Ladies and gentlemen, thank you for standing by. Welcome to Ituran's third quarter 2017 results conference call. All participants are present in listen-only mode. Following management's formal presentation, instructions will be given for the question and answer session. For operator assistance during the conference, please press star zero. 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 & Public Relations at +1-646-688-3559 or view it in the news section of the company's website, www.ituran.com. I will now hand the call over to Mr. Gavriel Frowen of GK Investor Relations. Mr. Frowen, please begin.
Thank you, operator. Good day to all of you, and welcome to Ituran's conference call to discuss the third quarter 2017 results. I would like to thank Ituran's management for hosting this conference call. With me today on the call are Mr. Eyal Sheratzky, 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. Now, Eyal, would you like to begin?
Thank you, Gavriel. I'd like to welcome all of you and thank you for joining us today. We are pleased with our results of the third quarter, showing another quarter of strong subscriber growth and record revenue. We reported record third-quarter revenues of $62 million, up 17% versus last year. Out of that, $44 million 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 third quarter 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 share in affiliates line in the income statement was $1 million 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 leaders 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 one new subscriber on the existing Ituran infrastructure is minimal. 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.
In the third quarter, 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 fourth quarter and beyond into 2018. As always, we are working hard to continue our success and, most importantly, sharing this success with you over the long term, our shareholders, with a stable end 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 third quarter of 2017 were $62 million, representing an increase of 17% from revenues of $52.8 million in the third quarter of 2016. Revenue breakdown for the quarter was $43.8 million coming from subscription fees, an 18% year-over-year increase. Product revenues were $17.7 million, which were a 14% increase over the same quarter last year. The geographic breakdown of revenues in the third quarter was as follows: Israel 52%, Brazil 38%, Argentina 6%, U.S.A. 4%. Overall gross margin in the quarter was 49.6%, compared with a gross margin 50% in the third quarter 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 third quarter of 2017 was $13.9 million, an increase of 20% compared with an operating profit of $11.6 million in the third quarter of 2016. EBITDA for the quarter was $17.4 million, an increase of 19% compared to an EBITDA of $14.6 million in the third quarter of 2016. During the quarter, sharing affiliates' net was an income of $1 million versus $0.8 million in the same quarter of last year. The increase was primarily due to a contribution from our joint venture in Brazil, IRT. Net profit was $10.5 million in the quarter of fully diluted EPS of $0.50.
This is compared with a net profit of $8.2 million or fully diluted EPS of $0.39 in the third quarter of 2016. Cash flow from operations during the quarter was $11.9 million. As of September 30, 2017, the company had net cash, including marketable securities, of $35.2 million or $1.68 per share. This is compared with $31.5 million or $1.5 per share as of December 31, 2016. For the third quarter, along with the company's dividend policy, a dividend of $5 million 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%. With that, I would like to open the call for the questions and answers session. Operator?
Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. If you have a question, please press star one. If you wish to cancel your request, please press star two. If you are using speaker equipment, kindly lift the handset before pressing the numbers. Your questions will be polled in the order they are received. Please stand by while we poll for questions. The first question is from Lena Ragavan of Chardan Capital Markets. Please go ahead.
Good afternoon. Congratulations on the great results. I have a couple of questions. The first one is, why SGA, in particular, selling and marketing costs were higher as a percentage of revenue this quarter year-on-year? My second question is about investments in affiliates. I see that they declined quarter-on-quarter. 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 SGA costs as a percentage of revenue. What's the reason for a year-on-year increase? The second question is about investments in affiliates on the balance sheet, which declined quarter-on-quarter.
SG&A, basically, also there is a volatility between the quarters. Therefore, sometimes in one quarter it goes up, one quarter it goes down. Basically, if you look at the overall, there is not a big change between the years. The second question, Lena, please.
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 NIS 16.5 million last quarter, Q2, to NIS 13 million this 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 we're giving or invested in those affiliates came back to us during this quarter.
Okay. Thank you.
I repeat, if you have a question, please press star one. If you wish to cancel your request, please press star two. Your questions will be polled in the order they are received. Please stand by while we poll for your questions. 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 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 a few pilots. 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. From our side, it's a marathon. It's a more mid and longer-term operation. As you know, Ituran is showing a
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. This is the case with Lumax. We are really at the beginning. We're just building the infrastructure, we're building the relationship, we are recruiting the management team, et cetera.
All right. 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. To talk specifically about what we and the 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 our corporations. We assume that it will be more a human resources expenses, more some marketing expenses. Since we have a very strong partner there who is already have a marketing infrastructure, and is a very well-known among car production lines in India, we assume that the expenses will be not material at the size of Ituran today.
All right. Sounds good. Good luck.
Thank you.
We are with you.
Thank you.
Really, the last question, regarding the G&A, they have increased from last quarter by NIS 1 million. 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 a bonuses according to those compensations. Probably, or not probably, some portion of it was at Q3. When you talk about annual SG&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.
If there are any additional questions, please press *1. If you wish to cancel your request, please press *2. Please stand by while we pull from more questions. There are no further questions at this time. Before I ask Mr. Sheratzky 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.com. Mr. Sheratzky, would you like to make your concluding statement?
Yes, Ivana. I would like to thank all of my employees and my team for their hard work and effort in the third quarter. Udi Mizrahi, V.P. 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 third quarter 2017 results conference call. Thank you for your participation. You may go ahead and disconnect.