Ituran Location and Control Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 15, 2023

There are 7 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to Uteran's 2nd quarter 2023 results conference call. All participants are at present in this environment. 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 Iquran Investor Relations team at EK Global Investor Relations at 121237880 40. Or view it in the News section of the company's website at www.ituan.co.ir. I will now hand the call over to Mr. Kenny Green of Teekay Global Investor Relations.

Operator

Mr. Green, would you like to begin?

Speaker 1

Thank you, operator. Good day to all of you and welcome to Ituran's conference call to discuss the Q2 2023 results.

Speaker 2

I would

Speaker 1

like to thank Ituran's management for hosting this conference call. With me on the line today are Mr. Eyal Sharatzky, CEO Mr. Udi Mizrahi, Deputy CEO and VP, Finance and Mr. Eli Kamar, CFO of Ituran.

Speaker 1

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. And with that Eyal, would you like to begin please?

Speaker 3

Thank you, Kenny. I'd like to welcome all of you to our Q2 2023 call and I would like to thank you for joining us today. We are clearly very pleased with our achievements in the 2023 has so far been an excellent year for Ituran. Ituran's business is in strong growth phase with the subscriber base growing twice as fast as we grow in the past year. This jump in growth rate is now clearly benefiting our financial results.

Speaker 3

For the past few quarters, our subscription fees have been constantly at new record levels each quarter and our profits measured in either net income or EBITDA at 4 year highs. As you can imagine, we are very pleased with our results and the progress we've made. Given the way our business is structured with a core and stable subscriber base of well over 2,000,000 paying a monthly retainer and the clear long term visibility this provides, we have very reason to expect that the current positive trends will continue throughout 2023 and into 2024 and beyond. From a strategic perspective, we experienced strong and 2,000 were from the OEM. As I mentioned, this strong subscriber growth is now being reflected in our record subscription revenue.

Speaker 3

This is even despite the currency headwind due to the dollar strength in 2023. Q2 subscription revenue grew at 13% year over year or 17% growth when calculated in local currency, which naturalized the effects of the exchange rate on our growth. Over the past few years, we've entered into a few new verticals such as the financing business, which are performing well and acting as growth engines. They are one of the main reasons that our business continued to grow well. During the quarter, we announced that the Brazilian subsidiary entered a partnership with Santander Bank, which firmly solidified our presence in the automotive financing market.

Speaker 3

This strategic alliance aimed to broaden the Brazilian car ownership market by facilitating the credit approval for automatic financing with Ituran's telematics services and Santander's financing at attractive rates and credit insurance. This new deal demonstrates that this finance vertical is performing well and supporting our overall subscriber growth. Furthermore, we see further potential and we are looking to cover additional markets and geographies with existing and other finance customers. In terms of the Israeli market, due to the general macroeconomic limit, we have seen a strong increase in the theft rates. Due to our good performance over many years in this vertical of stolen vehicle recovery, it increases the need of the insurance companies to use our services.

Speaker 3

While this is very much the case in Israel, we also see similar trend throughout Latin America with the general economic limit contributing to an increase in car sales rates. This is ultimately leading to an increase in demand for services from insurance companies. This also provides our business with some defense in the face of an economic slowdown. Finally, we've launched a new product in Latin America focused on connectivity and stall and vehicle recovery for the motorcycle market, which is a new sector for us. In 2022 only, there were an estimated record of 5 400,000 motorcycles sold in Latin America and we believe our new solution presents a very attractive proposition for this sector.

Speaker 3

We are already seeing interest from manufacturers and insurance companies and we are already in discussions. We see strong potential from this new product and service in the region for the coming years. And in summary, we are very pleased with our results of the quarter and 2023 is shaping up to be record year for Ituran in all respects. Solid performance in our traditional aftermarket business as well as recovery in the OEM business and especially the gross engines we've seeded in the past years are all driving our strong subscriber growth and record revenue. While we continue to monitor talk of a potential global economic slowdown ahead, historically, we found that theft rates tend to increase in economic downturns, increasing the demand for our services and beyond it.

Speaker 3

Our 2,200,000 subscriber base paying us on an ongoing monthly basis gives us significant resilience in our economy environment. Looking ahead, we due to the operating leverage inherent to our business. We're excited for the coming quarters and anticipate a positive trend will continue throughout 2023 and beyond. And with that, I hand over to Oli. Eli, please go ahead.

Speaker 4

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 Q2 of 2023 were $28,600,000 an 11% increase compared with revenues of $73,400,000 last year. In local currency, the year over year growth was 15%.

Speaker 4

2nd quarter revenues from subscription fees were $59,200,000 an increase of 13% over the Q2 2022 revenues. In local currency, the year over year growth was 17%. For prior year base amounted to $2,162,000 as of June 30, 2023. This represents an increase of $47,000 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 1,000 in the aftermarket subscriber base and an increase of 2,000 in the OEM subscriber base.

Speaker 4

2nd quarter product revenue were $22,500,000 an increase of 7% compared with that of the Q2 of 2022. The geographic breakdown of revenues in the Q2 was as follows: Israel 48% Brazil 26% rest of world 26%. EBITDA for the quarter was $21,800,000 or 26.7 percent of revenue, an increase of 12% compared with EBITDA of $19,400,000 or 26.5 percent of revenue in the Q2 of last year. In local currencies, the year over year growth was 15%. Net income for the 2nd quarter was 12 $200,000 or 15% of revenue or diluted earnings per share of $0.61 an increase of 40% compared to $8,700,000 or 11.9 percent of revenue or diluted earnings per share of $0.43 in the Q2 of last year.

Speaker 4

In local currency, the year over year growth was 44%. Cash flow from operations for the Q2 of 2023 was $17,500,000 On the balance sheet, as of June 30, 2023, the company had cash including marketable securities of $34,500,000 and a debt of $4,500,000 amounting to a net cash of $30,000,000 This is compared with cash including marketable securities of $28,200,000 and a debt of 12 of $16,000,000 as of December 31, 2022. For the Q2 of 2023, a dividend of $3,000,000 was declared. In the Q2, under our share buyback program, Ichiban purchased 1 165,138 shares for a total of $3,500,000 Share repurchases were funded by available cash and repurchases of Ituran Ordinance shares were made based on SSP Rule 10b-eighteen. And with that, I'd like to open the call for a question and answer session.

Speaker 4

Operator?

Operator

Thank Please stand by while we poll for your questions. The first question is from Chris Raimo of Barclays. Please go ahead.

Speaker 5

Yes. Hi. Thanks for taking my question. Congratulations on the strong results. You mentioned in the past the operational leverage.

Speaker 5

And I was wondering how much expansion is possible under the current operational conditions you have right now?

Speaker 3

Practically when you look on the numbers today, so we actually increased from 20% to 20.4% in a very short period and we expect that this trend will continue. This is actually what the recurring revenue model allow us to do in the future.

Speaker 5

Okay. And what and maybe what is underpinning the consistent subscriber growth?

Speaker 3

Can you repeat it regarding subscribers?

Speaker 1

Chris, can you repeat your question please?

Speaker 5

Yes. I'm sorry. In your view, what is underpinning the consistent subscriber growth?

Speaker 3

Actually, I think that generally I said it. So first of all, the traditional segments, which are very depend on car separate. It's in the last quarters. And as we see, it's in a gross mode, which create a strong request from, I would say, insurance companies as well as the even the car owner needs to secure the car more and more because it's hurt them a lot. So this is from something that it depends on the economy as well as the financing market, which we penetrate just recently.

Speaker 3

And we see that after this penetration, other players in Brazil as well as in other countries in Latin America are interesting in this solution. And of course, there's always the regular growth drivers such our brand is the strongest one in the region, very high credibility from B2B and B2C customers. So we have a good feedback from the market plus new segments that we entered recently, we believe that this is will demonstrate or will lead to continue of the growth of the subscribers

Speaker 5

space. Got it. Thanks a lot. That's really good color.

Operator

The next question is from Josh Strauss of Pekin Harvey. Please go ahead.

Speaker 1

Josh, we don't hear you, but you can go ahead and ask your question.

Speaker 2

Sorry, my bad. I was on mute. Good morning. Good to see this terrific quarter guys. And thanks for taking my call.

Speaker 2

I wondered whether or not you could provide any color on what's happening with Brink. I mean, I know it's a passive private investment, but I was curious if you had any color that you were able to provide on what's going on with that investment?

Speaker 3

Practically Bring is going quite well with its business plan and let's call it internal and privately all the projections. I think that we had we did the right move when we did the last round about a year, year and a half ago before the let's call it before the changes in the stock market and the financial markets. And the company did the right adjustment to use those proceeds for more years than we thought at the beginning because we have to adjust the company today again to the financial markets. But from the operational side of view, the companies really provide the results as it's well, of course, I want to remind all of you that it's something that it's only on our balance sheet and it's a 0 value in our balance sheet. So it's not influenced any thing in our P and L.

Speaker 3

And I would say that it's a hiding assets, which we count that it's in the future, of course, will provide profits. Got it. Got it. Okay. Thank you.

Speaker 2

Well, I'm looking forward to seeing that thing getting monetized at some point in the future. The second question I had was a couple of years back you had levered up the balance sheet slightly, which was unlike you guys historically because you've been putting a conservative management team in order to buy Road Track. And over the years, you've been paying back your debt and your debt is your gross debt is almost here. All your net debt has been positive for some time. And I'm very thankful for the buybacks and the dividends.

Speaker 2

But I'm curious on how the plans may or may not change going forward given the war chest attacks that you have. Is it going to be just more of the same in an occasional small early stage VC investment in Israeli companies related to your business? So can you just give us a color on what your plans are over the next couple of years?

Speaker 3

First of all, the investment in the small, as you said, VCs or startups, which is linked to potential systems or for mobility market, it's something that has nothing with the loan that we took because we do it let's say on an arrogant way it's not the material cash that we use. The main cash needs that we did was to as you said to acquire our Road Track. Now it's the last payments of our loan after these 5 years. And simultaneously, of course, we increased our cash flow position and cash flow generation. So actually as we did in the past, we have no any intent to keep many to keep the money for nothing in the bank.

Speaker 3

So first of all, we will do our best to find to use the money that we generate for growth. It's mean most of the time for acquisition, for partnerships and things like this. If we'll find it, this is the first priority. But this is not something easy. We are conservative.

Speaker 3

We don't want just to spend money and say that we did. By the way, regard Road Track today, we are very happy that we did it. The contribution of Road Track today is called it run. It's fully merged to the business and integrated and we create the synergy and everything now is as we sought to do. And since we did it on a conservative way, it succeeded.

Speaker 3

If we find something that will be good for our unorganic growth, we will do it 1st. Of course, if not or meanwhile, as long as we generate cash, of course, we will let all our shareholders, of course, to benefit from this cash flow. As by the way, we did simultaneously with the debt, because if you can, for example, take this quarter, you see that almost $7,000,000 went back to the shareholders or by dividends or by buyback. And of course, if we will generate more cash and we will not need it for growth, we will or at least I will recommend our Board to increase this dividend or buyback of course depend on the situation. But we will not keep the money.

Speaker 3

We always think how to grow with this money.

Speaker 2

Right. Okay. Well, thank you very much. Good luck guys.

Speaker 3

Thank you very much.

Operator

The next question is from Abba Horwitz from Old School Partner. Please go ahead.

Speaker 2

Thank you. Hi, Eyal, and congratulations on a real milestone. This is quite an amazing quarter relative to the last couple of years. I wanted to really drill down on the motorcycle opportunity. And if I may ask, how are you selling anything to the motorcycle market?

Speaker 2

And where how rapidly do you see this being implemented? And how meaningful can it be to the overall business?

Speaker 3

Okay. So I will divide it for the 2 different market. 1 is the Israeli market, where we for a few years already sell a product and service for motorcycles, but we have to understand that in Israel, which is different than in Latin America, the motorcycle trend is quite low, meaning most of the people buy cars than expensive motorcycles. The market here in Israel for us is a niche. I mean, we do it with the insurance companies sometimes or with some dealers.

Speaker 3

But what we realized after we covered the car environment in Latin America and again we looked for additional growth segments, we understood that for example in Brazil, cars and motorcycle ratio is very not similar, but almost similar. Millions of motorcycles being sold every year only in Brazil. The situation is that and this is all around the world it's very difficult to insure motorcycles. It's more risky to the insurance companies and it's the nature of motorcycle. So the prices of insurance are very high.

Speaker 3

But on the other end, it's a segment which insurance company don't want to believe. And on the other hand, the motorcycle dealers and producers want to find a solution for their customers. So we start of course reach of this market and as we did with the finance, as we did with the fleet management in the past, we were the first to build or to develop internally a unit, which is very, very customized for a motorcycle driver and a motorcycle which included application, include the SVR, includes other sensors, which will create benefit to the drivers. And we went with this to the market and we see a lot of attraction. Now, as every segment when we start, I'm not saying that tomorrow it will be material because we have already 2,200,000 subscribers.

Speaker 3

It takes time to show something which will be more material for let's say to announce it and to see it in the results. But when since we believe that this can be something material, something substance in the coming future. This is the reason why I decide to share it today to understand that we found in other segments. We do our best to penetrate and to lead this segment specifically in Brazil and in Latin America. And really I can't now talk about numbers or who are the potential customers in terms of manufacturer or insurance company.

Speaker 3

But we really feel that it will happen and there is a traction. And this is I believe will be more substance in the coming or in the future years.

Speaker 2

Okay. Would this mean that using this product now an insurance company will be more willing to provide a cheaper insurance alternative? And that's what this product is doing? Or would it even would someone get this product without the insurance even?

Speaker 3

Okay. So some of the this segment I would divide it to. In one hand, it's insurance companies that of course with the right solution they will be able to join let's call it our ICS in Ituran Consiguro process also for motorcycles. And also in Brazil especially, it's very, very common to rent motorcycles. And rental companies and the manufacturers actually spread motorcycles around the country for renting, whether it's hourly renting like ride kind of ride sharing or rent it for like a leasing.

Speaker 3

So in that case, those dealers and manufacturers also interesting in a solution to, I would say, to secure their assets. Their assets they rented. So they want a solution because a financial a high financial damage is when those motorcycle being spilled. Okay.

Speaker 2

Okay. And would it be safe to assume that you'll be able to leverage the monitoring part of the business from the same infrastructure that you have currently?

Speaker 3

Of course, everything we do by the way. At the end of the day, I would say that it runs today, it's a black box first. This black box can get any frame where we want. So when we find a segment, we take the same black box, give it to other R and D people and then they develop the firmware, which will allow this black box to be offered to other segments. So it's like modules.

Speaker 3

So in terms of technology, we use always the same technology. That's why we can leverage it. This is why we can create operating leverage for those technology. On the other end, in the service side, when we talk about SVR, this is our specialty. But when we talk about other services, of course, that we do on the job train and we learn what is the needs of the market, but we are a service company.

Speaker 3

So for us, it's something that we must be excellent. So in the end of the day, of course, we use and integrate always our current infrastructure. Okay.

Speaker 2

And is it the same price as a car would be? Or is it cheaper than a car?

Speaker 3

It will be or it's already cheaper product. The installation which is part of the cost is also cheaper because the nature of the motorcycle for installation is easier than when you are cutting a car to install the unit. But in terms of the service side, it depends what type of services. It's the same as the car. If it's only SVR, whether it's include application, whether you want, for example, as you know, it run as or you don't know I will remind.

Speaker 3

3 years ago we acquired a company in Brazil, which is a company that developed car sharing and writing, billing and managing solution. So after that, we now operate as a part of our black box. So in that case, when we talk about renting motorcycles or renting cars, for example, with this technology we charge more, depends what is the service that the customer needs.

Speaker 2

Okay. Thank you very much, Eyal. Good luck. Thank you. Thank you very much.

Operator

The next question is from Josh Strauss of Pekka and Hardie. Please go ahead.

Speaker 2

Hi. Thanks again for taking my call. So you talked in the past, and I don't know if

Operator

you talked about it on this call about

Speaker 3

reestablishing

Speaker 2

maybe not reestablishing long term, reaccelerating the business you're doing with OEMs in Brazil. And I wondered if there was any additional progress worth noting.

Speaker 3

Actually OEM and manufacturing something that the cycle is usually much longer, because all the validation that we have to do And every country by the way has to approve from any validation. But I just can say that we are working or we believe that we will succeed to exceed to expand our relationship with the current car manufacturers to other geographies. Of course, mainly at the near future in Latin America to other countries. I don't know yet to say which country, what will be the specific contract and quantities. But I know and to tell that we see attraction, we see and we discuss it.

Speaker 3

And I believe or at least I want to believe that we will be able to extend it to other countries based on the OEM segment.

Speaker 2

Okay. And what the progress you're making with financial institutions in Brazil for the subprime customer? I'm trying to get my hands around how material that opportunity is in years ahead. We're still in the early part of developing that market, but I'm just trying to understand how big that market really can be both in Brazil and elsewhere for trying to monitor the suburban customer for insurance companies and what have you?

Speaker 3

So currently or a month ago, we report about I think a very luxury contract that we did with 1 of the largest banks in the world Santander in Brazil. Santander on exclusive basis will finance cars and we talk about very important customer base potential through Santander and this is regarded Brazilian market currently. Of course, as we know Santander has offices all around Latin America. So I believe I want to use this contract to leverage out of Brazil. But for the time now only this contract is very much mutual, very immaterial for us.

Speaker 3

And of course, when what we see, when I say attraction, when other banks or other finance companies see or learn about the contract that we did with Santander, we see that they, of course, want to find a way to copy it. Regarding Brazilian market, the contract with the commercial bank is under exclusivity from both sides. So we will have or we will regard Brazil in the coming years, we will have to, of course, find other kinds of finance companies, but not a commercial bank. Just to mention that Santander in Brazil is the largest of this segment anyway. This is why we decide to go on a closer basis.

Speaker 3

And of course, it's open. I think it's open segments for other banks and other places in

Operator

the

Speaker 4

world.

Operator

Josh

Speaker 3

is that

Speaker 2

Yes. Sorry. I just lost you for checking. I heard the I heard almost all of this. Great.

Speaker 2

Thank you very much. I

Operator

The next question is from Fred Faulks of Boston University. Please go ahead.

Speaker 6

Good morning. Congratulations on an outstanding quarter and this very informative call. I just was curious given all the challenges and troubles in your country right now, is that having any impact on worker productivity, recruiting, retention, etcetera?

Speaker 3

Actually, no. Actually, no. I think that the situation here in Israel is mainly from the political side. We'd say it's not influenced directly yet. And as I said, Ituran also historically when the economy is in a bad shape.

Speaker 3

So unfortunately, the violence in the cathode rate increasing. And in this situation, the request for our solutions is increasing and the needs become much more strong. So I'm not currently it's not influenced, but I'm not expecting that it will influence. But if you come to Tel Aviv, you will feel that nothing happened by the way. But the press is different than the life.

Speaker 3

But yes, we have a challenge now here.

Speaker 6

Thank you and congratulations on your leadership.

Speaker 3

Thank you very much.

Operator

The next question is from Charles Elliott of IPI. Please go ahead. Hi. I'd like to ask about a deal that you announced in July. With 99, a company acquired by Didi Chuching, where you will provide SCR on their BYD models.

Operator

And it sounds like small deal in itself, but I wondered if it could be pretty significant because this would be your Ituran's first step into being a platform for car sharing?

Speaker 3

Just for Makarios' point, what did you mean we where did we report

Operator

it? In the it was in the Brazilian newspaper. I think it was on 28 July.

Speaker 2

You're right.

Speaker 3

Okay. We didn't of course, we didn't report it from for the NASDAQ and SAC aspects because it's not a material deal currently, but you're right. BYD launched their brand in Brazil together with us. And what they did, it was a kind of a mutual, I would say, mutual marketing way. As I said, BYD spread cars around Sao Paulo in order to rent it on an hourly or daily rent.

Speaker 3

And they need our units in order to control it, to build it and of course to secure it. So we are their partners for Brazil. But at this stage, it was I would say, a BYD marketing or BYD penetration program. So it's not yet something that can we can say that it will lead for example to OEM deal in Brazil, but we've been chosen as their partners for this specific campaign. For the future, let's see.

Speaker 3

Of course, it's very luxury again, very luxury transaction and very luxury relationship, because we know that BYD is now in a very strong penetration also to Latin America, but it's just started. And as I said OEM deals is something which has long cycles. But we also think for the long way and for the marathon and for the long future. So we started with this with nothing to announce now. But for the future, we will see what happens.

Speaker 2

Great. Thank you.

Operator

There are no further questions at this time. Before I ask Mr. Shirazky to go ahead with his closing statement, I would like to remind all participants that a replay of this call will be available tomorrow on Ituran's website at www.ituran.co.il. Mr. Sheratzky, would you like to make your concluding statement?

Speaker 3

Yes. On behalf of our management of Ituran, I would like to thank you, our shareholders 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, please feel free to reach out to our Investor Relations team. And with that, we end our call.

Speaker 3

Thank you and have a good day.

Operator

Thank you. This concludes Ituran's 2nd quarter 2023 results conference call. Thank you for your participation. You may now go ahead and disconnect.

Powered by Quartr

Key Takeaways

  • Record subscriber growth: Subscriber base reached 2.2 million, growing 13 percent year-over-year (17 percent in local currency), driving subscription revenue to new highs.
  • Strong financial performance: Q2 revenue and EBITDA hit multi‐year records, with EBITDA margin at 26.7 percent and net income up 40 percent to $12.2 million (EPS $0.61).
  • Strategic finance partnership: Entered a key alliance in Brazil with Santander to bundle telematics with auto financing, bolstering growth in the finance vertical and paving the way for expansion.
  • Economic resilience: Despite dollar strength headwinds, local-currency growth remained robust, and rising vehicle-theft rates amid economic pressures increased demand for stolen-vehicle recovery services.
  • New motorcycle telematics offering: Launched a specialized connectivity and recovery solution for Latin America’s 5.4 million-unit motorcycle market, securing early interest from OEMs and insurers.
AI Generated. May Contain Errors.
Earnings Conference Call
Ituran Location and Control Q2 2023
00:00 / 00:00