Analyst: Victor Sula, Ph.D. Initial Report January 2nd. 2009
1/02/09
LOJN daily
6.0 5.5 5.0 4.5 4.0 3.5 3.0 volume
400 300 200 100
Thousands
Š BigCharts.com
0
Nov
Dec
MARKET DATA
Share Statistics
NASDAQ
2006 2007 %Chg
(12/23/08) Symbol
LOJN
Revenues, $ Mn.
Current Price
$4.12
Gross margin
Low/ High 52 weeks
3.21 - 16.95 Operating margin
Average Volume (3m)
72,311
Market Capitalization
$71.48 Mn
Shares Outstanding
17.35 Mn
213.3
9m
9m
2007
2008
%Chg
222.7
4.4%
167.4
150.5
-10.1%
53.1% 55.7%
2.6%
56.6%
53.1%
-3.6%
11.0% 13.6%
2.6%
16.0% -19.9% -35.9% 11.4% -21.7% -33.1%
Net margin
7.7%
9.6%
1.9%
Diluted EPS, $
$0.86
$1.13
n/m
$1.00
($1.88)
n/m
Source: Yahoo Finance, Analyst Estimates
Background LOJN is a leading provider of technology products and services for the tracking and recovery of valuable mobile assets. LOJN created the stolen vehicle recovery category more than 20 years ago and has earned a 90% recovery success rate. Globally, more than 250,000 stolen assets worth more than $5 billion have been recovered using LOJN’s technology. The Company operates in 26 states and the District of Columbia in the U.S., and in more than 30 countries throughout Europe, Africa, North America, South America and Asia. LOJN is primarily selling tracking units that help its customers locate stolen or lost mobile assets. It has integrated its systems with law enforcement agencies, has several regional networks in place (to detect stolen assets once a unit has been reported stolen), and uses its FCC licensed radio frequency and proprietary technology that can find assets that are hidden from view (unlike LoJack Corporation (Nasdaq: LOJN)
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Analyst: Victor Sula, Ph.D. Initial Report January 2nd. 2009
GPS systems), all of which make it difficult for competitors to replicate the Company’s business. LOJN has three separately managed and reported business segments: domestic, international and Boomerang. LOJN’s domestic and international revenue is derived primarily from the sale of LoJack Units, LoJack Early Warning Units, and related products and services to the clients in the U.S and worldwide. Boomerang revenue is derived primarily from the sale and installation of Boomerang Systems, which are based on RF and cellular technology, and uses the Company’s internally developed tracking devices and the wireless networks of major regional telecommunications companies for locating and tracking stolen assets. The cellular coverage area for Boomerang’s tracking of stolen assets includes most of North America; however, its service area is primarily in Canada.
Highlights Solid history of growth The Company reported solid growth over the last five years with revenue exceeding $222 million in 2007. The revenue growth was driven mainly by the rapid international expansion of the Company and diversification from initial reliance on vehicles to various types of valuable assets: equipment, motorcycles, laptops or persons with cognitive disabilities. Revenue, $ Mn
Source : SEC Filings
Competitive advantages over GPS for stolen vehicle recovery Unlike systems based on GPS, including technology such as OnStar®, LOJN technologies can penetrate buildings and containers for the effective tracking and recovery of stolen mobile assets hidden from view. The Company’s offering differs from GPS products in that its products are covert without any visible antennas or markings on the vehicle indicating presence of the LoJack System. Additionally, the direct integration of the LoJack System with law enforcement in the U.S. results in the automatic activation of the LoJack Unit upon the vehicle owner’s report of the theft to police; no third-party intermediaries are involved in the activation or tracking process. LoJack Corporation (Nasdaq: LOJN)
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Analyst: Victor Sula, Ph.D. Initial Report January 2nd. 2009
International diversification attenuated the 2008 decline of LOJN’s domestic revenue Revenue for the nine months ended September 30, 2008, decreased by 10%, as compared to the same period a year ago. The revenue decline was caused mainly by the financial crisis, which led to a credit freeze, worldwide liquidity problems and decreased consumer confidence. The U.S. domestic auto industry is experiencing its worst year in almost 16 years, with annual new car sales projected to be approximately 13 million to 13.5 million units in both 2008 and 2009, compared to new car sales of more than 16 million units in 2007. Revenue related to international segment increased by 16% for the first nine months of 2008, as compared to the same period a year ago. The Company’s international unit volume was 14% higher when compared to the same period one year ago.
Revenue segments, $ Mn
Source : SEC Filings
Better gross margins on a sequential basis due to international diversification The Company’s Q3 2008 gross margins were the highest since Q3 2007, mainly due to strong growth of international sales. The Company succeeded to obtain better pricing due to reaching 2008 purchasing targets under volume purchase arrangements. Gross margins of domestic segment have worsened in the last quarters as a result of lower domestic dealer volumes. 2009
LoJack Corporation (Nasdaq: LOJN)
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Analyst: Victor Sula, Ph.D. Initial Report January 2nd. 2009
Gross Margin, %
Source : SEC Filings
Impairment of intangible long-lived assets has made LOJN to report loses in 2008 The impairment of certain intangible long-lived assets combined with lower domestic sales and the economic slowdown has adversely impacted LOJN’s business. On a pro-forma basis, the Company’s EPS declined 63%. Concomitantly for fiscal 2008 LOJN’s management has lowered its guidance and expects revenue to be between $199 million and $202 million, pro forma net income to be between $8.5 million and $9.5 million, pro forma earnings per fully diluted share to be between $0.50 and $0.53. Profitability ratios 9 mo 2007
9 mo 2008
% Chg
Revenue, $ Mn Gross margin, %
167.4 56.6%
150.5 53.1%
-10.1% -3.6%
Operating margin, % As reported Pro-forma
16.0% 16.0%
-19.9% 5.4%
-35.9% -10.6%
Net Margin, % As reported Pro-forma
11.4% 11.4%
-21.7% 2.9%
-33.1% -8.4%
1.04
-1.88
n/m
EPS, $ As reported
Source: SEC Filings
LoJack Corporation (Nasdaq: LOJN)
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Analyst: Victor Sula, Ph.D. Initial Report January 2nd. 2009
Strong balance sheet LOJN has a strong balance sheet with cash and short-term investment of $66.2 million and a total debt of $27 million. Despite negative earnings, the Company reported positive cash flows from operations that neared $13 million for the first nine months of 2008. Selected balance sheet data, $ Mn 31-Dec-07
30-Sep-08
Total Assets, including Cash and short-term investment
245.8 71.2
203.2 66.3
Liabilities, including Debt Equity
117.5 26.5 128.3
122.8 27.2 80.4
Source : SEC Filings
Leadership changes to continue the transition to profitability On December 11, 2008, the LOJN’s board of directors promoted Ronald V. Waters, III to president and CEO, effective as of January 1, 2009. Mr. Waters served as the Company’s president and COO since joining the Company in February 2007. Richard T. Riley, the Company’s current chairman and CEO, will remain with the Company full time and serve as the Company’s executive chairman of the board, effective January 1, 2009. Prior to joining the Company, Mr. Waters, served as COO for the Wm. Wrigley Jr. Company from December 2003 through May 2006. He joined the Wm. Wrigley Jr. Company in 1999 as CFO and served as CFO until his elevation to COO in 2003. Prior to joining the Wm. Wrigley Jr. Company, Mr. Waters held several senior executive positions of increasing responsibility with The Gillette Company.
Investment sentiment LoJack Corporation is a leading provider of wireless tracking and recovery systems for mobile assets with solid history of growth and global presence. The Company’s revenue is likely to decline by 10% in 2008 due to tough conditions in the U.S. auto industry. However, we appreciate this downturn as temporary and LOJN should recover in 2009. The Company’s initiatives to diversify its business internationally is paying off: international sales were up 40% in Q3 2008 as LOJN entered new markets, which softened the drop in domestic demand that occurred due to the slower pace of new vehicle sales. LOJN is also leveraging its technology on other valuable assets like construction equipment, laptops, motorcycles, as well as for persons with cognitive disabilities thus decreasing reliance on vehicles. LOJN is not dependent on any car manufacturer. Individuals purchasing vehicles or insurance companies regardless of maker make the LoJack Unit purchase decisions. LoJack Corporation (Nasdaq: LOJN)
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Analyst: Victor Sula, Ph.D. Initial Report January 2nd. 2009
The Company is traded at 9.0 times 2009 EPS and 0.35 times 2009 revenue estimate. We believe the Company deserves better valuation given its solid offering that make it difficult for competitors to copy, solid revenue growth prospects due to successful diversification strategy, and solid balance sheet with more cash than debt. As a result we rate LOJN as a “Buy.�
LoJack Corporation (Nasdaq: LOJN)
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Analyst: Victor Sula, Ph.D. Initial Report January 2nd. 2009
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These forward looking statements are subject to a number of known and unknown risks and uncertainties outside of our control that could cause actual operations or results to differ materially from those anticipated. Factors that could affect performance include, but are not limited to, those factors that are discussed in each profiled company’s most recent reports or registration statements filed with the SEC. You should consider these factors in evaluating the forward looking statements included in the report and not place undue reliance upon such statements. We are committed to providing factual information on the companies that are profiled. However, we do not provide any assurance as to the accuracy or completeness of the information provided, including information regarding a profiled company’s plans or ability to effect any planned or proposed actions. We have no first-hand knowledge of any profiled company’s operations and therefore cannot comment on their capabilities, intent, resources, nor experience and we make no attempt to do so. Statistical information, dollar amounts, and market size data was provided by the subject company and related sources which we believe to be reliable. To the fullest extent of the law, we will not be liable to any person or entity for the quality, accuracy, completeness, reliability, or timeliness of the information provided in the report, or for any direct, indirect, consequential, incidental, special or punitive damages that may arise out of the use of information we provide to any person or entity (including, but not limited to, lost profits, loss of opportunities, trading losses, and damages that may result from any inaccuracy or incompleteness of this information). We encourage you to invest carefully and read investment information available at the websites of the SEC at http://www.sec.gov and FINRA at http://www. finra.org. All decisions are made solely by the analyst and independent of outside parties or influence. I, Victor Sula, Ph.D, the author of this report, certify that the material and views presented herein represent my personal opinion regarding the content and securities included in this report. In no way has my opinion been influenced by outside parties, nor has my compensation been either directly or indirectly tied to the performance of any security listed. I certify that I do not currently own, nor will own and shares or securities in any of the companies featured in this report. Victor Sula, Ph.D. - Senior Analyst Victor Sula, Ph.D. has held the position of Senior Analyst with several independent investment research firms since 2004. Prior to 2004, Mr. Sula held Senior Financial Consultant positions within the World Bank sponsored Agency for Restructuring and Enterprise Assistance and TACIS sponsored Center for Productivity and Competitiveness of Moldova, where he was involved in corporate reorganization and liquidation. He is also employed as Associate Professor at the Academy of Economic Studies of Moldova. Mr. Sula earned his Ph.D. degree in 2001 and bachelor’s degree in Finance in 1997 from the Academy of Economic Studies of Moldova. Mr. Sula is currently a level III candidate in the CFA program.
LoJack Corporation (Nasdaq: LOJN)
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