LoJack Corporation Q2 2008 Earnings Call Transcript

LoJack Corporation (LOJN)

Q2 2008 Earnings Call

August 6, 2008 9:00 am ET

Executives

Richard Riley – Chairman, Chief Executive Officer

Ronald Waters – President, Chief Operating Officer

Michael Umana – Senior Vice President, Chief Financial Officer

Analysts

Jeff Leahy – Morgan Joseph

Steve Dyer - Craig-Hallum

Bill Dezellem - Tieton Capital

Paul Coster - J.P. Morgan

[David Delio - Canaccord Adams]

[Objay Satigrowni - Manning Napier]

Presentation

Operator

Welcome to today's LoJack Corporation second quarter results 2008 conference call. (Operator Instructions) I would now like to turn the call over to Paul McMann.

Paul McMann

The moderator today is Richard Riley, Chairman and Chief Executive Officer. He will be joined on the call by Ronald Waters, President and Chief Operating Officer and Michael Umana, Senior Vice President and Chief Financial Officer. An archive of the webcast will be available through LoJack.com in the investor relations section.

Any of our 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 forward-looking statements and the 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, 2007. I'll now turn the call over to Richard Riley.

Richard Riley

I'll begin the call today with a few comments on our overall performance for the second quarter. As part of that overview, I will touch on the state of the broader domestic auto market which has been the subject of quite a few news stories over the past several weeks. Finally, before turning the call over to Mike and Ron, I'll provide an update on our guidance for the year.

Mike will then review the detail around our specific financial performance for the quarter and Ron will provide some insight into our operations and our ongoing progress to leverage the powerful LoJack brand and further diversify the business. After that, we will open up the call for your questions.

Earlier today, we reported on our financial performance for the second quarter. Consolidated revenue for the quarter was $51.4 million down $6.4 million or just under 12% from the prior year. While revenue in our international business for the quarter was up 7% over prior year levels, our domestic business was driven lower by the deteriorating auto, construction and motorcycle markets. After a disappointing first quarter the broader domestic auto market deteriorated in each succeeding month in the second quarter on ever lower consumer confidence, record high gas prices, high consumer debt, falling home values and tight credit.

Based on this disappointing performance in the second quarter, industry experts are now forecasting a domestic auto market of 14 million vehicles for the full year, down dramatically from the 15 million vehicles expected at the end of the first quarter and almost 16 million vehicles forecasted at the start of the year. At this new forecasted level the domestic auto industry is on track for its worst year in 14 years.

Complicating the general auto industry outlook for LoJack is the fact that our single largest market, Southern California, was the hardest hit market, suffering a decline that was substantially higher than the national trends. Our rapid decline in the domestic auto market resulted in sharply lower earnings for the quarter as compared to the record levels in the prior year. Mike will cover this in some detail in a few moments.

The current domestic auto market trends reinforce the need to make the necessary investments to diversity the company out of its historical and exclusive reliance on the domestic auto industry. While such new initiatives take significant investment and years of hard work, we are fortunate that we started a more aggressive approach in the areas of international, construction equipment, motorcycles, laptops, cargo and now targeted people tracking over the last three to five years.

Our focus on the international market provides some relief in the quarter that Ron will discuss shortly. We do expect to generate double digit revenue growth in the international business in the back half of the year.

While the motorcycle and construction businesses are suffering from the same powerful and broad based economic factors that are affecting the domestic auto market in 2008, they continue to demonstrate a clear and compelling customer need, strong underlying economics for both LoJack and the customer and solid potential for unique growth in better economic times.

We've also pushed forward in expanding the powerful LoJack brand; develop new businesses in tracking laptops through our relationship with Absolute Software, in tracking cargo through our continued investments and ownership and SV integrity. Ron will touch on the progress of that integrity and our recent additional investment in this growing business during his comments.

In addition, during the current quarter we acquired the assets and customers of a company that tracks patients with Alzheimer's and Autism. The product solved a critical need in tracking such patients who wander away from caregivers. With the growing number of patients afflicted with these disabilities, we are excited to be in on this expanding marketplace. While each of these initiatives contributed positively to our revenue performance during the second quarter they are not yet large enough to offset the results of the still dominant domestic auto business.

While we are not currently of significant scale in these new initiatives we are that much closer to our investments over the last several years. Each of these new initiatives is demonstrating solid growth and strong long term revenue profit potential. In addition, they further help to expand and reinforce the powerful LoJack brand.

In April, we provided guidance based on existing auto industry expectations for new vehicle sales. As a result of the declining expectations for domestic new vehicle sales, we are updating our guidance. For 2008, we now expect revenue to be between $203 million and $208 million, net income to be between $11 million and $12 million, earnings per fully diluted share to be between $0.62 and $0.67 and gross margin as percentage of revenue to be at 54% for the year.

Our EPX estimates include a non-cash charge of $0.04 per fully diluted share related to the write down of a portion of our investment and SV integrity during this quarter. Ron will touch on that in his presentation.

We recognize our current guidance reflects a much stronger performance in the second half of the year. We do anticipate double digit growth in our international business in the back half of the year and expect that year-over-year declines in the domestic auto business will be slightly lower than those in the first half of the year.

With that I will turn the call over to Mike.

Michael Umana

We'll start by reviewing our unit comps and on a consolidated basis excluding Boomerang, unit sales decreased 4% quarter over quarter. Domestic unit volume decreased 16% for the quarter while international unit volume increased by 7% in the quarter.

Our second quarter consolidated revenue decreased by 12% to $51.4 million. Our domestic revenue declined 20% in the quarter to $32.6 million, and our international revenue in the quarter increased by 7% to $13.3 million.

Boomerang tracking had revenue of $5.2 million and that was consistent with the same period last year. Boomerang's revenues were down approximately 9% in constant currency quarter over quarter. For the quarter, our consolidated gross margin dollars declined by 19% to $27.3 million and our gross margin as a percentage of revenue was 53% compared to 58% for the same period in 2007. For the quarter, our domestic gross margin dollars decreased 26% and gross margin as a percentage of revenue decreased to 55% compared to 60% for the second quarter of 2007.

The single largest reason for the domestic gross margin percentage decline was due to lower domestic dealer volumes and to a lesser extent, a half million dollar decline in Absolute Software related revenue as a result of the decrease in Absolute Software share price since the end of Q1 2008. As such, in the second quarter of 2008, we recorded essentially no revenue related to Absolute Software compared to approximately $500,000 of revenue in the same quarter one year ago.

International gross margin dollars increased 2% in the second quarter and gross margin as a percentage of revenue was 53% versus 56% one year ago. The mix by licensee and by product contributed to the percentage decrease as well as increased operations costs in Italy in the quarter.

Boomerang gross margin dollars were $2.3 million and that's down $400,000 and that's versus the second quarter of last year. Gross margins as a percentage of revenue at Boomerang were 43% compared to 50% in the second quarter of 2007. That decrease was primarily due to higher product costs related to the roll out of new, more sophisticated technology and our analog to digital conversion.

To summarize, breaking down the approximate 500 basis point decrease in consolidate gross margin percentage quarter over quarter, the reduction in domestic units was the single largest driver at just under 400 basis points. Lower average revenue per unit represented approximately a 100 basis point decrease. Lower Absolute Software related revenue was approximately a 50 basis point decrease and those decreases were partially offset by reduced product costs and a number of other smaller items.

Operating income for the second quarter declined to $2.2 million from $9.9 million the same quarter one year ago. Sequentially, from Q1 2008, our operating income increased from $1 million to $2.2 million. Net income declined to $1 million for the second quarter and earnings per fully diluted share declined to $0.06 compared to $0.35 the same quarter a year ago.

During the second quarter 2008, the company repurchased approximately 834,000 shares at an average price of $9.63. During the six months ended June 30, 2008, the company repurchased approximately 1.3 million shares at an average price of approximately $10.83. As of June 30, 2008 the company had no repurchase authorities under the 10B5 trading plans and $1.7 million available for other repurchases.

Our second quarter auto dealer bulk installations represented approximately 20% of total dealer installations. This was down 2% sequentially from the first quarter of this year and down 1% from the second quarter of 2007.

Our capital expenditures in the quarter were $1.6 million. Our depreciation and amortization in the quarter was $2.3 million. Our net cash provided by operating activities was $3.3 million.

We expect our fully diluted shares outstanding to be approximately $17.5 million for the year and we continue to expect our 2008 tax rate to be approximately 25%.

I'll now turn the call back over to Ron for some further comments.

Ronald Waters

I would like to build upon Rich and Mike's comments and discuss our core domestic business, our international progress and provide an update on our continued diversification efforts.

As you know, we are in the midst of a very difficult time for the domestic auto market, but I do want to highlight two bright spots for the quarter that reflect how we are managing the challenges before us. First, our year over year domestic unit volume decline in the second quarter was less than that which we experienced in the first quarter this year, despite increasing unit volume declines in the auto industry. Second, we delivered a sequential increase in both our gross margin dollars and percentage in the second quarter compared to the first quarter of this year.

We are confident that we are focused on the critical areas with the right programs to mitigate the severe drop in domestic auto sales, including our business tracking with those OEM's that are gaining market share, mainly Toyota and Honda. Our growth in these vehicles is outpacing the overall industry growth. Following industry trends, we are increasing both our penetration of pre-owned vehicles which now are approaching approximately 30% of our volume year to date.

We are well positioned against recent industry trends regarding the types of vehicles being sold as our volume skews to non-luxury vehicles and our volume skews to cars not trucks and SUV's. And leasing has not been a substantive part of our business which is proving beneficial as the OEM's de-emphasize their leasing programs.

Dealers continue to view LoJack as one of the solutions to profitability challenges they face. We continue to be focused on those areas which provide the greatest potential to increase domestic unit volume and revenue, building volume with national accounts, developing our pre-installed program to address the cash flow concerns of dealers, and target both certified pre-owned vehicles and fuel efficient vehicles, focusing on import brands with increasing market share such as Toyota and Honda, and leveraging our existing auto sales force to build the business in the motorcycle and construction markets as well.

Both the motorcycle and construction business continue to be impacted by the tough economy. Our commercial unit volume was down 31% compared to the prior year and our motorcycle unit volume was essentially the same as the prior year. Our motorcycle volume does reflect a sequential improvement compared to the first quarter of this year in which our unit volume declined 17% compared to the prior year.

To mitigate the negative macro trends in the domestic auto industry, we are actively controlling our costs and managing our infrastructure. We have a particular focus on SG&A to align more closely with the new sales expectations.

We are pleased with the performance our international business this quarter. Our international unit volume increased 7% over prior year driven by the success of several of our larger licensees in Latin American and Africa who continue to increase their market share. We expect that a double digit increase in our international unit volume for the year will partially offset the impact of declines of domestic business.

In Italy, we continue to make progress, signing on new dealers, partnering with new OEM's, developing marketing relationships with the insurance companies and expanding our law enforcement network. In March and April, we began to see solid unit growth but that trend did not continue into May and June. Economic challenges in Italy are negatively impacting the auto business. As a result, our growth has slowed. However, we do believe that the progress in the areas that I've just noted will enable us to address the economic challenges and continue to grow the business in Italy. Given the noted challenges, it may take longer to reach profitability in Italy than originally expected.

Boomerang tracking continues to be focused on the required transition from analog to digital technology and its managing retention of their subscriber base. They are operating in difficult market conditions as well. The need to convert our customer base from analog to digital required that our internal metrics separate installations for truly new customers from installations related to existing customers who are transitioning from analog to digital products. Based on these metrics, our unit growth in the first quarter was more modest than originally reported and the actual performance of the second quarter reflects the year over year decline of 19%.

We believe that this decline resulted from a shift in the Canadian auto market during the first quarter to compact and sub-compact vehicles related to rising fuel prices. These are not vehicles where Boomerang has had a high sales penetration in Ontario through the dealer channel where it's had a strong presence in terms of insurance mandates in Quebec. We're actively developing programs to address this shift.

In China, we are in the process of identifying a new licensee who can build on the preliminary work done by LoJack in the market. As previously announced, we terminated LoJack's license agreement with our prior licensee in China and are pursuing arbitration in Boston under the rules of the American Arbitration Association to enforce our post-termination rights. At this point in the process it is too early to predict the outcome.

As Rich noted, our challenges with the domestic auto market clearly demonstrates the need to continue our efforts to diversify the LoJack business and we have made progress in this area. We invested an additional $1.8 million in SC integrity and increased our ownership to approximately 60%. Along with the two other primary investors, one of whom is managing the company, we are excited by the continued progress in developing this market.

We are pleased with the recurring revenue that the SC integrity is now generating from several well-known customers in the pharmaceutical, tobacco, apparel, high-tech and transportation markets and remain confident of the strategies for continued growth as well as the opportunity that the cargo security market presents.

The price per share in this investment round was lower than that paid in connection with our initial investment several years ago. As such, accounting convention required that we recognize a non cash after tax charge of approximately $800,000 or $0.04 per diluted share on our initial investment. In our view, the deal price reflects the difficulty a small start up with little working capital has seeking investment in the current capital markets, rather than the potential of the business. As both a strategic investor and majority shareholder, we believe SC integrity is much more valuable to LoJack than the value calculated in connection with the recent investment.

Additionally, we acquired select assets of Locator Systems which produces and markets products to help police locate and rescue missing persons with Alzheimer's, autism and similar disabilities. Wandering is the most life threatening behavior associated with Alzheimer's and nearly two-thirds of those with the disease wander. As the U.S. population increases, the prevalence of Alzheimer's is expected to increase quite dramatically. Through this acquisition, we expected to leverage our technological expertise and relationships with law enforcement to provide a comprehensive solution to the growing problem of people at risk who wander.

While we were disappointed in our financial performance in the tumultuous domestic auto, commercial and motorcycle markets, we remain profitable, cash flow positive, financially strong and committed to making the necessary investments in building the new businesses that will diversify LoJack for the long term.

With that we will open the call to your questions.

Question-and-Answer

Operator

(Operator Instructions) Your first question is from Jeff Leahy - Morgan Joseph.

Jeff Leahy – Morgan Joseph

You mentioned on the Boomerang side that the smaller cars and hybrids were negatively impacting the business but it sounds contradictory to what your comments on the U.S. Is it a market differential and are you seeing good sales in the smaller and hybrid U.S. markets?

Ronald Waters

I think it is a market differential. We still see a positive in the U.S. and it seemed to change rather significantly in Canada particularly in the first quarter and I think it continued in the second quarter.

Richard Riley

It's really a market difference and so in Canada, with the business primarily in Montreal and as a result of insurance mandates most of which run to the luxury cars. And so their install basis has historically been in the high end luxury cars, those that are $40,000 or more.

In the United States the business skews very differently and so a significant part of our install base is on Toyota Camry's and Honda Accords in the United States.

Jeff Leahy – Morgan Joseph

So it would be fair to say that you would see the shift that we're seeing in U.S. new car sales as a neutral if not positive impact for you.

Richard Riley

I would say yes. I think that's part of the sequential performance improvement on a relative basis that saw in the domestic marketplace.

Jeff Leahy – Morgan Joseph

With the Italy, Boomerang and China investments, can you give us a feel for where you stand and how much you've spent and how much you expect to spend going forward with those categories?

Ronald Waters

On Italy, I think we've said this year $3 million to $4 million, I think is our investment. In China it's rather nominal this year, and in Boom it's in the $3 million range for the current year.

Jeff Leahy – Morgan Joseph

Will that be the end of it? Will it go into '09?

Ronald Waters

As I've said, I think in Italy it'll probably take us longer to get to breakeven so there'll be an investment required in '09. China, we're in the throws of finding a new licensee so it will be somewhat dependent upon the relationship with the new licensee. We'll probably be an investor with the new licensee. In Boom we're thinking through next year. We'll update you at probably the year end call, but clearly there will be some investment required next year.

Jeff Leahy – Morgan Joseph

If I remember, the original guidance for the first half and full year, does that translate to you not changing your back half guidance, the difference in 2Q is primarily different from you're guiding to now versus prior?

Ronald Waters

Q2 is the most significant driver.

Operator

Our next question comes from Steve Dyer - Craig-Hallum.

Steve Dyer – Craig-Hallum

I think you had given some numbers surrounding motorcycle and construction. Could you just repeat those, how they did in the quarter again.

Ronald Waters

The commercial was down 31% compared to the prior year and motorcycle was essentially flat.

Steve Dyer – Craig-Hallum

In that, I was surprised to see the bulk installs as high as they were given the distress among the car dealers. Can you give us any color dynamics around how that's going?

Ronald Waters

I think from a bulk perspective we're down to a certain, I guess there's a couple of things. First, we're down to a certain core group of dealers who actually believe in the bulk install program and continue to see it as a profitable way to do business. I think we've had some tests during the first half of the year trying to come up with new ways to work with the dealers on a pre-install basis, so there's been some incremental there.

Steve Dyer – Craig-Hallum

Could you give us a little bit more color on this Locator Systems purchase, what you spent for it, what the solution may look like, when it may be available?

Richard Riley

The product is a product which we indicated goes on the wrist of patients with Alzheimer's and Autism. They tend to wander away and often times wind up being lost for a period of time and incurring significant cost in terms of a search and recovery for those people. The technology has been around for a number of years. It's been successfully deployed in a limited number of police jurisdictions around the United States. That was part of a business which had some financial problems and was in receivership so we bought the assets and the customer list and essentially the people in the transaction for [inaudible] $1 million. It was not a significant investment. I think a big part of the decision on the part of the receivers to put it in the hands of LoJack was the brand name and the opportunity to grow the business under the brand name. So we have the product out there. We're represented in a number of police jurisdictions. We think there's an opportunity for us to really increase the scale of that product and we have some pretty exciting expectations in terms of what we can do there.

Steve Dyer – Craig-Hallum

Is that a GPS technology or is that kind of along the lines of your car RF?

Richard Riley

It's along the lines of our core RF. The frequency is not totally different from what our core technology is.

Steve Dyer – Craig-Hallum

A housekeeping item, Mike's back comp in the quarter?

Richard Riley

His back comp in the quarter was about $400,000.

Operator

Our next question comes from Bill Dezellum - Teiton Capital

Bill Dezellum – Teiton Capital

With the Locator Systems business given that it sounds like it has not been invested in recently, what do you anticipate as you move forward putting into the business before it turns profitable and just give us a thumbnail sketch to your view of the future there please.

Richard Riley

It's early in the process so we just completed the transaction, just got the people on board. We're excited by it and so we have a group of people who are working in terms of about what the required investment would be and what the potential of that business is going to be. As we indicated in the call, we're just touching the surface quite honestly in a number of jurisdictions out there and the problem with that is not been a lack of need or lack of demand, it's been a lack of resources on the part of the people who owned it, to take it out to a lot of other police stations.

The benefit we believe that we bring to the table is one of brand expansion. The other is that it is used exclusively by police and law enforcement to track down these patients, so it's a wonderful [inaudible] to what we currently have. We're looking at delivering that technology with the technology that they currently have, which also gives an opportunity for us to tweak that technology such that we can use the same tracking devices out there potentially to increase the scope of the distribution quite extensively.

Bill Dezellum – Teiton Capital

How many patients did you currently buy or list of patients did you buy? And it may be early for this question but what's your guestimate of the number of patients required for the business to break even?

Richard Riley

It's early again; in fact we had some people going off today to the Alzheimer's Association in Chicago to meet with them. And we have some statistics with respect to the size and scope of it but I'd rather not speculate about them at this point.

Bill Dezellum – Teiton Capital

We recently in one of Costco's magazines saw that LoJack for laptops was being advertised, a special promotion in the month of August. What update do you have there and how significant is that and really how in a case like that do you, as LoJack get paid?

Ronald Waters

Let me comment on that. It was the first and a big step on the part of the LoJack organization to go out and license the brand, so it was a transaction we entered into in 2005. The structure of that transaction, because it was new to us, was to put our toes into the water first to see how it worked. So there's two pieces to that. There's a fee which is paid by every single one of the units that they sell. It's a fairly modest fee and so we'll never get rich on the basis of that. And then the second was the warrants we took with respect to the equity of that company which was a start up company at that point in time.

It's not a start up company. We looked at it from comfort respect as well as the opportunity to expand the brand. Two, it was an opportunity to get into a space that people gave us credit for at that point in time and to work with a partner who again, extended the relationship that we have with law enforcement. And their recovery model is very similar to the one that we have. The success of that business has been very strong over the last couple of years.

The end result of that for us has been an increase in the license fees which we get which are hundreds of thousands of dollars and then the other piece of that is the appreciation of the warrants. The business continues to perform very well. It's not on all of the Dell laptops, a very significant portion of those laptops and they have relationships with almost every single one of the PC manufacturers at this point in time. So we get great brand exposure as a result of that relationship as well as the economic benefits.

Bill Dezellum – Teiton Capital

Relative to the used vehicle market, probably haven't just been paying attention, but this is the first time I've heard you mention the used vehicle market before, and it represented I think you said 30% of sales for units year to date in domestic market. Would you discuss further what you're doing in the used vehicle market because there certainly is a wide disparity between the low end and high end of used vehicle lots?

Richard Riley

I think we may have touched base on it before. We wanted to be clear that is [inaudible] market. I think it's been challenging in the past because of the price of the vehicles and the price of our unit relative to the price of the vehicles, but we see it as an opportunity and our sales folks are going out and trying to take advantage of the opportunity because its been a driver of growth for some of our dealers.

Ronald Waters

And just to build on that, one of the things that we've done is we've worked with our scanner program that we currently have and both methods of installation so we've sold one at a time as well as some pre-install programs. Most of those go into the certified pre-owned sales programs that many of the manufacturers have out there so in the Toyota program or the Lexus program, or BMW or Honda, they've focused much more on the certified pre-owned so really the cream of the crop of the second hand vehicles out there. And that's where we've really developed some strong relationships, both the traditional method of installation, one at a time as well as some pre-install programs.

Bill Dezellum – Teiton Capital

The accounts receivable rise that you had in the June quarter versus the March quarter, is that an indication that sales picked up at the end of the quarter?

Michael Umana

I think that the timing of our international shipments tends to influence the receivable balance at the end of the given quarter. Domestically it was nothing to note there significantly up or down so it's really the timing of international that tends to create that fluctuation.

Operator

Your next question comes from Paul Coster - J.P. Morgan.

Paul Coster – J.P. Morgan

I'm just adding up the segment revenues of domestic, international as well as Boomerang and I get to 51.1 versus the 51.4 that you reported. Could you help me figure out what the difference is?

Richard Riley

The Locator acquisition is not included in those segments at this point in time.

Paul Coster – J.P. Morgan

I noticed that R&D expense was down from expectations from what we were expecting this quarter. Are you still looking for guidance for I think last quarter you had about $9 million for the year. Is that still valid?

Richard Riley

We are still on track to spend every one of those dollars. I think that's an important strategic initiative for us so the goal for us is to leverage the strength of the core technology that we currently have into build upon that technology and increase new products in the future. So we continue all of our efforts. I'm surprised. That had to be nothing other than the timing of some of the expenditures added to what we've done there.

Paul Coster – J.P. Morgan

I heard you mention earlier in your prepared remarks that you were going to adjust SG&A more in line with the kind of lower sales outlook that you have right now. How do you reconcile that with the increased marketing spending to increase the LoJack brand?

Richard Riley

We have said from the beginning of the year that we're going to invest more in the LoJack brand and we've had a national cable campaign that hopefully you've seen. So that investment is going to continue, so we've not cut back that. It's in other areas that we're looking to control our expenses. But if you look at the components of the operating expense, selling and marketing, it's marketing that's up.

Paul Coster – J.P. Morgan

Are you getting any kind of push back especially with the GM On-Star coming on board? Are you seeing any push back from the dealers, maybe not as accepting of the LoJack technology as they were in the past or is it more just market driven and the dealers are just trying to get the cars out?

Richard Riley

I think one of the things that we do is we track this stuff fairly closely and our GM and On-Star is not the only ones that have a GPS type system on their vehicles. They're the ones that everyone tends to focus on, so BMW has one, Mercedes has one, and a number of the other people have one. In each one of those cases with the exception of GM, our penetration continues to increase and our growth rate in those units is faster than the growth rate of those manufacturers if that makes sense. In each one of those cases, in BMW and Mercedes, we continue to perform very well despite the fact that they have a program like that.

Ronald Waters

I think our dealers are open to solutions, so I don't believe there's any resistance to LoJack at all. It's a difficult market. It's a difficult market for the dealers, but they're looking for ways to work with us.

Operator

Our next call comes from [David Delio, Canaccord Adams]

[David Delio – Canaccord Adams]

I just wanted to circle back on the Locator acquisition. It seems like it's nominal at this point. Any impact estimates with that acquisition at this point?

Richard Riley

No.

[David Delio – Canaccord Adams]

Just a couple things on guidance; I think I had read initially that you had set international volume growth double digit for the full year. I think you had come out with that in April, and now the wording seems to be double digit volume growth in the back half of the year. Does that imply any reduction in international volume growth or should it look the same as you had originally expected it to?

Ronald Waters

Actually my words were we expect a double digit increase in our international unit volume for the year. We still think it is tracking towards double digit volume increase for the year. There's vagarities in the market place, in some of the markets that we participate, but we're still tracking that way.

[David Delio – Canacccord Adams]

What do you expect from Absolute warrants as far as implied guidance?

Richard Riley

We've got very, very little in the guidance for Absolute. The last couple of quarters or on a year to date basis we're net $500,000 of contra revenue, negative revenue and the stock seems to be right around the same place as its been for the last few weeks so we're essentially flat.

Operator

Our next question comes from [Objay Satigrowni - Manning Napier]

[Objay Satigrowni – Manning Napier]

Are you seeing any more promotional effort by the GPS guys or are the dealerships asking for a minimal margin?

Richard Riley

I think we see activity from the GPS folks in the marketplace. I think it varies by dealer. There's some aggressive GPS folks from our side. From a pricing perspective there's not much difference. There has been some programs that we've tried to put into place to drive volume so as dealers drive up volume, that we would give them a more volume discount, and we tried certain programs to incentivize folks from the F&I perspective given the difficult times.

Ronald Waters

I think as an example the F&I promotion that we're talking about in the quarter was maybe $200,000 so it's nothing substantial.

Operator

There are no further questions.

Richard Riley

This is Rich. I want to thank everybody for joining us on the call today. We appreciate your support. I want to leave you with just a few words. I think Ron may have mentioned them as he went through it, but I think it's important because I think it summarizes where we are with the business and where we feel the business is going.

We are disappointed in the financial performance in the very difficult markets that we're currently in. I think it is important for us however, to recognize that we remain very profitable, that we're cash flow positive, we're financially strong and I think most importantly, we're committed to making the necessary investments in building the new businesses that will diversify LoJack for the long term. So we continue along that path. We continue to aggressively pursue those efforts and we think those are important for this business for the long term.

So with that I will close. We look forward to talking to you the next quarter. We will all be in the office today and so happy to take any calls if anybody has any follow up questions.

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