Ladies and gentlemen, thank you for standing by. Welcome to the Ituran's Third Quarter 2017 Results Conference Call. All participants are at present in listen only mode. Following management's formal presentation, instructions will be given for the question and answer session. As a reminder, this conference is being recorded.
You should have all received by now the company's press release. If you have not received it, please contact Ituran's Investor Relations team at GK Investor and Public Relations at 1-six forty six-six eighty eight 3,559 or view it in the News section of the company's website, www.itaram.co.il. I will now hand the call over to Mr. Gabriel Froin of GK Investor Relations. Mr.
Froin, please begin.
Thank you, operator. Good day to all of you, and welcome to Ituran's conference call to discuss the Q3 2017 results. I would like to thank Ituran's management for hosting this conference call. With me today on the call are Mr. Eyal Sharavsky, CEO and Mr.
Udi Mizrahi, VP of Finance. Eyal will begin with a summary of the quarter's results, followed by Udi with a summary of the financials.
We will then open
the call for the question and answer session. I'd like to remind everyone that the Safe Harbor in the press release also covers the contents of this conference call. And now Eyal, would you like to go?
Thank you, Gabriel. I'd like to welcome all of you and thank you for joining us today. We are pleased with our results of the 3rd quarter, showing another quarter of strong subscriber growth and record revenue. We reported record 3rd quarter revenues of $62,000,000 up 17% versus last year. Out of that, dollars 44,000,000 was from our subscription fees, which showed an increase of 18% over last year.
This ongoing revenue increase is built on the back of our subscriber base, which added over 100,000 net subs since the Q3 last year. And bear in mind, this figure doesn't include the subs that our 50% owned joint venture, IRT, has been adding in Brazil. IRT has indeed been performing well according to our plans. Our sharing affiliates line in the income statement was $1,000,000 this quarter, of which the primary contributor was IRT. IRT has potential to bring us hundreds of thousands of additional sales using our services and position us as the clear market leader in Brazil.
I would like to spend some time covering aspects of our financials that had some effect on us this quarter. Looking at the gross margin on subscription revenues, those were 66.7%, a full percentage point higher than last year at 65.7%. This is due to the inherent operating leverage built into our business model, which generally translated our top line growth into stronger growth in profit as the incremental cost to our business of adding 1 new subscriber on the existing Ituran infrastructure is minimal. However, our overall gross margin was affected by a lower product gross margin, specifically in the quarter. The product gross margin does vary quite widely between quarters due to the specific mix of hardware sold in Israel in the quarter.
And in the Q3, the mix favored the lower margin hardware products. In summary, we are pleased with our performance and we look forward to continued strong performance in the Q4 and beyond into 2018. As always, we are working hard to continue our success and most importantly, sharing their success with you over the long term, our shareholders, with a stable and dividend, which is growing over the long term. I will now hand the call over to Udi for the financial review. Udi?
Thank you, Eyal. Revenues for the Q3 of 2017 were $16,100,000 representing an increase of 17% from revenues of $52,800,000 in the Q3 of 2016. Revenue breakdown for the quarter was $43,800,000 coming from subscription fees, an increase an 18% year over year increase. Product revenues were $17,700,000 which were a 14% increase over the same quarter last year. The geographic breakdown of revenues in the Q3 was as follows: Israel, 52% Brazil, 38% Argentina, 6% USA, 4%.
Overall, gross margin in the quarter was 49.6% compared with the gross margin 50% in the Q3 of last year. As Eyal noted earlier, our gross margin on subscriber revenue increased compared with last year to 66.7% from 65.7%. The gross margin on product revenue was 7.2%, was lower this quarter compared with last year, which was at 12.7% due to the mix of products sold in the quarter. Operating profit for the Q3 of 2017 was $13,900,000 an increase of 20% compared with an operating profit of $11,600,000 in the Q3 of 2016. EBITDA for the quarter was $17,400,000 an increase of 19% compared to an EBITDA of 14.6 $1,000,000 in the Q3 of 2016.
During the quarter, share in affiliates net was an income of $1,000,000 versus $800,000 in the same quarter of last year. The increase was primarily due to a contribution from our joint venture in Brazil, IRC. Net profit was $10,500,000 in the quarter or fully diluted EPS of $0.50 This is compared with a net profit of $8,200,000 or fully diluted EPS of $0.39 in the Q3 of 2016. Cash flow from operation during the quarter was $11,900,000 As of September 30, 2017, the company has net cash, including marketable securities of $35,200,000 or 1 $0.68 per share. This is compared with $31,500,000 or 1.5 dollars per share as of December 31, 2016.
For the Q3, in line with the company's dividend policy, a dividend of $5,000,000 was declared. The dividend record date is December 27, 2017, and the dividend will be paid on January 10, 2018, net of taxes and lease at the rate of 25%. And with that, I would like to open the call for the questions and answer session. Operator? Thank
The first question is from Lena Rogaban of Chardan Capital Markets. Please go ahead.
Good afternoon. Congratulations on great results. I have a couple of questions. The first one is why SG and A, in particular, selling and marketing costs were higher as a percentage of revenue this quarter year on year? And my second question about investments in affiliates.
I see that they declined quarter on quarter. So what's the reason for that? Thank you.
Lena, can you repeat that? We didn't understand that. Let's start with the first question.
The first question is about SG and A cost as a percentage of revenue. What's the reason for year on year increase? And the second question is about investments in affiliates on the balance sheet, which declined quarter on quarter.
SG and A basically, also there is a volatility between the quarters. And therefore, sometimes it's in 1 quarter, it goes up, 1 quarter, it goes down. But The second question is investments in affiliates.
The second question is investments in affiliates, in particular, in IRT JV. I think that's the most significant part of that. On the balance sheet, the number declined quarter on quarter from around $16,500,000 last quarter Q2 to $13,000,000 quarter. What's the reason for that?
The main reason for that is, as we mentioned in the previous conference call, is that the IRT is cash positive, which means that some of the loans that were giving or invested in those affiliates came back to us during this quarter.
The next question is from Oshri Kalush of Amiram Capital. Please go ahead.
Hi, guys. Congratulations for a good quarter. I have a question regarding the joint venture with Lumax in India. How is it proceeding?
As we stated in the first report and in last quarter, we are only at the beginning of creating or an educating market, which is a very big market, but still a premature one, we are now in the stage of informing the operation together with our partner, Lumax. We just hired people. We are under few pilots. But as I said, and it's very important to remark here, we are not estimating for the next few quarters to show any influence on our financial reports. It's from our side, it's a marathon.
It's a more mid and longer term operation. As you know, Ituran is showing an organic growth for the last 20 years, growing quarter over quarter. And we thought like we did in Brazil in the past that we have to find markets and expand our operation also with a longer term view and vision. So this is the case with Lumox. We are really at the beginning.
We just are building the infrastructure. We're building the relationship. We are recruiting the management team, etcetera.
All right. And regarding the expenses for this project, where should we see it in the income account?
Practically, since we hold 50%, you will see it as a share of affiliates under, of course, the operational profits, operational income. But to talk specifically about the what we and shareholders to be expecting, it will not be material to our reports in terms of the investments and expenses. As you know, we're always creating a business which is a service oriented business. While doing this, we are not have to open plants and production lines. We are mainly focused on marketing or cooperations.
So we assume that it will be more human resources expenses, more some marketing expenses. And since we have a very strong partner there, we already have a marketing infrastructure. And as a very well known among car production lines in India, we assume that the expenses will be no material at the size of ituran today.
All right. Sounds good. Good luck. We are with you. And really, the last question regarding the G and A, they have increased from last quarter by $1,000,000 Is there a specific reason, something to share with us?
No, I think that the last question was asked the same. As we said, there is some volatility from time to time. We have to understand that one of Ituran DNA is management team compensation is very based on results. And from time to time, there is bonuses according to those compensations. Probably or not probably some portion of it was at Q3, but when you talk about annual SG and A, compare it year over year and you will see that the changes are not as material as you mentioned.
I mean for a full year. For a full year, there is a volatility between quarter in some compensation among management here in the group. That's all.
All right. Thank you very much.
You're welcome.
There are no further questions at this time. Before I ask Mr. Sharansky to go ahead with his closing statement, I would like to remind participants that a replay of this call will be available tomorrow on Ituran's website, www. Ituran.co. Io.
Mr. Sheratzky, would you like to make your concluding statement?
Yes. Hey, Lana. I would like to thank all of my employees and my team for their hard work and effort in the Q3. Uddin Mizrahi, VP Finance at Ituran will be meeting investors in New York in January at the Needham Conference. If you wish to meet him, please be in touch with our IR team.
On behalf of management of Ituran, I would like to thank you, our shareholders, for your continued interest and long term support of our business. I look forward to speaking with you next quarter. Have a good day.
Thank you. This concludes the Ituran's 3rd quarter 2017 results conference call. Thank you for your participation. You may go ahead and disconnect.