview of the results and highlights from our domestic and international business segments. Don will then provide you a detailed financial review of our second quarter 2012 performance and update you on your outlook for the second half of the year. I will share my perspective on the auto industry and the growth we are continuing to see in the U.S. market.

Also update you on the near term opportunities for LoJack and our strategies we move to the second half and the year beyond. Turning to our second quarter results, our domestic performance demonstrates our continued progress in closing the gap between the growth of the retail industry and our U.S. LoJack business.

The U.S. retail automobile industry grew 15% in the second quarter; our LoJack dealer business grew 8%, that 7 percentage point gap to market is a significant improvement in the same period in 2011, only difference was 22 percentage points as LoJack business was declining, although retail automotive industry was growing. What’s driving the improvement in our domestic business let me answer that question by talking first about how we are intensify our focus as a company.

After little more than two fourth quarters since taking the helm of LoJack, I am pleased to report that discipline, targeted strategy we have implemented with our U.S. sales organization is beginning to pay off. Our field force is concentrating its efforts on key top volume dealer groups and strengthening our relationships with general automotive agents. For those of you who are not deeply promoted with the automotive industry, the top 125 dealer groups are responsible for approximately 22% of all new vehicle retail sales and the top 10 groups account for about 9% of all U.S. retail sales.

So it's very important that we have a plan that focuses our resources and supporting these key partners and assist them in growing their financial insurance business and satisfying their customers. To put this into perspective, the importance of finance and insurance department are F&I in these large groups contribute approximately 3.5% of top line revenue. However, they can contribute over 20% of gross profit.

So as new vehicle margins continue to be under (inaudible), a support that’s tangible, value added products like LoJack can provide are very, very important to the financial health of the dealership. Additionally, we continue to grow our automotive agent business, automotive agents play a key gate-keeping role for many dealer groups by consulting dealership management on the right mix of F&I products and of course F&I services to provide a maximum return on investment. As a result of this focused effort, our agent business grew 42% in the second quarter far off pacing industry retail growth.

We believe continued growth with the right agent groups will be an important go-to market tactic as we take full advantage of a rebounding U.S. auto industry. Our domestic business also benefited from favorable market trends in the second quarter, as I previously indicated the U.S. retail auto-industry increased 15% in the quarter and analyst are still projecting the full year retail volume at somewhere in the neighborhood of 11.6 million units which would represent a very healthy 13% improvement from last year.

Market share gains among leading Japanese brands, Toyota in particular help contribute to LoJack’s growth in the quarter. Toyota and Honda each posted market share gains in the second quarter continuing their resurgence after 2011 tragic earthquake and Tsunami in Japan of course the floods in Thailand. In addition to the favorable brand rotation we received from the Japanese brands we also gained traction and some key domestic brands as well.

According to Bloomberg, Ford, General Motors and Chrysler all reported auto sales to surpass analyst estimates keeping the industry on track for a strongest year since 2007. The favorable full year estimates for the auto industry are fueled by lower interest rates, certainly more subprime credit availability and an aging fleet. One additional strong indication demand comes from the Experian automotive grow which is now in late June they were 17.3 million more light duty vehicles with 7 years and older on the road in the United States then there were just three years ago.

Read the rest of this transcript for free on seekingalpha.com

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