Ituran Location and Control Q3 2023 Earnings Call Transcript

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November 27, 2023

Key Takeaways

  • Subscriber Growth: Added 45,000 aftermarket and 3,000 OEM subscribers in Q3, well above the pre-2022 quarterly run rate, driving 12% year-over-year subscription revenue growth.
  • Strong Financial Performance: Q3 revenue was $81.1 million (+12% YoY), with EBITDA of $22.5 million (27.8% margin, +15% YoY) and net income of $12.5 million (+24% YoY, $0.63 EPS).
  • Global Resilience Amid War: While operations in Israel face localized disruptions, a diversified global footprint has limited overall impact, with Q4 subscriber additions expected to moderate to 3,000–35,000 units.
  • Increased Shareholder Returns: Owing to strong cash flow and net cash of $38 million, the quarterly dividend is raised from $3 million to $5 million starting Q3 2023.
  • Brazil Market Momentum: Continued strong demand in Brazil, with the Santander B2B pilot contract maturing into recurring revenue and ongoing discussions for new OEM and rental partnerships.
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Earnings Conference Call
Ituran Location and Control Q3 2023
00:00 / 00:00

There are 5 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Ituran Third Quarter 2023 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.

Operator

You should have all received by now the company's press release. You have not received it, please contact Ituran's Investor Relations team at EK Global Investor Relations at 1212-378-8040 or view it in the News section of the company's website, www.ituran.co.il. I will now hand over the call to Mr. Kenny Green of EK Global Investor Relations. Mr.

Operator

Green, would you like to begin?

Speaker 1

Thank you. Good day to all of you, and welcome to Ituran's conference call to discuss the Q3 2023 results. I would like to thank Ituran's management for hosting this conference call. With me today on the line are Mr. Eyal Sharatzky, CEO Mr.

Speaker 1

Udi Mizrahi, Deputy CEO and VP Finance and Mr. Eli Kammer, CFO of Ituran. Eyal will begin with a summary of the quarter's results, followed by Eddie 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 statement in the press release we issued earlier today also covers the contents of this conference call.

Speaker 1

And now Eyal, would you like to begin, please?

Speaker 2

Thank you, Kenny. I'd like to welcome all of you to our Q3 2023 call and I would like to thank you for joining us today. We are pleased with our results of the Q3. Toan business remains strong and in a solid growth phase. Our subscriber base continued to show strong growth adding 45,000 aftermarket subscribers as well as 3,000 OEM subscribers, net which is well ahead of our long term rate we had in 2021 and earlier of between $20,000 to $25,000 per quarter.

Speaker 2

The ongoing growth in our subscriber base continues to benefit our financial results and Q3 subscription revenues grow at 12% year over year. For the past few quarters, our subscription fees have been constantly at new record levels and our profits measured in ADA net income or EBITDA have been at multi year highs. As you can imagine, we are pleased with our results and the progress we have made in 2023. As we discuss our quarterly results, I would like to discuss the recent war in Israel. 1st and foremost, our thoughts are with those affected by these events.

Speaker 2

As I said a few weeks ago, Israel is a small country such that everyone knows a family that has either had a son, daughter, parent or grandparent murdered or kidnapped by Hamas. We pray for the victims as well as their families, friends, and loved ones. I stress that we are resilient people and unfortunately have much experience in working and overcoming challenging times. Ituran is a globally diverse business with operations primarily in Israel and Brazil, but also in many other countries in Latin America as well as elsewhere in the world. And therefore any impact in one specific region will have a limited effect on Ituran's overall business.

Speaker 2

Any impact is obviously localized to Israel only currently. In Q4 we would expect the overall subscriber growth rate to slow somewhat to between 3,000,35,000. This will be due to the longer period of lower car sales in Israel in October initially due to the holiday season which seasonally recurs every year and following that and extended first to the breakout of war there will also be some additional expenses related to mitigating some of the negative effect of the war and in supporting our communities that have been affected. Overall we expect that the impact from the war on our performance for the year will not be significant at all. Naturally the safety and well-being of our employees remains our highest priority.

Speaker 2

We continue to closely monitor the situation and we have in place measures to ensure the safety of our employees while maintaining global business continuity. I am very proud of the courage and commitment of the Ituran team both in Israel and globally and wish to personally thank them for their resilience and dedication during these times. Given our ongoing cash generation and our strongly increasing net cash level, starting from the current quarter we have decided to revert our formal dividend policy, increase our dividend from $3,000,000 per quarter to $5,000,000 per quarter. We are very pleased to share the fruits of our ongoing profitable growth and is a reward to our loyal shareholders for their long term support of our company. In summary, 2023 continues to be a solid year of performance for it to run-in all respects.

Speaker 2

Solid performance in our traditional aftermarket business as well as stability in the OEM business and especially the growth engines we have seeded in the past year are all driving our strong subscriber growth and record revenue. While the war in Israel will have some marginal impact on it to run, our growing 2,200,000 Clue subscriber base globally paying us continuously on an ongoing monthly basis for our ongoing services provided us with significant resilience even in more challenging environment. As has been true throughout our long history and will continue ahead, our constantly growing subscriber growth will continue to translate into increased revenues with faster growing profitability over the long term due to the operating leverage inherent to our business. For the foreseeable future, we anticipate the overall growth trend that have characterized Ituran over many years will continue. And with that I hand over to Eli.

Speaker 2

Eli, please go ahead.

Speaker 3

Thanks Eyal. I will provide a short summary of the financial results. You can find the more detailed results that we issued in the press release earlier today. Revenue for the Q3 of 2023 were $81,100,000 a 12% increase compared with revenue of $72,700,000 last year. In local currency, the year over year growth was 13%.

Speaker 3

3rd quarter revenue from subscription fees were $60,200,000 an increase of 13% over the Q3 2022 to revenues. In local currency the year over year growth was 14%. The subscriber base amounted to 2,200 and 10,000 as of September 30, 2020 3. This represents an increase of $48,000 net over that of the end of the period quarter and an increase of $190,000 year over year. During the quarter, there was an increase of 45,000 in the aftermarket subscriber base and an increase of 3,000 in the OEM subscriber base.

Speaker 3

This quarter product revenue were $20,900,000 an increase of 7% compared with that of the Q3 of 2022. The geographic breakdown of revenues in the Q3 was as follows Israel 47%, Brazil 28%, rest of the world 25%. EBITDA for the quarter was $22,500,000 or 27.8 percent of revenues an increase of 15% compared with an EBITDA of 19 point 7% of revenues in the Q3 of last year. In local currencies, the year over year growth was 14%. Net income for the Q3 was $12,500,000 or 15.4 percent of revenue or diluted earnings per share of $0.63 an increase of 24% compared to $10,100,000 or 13.9 percent of revenue of diluted earnings per share of $0.49 in the Q3 of last year.

Speaker 3

In local currencies, the year over year growth was the same at 24%. Cash flow from operations for the Q3 of 2023 was $20,500,000 On the balance sheet, as of September 3, 2023, the company had cash including marketable securities of $40,000,000 and a debt of $2,000,000 amounting to a net cash of $38,000,000 This is compared with cash including marketable securities of $28,200,000 and a debt of $12,200,000 amounting to a net cash of $16,000,000 as of December 31, 2022. The Board of Directors declared that starting from the Q3 of 2023, the company would return to its former dividend policy, which has been in a place of continue until the Q4 of 2019. The formal dividend policy and dividend policy going forward from the current quarter will be for the issuance of $5,000,000 dividend per quarter. This represents a 67% increase from the more recent policy of $3,000,000 dividend third quarter.

Speaker 3

In the Q3, under the buyback program, Ituran purchased 73,000 shares for a total of $1,900,000 Share repurchases were funded by a variable cash and repurchases of Fituran ordinary share were made based on SEC Rule 10b-eighteen. And with that, I'd like to open the call for the question and answer session. Operator?

Operator

Thank you. The first question is from Chris Rymer of Barclays. Please go ahead.

Speaker 4

Hi, thanks for taking my questions and congratulations on the strong results. I wanted to ask about Israel, given your exposure both in terms of revenues and employee base. You noted the weakness in subscribers for the next quarter, but I was wondering if you could discuss a little further the impact and if it might impact margins, etcetera, just how things are playing out?

Speaker 2

Hi. As I said, it as we expecting, what we see on the daily work is that it will not be significant, as I said. But we have to consider the situation in the car showrooms and the 1st month of this quarter, which was October. And in October, we had 2, I would say, influences on the Israeli car sales market. 1 was the holidays, which is something which is happened almost every year between September or October, which it's a holiday and most of the showrooms are closed.

Speaker 2

Add to this situation that we started in October 7, which lead to about 2 weeks of shutdown of all the Israeli, I would say, economic world. Today, we see again that everything is ramping up again. Things are start to come to normal, let's say, a normal business days, but it's something that is still not in 100%. And in order to be conservative, that's why we expecting this, let's say, this slowdown for Q4. But when we look the graph now, we absolutely expecting that it will be 1 quarter influence or maybe 1 more month because we see that as I said, the Israeli people and the Israeli economy is now start to coming back.

Speaker 2

So it will not be significant. Add to this some expenses as I said that in Israel we have people went to reserve, So we have to support the families, etcetera, which is a one time expenses. Again, it's not material, but I felt duty to mention it.

Speaker 4

Got it. Got it. And then just about some of the market dynamics, can you give any color in Brazil on how things are looking there? And especially what kind of traction you're seeing with the deal with Santander?

Speaker 2

Brazil is on the same, I would say the same situation and trends and we faced it during the last almost 2 years which is a very strong demand. First of all from the stolen vehicle recovery needs, which is our, I would say, bread and butter of our business. 2nd, the B2B businesses, which we started with Santander as we of course, as we reported. This business is a typical B2B based on a contract, based on numbers. We have to consider a few things which since we started it as a pilot and then the contract was signed, but we almost after 12 months working with Santander in different phases of this contract, we have to understand that in a few months, we start seeing also churn.

Speaker 2

So this will turn from a new contract to a very, I would say, material cash cow contract. But with this we go to or we will do our best to expand it to all other banks or other segments and I would say now with no any commitment of course that this deal makes a lot of attraction in the Brazilian market for solutions not only for banks, it's for banks, for rental companies, etcetera, for our solutions and we have today a series of discussions with other players also from the OEM market. And I hope that during 2024, we will be in a position to have maybe a new contract, maybe a new deal, which will again, which will allow us to grow to the next years. So to make this long story short, Brazil is in a very good situation, very good trend and we have to take care for our future growth as well.

Speaker 4

Great. Thanks for that. That's it for me.

Operator

There are no further questions at this time. Before I ask Mr. Sharotsky 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.eturan.co.il. Mr. Sharotsky, would you like to make your concluding statement?

Speaker 2

On behalf of the management of Ituran, I would like to thank you, our shareholders, for your continued interest and long term support for our business. We hope to be speaking with some of you over the coming quarter and if you are interested in meeting or speaking with us feel free to reach out to our Investor Relations team. And with that we end our call. Thank you and have a good day.

Operator

Thank you. This concludes the Turan Q3 2023 results conference call. Thank you for your participation. You may go ahead and disconnect.

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