Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Paul McMahon – VP, Corporate & Marketing Communications

Ron Waters – President and CEO

Tim O’Connor – SVP and CFO

Analysts

Bill Dezellem – Tieton Capital Management

Gregg Hillman – First Wilshire Securities Management

Garrett King – Truffle Hound Capital

Ali Hilali – Ingalls & Snyder

Roger Papazian – Morgan Stanley

LoJack Corporation (LOJN) Q4 2009 Earnings Call Transcript March 3, 2010 9:00 AM ET

Operator

Welcome to the LoJack Corporation’s fourth quarter 2009 and yearend results conference call. Later, you will have the opportunity to ask questions during our Q&A session. Please note that today’s call is being recorded and it is my pleasure to turn the conference over to Paul McMahon. Please go ahead, sir.

Paul McMahon

Good morning and thank you for joining us today. Our moderator is Ron Waters, President and Chief Executive Officer. He will be joined on the call by Richard Riley, Chairman of the Board and Tim O’Connor, Senior Vice President and Chief Financial Officer.

Before we begin the formal presentation, I would like note that it is LoJack’s practice to issue our press releases early in the morning of the conference call. Our press releases are issued to PR Newswire. In addition, we post them to our website. This morning we received notice from PR newswire that their systems were down. As a result, our press release did not cross the wire at 7.00 AM as planned. Our press release was distributed at 8.20 AM this morning however. 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, 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 31st, 2008.

I will now turn the call over to Ron Waters.

Ron Waters

Thank you, Paul and good morning everyone. I want to begin the call by providing an overall perspective on the company. Tim will then provide a detailed overview of our financial performance; I will follow-up with an operational overview and provide some perspective on our expectations for 2010.

As you know, we have contended with a combination of macroeconomic and market challenges as well as several one-time events this past year. We remain focused on our long-term strategies for growth, while tightly managing our operations and reacting to market dynamics. We have emerged in a strong position and are well prepared to take advantage of opportunities as the global economy improves.

Our core auto business is stable. US auto market is growing and our licensees are ordering based on new demands. Our balance sheet is strong, and we have maintained our liquidity. We have optimized our cost structure and expect to leverage cost reductions made in 2009 in the coming year. We have continued to invest in our strategic programs which will enable us to leverage our strong brand, improving technology to fulfill consumer needs by introducing new products and entering new categories, driving penetration of the US car market and expanding our presence globally.

We continue to provide the best-in-class solution for the consumers’ desire for tracking, finding and protecting. Our solutions for people at risk who wander and for cargo tracking has been both well received. Most importantly our core stolen vehicle recovery solutions remain relevant to auto dealers, our international licensees and consumers. In the US, the national recovery rate for stolen vehicles have plummeted from a high in 1999 at 67% to 57% for 2008. Yet over that same period of time, LoJack has continuously delivered a 90% success rate. There are many Telematics base solution on the market that provide a variety of services but not has been able to match the recovery success for LoJack.

Before turning the call over to Tim, I want to highlight a recent recovery success story. In Southern California, our technology enables deputies with the Los Angeles County Sheriff’s department to uncover two major chop shops in a three day period. Two suspects have been arrested thus far, and stolen engines, transmissions and other vehicles parts belonging to at least 16 vehicles have been recovered. The suspect has been placing orders to local gang members and theft groups with stolen vehicles. I will now turn the call over to Tim.

Tim O’Connor

Thank you, Ron, and good morning everyone. Before I review the operating financial results for the fourth quarter, I’d first like to note a change in our segment reporting. Beginning with the fourth quarter of 2009, we’ll revise our segment reporting in line with changes we have made in our business unit structure. Our domestic and Boomerang businesses will be report in a combined North America segment, reflecting the integration of these two operations.

Our international segment will remain as is, encompassing all international licensee businesses and our wholly-owned operation in Italy. We are introducing another segment, which encompasses our diversified businesses, including LoJack SafetyNet and LoJack Supply Chain Integrity. These changes will be reflected in our 2009 10-K. Additionally this quarter we have introduced adjusted EBITDA as a metric. We believe this is an important measure in the evaluation of our operating performance as it excludes significant non-cash operating expenses. As a point of clarification, adjusted EBITDA is calculated beginning with our operating income and adding back depreciation, amortization and stock compensation expenses.

Moving onto the specific financial results, my comments will focus on the fourth quarter unless otherwise noted. Consolidated revenue for the quarter declined 26% from prior year levels to $35.6 million. Within our North America segment, US revenue in the quarter declined to 11% from prior year to $18.6 million on a 19% decline in unit sales. Average price per unit was up slightly driven by the lower mix of bulk installed units versus prior year.

US revenue also reflects approximately $100,000 of Royalties related to our agreement with Absolute Software compared to lots of $550,000 in the same period a year ago. In Canada, revenue declined 12% from prior-year levels to $3.3 million. Revenue in our international business in the quarter declined 42% from the prior year to $12.9 million on a 42% decline in unit shipments. Average price per unit was essentially even with 2008 Q4 levels. Our consolidated margin as a percentage of revenue in the quarter remained strong at 51% compared to 50.4% a year ago. This was supported by our workforce and benefit reductions in our operations organization coupled with our stable pricing.

In North America, gross margin dollars in the current quarter declined only 1% versus the same period last year resulting gross margin as a percentage of revenue improving to 51% compared to 45% in 2008. It is important to note that our fourth quarter 2008 gross profit includes approximately $600,000 of severance and related expenses associated with workforce reductions in our operations groups. International gross margin dollars for the fourth quarter declined 46% and gross margin as a percentage of revenue was 54%, slightly lower than the same quarter a year ago.

Operating expenses of $19.8 million for the quarter reflecting non-cash adjustment to depreciation of approximately $1 million associated with software development costs and other equipment placed in service in prior years. Excluding depreciation and amortization, operating expenses declined 14% to $16.8 million in the current quarter versus $19.5 million in the same quarter of 2008. The lower comparable spending reflects a savings of $2.7 million related to our workforce and benefits reductions which took place earlier in 2009. We believe that quarterly spending level of $16.8 million is a reasonable ongoing run-rate when adjusted for certain benefit add backs not included in Q4 spending. A benefit add back is approximately $1.4 million per quarter.

On a GAAP basis, the operating loss for the quarter was $1.6 million compared to an operating income of $3.1 million for the same quarter of 2008. Adjusted EBITDA for the current quarter was $2.2 million compared to $5.5 million for the same quarter in 2008. The net impact of a 26% revenue decline in the current quarter could not be fully offset by the significant cost reductions versus the prior year. Included in the net loss of $2.3 million for the quarter was approximately $200,000 of interest expense and $400,000 for taxes. The company generated approximately $5.8 million of positive operating cash flow in the fourth quarter.

In addition to the positive EBITDA, continued improvements in working capital, including lower inventories and accounts receivable provided the increased cash flow. Accounts receivables related to our international businesses increased in line with the sales increase on a consecutive quarter basis. This was more than offset by increased collections with our North American businesses. We have not experienced any significant write-offs in the quarter or the year. Inventory in the quarter declined $2.1 million driven by increased sales in our international businesses.

During the fourth quarter, we also entered into a new credit agreement with our lenders, which effectively replaces the credit agreement due to expire on December 31, 2009. The new credit agreement provides for multi-currency revolving credit facility in a maximum amount of $30 million with the right to increase that amount up to $50 million subject to certain conditions. As of December 31, 2009, we have approximately $13.5 million of debt outstanding against the new agreement and are in compliance with all financial covenants. Our cash balance as of December 31, 2009, was $36.5 million.

Before I turn the call back over to Ron, I’ll take care of a few housekeeping items. Capital spending in the quarter was $1.2 million, and depreciation including the adjustment was $3.3 million. Stock-based compensation in the quarter was $750,000. Lastly, we did not repurchase any shares in the fourth quarter.

I’ll now turn the call back over to Ron.

Ron Waters

Thanks, Tim. Both our North American and international businesses continued to stabilize in the quarter. We continue to believe that this stabilization is a positive sign for our core auto markets. Our North American business is widely driven by the US new car market, which leveled out in the fourth quarter of 2009, and began to grow, driven by the numerous manufacture incentive programs.

The seasonally adjusted annual rate of 11.2 million vehicles in December was well above the annual performance of 10.2 million vehicles for 2009. During the fourth quarter, dealers assisted by the manufacture driven promotions were clearly focused on moving inventory before yearend and this did impact the sales of aftermarket products like LoJack. However, the LoJack unit declined in the fourth quarter reflected a smallest year-over-year quarterly decline of the year indicating that our auto dealer business is in early stages of recovery. Our penetration of vehicle sales through new car dealers was 5.5% in the quarter and is consistent with the third quarter.

We remained very relevant to auto dealers and may continue to see LoJack as a profitable product for them and a good solution for their customer’s needs. Many are working with us as we enter 2010 on plans to recreate a momentum that we have prior to the downturn. For example, we are working with dealers to introduce a special program targeting their leased vehicles and we are re-introducing a scaled-down version of our bulk installation program to meet the needs of dealers as vehicle sales increase. Additionally, our new self-powered LoJack System is being well received as a perfect solution for newer vehicles for vehicle energy management is critical including hybrid and electric cars.

Based on our strong relationship with dealers and our flexible operations models, we remained poised to take advantage of the increase in vehicle sales which industry experts predict to be between 11 million and 11.5 million vehicles, up from 10.2 million in 2009. We do expect that the recovery will be slow and moderate and will be stronger in the second quarter of the year. Additionally, we are developing new programs to target the US car products, those vehicles already on the road, many of which are on the top stolen vehicle list of industry experts such as the National Insurance Crime Bureau. This initiative is in the early stages and will include programs from direct marketing to partner marketing.

Before moving on, I do want to address the Toyota recall, which will likely have some effect on our business as Toyota is one of our more highly penetrated mix. In the short term some sales inevitably will be lost, but we do expect that as business shifts from Toyota to other mix, LoJack will still be offered by dealers of those mix, especially Honda where we also have a high penetration. Industry experts have repeatedly indicated that any decline in market share for Toyota will be short term and that the brand will rebound, so we do not have long-term concerns at this point. Just this past week, Toyota announced the program to provide consumers 0% financing in order to drive sales.

During the fourth quarter we finalized the integration of our Boomerang tracking business in Canada into a single North American operation. As a result we’ve leveraged resources and now having more efficient business in Canada. For the year, the business in Canada delivered $1 million in adjusted EBITDA. Additionally, the transition from analog to digital technology is now behind us.

During the fourth quarter, our international business delivered a sequential increase in unit volume and revenue over the third quarter of the year as orders from our licensees strengthen. While this increase is in line with the cyclical licensee buying pattern, we see this as a strong indicator that our licensee business is stabilizing. South Africa, historically one of our largest licensees made its first significant purchase of the year in the fourth quarter.

We continue to work on expanding our international footprint with our new licensees from Belgium, Netherlands and Luxembourg, with our licensee in Spain and expansion at the Portugal, and with our licensee in Argentina for expansion into Chile. Our expectation is that these markets will become operational during 2010. We expect that as the global economy improves, our international licensees will continue to order in 2010 based on increasing demand in their local markets, in that we will deliver solid unit and revenue growth for the year.

Our business in Italy continues to show promise despite the economic challenges that slows our rollout there. During the fourth quarter our unit volume increased fivefold over this time last year, and our revenue is 2.5 times that of the third quarter of 2009, benefiting from the recurring revenue model in place. This is the second consecutive quarter that our operation in Italy has delivered this type of performance indicating that the business is taken hold.

We continue to add new subscribers through our new car dealers and insurance providers, and by selling to rental fleets. Additionally we have reached agreement with Maserati, and they are promoting LoJack as an improved parts of their dealer network in Italy as well as several other countries in Europe.

As I mentioned earlier, during the quarter we continued to invest in our strategic programs to diversify the LoJack business and provide long-term growth. We are achieving early stage milestones with the LoJack SafetyNet’s business, targeting those with Alzheimer’s or autism who wander.

Interest from public safety agencies, healthcare providers, associations and consumers remains strong. LoJack Supply Chain Integrity continued to make measured progress in the fourth quarter. The business delivered a modest sequential improvement over the third quarter and interest in the cargo security space remained strong.

During the fourth quarter, the LoJack Supply Chain Integrity solution enabled law enforcement in Canada to recover loan worth of over $1 million for a large customer. Feedback from cargo theft experts indicate that the incidence of cargo theft is increasing. We see all of this as a hopeful sign for the Supply Chain Integrity business.

In closing, I want to reiterate that our business has stabilized and our balance sheet is strong. We will continue to tightly manage our expenses and maintain our liquidity, leveraging cost reductions made in 2009 as we deliver growth. We are optimistic about the growth opportunities for our core business in 2010 and we are confident in our strategies for long-term growth.

We are well positioned to grow in 2010 as the economy improves, credit loosens and consumers, again, begin to spend. Based on our marked increase in revenue, we expect to deliver modest profit generating positive operating cash flow and sustain healthy margins. Our revenue growth will be gradual and concentrated in the second half of the year.

Rich, Tim and I will now take your questions.

Question-and-Answer-Session

Operator

(Operator Instructions). We will go first to Bill Dezellem with Titan Capital. Your line is open, please go ahead.

Bill Dezellem – Tieton Capital Management

Thank you. I have a couple of questions. First of all, if revenues this year ramp faster than what you are currently planning, would you anticipate if that falls through the earnings or do you accelerate your reinvestment strategy?

Tim O’Connor

Hi, Bill, this is Tim. I would -- if it accelerates versus plan I would say we would deliver to earnings.

Bill Dezellem – Tieton Capital Management

Thank you. And then the second question is, I think, in the opening remarks we heard reference to you folks looking into additional categories and we weren’t entirely clear whether that was just a broad long-term statement or whether we should be looking in 2010 to you all to be entering new categories?

Ron Waters

Bill, I think that it was just reinforcing the diversification efforts that we have disclosed in the past whether it’s Supply Chain Integrity, whether it’s LoJack’s safety net, I think with VLU satellite [ph] it did give us some opportunity to get into areas, and I think I mentioned in, like hybrid cars and electric cars and collector cars. So those would be areas that we have been challenged in the past, given the power drain and the installation complexity, I think that’s pretty much what we have been thinking.

Bill Dezellem – Tieton Capital Management

And then the final question is relative to the used car market, which I think you addressed for the first time on this conference call, I mean, that’s multiples the size of new car market. Would you discuss your strategy for entering that market and how over the course of next two to five years you see that potentially playing out?

Ron Waters

Well, I’m not going to get into how it’s going to play out in the future years. I think we see that as an opportunity, I think we view it as – first of all leveraging the return on the investments that we made from a CRM perspective, so from a direct perspective whether it’s auto enthusiast looking at car and driver, whether its owners of highly recovered cars, whether it’s upselling to existing customers, whether it’s getting into the – as I mentioned just previously, hybrid and collectors cars, and getting out at those folks who’ve already owned cars, I think they could continually see an opportunity with lenders and matching up their database with the attributes of the folks that buy LoJack’s AAA than other potential agreement, I mean we’ve already struck one agreement, we are getting that they are just being customer base, we may be able to sell LoJack.

Bill Dezellem – Tieton Capital Management

Those would be installed by the current dealers or did you anticipate expanding installation organization?

Ron Waters

We still think it could continually be through existing dealers or through our installation. We are having strong tie to our dealer base, we want to work with them as best as possible.

Bill Dezellem – Tieton Capital Management

Thanks for taking the questions.

Operator

And we’ll move next to Gregg Hillman with First Wilshire Securities Management. Your line is open. Please go ahead.

Gregg Hillman – First Wilshire Securities Management

Yeah, good morning, gentleman. I am a little bit new story, but maybe you could help me with Europe and International operations. What will it take to bring international operations up to like 50% of sales, and what do you consider to be the constraints to growth, let’s say just in some of the in Europe, Italy in particular?

Ron Waters

Well, I appreciate the question. I think, first of all, you need to look at our model, and many of our international units sold are to licensees, so we are selling to licensees and we are selling on to their consumers, to insurance and the like. So that has an impact on the amount of revenue that we are gaining. If you go back probably towards the end of ’08, I think our units are in fact sort of 50:50, but if I am not mistaken, and so some of our highly developed markets in South Africa, for example, I mentioned the South Africa, Venezuela and other one have been impacted either by economic downturn or currency issues given what’s going on in Venezuela. So, we think over time, and we see that starting in ‘10 that still come back to levels that looking for from an Italian perspective we are seeing growth. As I mentioned we have seen very good growth in the last two quarters and inflation has added the first quarter starting off well also. So that will us, I think we are trying to expand the footboard as I mentioned, and as we look in to the future we look further east to markets like Russia, China and India all contributed to the growth in our international arena.

Gregg Hillman – First Wilshire Securities Management

Okay. But you don’t have – are you going to go with the licensee model or with a full-year…?

Ron Waters

I think it will vary by market; it depends on the market. We really have three models in place. We have pure licensee mode. We have a licensee where we have invested in and share somewhat in the revenue, and we own markets such as Canada and Italy, and I think it will vary by market.

Gregg Hillman – First Wilshire Securities Management

Okay. Then going back to your prior conference call, when you had the barrier that’s independent, the battery of the car, how long does that battery last?

Ron Waters

Probably years.

Gregg Hillman – First Wilshire Securities Management

Okay. And what percentage of your car do you expect to be installed in -- is it going to be the detector [ph] model in the United States?

Ron Waters

I think it’s -- I think overtime will build. I think it’s somewhat dependent on cars and the sophistication of their electronic systems, as some cars may not need it. I think in some of the overseas market, again, a market like Argentina and South Africa given the efficiency from a installation perspective and covert nature and increased covert nature of it, it may get to a greater pickup.

Gregg Hillman – First Wilshire Securities Management

And then finally, in these various countries you are going into, do you have the cooperation of the police department in like your old LoJack model, or is it some sort of situation like Boomerang?

Ron Waters

Well, we have a relationship with law enforcement in Canada, I think the model of how we recover cars like dealing to our markets but, clearly a key attribute of our model is to go in and link with the police as best possible. So that’s law enforcement so, you see that as critical in moving forward into the market.

Gregg Hillman – First Wilshire Securities Management

And how are you linked with the police in Italy?

Ron Waters

We have relationships with them, and we’re out recovering the cars and then we’ll call them and they will react to the calls, so we jointly recover the car.

Gregg Hillman – First Wilshire Securities Management

And you tell them where the car is, they don’t have their own sensors, they don’t have any…?

Ron Waters

Some of the cars do, some of them don’t. It's clearly the United States is most developed as far as the unit in the cars.

Gregg Hillman – First Wilshire Securities Management

In the police cars?

Ron Waters

Yes.

Gregg Hillman – First Wilshire Securities Management

Okay. Okay, thanks.

Ron Waters

Thank you.

Operator

And we’ll move next to the side of Garrett King with Truffle Hound Capital. Your line is open, please go ahead.

Garrett King – Truffle Hound Capital

Hi. On the last call, you mentioned that you expected market penetration to increase because the cars programs was over, but am I hearing you correctly that now you’re saying the reason that didn’t was just because of the general economic climate was so bad?

Ron Waters

I think what we saw particularly in the latter part of the quarter was that the dealers were trying to move the cars as best possible and some of the aftermarket products were negatively impacted, and as I said our penetration for the year was pretty comparable to where it was at the end of third quarter.

Garrett King – Truffle Hound Capital

Okay. And my other question relates to the stock ownership by the management team, as of the last 14A Ron, I think you had less than 50% of your base salary in LoJack stock, and I guess what confidence can you give shareholders given that that your interests best align with theirs and that stock is undervalued now, even though no one on the management team is buying it?

Ron Waters

I think the purchasing and the like is a function of lack of (inaudible). I think if you look at the number of auctions and the like, and what’s happened somewhat to our performance share, I have a pretty significant linkage to the long-term performance of this company.

Garrett King – Truffle Hound Capital

Okay. I understand that you do have a significant interest in options but those -- I think that’s more of a situation where you’d be giving up the upside, if they don’t do well rather than sharing the downside that shareholders are sharing in, and the stock prices continues to stay where they are?

Richard Riley

I understand your point. Again I think -- my interests are aligned and we will continue to navigate [ph] my interest with those of the company, I feel very positive about the company.

Garrett King – Truffle Hound Capital

All right. Thank you.

Operator

(Operator Instructions) We will move next to side of Ali Hilali with Ingalls. Your line is open. Please go ahead.

Ali Hilali – Ingalls & Snyder

Hi, guys. Just a couple of quick questions. First of all, can you give us an idea what the loss was and the new or the presumably even potentially profit, in the new segment called other [ph] on an adjusted EBITDA basis?

Ron Waters

I can’t, Ali. If you want to ask your next question I will pull it now, I will get back to you.

Ali Hilali – Ingalls & Snyder

Okay. The next question was any idea about how Italy is doing?

Ron Waters

Well, I think Ali, as I mentioned we feel more positive about Italy now if you look at units sold during the quarter up significantly, I think four or five times. I think if you look at installations for the quarter, up 2.5 times if I am not mistaken. Revenue is starting to grow with the questions that it’s still a investment market, the answer is yes. But, we are starting to get attraction that would be the second quarter of -- rather a significant growth in that marketplace. We now have national coverage. In Italy, we have seen great success in south of Italy and given the separate in the south of Italy, so we are feeling positive.

Ali Hilali – Ingalls & Snyder

When do you suppose that it may be able to breakeven?

Ron Waters

I think some time towards the end of this year or beginning of next year.

Ali Hilali – Ingalls & Snyder

Okay. Great. And then lastly, the penetration always that was in my head was a 6% number?

Ron Waters

I think Ali, if you go back historically we have trended up over six.

Ali Hilali – Ingalls & Snyder

Okay.

Ron Waters

It has come down over a last year.

Ali Hilali – Ingalls & Snyder

Yeah.

Ron Waters

And I think it’s a function primarily of the west. I think if you look historically over time the growth that’s been there in the south to east. The west probably benefited most from some of the pre-installing programs that go back to '06 and '07. And the west is probably more negatively impacted from an economic perspective in many the other country with, housing bubble has been huge. And so I think it's impacted in available credit and the like. So that’s what a significant change have been from our penetration perspective.

Ali Hilali – Ingalls & Snyder

Okay, great.

Tim O’Connor

It's Tim. So the other segment from, I’ll give you the operating income standpoint, I don’t have the EBITDA in front of me, it was $2.2 million for the combined other segment.

Ali Hilali – Ingalls & Snyder

So the -- a loss…

Tim O’Connor

A loss of 2.2 for the year.

Ali Hilali – Ingalls & Snyder

For the year. I am sorry, what is it for the quarter, just the quarter?

Tim O’Connor

I don’t have it in front of me, we can do a follow-up call, I can give it to you on the call.

Ali Hilali – Ingalls & Snyder

Sure. No problem. Okay, thank you very much.

Ron Waters

Thank you.

Operator

And we’ll move next to the side of Roger Papazian with Morgan Stanley. Your line is open, please go ahead.

Roger Papazian – Morgan Stanley

Hi, good morning gentlemen. One basic question, I was thrilled with how your company operated and what your products did. It just seems to me the products that you use for automobiles ultimately will be just a fraction of what you will be able to do with other things besides automobiles, is that the possibility?

Ron Waters

I think – that’s why we fraction, again, we can debate whether it’s a fraction. We see a significant opportunity outside of the vehicle arena. If you recall going back probably two years the SEC has allowed us now to utilize our frequency for other categories such as what they’re taking – people wander, people of interest to the police, and we have focused in on LoJack SafetyNet to people who wanted at the starting point, totally a different business model, that’s a recurring revenue model. So that’s positive but it's a different selling model, and we’ve used 2009 as a sort of learning year and we hope to grow in the future.

Roger Papazian – Morgan Stanley

Thank you very much.

Operator

And we will move next to side of Gregg Hillman with First Wilshire Securities Management. Your line is open, please go ahead.

Gregg Hillman – First Wilshire Securities Management

Yeah, hello again. I was wondering domestically, what percent to your – the units are installed by dealers versus your network?

Richard Riley

It’s about 50:50.

Gregg Hillman – First Wilshire Securities Management

And is your network like a variable costs or is that a fixed cost, how does that work?

Tim O’Connor

It’s a combination. So, there is basically three installation models that we run that we have talked about before. It’s the certified dealer installed as you just asked the question on, and then we use a combination of our internal staff to do some installations and then we use certified third party installers that will have a particular region or particular group of cities that they will install on. So, we use three different installation models to do that. So over time we move much more to a variable approach than a fixed approach. So, if you look back three to five years ago, pretty much a 100% was a fixed cost, and over the past really two or three years we move more to a variable approach.

Gregg Hillman – First Wilshire Securities Management

What’s the ongoing cost right now for your fixed network, you know you have dedicated people to do that?

Tim O’Connor

We have not disclosed that.

Gregg Hillman – First Wilshire Securities Management

Okay, but it’s a significant cost?

Tim O’Connor

Yes.

Gregg Hillman – First Wilshire Securities Management

Okay. And then for the people that wander a thing [ph] what’s the size of the unit the people were -- are you going to able to make it smaller a form factor in the future?

Ron Waters

To, right now it’s a bracelet and that we see some opportunities in some of the research we’ve done during the past year to maybe make it somewhat smaller and aesthetically more pleasing decided from some of the feedback that we received from consumers.

Gregg Hillman – First Wilshire Securities Management

How is the weight?

Ron Waters

An ounce or so.

Gregg Hillman – First Wilshire Securities Management

So, it’s not intrusive to wear it?

Ron Waters

No, I think clearly from a -- so if you look at the two populations, you’ve got an Alzheimer populations, you’ve got an autistic children population. I don’t think from an Alzheimer’s perspective if they program it all. I think one of the things from an autistic children’s perspective, it is somewhat bulky relatively to a child and that’s really where the focus is in trying to aesthetically make it more pleasing and maybe reduce the size somewhat.

Gregg Hillman – First Wilshire Securities Management

And how long is the battery life?

Ron Waters

The battery life right now somewhere between 30 and 45 days, and we have a project under way to extend it to six months.

Gregg Hillman – First Wilshire Securities Management

Okay. And are there any other tracking things out there for Alzheimer’s patients right now?

Ron Waters

There are some competitive products from a GPS, GSM perspective. We don’t think they are as effective as we are.

Gregg Hillman – First Wilshire Securities Management

Okay. And I know in like 911, even with those firemen that thing -- when a fireman doesn’t something starts beeping on them, when they are in buildings like that, and I was wondering if you could have a product like that for people in their house when they don’t move they could start beeping and the police will come?

Ron Waters

It's not something that's in the current pipeline, and I think then going back to the previous caller, we put focus on people who wander, I think there is some other areas that were extended by the FCC to take advantage of our network, whether it's people of interest to the police or maybe has this materials maybe were area that we go into next.

Gregg Hillman – First Wilshire Securities Management

Okay. So basically you are just kind of let going down the learning curve on people who wander and how to market it, and whether to do infomercial or?

Ron Waters

Absolutely. Just simply the some of the model involves not only the police and training the police but you are out talking to caregivers and signing the caregivers up, and then right now we got agencies, they are helping us from a battery change perspective, so it’s a little bit more complex than the dealer model, and I think you said it back then – where I said it’s been a year of learning, I think, we feel still very good about the market.

Gregg Hillman – First Wilshire Securities Management

How big is the market?

Ron Waters

The Alzheimer's population is some 55 million people in US.

Gregg Hillman – First Wilshire Securities Management

That sounds a little bit higher. It's too high. 55 million people in the United States have Alzheimer's disease. That can't be right?

Ron Waters

I am sorry, 5.5. I apologize.

Gregg Hillman – First Wilshire Securities Management

Okay, 5.5 million. And what's the number of autistic kids?

Ron Waters

500,000 or so.

Gregg Hillman – First Wilshire Securities Management

Okay. And I think the autistic kids wander too.

Ron Waters

Autistic children wander. I think one of the learning during the past year is that that’s a insignificant concern to parents. Sometimes more of a concern in Alzheimer's patients are to their caregivers.

Gregg Hillman – First Wilshire Securities Management

Okay, great. Thanks for your comments.

Ron Waters

Thank you.

Operator

And we will move next to the side of Bill Dezellem with Tieton Capital. Your line is open, please go ahead.

Bill Dezellem – Tieton Capital Management

Thank you. Actually one of my follow-ups does tie in with SafetyNet. And can we start back please, and would you discuss your long-term strategy with SafetyNet, and then specifically identify the initiatives that you are going to be working toward that long-term strategy, specifically in 2010?

Ron Waters

Well, I think, the long-term strategy is, we think it’s a significant market in the US. And we think there is a market in certain other countries as well, and it's already had some interest. Our focus continues to be the US market given the size of the population. I think in the current year the focus is, A, making sure that we understand the consumers well and better. I think we did a lot of work in 2009 to enhance this. I think there is some product enhancement that I mentioned one -- mentioned tier one statically (inaudible) it somewhat more pleasing and then extending the life of the battery, so that’s critical. I think as we go into this year it will be focused from a market perspective trying to take advantage rather than spreading it around. We are going to focus in on certain markets that we fully were attracted.

Bill Dezellem – Tieton Capital Management

Thank you. And then, circling back to the used car market, have you ever addressed the used car market or tried to go after that market in the company’s past history?

Ron Waters

Not particularly, I think from a dealer perspective and pre-owned cars is an the area of that -- probably increased in focus somewhat over the last couple of years and we have done some direct selling, but we are enhancing our efforts and putting some more support behind the program to see if we can take advantage of the opportunity.

Bill Dezellem – Tieton Capital Management

And then finally, would you please discuss the dynamics of your differed revenues, both the short-term and long-term revenues?

Ron Waters

Bill, can you be more specific with your question?

Bill Dezellem – Tieton Capital Management

Sure. If you would discuss not only how they come about, but also differed revenue, long-term differed revenue in particular has been drifting down, what it means, and I guess equally importantly what can you do to build that differed revenue in the future?

Tim O’Connor

Sure. In the domestic business, the differed revenue takes two forms, there is one in Canada and that’s really prepaid subscription. It’s a subscription model in Canada, so its prepaid subscription and it can be anywhere from a year to five years that people are signing up for the subscription. So, the current portion of that would be in the next 12 months; we will report that as current differed and then anything beyond 12 months would be reported as long-term differed.

In the domestic business or the US business, there is three products that we sell that we defer revenue along. The first and largest is our early warning device which when we sell a LoJack came at roughly 20% of our units sold with an additional early warning device on it that allows the consumer to be communicated to whether it’s text messaging, or voicemail message or an email. When their cars have been moved and they don’t have a particular key fob within the proximity of the car. And so we differ that revenue across the five-year period, which is typically the average life that someone owns their car. And so that’s the biggest portion of the domestic or the US differed revenue. And then we have two warranty products that we also differ for different periods of time from the warranty. And we the decline in that is really in line with the decline in the unit sales, so as your percentage – both are sold at the base LoJack product, so as the base LoJack product’s revenue goes down the differed revenue go down in line with that.

Bill Dezellem – Tieton Capital Management

Great. Thank you both.

Tim O’Connor

No problem.

Ron Waters

Thank you.

Operator

And we’ll move next to the side of Ali Hilali with Ingalls. Your line is open, please go ahead.

Ali Hilali – Ingalls & Snyder

Hi, sorry, I had one quick follow-up question. You put an 8-K out, which referred to the compensation committee’s meeting on the 11th of February and about EBITDA target, can you share with me what those EBITDA targets are?

Tim O’Connor

No, we don’t disclose those Ali.

Ali Hilali – Ingalls & Snyder

Okay.

Tim O’Connor

And just – since I have you on the phone, I’ll give you the numbers you were requesting before.

Ali Hilali – Ingalls & Snyder

Okay.

Tim O’Connor

The other category – the operating loss for the quarter was $700,000 and the year actually 2.7, I think I gave you 2.2.

Ali Hilali – Ingalls & Snyder

Okay, great. Thank you.

Operator

And I am showing we have no additional questions in the queue at this time. (Operator Instructions) And I am showing, no we still have no questions in the queue at this time.

Ron Walters

All right. Thank you all for participating in the call this morning. We appreciate your interest and we look forward to talking to you in one week when we announce our first quarter earnings. Have a great day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: LoJack Corporation Q4 2009 Earnings Call Transcript
This Transcript
All Transcripts