Ituran Location and Control Q4 2023 Earnings Call Transcript

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Provided by Quartr
February 29, 2024

There are 7 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Ituran 4th Quarter and Full Year 2023 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. 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 Iran's Investor Relations team at EkGlobal Investor Relations at 1212 3788040 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. Ehud Helft of EK Global Investor Relations. Mr.

Operator

Helft, 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 Q4 and full year 2023 results. I would like to thank Ituran Management for hosting this call. With me today on the call are Mr. Eyal Sherasky, CEO Mr.

Speaker 1

Udi Mizrahi, Deputy CEO, MDT Finance and Mr. Eli Kamal, CFO. Lihan will begin with a summary of the quarter results, followed by Eli 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 content of this conference call.

Speaker 1

And now Eyal, would you like to begin please?

Speaker 2

Thank you, Ehud. I would like to welcome all of you to our Q4 and full year 2023 call. I'd like to thank you for joining us today. We are pleased with our 2023 results which was a record year for Ituran. We are all the more pleased given that we achieved these strong results despite difficult Q4 in which our country faced a major terrorist attack at the start of the quarter which resulted in a war which effectively paused the economy for a few weeks.

Speaker 2

This new challenge followed by many challenges that everyone has faced over the past few years including the corona pandemic, supply chain issues, and recently a slowing global economy. As our strong financial results demonstrate our business is in very good shape and results against challenges. I want to also highlight as part of the reason for our resilience is that Ituran is a global diverse business based on a loyal subscriber base of more than 2,200,000 customers 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 limit effect on Ituran's overall business. The initial impact of the war on new car sales in Israel which drives our new subscribers in that country and aftermarket product sales temporarily caused a complete pause in the local car market. However this pause was relatively short lived and as of end of January 2024 new car sales in Israel continue at a formal long term trend and new car sales were up 3% year over year.

Speaker 2

Our subscriber base continued to show strong growth adding 40 2,000 subscribers in the quarter well ahead of our expectations of between 3,035,000 that we shared with you last quarter. This is still well in advance of the long term rate we had in 2021 earlier of between $20,025,000 per quarter. Overall as you can imagine we are pleased with our relative strength in Q4 and furthermore the overall picture in 2023 is very strong. Looking at our balance sheet strength, we ended the quarter with over $50,000,000 in net cash with almost no debt. Given our ongoing growth, our solid profitability, our strong cash generation each quarter and our strong net cash level for the Q2 in a row we have decided to increase the dividend.

Speaker 2

Last quarter we increased the ongoing dividend from $3,000,000 to $5,000,000 per quarter and this quarter we are further increasing the quarterly dividend to $8,000,000 per quarter. We are very pleased to share the fruits of our success and we see our dividend as well as our ongoing buyback program as a reward to our loyal shareholders for their long term support of our company. Starting from 2020 4 given the stability of our business and our ability to continue performing even during challenging time we have decided to provide EBITDA guidance ahead. For 2024 we currently expect to report full year EBITDA of between $90,000,000 $95,000,000 and expect to cross the $100,000,000 EBITDA landmark in 2025. We expect the subscriber growth to continue growing at around current rate of approximately 35,000 to 40000 net new subscribers per quarter.

Speaker 2

I note that the expectation are as of today. Our EBITDA expectation are based on the relevant currency levels remaining at around current average rates and also assumes that current global macroeconomic situation globally and political situation specifically in Israel doesn't significantly worsen. In summary 2023 was a solid year of performance for it to run-in all respects and we believe that 2024 will continue on this trend. I want to add that I am very proud of the courage and commitment of the Ituran team both in Israel and globally, especially in the challenging time we have had recently and wish to personally thank them for their resilience and dedication during these times. As has been true throughout our long history and will continue ahead over the long term, 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.

Speaker 2

And with that I hand over to Eli. 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. 4th quarter revenues were $77,800,000 a 4% increase compared with revenue of 74.9 $1,000,000 last year. 4th quarter revenue was somewhat impacted by the out break of war in Israel on October 7.

Speaker 3

Furthermore, the revenue as demonstrated in U. S. Dollar terms was impacted by a significant devaluation of the Argentinean peso as well as the temporary weakness in the Israeli shekel against the U. S. Dollar during the quarter.

Speaker 3

In local currency terms, 4th quarter revenues grew by 6% compared with that of the 4th quarter of last year. Revenues from subscription fees in the quarter were $59,400,000 an increase of 10% over the 4th quarter 2022 revenues. In local currency terms the increase was 12% compared with that of the Q4 of last year. Product revenues in the quarter were $18,400,000 a decrease of 13% year over year and in local currency terms product revenue decreased by 9% year over year. The decline in product revenue was mainly due to the 1,000 hardware installation in Israel following the outbreak of war on October 7.

Speaker 3

Revenues for full year 2023 were a record $320,000,000 a 9% increase over the 2,000,000 $93,100,000 reported in 2022. Revenues from subscription fees were a record $2,034,500,000 representing an increase of 12% over 2022. Product revenues were $85,400,000 representing an increase of 2% compared with 2022. The subscriber base expanded to 2,252,000 by year end marketing an increase of $42,000 from the end of the previous quarter and $186,000 over 2023. During the Q4 there was an increase of 38,000 net in the aftermarket subscriber base and an increase of 4,000 net in the OEM subscriber base.

Speaker 3

The geographic breakdown of revenues in the 4th quarter was as follows: Israel 47%, Brazil 28%, rest of world 25%. EBITDA for the quarter was $21,900,000 or 28.2 percent of revenue, an increase of 7% compared with EBITDA of $20,600,000 or 20 7.4 percent of revenues in the Q4 of last year. In local currency terms, 4th quarter EBITDA grew by 8% compared with that of the Q4 of last year. EBITDA for 2023 was a record $87,000,000 or 27.2 percent of revenues, an increase of 10% compared to 78 $900,000 or 26.9 percent of revenues in 2022. Net income for the Q4 was $12,000,000 or diluted earnings per share of $0.60 an increase of 26% compared to 9.6 $1,000,000 of diluted earnings per share of $0.47 in the Q4 of last year.

Speaker 3

In local currency terms, 4th quarter net income grew by 28% year over year. Net income in 2023 was $48,100,000 or fully diluted earnings per share of $2.40 an increase of 30% compared with net income of $37,100,000 of fully diluted earnings per share of $1.82 in 2022. Cash flow from operations for the Q4 of 2023 was $21,800,000 and cash flow from operations for the year was $77,200,000 As of December 31, 2023, the company had cash including marketable security of $53,600,000 and a debt of $600,000 amounting to a net cash position of 53,000,000 This is compared with cash including marketable securities of $28,200,000 and a debt of $12,200,000 amounting to a net cash position of $16,000,000 as of the end of 2022. The Board of Directors announced another increase in the quarter in the dividend policy. This follow the company's continuing strong profitability, ongoing positive cash flow and strong balance sheet.

Speaker 3

The company increased the quarterly dividend to $8,000,000 from $5,000,000 in the period quarter and from $3,000,000 in the 8 quarter period to debt. This represents a 60% increase in the ongoing quarterly dividend payment compared with that of the period quarter and 167% increase over the dividend paid in the many quarters prior to that. During 2023 Ituran bought back $6,600,000 share as part of its buyback program. As of December 31, 2023 there is $6,700,000 remaining under the buyback program. Share repurchases are funded by available cash, cash and repurchase on ituran ordinary shares under SEC Rule 10B-eighteen terms.

Speaker 3

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 Rimer of Barclays. Please go ahead.

Speaker 4

Hi. Thanks for taking my questions. I was wondering, first off, if you could talk about some of the drivers behind the subscriber guidance and maybe what are some of the dynamics you are seeing in the different geographies?

Speaker 2

The main drivers today are coming from I would say different driver in different segments. First of all in Israel the CASF rate is increasing, started during 2023 and is continue as we face it every night I would say. And in that case it's mean that more insurance companies and more car owners are looking for security systems and since our solution I think is the most excellent one, so we get more and more requests for new subscribers. This is in Israel. And in other countries we have won the things that we are more and more focused on B2B such as the financial institutions for having a solution when they provide the loans to new car buyers as well as security needs which also there is increase in violence and car theft also in Latin America.

Speaker 2

So this is the main drivers.

Speaker 4

Great, thanks. And just touching on the EBITDA guidance you gave forward for 2025 at about, well, surpassing 100,000,000 dollars How many sub adds would that be roughly based on?

Speaker 2

What actually we show in the last 2 years and what we expect in 20 24 is generally speaking is around 150,000, 10% more or less. And while we're considering this number of subscribers is assuming that the ARPU is not going to change dramatically because some of the services that we provide are generating lower ARPU. But on the other end we increased a lot of up sales. For example in Israel when we sell SVR which is let's call it this is a traditional and bread and butter still very high percentage of those customers are adding for example application payments and in that case the ARPU in Israel is growing. So overall we consider conservatively that the ARPU will stay and with this number of subscribers and by the way add to this the operating leverage assumptions, we are not expecting that the growth of our expenses will be will decrease let's say every year.

Speaker 2

The additional expenses will decrease every year so we can build this model to provide this guidance.

Operator

The next question is from Boris Schneider of Moore. Please go ahead.

Speaker 5

Hi, guys. Congratulations on strong execution. And we appreciate the guidance that you provided. I think that's a great help for long term investors as well. Question in terms of expenses, last quarter you mentioned that you had some one off expenses related to events in Israel.

Speaker 5

So if you can quantify the number, I know you said it's not very significant, but just to understand what the impact on the net income this quarter?

Speaker 2

As you can see, we actually when we talked last quarter about the war, actually we expected or we put in a frame a little bit more expenses and a little bit more let's say decreasing in sales in Israel. But generally speaking without giving this specific number because it's not material anyway talking about some 100 of 1,000 of dollars in the expenses which are directly for contribution to the needs in Israel for the world, which today of course we don't most of it we don't have anymore.

Speaker 5

Okay. And in terms of guidance, so your subscription guidance mentioned roughly 6%. I think that's at the lower end. And if I look at the EBITDA guidance, it's lower. So my question is obviously the model your financial your business model is based on operating leverage and quite significant one.

Speaker 5

So the guidance appears to be quite conservative. What do you think on this?

Speaker 2

First of all, we have to understand that there is no zero cost because part of this we talk here when we say the number about 160,000 talking about the net. Don't forget that we have a total sale and then the churn. What we provide as a net is after the churn. This is first to understand. So in terms of growth is a very high growth but there is a churn.

Speaker 2

Regard the cost from two reasons, One is the conservative reason and second is because in order to grow 160,000 net still it's not zero cost. Some places we are financing the hardware which is part of the service and it's appearing in the amortization. And also we from time to time we have to provide a direct solution to specific customers. So we have to add R and D. So practically you're right that it appears to be higher growth in the EBITDA which will be more correlative to the growth of subscribers.

Speaker 2

I believe that I want it to be higher but when we provide guidance we have to be conservative with the guidance. So this is the main reason.

Speaker 5

Okay, I appreciate it. Thank you.

Operator

The next question is from Abba Borowicz of OSP. Please go ahead.

Speaker 6

Hi, good afternoon. Congratulations on the very nice quarter and just all the all around guidance. I just wanted to know if you could update us on Bring, it's been a while that we've heard about Bring, if you could maybe talk about if there's anything new to share?

Speaker 2

Usually when we spoke about Brink since it's kind of a financial holding we have 17.% from the shareholders was when we did the rounds. We know that about 2 years ago we made a very impressive round when the Brink raised more than $100,000,000 Since then the company doesn't need to do another round. So this is why we didn't inform anything because from the operational side point of view we are not allowed since we have only 17%, but the company has its business plan and it looks like it's stick to the business plan and things are going as planned.

Speaker 6

Okay. Very good. Are you guys looking at any other investments outside of your own stock? No,

Speaker 2

except Bring which also in the last I think more than 7 years we didn't invest, we did only investment as an angel. Ituran is always investing only in companies which is in our field and in the last 5 years we are doing it or we will we are out, we did it when we acquired Road Track or in the future when we go for a full acquisition again create synergy and part of consolidation results. So Bring is actually Bring and SavorOne are the only financial holdings that we have today.

Speaker 6

Okay, thanks very much.

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

Yes, on behalf of management of Ituran I would like to thank you our shareholders for your continued interest and long term support at our business. We hope to be speaking with some of you over the coming quarter and if you are 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 4th quarter and full year 2023 results conference call. Thank you for your participation. You may go ahead and disconnect.

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Key Takeaways

  • Ituran delivered record 2023 results, with revenues rising 9% to $320 million, EBITDA up 10% to $87 million, and net income up 30% to $48.1 million despite pandemic, supply-chain and geopolitical challenges.
  • In Q4 the company added 42,000 net subscribers—well above prior guidance—bringing the total to 2.252 million and rebounding quickly from a temporary pause in Israeli new-car sales due to the October war outbreak.
  • Strong cash flow left Ituran with $53 million of net cash and almost no debt, enabling a 60% boost in the quarterly dividend to $8 million and continuation of a $6.7 million share buyback program.
  • For 2024 Ituran forecasts full-year EBITDA of $90–95 million, plans roughly 35,000–40,000 net new subscribers per quarter, and expects to exceed $100 million EBITDA in 2025, assuming stable FX and no major new disruptions.
  • The company highlights its global diversification—over 2.2 million subscribers across Israel, Brazil and other Latin American markets—and inherent operating leverage as keys to resilience and long-term growth.
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Earnings Conference Call
Ituran Location and Control Q4 2023
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