LoJack Corp. Q3 2009 Earnings Call Transcript

Dec.18.09 | About: LoJack Corporation (LOJN)

LoJack Corp. (NASDAQ:LOJN)

Q3 2009 Earnings Call

November 4, 2009 9:00 am ET

Executives

Paul McMahon – Vice President Corporate & Marketing Communications

Ronald V. Waters, III – President, Chief Executive Officer & Director

Timothy P. O’Connor – Chief Financial Officer & Senior Vice President

Analysts

Analyst for Paul Coster – JP Morgan

Steve Dyer – Craig-Hallum Capital, LLC.

Bill Dezellem – Titan Capital Management

Garrett King – Truffle Hound Capital

[Ali Halely] – Ingalls & Snyder

Operator

Welcome to the LoJack Corporation third quarter 2009 results conference call. Later you will have the opportunity to ask question during our Q&A session. Please note that today’s call will be recorded and it is my pleasure to turn today’s conference over to Paul McMahon.

Paul McMahon

Our moderator is Ron Waters, President and Chief Executive Officer. He will be joined on the call by Tim O’Connor, Senior Vice President and Chief Financial Officer. Rich Riley, our Executive Chairman of the Board could not join us on the call today due to a family medical issue. 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 item seven of our Form 10K for the year ended December 31, 2008.

I will now turn the call over to Ron Waters.

Ronald V. Waters, III

I want to start this morning with a brief overview of the macroeconomic factors affecting our business and highlight a recent technology milestone which is very meaningful to our business. Tim will then provide a detailed overview of our financial performance and I will follow up with an operational overview of the business for the quarter. The US economy expanded in the third quarter after shrinking for four consecutive quarters. Many economists see this as the end to the deepest economic recession since World War II which provides promise for our various businesses. The increase in consumer spending in the third quarter has largely been a result of the government’s stimulus related to the cash for clunkers program and housing tax credits.

With the expiration of these key consumer federal stimulus program, economists expect growth to be muted in the fourth quarter and in to 2010. Many have indicated that the recovery will be measured owing to the highest unemployment rate in 26 years and persistent challenges in the credit markets. In sum, with the end of the recession, consumers are again spending but they continue to do so with great restraint. Those the trends are indeed positive, uncertainty remains the key issue.

As a result we will continue to tightly manage our operational costs while maintaining our liquidity and strong balance sheet. We’ll at the same time actively position the organization to take advantage of economic growth. We see the end of the recession as a positive for our long term growth. Our strong brand, solid relationships with our auto dealers and expansion in to new markets position LoJack for success and growth in the future.

Before turning the call over to Tim, I want to highlight a recent technology milestone. We just introduced our next generation self powered LoJack system based on a newly developed proprietary power management protocol. The new system benefits our core global stolen vehicle recovery business. As we continue to diversify our business, the new power management protocol will have beneficial applications in future versions of all LoJack products such as LoJack Safety Net.

This self powered stolen vehicle recovery system does not draw any power from a vehicle’s battery or electrical system which makes it ideally suited for the vehicles of today and the future including hybrid and electrical cars. Newer vehicles available today and those that will be on the market tomorrow are equipped with a growing number of features such as navigation systems, sensors and the like that depend on and potentially tax the battery. Because of that OEMs require intelligent power management solutions that do not tax a vehicle battery.

Unlike GPS based aftermarket products that draw power from a vehicle’s electric system, the self powered LoJack solution helps retain battery power. The new system is also particularly appropriate for collect a cars because there’s no need to connect to the electrical system which can be complicated and disruptive process in customized collector vehicles. Additionally, this next generation solution can be installed in more locations inside a vehicle which makes the system even more covert and this is particular important in countries in Latin America and South Africa where theft rates are especially high.

Lastly, the installation process is simpler and thus more efficient for technicians, dealers who certify to install and our global licensees and their installation partners. LoJack created and leads the stolen vehicle recovery market and we believe that it is critical that we stay ahead of industry trends by continuing to deliver solutions that are best in class for the vehicles of today and tomorrow. While the number of stolen vehicles has been decreasing over the past few years, vehicle theft continues to remain a serious problem costing consumers more than $6.5 billion each year in the US alone.

As we continue to diversify the company, we strive to provide the best technology possible to fulfill the need of consumers. LoJack Safety Net is the only proven and most effective system there is for tracking and rescuing those with Alzheimer’s or autism who wander. Others have introduced solutions but they do not offer the radio frequency, technology combined with police integration which is the best means of successfully rescuing a missing person.

In the case of LoJack supply chain integrity, they can now provide a product that has been developed and engineered to meet FAA requirements. Again, a best in class solution that will further differentiate them in the cargo security space and contribute to their success. The company is in a solid financial position and we will leverage our strong brand and consumer confidence to continue providing market leading products that allow consumers to effectively track and find.

With that as background I will now turn it over to Tim for a more detailed review of our financial results for the quarter.

Timothy P. O’Connor

Before I review the operating financial results for the third quarter I would first like to review the impact of the China settlement on our reported financial results as well as the implications on our credit facility and liquidity going forward. On a consolidated basis the company’s operating expenses and operating income reflect the negative impact of onetime charges of approximately $19.9 million related to the settlement with the company’s former licensee in China.

These onetime charges include all related and other expenses in the quarter. On an after tax basis, the impact of this settlement is approximately $14.6 million or $0.85 per diluted share. For further details regarding the settlement, please refer to the company’s 8K settlement on this matter dated September 22, 2009. As a result of the settlement payment, the company entered into a waiver agreement with our lenders waiving our non-compliance with the financial covenants due to the settlement payment.

The wavier provides the company with a limited waiver through December 30, 2009. As part of the wavier, the lenders will not make new loans or issue new letters of credit under the credit agreement. The wavier also requires the company to pledge past collateral to the agent bank in an amount equal to the outstanding amount of all loans and letters of credit obligations. As of September 30, 2009 the total pledge cash collateral or restricted cash was approximately $17 million.

The total unrestricted cash balance at the end of the quarter was approximately $16.7 million which is sufficient to support the ongoing operations of the company including working capital requirements and capital spending projects. We are currently negotiating to amend or replace our existing credit facility and expect the process to be completed by the end of 2009.

Moving on to the specific financial results, my comments will focus on operating performance excluding the impact of the China settlement and related expenses. Third quarter consolidated revenue declined 32% from prior year levels to $36.1 million. Domestic revenue in the quarter declined 22% from prior year to $23.7 million on a 28% decline in unit sales. Average price per unit was up slightly driven by the lower mix of bulk install units versus prior year. Revenue on our international business in the quarter declined 49% from the prior year to $9.1 million on a 50% decline in unit shipments. Average price per unit was essentially even with 2008 third quarter levels.

Boomerang Tracking had revenue of $3.3 million in the third quarter compared to $4.9 million in the third quarter of 2008. The devaluation of the Canadian dollar accounted for approximately $185,000 of the Boomerang decline. For the third quarter our consolidated gross margin as a percentage of revenue remained strong at 57%. Excluding the impact of a onetime benefit related to the sales tax in Canada of $500,000 gross margin as a percentage of revenue was 55.5% compared to 54.3% for the same period in 2008.

The workforce and benefit reductions in our operations organization implemented in the fourth quarter of 2008 and the first half of 2009 sufficiently aligned our installation expenses with the current sales volume levels. Gross margins for the quarter reflect approximately $2.7 million of savings related to these reductions. For the quarter, our domestic gross margin dollars declined 20%, slightly less than the sales decline resulting in gross margin as a percentage of revenue improving to 55.6% compared to 54.5% for the third quarter of 2008. International gross margin dollars for the quarter declined 49% and gross margin as a percentage of revenue was 56%, about equal to the same quarter one year ago.

Boomerang gross margin dollars for the quarter were $2.3 million including a onetime benefit of approximately $500,000 from the recovery of the sales tax in the quarter. Excluding the impact of this benefit, gross margin as a percentage of revenue improved to 53.5% compared to 46.3% in the third quarter of 2008. Workforce reductions in our operations organization and the completion of our analog to digital conversion contributed to the margin improvement.

As stated previously, reported operating expense of $40.9 million for the current quarter included approximately $19.9 million of onetime China settlement and related charges. Operating expense for the current quarter also included approximately $1.4 million of onetime severance related expenses. For comparison purposes it is important to note that our 2008 third quarter operating expenses included an impairment charge of $38.1 million related to Boomerang goodwill and intangibles.

Excluding the impact of onetime charges in the third quarter of both years, operating expenses declined 17% to $19.7 million in the third quarter of 2009 versus $23.8 million in the third quarter of 2008. The lower comparable spending reflects a savings of $2.2 million related to our workforce and benefits reductions earlier in the year. This savings is incremental to the savings in gross margin mentioned previously. Lower media and advertising spending of approximately $2 million also contributed to the lower operating expenses in the current quarter.

On a GAAP basis, the operating loss for the third quarter was $20.3 million compared to an operating loss of $33.2 million for the same quarter of 2008. Excluding the impact of the China settlement related charge, the pro forma operating loss for the third quarter of 2009 was $400,000. On a GAAP basis the net loss for the current quarter was $13.4 million compared to a net loss of $34.7 million in the same quarter of 2008. Excluding the impact of the China settlement related charges in 2009, the company’s pro forma net income was $1.2 million or $0.07 per share.

It is important to note these results also include an after tax impact of approximately $800,000 or $0.05 per share for severance related costs in the current quarter. As a result of China settlement related expenses, net cash used by operations was $13.6 million. Excluding China settlement related cash expenses, the company generated approximately $5.4 million of positive operating cash flow in the third quarter. Working capital improvements including lower inventories and accounts receivable coupled with increased pro forma operating income drove the cash flow.

Accounts receivable declined more than $3 million in the quarter driven by increased collections with our international licensee as well as tight management of our domestic receivables balances. We have not experienced any significant write offs in the quarter or the year. Before I turn the call back over to Ron I will take care of a few housekeeping items. The company’s unrestricted cash balance on September 30, 2009 was $16.7 million. We reduced our outstanding debt at Boomerang in the quarter by $5.5 million to $14.5 million as of September 30, 2009.

The capital spending in the quarter was $940,000 and depreciation was $1.5 million. Stock-based compensation in the quarter was $800,000. Lastly, we did not repurchase any shares in the third quarter. I’ll now turn the call back over to Ron.

Ronald V. Waters, III

Though our results for the third quarter declined compared to this time last year, we continue to see positive trends in both our domestic and international core businesses. Moreover, we remain hopeful about the markets where we operate given the auto industry expectations which indicate stabilization in 2009 and modest improvement in growth for 2010. In the third quarter we generated $5.4 million in cash and pro forma earnings of $0.07 per share excluding the cost related to our settlement agreement with the former licensee in China and the related expenses.

Pro forma net income from the third quarter also included severance costs of approximately $1.4 million related to the workforce reductions in the quarter. Our performance this quarter reflects our continued efforts to effectively manage our cost structure and align it with the size of the business. As Tim noted, our cost cutting initiatives during the third quarter will deliver an annualized cost savings of approximately $4 million. This brings our total cost cutting efforts beginning Q4 2008 to $20 million on an annualized basis. We are committed to maintaining our liquidity.

On the domestic front we delivered a sequential increase in unit volume and revenue compared to the second quarter this year. As you may recall, we delivered sequential quarterly growth in the second quarter of this year as well. These trends clearly indicate that our auto dealer business is in the early stages of recovery. One point I do want to call out is that the cash for clunkers program resulted in a huge spike in new car sales during August, a seasonally adjusted run rate of over 14 million vehicles.

The rapid spike in new car sales was driven by lower priced vehicles with few aftermarket products based on consumers coming in to dealers with tight credit. As a result, our unit volume increase was not proportionate to the vehicle sales increase and our market penetration at that time dropped to 5.5%. When I reported our second quarter results our penetration was approximately 6%. Going in to the fourth quarter we do have some concern that our unit volume may moderate as a result of continued tight consumer credit and rising unemployment coupled with the fact that many dealers are pushing 2009 models out the door at any costs including lost profit from aftermarket sales.

Industry experts continue to be positive about the auto industry, projecting that new car sales will grow from about 10.2 million units this year to about 11.5 million for 2010. Our larger dealers remain confident that sales are generally rebounding albeit at a moderate pace this year. Our sequential quarterly increases this year and the industry expectations for the future certainly provide some positive direction for us. Based on our strong relationships with dealers, we are poised to take advantage of the expected upswing in the auto market.

As I noted last quarter in my comments, we have experienced no wide spread erosion due to any technology based competitor and dealers continue to view our products as a valuable profit center that provides a strong consumer value proposition. The core challenge remains the tight credit situation. The tight credit situation also creates a challenging situation for the motorcycle industry will all types of bikes from the metric motorcycles to the larger road bikes experiencing declines.

These declines impacted our sales for the quarter. Our expectation that the recovery in the motorcycle market will lag the auto market as many times the motorcycle purchase is discretionary. The equipment market remains dependent on the lagging construction business. With the downturn in building construction companies generally have not been purchasing new equipment. Industry experts are hopeful for increased equipment sales in 2010 based on the combination of pent up demand and increased construction projects, some based on the government shovel ready stimulus.

In fact, one of our larger national accounts recently informed us that they are ordering several hundred pieces of equipment and those pieces of equipment will be equipped with LoJack. This is the first major order by one of our national commercial accounts in the past year. Together motorcycle and construction sales represented about 6% of our domestic revenue during the quarter.

As I mentioned earlier, we continue to invest in our strategic programs for long term growth during the quarter. We are achieving early stage milestones with our LoJack Safety Net business targeting those with Alzheimer’s or Autism who wander. We continue to sign on new public safety agencies, build relationships with key industry influencers, reach out to trusted resources such as associations and elder care facilities who will act as referral sources for us and build awareness with consumers and healthcare professionals within these target markets. Consumer interest remains strong.

LoJack’s supply chain integrity which as you know focuses on cargo theft and integrity of the supply chain continued to add new customers in the third quarter and continues to receive strong interest in the cargo security industry. They are simply operating in a challenging market where capital expenses are limited. They are poised for growth as the economy begins to rebound and companies again begin to make capital expenditures. I would like to highlight that the LoJack supply chain solution working with our team in Canada enabled police to recover a tractor trailer load of tobacco products worth over $1.5 million and arrest several of the thieves.

During the third quarter our international performance was consistent with that of the second quarter of the year demonstrating a stabilization of the business. Our licensees continue to be conservative in their buying patterns, particularly certain of our licensees in Latin America, that are reacting to the impact of local economic and political issues. Specifically, our licensee in Venezuela has been negatively impacted while Argentina and Brazil have had relatively positive performance. But, we are confident that the trend of stabilization will shift to one of growth in the fourth quarter this year as our licensees return to a more normal buying pattern and receive awaited orders of our new self powered stolen vehicle recovery system.

Our business in Italy continues to improve as we build the business there. During the third quarter our unit volume increased five-fold over this time last year and our revenue was three times that of the third quarter 2008. We continue to add new subscribers by selling through new car dealers and insurance providers and by selling to rental fleets. Additionally, we are benefitting from the recurring revenue from those subscribers added in prior years.

I am pleased to announce that we have an agreement with our long time licensee in Argentina to expand in to the Chilean market. The Chilean market fills out an important geographic region in South America for us. In addition, our Spanish licensee is launching in Portugal early next year. As we reach milestones on these expansions, we will update you.

For the second sequential quarter this year, the Boomerang business has delivered an operating profit. The business is turning around now that we are through the analog to digital conversion and the organization is focused on customer acquisition and subscriber management. We believe that subscriber additions will exceed subscriber losses going forward. Additionally, we are making solid progress on the integration of the Canadian operations with our domestic operations for a more effective and efficient North American focus.

In closing, we are very positive about the recent trends in our business and the prospects for the future. Given the economic uncertainty, we will continue to be conservative in our management of the business today but we’ll also continue to plan for the future and position LoJack to thrive and deliver profitable growth as the global economy strengthens. We will continue to maintain LoJack’s solid financial position. We expect to sustain healthy margins and deliver significant operating cash flow for the year excluding onetime expenses related to the China settlement.

With that, Tim and I will take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Analyst for Paul Coster – JP Morgan.

Analyst for Paul Coster – JP Morgan

One of our questions is we’ve seen some of the new cars coming out with antitheft protection such as encrypted keys or pass codes, whatever. Do you anticipate this having any impact on your business going forward?

Ronald V. Waters, III

We don’t see any significant impact Mark. We continue to see our solution as positive from a recovery perspective and I think our new solution will enhance our position.

Operator

Your next question comes from Steve Dyer – Craig-Hallum Capital, LLC.

Steve Dyer – Craig-Hallum Capital, LLC.

Guys, I’m wondering if you can give a little bit of additional color on Safety Net just with respect to when you would expect it to be generating some meaningful revenue, etc.?

Ronald V. Waters, III

I think we’re making pretty good progress. I think as we get in to next year we anticipate the revenue build to start. I think the process involves not only signing up the public safety agencies with policy but also client management agencies that are involved in replacing the battery strap. We’ve had a focus in Southern Florida given the population and we see good progress in Palm Beach County, good progress in Broward County and good progress in Miami-Dade County.

Steve Dyer – Craig-Hallum Capital, LLC.

I may have missed this but how will the revenue model work there? Will it be again a onetime sale or will it be a recurring component to it?

Ronald V. Waters, III

There’s a purchase of the battery and then recurring revenue on a monthly basis.

Steve Dyer – Craig-Hallum Capital, LLC.

Then shifting gears to Italy, you gave some encouraging metrics there, is that country breakeven on a standalone basis yet?

Ronald V. Waters, III

Not yet.

Steve Dyer – Craig-Hallum Capital, LLC.

Any venture guess as to when it may be?

Ronald V. Waters, III

Towards the end of next year. We’ve had good progress there. I think the revenue numbers that I mentioned, the unit numbers, again it’s a recurring fee model, we are encouraged by what’s happening there. We’ve opened the southern part of Italy, heavy theft and have had particularly good success there.

Steve Dyer – Craig-Hallum Capital, LLC.

All the dealership closures over the last couple of months and that will also continue, how has that affected your business either positively or negatively?

Ronald V. Waters, III

Very minimally.

Steve Dyer – Craig-Hallum Capital, LLC.

Then Tim I guess with respect to the model, very good gross margins this quarter, is this kind of a new plateau or a new sustainable level?

Timothy P. O’Connor

I think Steve if you back out the onetime benefit that we got in the quarter from the sales tax recovery in Canada, so we’re down to about 55% to 55.5% depending on the mix of international to domestic, I would say that it’s sustainable in each one of those segments in the business.

Steve Dyer – Craig-Hallum Capital, LLC.

Then G&A popped up a little bit this quarter, was that related to the severance or is something else going on there?

Timothy P. O’Connor

In the G&A number there’s about $2.1 million worth of China related expenses, that’s both on the legal and the banking side and about $1 million worth of severance.

Operator

Your next question comes from Bill Dezellem – Titan Capital Management.

Bill Dezellem – Titan Capital Management

A couple of questions, first of all congratulations that the closing of the dealers have had a minimal affect but would you please help us understand why that has been the case that there has been a minimal affect please?

Ronald V. Waters, III

I think there are dealers in each of the areas that have continued to do business and it hasn’t had a significant impact. We have a very strong presence with the key national dealerships and I think that’s continued to be positive. I think for the most part there’s smaller dealers that we may not have had a significant presence there before. There has not been an issue as it relates to bad debts at all, we’ve managed our receivables appropriately so as some of them have gone out of business there’s been no negative impact related to receivables either.

Bill Dezellem – Titan Capital Management

Then relative to the cost reduction you mentioned that you’ve made good progress on that front. Where are you at in terms of additional cost reduction efforts that you may still have that you would like to execute before you are done?

Timothy P. O’Connor

I would say at the moment this is our sustainable run rate in terms of operating expenses going forward. We’ve made the concerted effort, and I think we’ve talked about it before, we’ve made a concerted effort not to impact our product development expenses whatsoever. But, in terms of the size of the business that we have today and the anticipation going forward I think our level of spend is appropriate at the moment.

Bill Dezellem – Titan Capital Management

So the way for us to think about the business on a go forward basis, you are now at the current sales run rate roughly at a breakeven level and now with any sales growth from this point forward you have real nice leverage to your cost reductions?

Timothy P. O’Connor

I think that’s a fair way to look at it. The other piece to look at is not only the cost reduction within the gross margin it’s really the move to more variable installation services that we have in there rather than fixed installation base. The variability gives us a lot of leverage as well.

Operator

Your next question comes from Garrett King – Truffle Hound Capital.

Garrett King – Truffle Hound Capital

Do you expect LoJack’s US market penetration rate to increase in Q4 now that cash for clunkers is over?

Ronald V. Waters, III

We see it gradually increasing in the fourth quarter. We think it should turnaround somewhat.

Garrett King – Truffle Hound Capital

Regarding the question from the gentlemen from JP Morgan, do you think that the recovery advantage of LoJack is the critical advantage that differentiates it from the new antitheft technology coming out?

Ronald V. Waters, III

We believe it, absolutely.

Garrett King – Truffle Hound Capital

Just one more question, on the international businesses how do you look at I guess the licensees, how do you look at their performance this year in that revenues are down a lot more than international car sales are down? Do you see them losing share or was it just an inventory build up?

Ronald V. Waters, III

I think it’s a combination affect because I don’t think you can look at any one country and point to any one factor. I think as I said in my comments, Venezuela is a great market, great licensee there but the difficulty has been getting dollars out of the marketplace. So within the country I think there’s consumer demand but it’s difficult to buy the units in and get the dollars out. I think in the case of South Africa I think the economy has had a negative impact and so there was a little bit of inventory build but they’re back buying now.

In the case of Argentina again, positive performance. We’re a tad bit concerned about exchange rates and the fact that they pay us in dollars. I think that I’d characterize it as a stabilization. We see some larger licensees who have been very conservative such as South Africa, this first half of the year starting to buy again and we’re talking through next year and we feel good about next year and what’s going to happen.

Timothy P. O’Connor

Garrett, just one note for you, in the international market it’s less linear with car sales because most of our licensees are really supported by insurance initiatives which penetrate both new cars and the current car park in those markets. So, it’s not really linear with car sales as it is with the domestic business.

Operator

Your next question comes from [Ali Halely] – Ingalls & Snyder.

[Ali Halely] – Ingalls & Snyder

I have a couple of quick questions for you guys, first of all can you walk me through how you got to the $5 million in cash from operations because the way I saw it I didn’t see that there was a change in working capital. I noted what you guys said about accounts receivable but at the same time accounts payable is down. Net/net I saw sort of an actual usage of cash in working cap so I’m just struggling to get to how you go to $5 million in operating cash flow?

Timothy P. O’Connor

We simply took the $13.4 million and deducted out our cash expenses related to China which was roughly $19 million in the quarter.

[Ali Halely] – Ingalls & Snyder

But of that there $6 million that will be like a tax adjustment so really your cash from operations was something close to $0.4 million.

Timothy P. O’Connor

There’s also a reclass in our working capital of our long term debt to short term debt so that was about $12.5 million so I think that might be the issue that doesn’t get highlighted in our release at the moment but certainly will be in the Q.

[Ali Halely] – Ingalls & Snyder

I just have another follow up, I’m sort of struggling with the G&A as well. Even after I take out the $2.1 million it’s about $500,000 higher than it was in Q3 last year first of all. And, second of all as a broader note if you look at 2004 for example where your run rate of sales is roughly the same or perhaps it’s even higher, G&A in ’04 was like $20 million and today we’re running something like $38 million. Why is it that the costs seem to have come up but not come back down commensurate with a substantial reduction in sales?

Timothy P. O’Connor

There’s a bunch of questions there so I’ll try to take them one at a time. I think if you just look at our G&A in the current quarter and I’ll kind of spike out a couple of things in there and then I’ll go back to 2004 for you. If you take a look at our total of $10.6 in the quarter, in that number is $2.1 million China related legal and banking expenses, there’s about $1 million worth of severance expenses in there and there’s about $400,000 of SCI related expenses that weren’t in prior year because we only started consolidating them sometime in August last year. Offsetting that there’s about $1.1 million of savings. So that kind of gives you the delta ’08 to ’09 of about $2.4. That kind of gives you the base line.

Going back to your question about 2004, the base line in 2004 really only included what we will call our core businesses which is the domestic and the international licensee business. Really in the fourth quarter of 2004 is when we added Boomerang and then the following year we added Italy, then we added Locator and SCI after that. The spend behind those investment businesses isn’t in your base 2004 number. So our core business is obviously lower than the year-to-date number you see in the financials but it does include spending behind those investment businesses.

[Ali Halely] – Ingalls & Snyder

So what you’re really saying is that your core business is still very profitable but you’re losing boatloads of money to the tune of over $10 million between Italy, Locator and SCI?

Timothy P. O’Connor

It’s a little bit less than that but you’ve got the right math.

Operator

It appears we have no further questions in the queue at this time. I would like to turn it back over to our speakers for closing remarks.

Ronald V. Waters, III

Thank you all for joining us on the call today. We appreciate your interest and taking the time to listen to our results. We look forward to talking with you as we get in to the new year and the end of our fourth quarter.

Operator

This does conclude today’s teleconference. Thank you for your participation. You may now disconnect.

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