Ituran Location and Control Q1 2023 Earnings Report

Ituran Location and Control EPS Results

• Actual EPS: $0.56
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Ituran Location and Control Revenue Results

• Actual Revenue: $79.47 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Ituran Location and Control Announcement Details

• Quarter: Q1 2023
• Date: 5/24/2023
• Time: N/A
• Conference Call Date: Wednesday, May 24, 2023
• Conference Call Time: 9:00AM ET

Ituran Location and Control (NASDAQ:ITRN), together with its subsidiaries, provides location based telematics services and machine-to-machine telematics products. It operates through two segments, Telematics Services and Telematics Products. The Telematics services segment offers stolen vehicle recovery and tracking services, which enables to locate, track, and recover stolen vehicles for its subscribers; fleet management services that enable corporate and individual customers to track and manage their vehicles in real time; and locator services that allow customers to protect valuable merchandise and equipment. This segment also delivers on-demand navigation guidance, information, and assistance, including the provision of traffic reports and directions, as well as information on the location of gas stations, car repair shops, post offices, hospitals, and other facilities; and Connected Car, a service platform that includes a back-office application, a telematics device installed in the vehicle, mobile apps for IOS and Android users, and interface using the car infotainment screen, as well as usage based insurance and auto financing services. This segment serves insurance companies and agents, car manufacturers, dealers and importers, cooperative sales channels, and private subscribers. The Telematics Products segment offers Base Site, a radio receiver that includes a processor and a data computation unit to collect and send data to and from transponders, and to control centers; Control Center, a center consisting of software used to collect data from various base sites, conduct location calculations, and transmit location data to various customers and law enforcement agencies; navigation and tracking devices installed in vehicles; and SMART, a portable transmitter installed in vehicles that sends a signal to the base site enabling the location of vehicles, equipment, or an individual. The company was incorporated in 1994 and is headquartered in Azor, Israel.

Ituran Location and Control Q1 2023 Earnings Call Transcript

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to the Ituran First 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. If 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.eturan.co.il. I will now hand over the call to Mr. Kenny Green of EK Global Investor Relations. Mr.

[Operator]

Green, please begin.

[Speaker 1]

Thank you. Good day to all of you, and welcome to Ituran's conference call to discuss the Q1 2023 results. I would like to thank Ituran's management for hosting this conference call. With me today on the call are Mr. Eyal Sharafsky, CEO Mr.

[Speaker 1]

Udi Mizrachi, Deputy CEO and VP Finance and Mr. Eli Kamar, CFO of Ituran. Eyal will begin with a summary of the quarter's results, followed by Eli with a summary of the financials. We will then open the call for the question and answer session. I would like to remind everyone that the Safe Harbor statement in today's press release also covers the contents of this conference call.

[Speaker 1]

And now Eyal, please go ahead.

[Speaker 2]

Thank you, Kenny. I'd like to welcome all of you to our Q1 2023 call, and I would like to thank you for joining us today. We are clearly very pleased with our achievements in the Q1. The year has kicked off with a robust start and the solid subscriber growth we saw throughout 2022. And now in the Q1, it's clearly having a positive impact on our financial performance.

[Speaker 2]

In this quarter, we experienced record subscriber revenues with record subscriber gross margins and also saw our highest quarterly net income and EBITDA in over 4 years. From a strategic perspective, we experienced strong subscribers, adding a net total of 49,000 subscribers, of which 44,000 were from the aftermarket and 5,000 were OEM additions. As we shared with you last quarter, our expectations for the growth rate in our subscriber base stand up between 180,000 to 200,000, net new subscribers as annually, and we are on track. As our results show, the strong subscriber growth we have experienced now for a few quarters is being increasingly reflected in the subscription revenue growth. Even despite the currency headwinds due to the dollar strength compared with last year.

[Speaker 2]

Q1 subscription revenues grew up 11% year over year or 16% growth when calculated in local currencies, which naturalized the effect of the exchange rate on our growth. We have every reason to expect that this growth trend will continue well into 20 23 and beyond. The gross margin of subscription fees continue to improve, and we have seen sequential improvements throughout each quarter last year and now a record subscriber gross margin of 58.1% in Q1. It demonstrated the operating leverage in our model is becoming increasingly apparent, whereby we can add each new subscriber without a corresponding significant increase in cost, and it will continue to benefit us in the coming quarters. As you remember, we recently entered a few new verticals, which are performance well, such as the finance segments and the UBI.

[Speaker 2]

This is helping us to get traction and continue to increase our overall subscriber base. As far as the Israeli market goes, it is worthwhile noting that after many years in this market, we've seen a recent increase in the Feb Trades and a dramatic increase. With thanks to our record performance in this vertical of stolen vehicle recovery, it increases the need of the insurance companies to use our services. In summary, we are very pleased with our performance in the Q1, and it represents a great start to 2023. Both ongoing solid performance in our traditional aftermarket business, a good recovery in the OEM business and especially the growth engines we exceeded in the past years are all driving this subscriber growth.

[Speaker 2]

While we are aware of the global economic slowdown ahead, our 2,000,000 plus subscriber base paying us on an ongoing monthly basis give us significant resilience. Furthermore, our recent accelerated subscriber growth will continue to translate into increased subscriber revenue growth throughout the coming year with faster growing profitability as the operating leverage continue working in our favor. We've already seen the early fruits of our recent success in the current quarter. Looking ahead, we are confident the improvement we have made to our business over the past few years, leading to today's robust subscriber growth, are here to stay for the foreseeable future. We're excited for the year ahead and anticipate a positive trend will continue throughout 2023 and beyond.

[Speaker 2]

And with that, I hand over to Eli. Eli, please

[Speaker 3]

go ahead. 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. Revenues for the Q1 of 2023 were $79,500,000 a 10.3% increase compared with the revenue of $72,100,000 last year.

[Speaker 3]

1st quarter revenues from subscription fees were $55,800,000 an increase of 11% over Q1 2022 revenues. The subscriber base amounted to 2,115,000 dollars as of March 31, 2023. This represents an increase of 49,000 net over that of the end of the period quarter, an increase of 191,000 year over year. During the quarter, there was an increase of 44,000 in the aftermarket subscriber base and an increase of 5,000 in the OEM subscriber base. 1st quarter BroadX revenues were $23,700,000 an increase of 8% compared with that of the Q1 of 2022.

[Speaker 3]

The geographic breakdown of revenues in the Q1 was as follows: Israel, 51%, Brazil, 24%, rest of the world 25%. EBITDA for the quarter was $20,800,000 or 26.2 percent of revenues, an increase of 8% compared with EBIT of $19,300,000 or 26 0.7 percent of revenue in the Q1 of last year. Net income for the Q1 was $11,400,000 or 14.3 percent of revenues or diluted earnings per share of $0.56 per share compared to $8,700,000 or 12.1 percent of revenue or diluted earnings per share of $0.43 per share in the Q1 of last year. Cash flow from operations for the Q1 of 2023 was $17,400,000 On a cash on the balance sheet, as of March 31, 2023, the company had cash including marketable securities of $33,500,000 and debt of $9,200,000 amounting to a net cash of $24,300,000 This is compared with cash including marketable securities of $28,200,000 and debt of $12,200,000 amounting to a net cash of $16,000,000 as of December 31, 2022. For the Q1 of 2023, a dividend of $3,000,000 was declared.

[Speaker 3]

In the Q1, under our share buyback program, Ituran purchased 54,000 shares for a total of $1,200,000 Share repurchases were funded by valuable cash and repurchases of the Turan ordinary shares were made based on SEC Rule 10b-eighteen. And with that, I'd like to open the call for a question and answer session. Operator?

[Operator]

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

[Speaker 4]

Hi. Thank you for taking my questions. I was wondering if you could start with giving any color around the uptick in the OEM subscribers this quarter? And what kind of went into that? And is it a recovery?

[Speaker 4]

Or is it more of a onetime thing?

[Speaker 2]

Hi. So actually, we think it's something that start showing the changes in the components problems that the world would face and its influence primarily on the car producers. Don't forget that most of the car produced today is based on computers and components. So I think that this allow the manufacturers of the brands that we work with to produce more car because the request was there. They couldn't supply the request.

[Speaker 2]

And now it's look like they succeed to do it better. So when it happened, of course, it influenced positively on our growing in the OEM segment. As I said in the past, it's something that has some seasonality, has some volatility, depend on things which we cannot, of course, influence. But it looks like our assumption that it will continue in the coming, I would say, year, maybe we'll face some quarters differently, but I think like it's a recovery.

[Speaker 4]

Excellent. Thanks. And can you talk a little about operating expenses and what kind of strategies you're putting into place to create more operating leverage?

[Speaker 2]

So basically, we should consider that when you grow 200,000 subscriber a year and when you want to develop and offer new solutions, it requests us from time to time, of course, to add human resources for each of these, I would say, aspects. 1, it's the service side and second is the R and D side. But currently, I would say that after the last years when we saw that our expenses are growing and we couldn't see the influence in the revenue side, I think that 2023 will show that now the operating leverage will demonstrate to our P and L because the revenue reaping these fruits happening now we see that the margins are increasing. We show it in Q1, and believe that it will continue in the next quarter.

[Speaker 4]

Got it. Okay. That's it for me. Thank

[Operator]

The next question is from Sasha Curran. Please go ahead.

[Speaker 5]

Hi, gents and congrats on the quarter. First question for me would just be on guidance for subscriber growth going forward. Do you have any more specific comments quantitative comments you can make on the pace of subscriber growth in the coming quarters? And how you arrive at those numbers?

[Speaker 2]

Hi. The guidance regards subscribers, we already gave in the end of 2022. And as we said today, we're still solid with those expectations. Of course, it's based on our assumption and our 2022 track records of the new segment that we penetrate during 2021 2022 and also assuming that we will continue to integrate our brand in that segment and also in the traditional segment, which are Fleet Management and SVR, which we see more and more attraction in Latin America. And recently, and I mentioned it in my speech today, in Israel, after many years, we see that the CASF rate increasing dramatically, something that encouraging the insurance companies to add more and more models, which in the last even decade, they didn't require these kind of models to install security and location solutions, which will allow us also to increase our penetration to new segments, but also to straighten our guidance of new subscribers along the year.

[Speaker 5]

And next one for me would be on inventory. And so inventory investment in CapEx seemed very low in the Q1. Does this it doesn't sound like it from your comments, but does this maybe indicate some reduced confidence about generating additional subscriber growth in Israel and Brazil because it could be considered a leading indicator?

[Speaker 2]

When there was the shortage of components and we knew that we are facing a new growth of subscribers, we did a very aggressive inventory purchase

[Operator]

in

[Speaker 2]

order not to be in a problem of supplying those new this new growth. So last year, we had a very aggressive inventory purchase When the, again, the shortage stopped or declined, we continue to be in a position to buy with a let's call it a normal inventory time line. So we saw kind of a decline that you could see it in this quarter. I believe and expect that the Q1 CapEx is something that represents a quarterly CapEx. Of course, even in inventory, there's some volatility that we can see, but again, it shouldn't be dramatically along the year.

[Speaker 5]

We noticed also sales and marketing picked up in Q1. Is there any are there any specific projects you're investing in right now? For example, do you feel the timing is right maybe to push ICS in Mexico?

[Speaker 2]

Me that I can't see it as long as we know and I see there is no any or at least no big change in sales and marketing. So can you point to me the specific the product industry,

[Speaker 3]

dollars 3,300,000 in Q1 and also in Q4 as well as last year?

[Speaker 5]

Apologies. Yes, I'm looking at G and A. Maybe you could just give us a feeling for SG and A in total going forward?

[Speaker 2]

Since part of some compensation policy and inflation growing can influence you, it depends on the result. So you still can see that in terms of percentage, and it's very I would say that it's more correct to judge the SG and A based on percentage of revenues, and this is quite stable.

[Speaker 5]

Okay. And my last one would just be on fleet management subscribers. Your 20F implies the growth there slowed from 30% in 2021 to 20% growth in 2022. Should we expect that slowing to continue? Or do you have reasons to believe it can reaccelerate?

[Speaker 2]

I think, again, this in order to make it more, I think, more right way, when you have a subscriber base and it's growing, so by definition in percentage, it will decrease. For example, when you grow from 100,000 subscribers with another 100,000 subscribers, you're growing 100%. When you have 2,000,000 and you're growing 200,000, you're growing only 10%. So the percentage is something that you always have to check or to watch with the absolute numbers because our subscriber base is something that's increasing, and this is the same situation with the fleet management. Today, when we have almost double fleet management numbers than 5 years ago.

[Speaker 2]

So in percentage, even if we grow double than we grow 5 years ago in terms of new subscribers in percentage, it will be less always. So please, I think that we are not expecting that it will decrease. We're expecting to continue the trend, but in percentage, it will look always smaller.

[Operator]

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

[Speaker 2]

On behalf of management of Peturan, I would like to thank you all for your continued interest and long term support of 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 Q1 2023 results conference call.