Global Traffic F2Q08 (Qtr End 12/31/07) Earnings Call Transcript

Global Traffic Network, Inc. (GNET)

F2Q08 Earnings Call

February 12, 2008 8:30 am ET

Executives

David Burke – KCSA Strategic Communications

William L. Yde, III – Chairman of the Board, President & Chief Executive Officer

Scott E. Cody – Chief Financial Officer & Chief Operating Officer

Analysts

Richard Ryan – Felti & Company

Analyst for Jason Helfstein – Oppenheimer

Ingrid Ebling – JMP Securities

Rob Damron – 21^st Century Equity Research

Walter Ramsey – Walrus Partners, LLC

[John Grouper – Grouper McPhee]

Presentation

Operator

Good day everyone and welcome to the Global Traffic Network second quarter fiscal 2008 earnings conference call. Today’s conference is being recorded. At this time I would like to turn the conference over to David Burke of KCSA. Go ahead sir.

David Burke

Good morning everyone and thank you for joining us today and again welcome to the Global Traffic Network fiscal second quarter 2008 earnings conference call. Representing the company are Bill Yde, Chairman and Chief Executive Officer and President and Scott Cody, Chief Financial Officer and Chief Operating Officer.

Before I turn the call over to Bill I will read the following Safe Harbor statement. This conference call contains statements that constitute forward-looking statements. These statements reflect the company’s current views with respect to future events. These forward-looking statements involve known and unknown risks, uncertainties and other factors including those discussed under the heading risk factors and elsewhere in the company’s annual report and 10K that may cause actual results, performance or achievements to be materially different from any future results, performances or achievements anticipated or implied by these forward looking statements. The company does not undertake to revise any forward-looking statements to reflect future events or circumstances. With that I’ll turn the call over to Bill Yde, Chairman, Chief Executive Officer & President.

William L. Yde, III

Thanks to everyone joining us this morning. I’m going to review some of the highlights of our second quarter and provide an update on our accomplishments during the past few months and then I will turn the call over to Scott for a complete review of the financials. We had an outstanding quarter. We grew revenue, we grew profits, we grew [inaudible] and we grew new business. Our revenues grew 61% over the second quarter of fiscal 2007 to a record $13.2 million. This revenue increase drove a substantial increase in profitability as we achieved net income of $1.1 million for the quarter. The improved top and bottom line performance we’ve seen over the last several quarters is evidence of the solid business model we’ve established and the successful implementation of this model in both Australia and Canada.

We’re in the process of rolling out service in the United Kingdom and are confident that this effort will yield results similar to what we have seen in our first two markets. In Australia we have massive reach into the country’s primary media markets, building a dominant network of ad space inventory for which our sales force is taking advantage of the strong demand that exists. The growth in Australia has been instrumental in our ability to fund growth in both Canada and the UK which we expect will be important contributors to our growth as we continue moving forward. Our Canadian traffic network subsidiary continues to mature and is becoming an increasingly important part of our business. We believe that we have done an excellent job of enhancing our product offering over the past several quarters and these efforts are beginning to bear fruit as demand for our advertising inventory and service continues to grow. While not yet profitable, we are certainly moving in the right direction as our sales results continue to grow at impressive rates.

In addition, we remain encouraged with the progression of our business in the United Kingdom. While still an early stage market we have made a great deal of progress since our initial investments into the UK. We currently provide traffic reports to 10 radio stations, nine of which have become affiliated with us subsequent to December 31, 2007. We have a very solid foundation on which we continue building in the UK and we believe a great deal of potential exists in this market. In addition, we also recently filed a patent application related to our non-broadcasting efforts. We are developing a wireless application that automatically sends traffic updates to mobile phone users as they approach problem areas without the need to request information or pre-program routes. These alerts will be sent to a user as a ringtone on their mobile phone eliminating the need to answer the phone or have any interaction that may distract the driver. We expect to begin testing this application during the spring of 2008. The application is unique and has worldwide potential for us.

Looking ahead we are well positioned for continued growth and success in each market we serve and we are continuing to gain strength as an organization. We look forward to the challenges and opportunities that lay ahead and are excited about what the future holds for the company. With that I’ll turn the call over to Scott for a quick review of the financials.

Scott E. Cody

Good morning everyone. For the fiscal second quarter revenue increased 61% to $13.2 million from $8.2 million in the year ago period. Revenue from our Australian operations increased 54% and revenue from our Canadian operations increased 114% compared to second fiscal quarter 2007. While revenue continued to be aided by the weakening of the US dollars, both markets had vigorous growth absent the impact of currency fluctuations. Australian revenue increased 43% when measured in Australian dollars and Canadian revenue increased 85% when measured in Canadian dollars; both compared to the year ago quarter.

Adjusted operating income which we define as operating income plus depreciation and amortization expense tripled to $2.1 million for the recent quarter compared to $700,000 in the second quarter fiscal 2007. Net income for the three month period ended December 31, 2007 was $1.1 million compared to net income of $44,000 in the same period last year. For the six months of fiscal 2008 revenue was $24.1 million an increase of 68% compared to $14.3 million in the six months ended December 31, 2006. Revenue from our Australian operation increased 55% to $21.3 million while Canadian revenues doubled to $2.9 million. While revenue for the six month period was also aided by the weakening of the US dollar, both markets had impressive growth absent the impact of currency fluctuations. Australia revenue increased 51% when measured in US dollars and Canadian Revenue increased 78% when measured in Canadian dollars, both compared to the year ago six month period.

Adjust operating income for the period was $2.7 million compared to an adjusted operating loss of $3,000 in the first six months of fiscal 2007. Net income for the six months ended December 31, 2007 was $1 million or $0.06 per basic and diluted share. This compares to a net loss of $771,000 or $0.06 per basic and diluted share for the first six months of last fiscal year.

That concludes our prepared remarks. Now, we would like to open the call to questions.

Question-and-Answer Session

Operator

The question and answer session will be conducted electronically. (Operator Instructions) We’ll pause for a moment to assemble the queue. We’ll take our first question from Rich Ryan with Felti.

Richard Ryan – Felti & Company

Can you talk a little bit about the penetration in Australia, where you are on the traffic side and on the news side, if that’s ramping up.

William L. Yde, III

The penetration in Australia in the major markets around Australia we literally have every station except for two in the major markets in the country. We believe that sometime during the year we’ll add those to our base for traffic. At this point in time in the year, January, February, March is seasonally our lower point of revenue so there’s no reason to add additional affiliates until you get past this period. But, that would give us nearly every major station in the major markets in Australia. In news, Scott can probably tell you the exact number, but I think we’re at 22 stations still and we have had ongoing discussions in the news department but, again until we get past first quarter no point taking on additional news affiliates.

Richard Ryan – Felti & Company

Is that potential north of 100 stations potentially?

William L. Yde, III

Yeah. I believe when we mature, news will be north of 100 stations.

Richard Ryan – Felti & Company

Is the demand for there for the news as much as it for traffic?

William L. Yde, III

Yes, the demand is still there for news and with that it will provide the growth for the next five years. In Australia, the major markets are pretty much covered as far as traffic. I think you’ll also see some growth in some of the smaller markets in Australia especially when it comes to news. In smaller markets doing traffic reports is kind of silly almost.

Richard Ryan – Felti & Company

Switching over to UK, the affiliate UKRD, the nine stations, can you talk a little bit about that relationship and what that has done to our current inventory there?

William L. Yde, III

We started out a little early there, we opened our first station was in Oxford just outside of London. The UKRD is a group of nine radio stations all in largely suburban areas around London. Scott, I think has the number, I think maybe we do 450 reports a week.

Scott E. Cody

Yeah, plus some weekend stuff, I’d say it’s 450.

William L. Yde, III

It’s a really good place for us to start and showcase our product in the United Kingdom so we’re really excite about that affiliate

Richard Ryan – Felti & Company

Do you need to add incremental expenses for these nine stations in addition to what you already have over there, the number of people?

William L. Yde, III

Yes, we did have to add a number of reporters to start broadcasting these reports on the radio stations. That will be the core group as we add additional affiliates which we have quite a bit of interest right now from other affiliates around. These reporters that we’ve hired will be able to gain economies of the scale by having them do some of the news stations as well.

Operator

Our next question comes from Jason Helfstein with Oppenheimer.

Analyst for Jason Helfstein – Oppenheimer

Two quick questions for you, first are you seeing any signs of an economic slowdown in Australia? From what we’ve been hearing growth seems to be good especially in advertising but, wondering if there are any signs you’re seeing and if this had any impact on the quarter? Then, the second question is about the tax rate. Taxes seem to be a little bit higher in the quarter than we anticipated and just wondering about how we should think about that going forward?

William L. Yde, III

I’ll let Scott handle the tax question but, there’s absolutely no indications, a lot of people are saying Australia is far more prepared to handle a worldwide economic slowdown than anybody. They still have unbelievable demand from China and the Asian regions for a lot of their minerals, it’s a mineral rich country and they tend to be better in economic downturns. But, the country has a budget surplus, it’s got a surplus in its trade balance, it’s economically very strong. We’ve seen no indication in the advertising side about any kind of slowdown. Our billings for the January, February, March quarter are substantially ahead of where we expected them to be and our advanced billings going into the fourth quarter of the year are ahead of where we’ve ever seen them. So, I haven’t seen any impact whatsoever. We are certainly keeping an eye on it but we haven’t seen it yet.

Scott E. Cody

In regard to the tax rates, basically Australia income is fully taxable at about 30%. That is the statutory rate in Australia and we have very little differences in Australia that would impact that rate one way or another. I think our effective tax rate was 30.2% for the quarter. You should look at that going forward, the thing that would probably impact the tax in the model is the allocation of the income so if you expect more of our income came from Australia then perhaps you’d model that our taxes would be higher than you would model as well. Whereas if more comes from Canada and UK where we do not recognize the tax benefit of those lost carrier boards then the overall impact on the model would be lower. Is that helpful?

Operator

Our next question comes from Ingrid Ebling with JMP Securities.

Ingrid Ebling – JMP Securities

I was wondering if you guys could provide any guidance for the upcoming quarter or for the remainder of the year and when you expect to see some revenue streams to come in from the UK?

William L. Yde, III

With respect to the UK we have just recently hired a sales person and we’ve been training him in Australia for the past couple of the weeks to start hitting the ground in the UK. I don’t see that you’ll see any revenues in the January, February, March quarter as we’re just putting these stations. I think you could expect to see very small revenue in the April, May, June quarter but nothing significant yet.

Scott E. Cody

Right now we’re not issuing any guidance. I don’t think there is anything that is out there that is particularly disconcerting to us that has been published. I think we’re pretty much on the consensus for this quarter and obviously the reason we don’t do guidance is because our business is so fluid because of expanding UK, adding stations, things like that. But, I think everything is on track based on what people have been thinking about us.

Ingrid Ebling – JMP Securities

In terms of turning profitable in Canada, what type of timeframe? I think a few months ago you were talking 12 to 18 months, are you still on track for that, do you think? And, how are the sell out rates when you get down to that?

Scott E. Cody

I think that’s a reasonable time frame for Canada. The sell out rates have actually jumped up quite a bit. We did about 47% last quarter which last year for the whole year we did 29% and the rate was up to about $38 a spot and our metro spots were up around $49 a spot. So, clearly we’re making progress in Canada along those lines and we still obviously have plenty of inventory. One of the challenges is to just to try to manage the growth on the station side while managing sales growth.

Ingrid Ebling – JMP Securities

What’s the station count now in Canada?

Scott E. Cody

71.

Ingrid Ebling – JMP Securities

Then the number of stations [inaudible] reports.

Scott E. Cody

The same five.

Ingrid Ebling – JMP Securities

Something I guess to Australia, can you talk about the sell out rates in the December quarter and how the pricing is holding up?

Scott E. Cody

We ad increases out there as well in about 84% round numbers and the rate was probably about $120 net and that is a blend of about $152 net on our metro inventory and about $27 on our regional.

Operator

We’ll take our next question from Rob Damron with 21^st Century Equity. Please go ahead.

Rob Damron – 21^st Century Equity Research

I wanted to talk a bit more about the UK market and the competition there and the opportunity for acquisitions. Can you just give us a little color there?

William L. Yde, III

We’ve been in negotiations with the competition for most of this month, nothing yet to report but we’re still negotiating with them. I would hope that sometime in March we’d be able to get back with you and be able to announce one way or another which way we’re going on that attempt.

Operator

(Operator Instructions) Our next question comes from Walter Ramsey with Walrus Partners.

Walter Ramsey – Walrus Partners, LLC

I’m sorry I got on a minute or two late, you were in the middle of discussing the new cell phone technology. Can you kind of explain how that works and whether you need a partner for that and how much of an investment you’re looking at?

William L. Yde, III

It’s actually pretty neat. Basically, what we’ve done is built a system whereby you have a buffer zone around your car and we geo code and plot all the accidents in the area against cell towers and then as your car reaches one of these cell towers, within a certain distance safety zone, it actually just rings your phone and gives you the traffic report. You don’t have to pick it up, you don’t have to answer it, you don’t have to run an application. The advantage that we have in this over anybody else is that there’s tons and tons of all kinds of [LPF] applications running all over this country but all of them either require GPS or an application to be running on your phone and those two things are both cost and volume restrictive for the major phone companies. Right now we don’t have a lot of money in this but we have a lot of interest from almost all of the major phone companies. I think this will be a very nice business for us without having to invest a lot of money. We have plenty of money on our own right now and probably don’t need to take a partner on to do this although you will certainly see us partner with the major phone companies to do this. We’ll bring the traffic and they’ll bring the platform of the mobile phones.

Walter Ramsey – Walrus Partners, LLC

What type of time horizon do you foresee there?

William L. Yde, III

We’re going to be testing that this spring and we’re hoping to roll it out in calendar 2008, probably late calendar 2008.

Walter Ramsey – Walrus Partners, LLC

In Australia?

William L. Yde, III

Australia – this is actually available to us in the United States as well.

Walter Ramsey – Walrus Partners, LLC

Oh, no kidding. Okay.

William L. Yde, III

That’s why we filed the patent in the United States.

Operator

(Operator Instructions) We’ll take our next question from [John Grouper] with [Grouper McPhee].

[John Grouper – Grouper McPhee]

I might have missed this but what’s the status of your big acquisition in the UK? I haven’t heard anything on that.

William L. Yde, III

Scott and I just got back from UK last week. We were over there with our attorneys negotiating. We just don’t have anything to announce yet. We’re hoping that we’ll be able to announce this in March.

[John Grouper – Grouper McPhee]

Are you sort of a part on price? Or, they don’t want to sell? What’s the hang up?

William L. Yde, III

I think the biggest – we aren’t apart on price. I suppose the biggest hang up is because we’re dealing with a competitor the biggest part of our discussion is how much of their information they want to share with us. In doing due diligence on a competitor they are extremely sensitive because they feel we’re going to come in and take all their business away so that’s been the toughest thing for us to negotiate. Normally, when you buy a company you go and do due diligence and you go buy it. In this case, if we come and do due diligence we’re eyeing 100% of the information necessary to compete with them so I think that’s our difficulty.

[John Grouper – Grouper McPhee]

But, you think you’ll acquire them in March? Or, you think you’ll know by March.

William L. Yde, III

We’ll know by March.

Operator

There are no further questions at this time. I’d like to turn the conference back over to Mr. Bill Yde for any additional or closing remarks.

William L. Yde, III

Thank you. We did have a fabulous quarter and like I said before I think we grew in all areas. We grew our revenue, we grew our profits, we’ve entered new business segments and we’ve added affiliates. Our business model is working well and we’re looking forward to continued success in the next couple of quarters. Thank you.

Operator

That concludes today’s teleconference. Thank you for your participation. Have a good 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: [e-mail]. Thank you!