Ituran Location and Control Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 19, 2024

Key Takeaways

  • We added 38,000 net new subscribers in Q2, hitting the high end of expectations and bringing the total to about 2.33 million.
  • Q2 revenue rose 4% YoY to $84.9 million (6% in local currencies) and EBITDA grew 6% to $23.1 million (9% in local currencies).
  • Management highlighted new growth engines including its all-in-one vehicle sharing SaaS, a Porsche–Microsoft racing telemetry collaboration, and a newly launched motorcycle telematics product gaining OEM and insurer interest.
  • Full-year EBITDA guidance was reiterated at $90–95 million with a mid-term target to exceed $100 million by 2025, underpinning operating leverage expectations.
  • The sharp devaluation of key local currencies against the U.S. dollar negatively impacted reported results when translated into USD terms.
AI Generated. May Contain Errors.
Earnings Conference Call
Ituran Location and Control Q2 2024
00:00 / 00:00

There are 7 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Ituran Second Quarter of 2024 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-three seventy eight-eight thousand and forty or view it in the News section of the company's website, www.ituran.co.il. I will now hand the call over 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 Q2 2024 results. I would like to thank Ituran's management for hosting this conference call. With me today on the line are Mr. Eyal Sharadzky, CEO Mr.

Speaker 1

Udi Midrahi, 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 to the question and answer session. I'd 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, would you like to begin, please?

Speaker 2

Thank you, Kenny. I'd like to welcome all of you to our Q2 20 24 call and I would like to thank you for joining us today. We are pleased with our Q2 results, especially the ongoing growth in revenue across the geographies in which we operate, with continued improvement in profit. We are also pleased with the solid level of additional Nest subscribers we brought in the quarter, which came in at the high end of our expectations. These achievements come despite the negative impact of the sharp devaluation against the U.

Speaker 2

S. Dollar in the quarter, which lower our local currency denominated results presented in U. S. Dollars. In fact, we measured in local currencies, we have seen accelerated growth in most of the geographies in which we operate.

Speaker 2

Our results reflect ongoing solid demand growth for our broad location based products and telematics services and especially restructuring from many of our new initiatives. Our subscriber base added 38,000 subscribers in the quarter, at the high end of our expectations of between 35,040,000 net new subscribers per quarter. This is due both to our more diverse global footprint as well as the new services and initiatives we are continuing to bring to our end markets. Over the past few years, we've launched a number of new initiatives and have seeded growth engines driving accelerated subscriber growth. We're actively engaged in new verticals adjustment to our core business of providing telematics services.

Speaker 2

At the same time, we are taking the successful initiative, which have been limited to one of our geographies and expanding them to our other geographies. You may remember that we signed a landmark agreement with Santander Bank a year ago and we are actively looking to broaden our solution into new markets with existing and other finance customers. Our SaaS technology for all in one vehicle sharing helps fleet owners smartly and flexibly use shared vehicle fleets through efficient matching of unused vehicle with demand. We have been gaining solid traction and we are now leveraging the technology to other geographies including Israel and the United States. We see significant demand for this type of service from car rental businesses, leasing companies, as well as corporate fleets which are looking to more effectively and efficiently share the use of their fleets of vehicles.

Speaker 2

Also as you may have seen, a few days ago, we put out a press release with regard to our collaboration with Porsche and Microsoft for the Porsche Carrera Cup in Brazil and I encourage all of you to watch the video of our technology in action. We are incredibly proud to be part of this and associated with such industry leaders. Additionally, the fact that it runs telematics unit is at the heart of the Porsche racing car telematics system under the most demanding conditions demonstrates our technology leadership. One of our goals in being involved in a project such as this, apart from the honor of being associated with Porsche and Microsoft, is to bring these latest technologies used in motorsports down to it to run subscribers and we are already looking to leverage the new capabilities developed for this project over the past year throughout our business and make it more attractive to OEM players. I want to thank our team in Brazil for the exceptional work they are doing for the product Carrera car.

Speaker 2

We recently launched a new motorcycle telematics product with strong potential, given a very significant total addressable market throughout South America with a strong motorcycle culture. We are already seeing interest for OEMs and insurance companies and we are in active discussions. We are also in active discussions with a number of major OEM car manufacturers in addition to the 2 major that we already work with. At the same time, we are looking to broaden the scope of services we provide to our existing OEM partners, which are focused on limited geographies in order to broaden our service to additional countries in South America. The goal is to provide to the OEM manufacturers with a suite of telematics and stolen vehicle recovery services.

Speaker 2

We see growth potential to bring in many new subscribers via this initiative. From a financial perspective, looking ahead to the remainder of 20 24. Earlier this year, we provide EBITDA guidance in addition to the guidance on subscriber growth, which we always used to do. Today, we retreated it for 2024, our guidance is full year EBITDA of between $90,000,000 $95,000,000 Looking further out, our short to mid term milestone is to cross the $100,000,000 EBITDA landmark in 2025. We continue to expect subscriber growth at around 35,000 and 40000 net new subscriber each quarter.

Speaker 2

Even with the currency headwind in this quarter, we remain on track to meet our targets. Given the strong net cash position of over $63,000,000 our ongoing cash generation and continued solid profitability, we continue to share a strong quarterly dividend of $8,000,000 with our shareholders. This dividend is in line with our current policy. It is at the same level that we issued last quarter, a 60% increase over the year ago quarter. Our dividend yield on an annualized basis represents a return of over 6%, which is a very solid return from a strong company.

Speaker 2

We see our ongoing dividend as a reward to our shareholders for their loyalty and long term support of Ituran. In summary, the Q2 of 2024 is another quarter of solid performance, which is especially clear when we move the noise of FX and look at our results in local currencies. We believe that we will continue on this trend in 2024 and given the many growth initiatives highlighted, I would expect the growth to accelerate as time passes over the mid to long term. Our constantly growing subscriber growth will ultimately translate into increased revenue, increased gross profit with faster growing profitability over the long term due to the operating leverage inherent to our business. I look forward to updating you further as some of our initiatives mature.

Speaker 2

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

Speaker 3

Thank you, 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. 2nd quarter revenues were $84,900,000 a 4% increase compared with revenue of $81,600,000 last year. The strengthening of the U.

Speaker 3

S. Dollar in the 2nd quarter versus the various local currencies in which Ichiban operates in impact the revenues when translated into U. S. Dollar. In local currency, revenue grew by 6% year over year.

Speaker 3

Revenue from subscription fees in the quarter were $60,400,000 an increase of 2% year over year and in local currencies an increase of 5%. Product revenues in the quarter were $24,500,000 an increase of 9% year over year and in local currency an increase of 10%. The subscriber base expanded to 2,000,000 329,000 by the end of the second quarter, an increase of 38,000 dollars from the end of the previous quarter. The geographic breakdown of revenues in the Q2 was as follows: Israel, 51% Brazil, 24% rest of world, 25%. EBITDA for the quarter was $23,100,000 or 27.2 percent of revenue, an increase of 6% compared with EBITDA of 21 $800,000 or 26.7 percent of revenues in the Q2 of last year.

Speaker 3

In local currencies, EBITDA grew 9% year over year. Net income for the Q2 was $13,100,000 or diluted earnings per share of $0.66 an increase of 7% compared with $12,200,000 of diluted earnings per share of $0.61 in the Q2 of last year. In local currency, net income grew 10% year over year. Cash flow from operations for the Q2 of 2024 was $22,900,000 As of June 30, 2024, the company had cash including marketable securities of $63,300,000 and a debt of $200,000 amounting to a net cash position of $63,100,000 This is compared with the cash including marketable securities of $53,600,000 and a debt of $600,000 amounting to a net cash position of $53,000,000 as of year end 2023. The Board of Directors declared a dividend for the quarter of $8,000,000 The current dividend takes into account the company's continued strong profitability, ongoing positive cash flow and strong balance sheet.

Speaker 3

And with that, I'd like to open the call for the question and answer session. Operator?

Operator

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

Speaker 4

Thanks for taking my questions and congratulations on the solid quarter. I was wondering if you could talk about some of what contributed to the stronger product growth this quarter?

Speaker 2

Mainly, if I remind you that we have a subsidiary, which is focused a company called DRM, which is first of all our main supplier, but also as many third party customers, which they are mainly focused on hardware and they had a strong quarter. Since they are selling almost only hardware, we have to remember that they have some volatility among quarters because it's really depend on different customers from around the world.

Speaker 4

Got it. And on pricing, I was wondering if in this macro environment you're seeing any pricing pressures or changes in the pricing environment in any of your geographies?

Speaker 2

No. The answer is no. We have to again to remember that it run the main revenue source is the subscribers fees. We have to understand that the average ARPU is about $10 So, the sensitivity among the end user as much as I can say is quite low. Regardless the hardware itself, if you look on our historical numbers, the margin that we sell are very low in order to get more and more subscribers and in that case our prices are quite low by definition and we don't see pressure in this field as well.

Speaker 4

Got it. And just one more housekeeping bit and I apologize if I missed this on the press release, but you previously had been giving the aftermarket and OEM breakout for subscribers. So I didn't see it this quarter. Is that a change in reporting?

Speaker 2

Actually, I'm not sure that we did it constantly. But yes, we will try to do it. I think because the differences, when the differences are very high, we are divided. I think that it was more balanced this quarter probably.

Operator

The next question is from Sergey Glynov of Freedom Capital Markets. Please go ahead.

Speaker 5

Hello, everyone. Pretty good results. Maybe could you provide your outlook for product sales growth, gross rate for the foreseeable future?

Speaker 2

Again, I would like to remind that our product sales mainly done all by our subsidiary that I mentioned or by the Israeli company in the rest of the world, which is more than 50% of our revenues, we almost I can say lease and we sell it as a program with the monthly fees. And when I talk about our subsidiary and about selling hardware to our, let's say to our distributors, it's something that always had some volatility between quarters because it's mainly depend on their inventory pressure, inventory decision etcetera. So I think that we are not expecting any specific growth. I think that the average number is on an annual basis. You have to judge it on an annual basis.

Speaker 5

Okay. Is this related to all the markets when or where you present?

Speaker 2

No, because what you see in our P and L is that it's divided to services and product. More than 50% of the geography of our revenues is the hardware is integrated to our service fees, we lease it. So what you see is you see it in one hand in the CapEx, okay, in the CapEx in the cash flow report and here it's part of the service revenues. So you don't see the sales in more than 50% of our total revenues. But you see it's only in Israel and our subsidiary, which is a supplier of hardware.

Speaker 2

Got it. Thanks.

Operator

The next question is from Eli Goldberg of Oppenheimer. Please go ahead.

Speaker 6

Hi. I want to know if you guys could provide some more insight about the motorcycle product you guys said you just launched and how should we think of that going forward?

Speaker 2

I think that I mentioned it also in our call in the Q1, but I will of course will do it again. We just started a few months ago to launch our solution in, I would say, 2 main channels. 1 is insurance companies in Brazil. We realized that Brazilian market and I would say even mentality is that motorcycle is very common and there is a high portion of the motorcycle market with expensive and high end motorcycles by Yamaha and by Honda. And in that case, insurance companies didn't or wasn't happy to provide insurance to those kind of vehicles because the risk of theft is very high.

Speaker 2

Thanks to our solution which we show that it's reduced the risk. Insurance companies are more interest in selling insurance policies to motorcycle owners. And in that case, we are now in discussions or we already start to sell solutions for motorcycles. So I wouldn't say that it's not the contribution currently is high, but like we started with the ICS for cars in the past, it start to ramp up and I believe that in a year or 2 it can be much more material in the revenue and profit size. The second segment, it's OEM, which I cannot yet report for a final contract or a deal, but this segment is something which we are putting also focus in discussions with motorcycles manufacturers in order to convince them and in order to show them what we did with a car connectivity as an OEM and what benefits their customer can get from a telematic solution in a motorcycle.

Speaker 2

So this is something else which we now have to offer. I want to add that in Israel for example in the last more than a year and this also contribute to our growth in subscribers, we already have a solution. It's a different solution than I now offering in Brazil, something which is more simple solution, mainly and only for a motorcycle seat. We already have sales of 1,000 of motorcycles. And in Israel, by the way, motorcycle do not insure their motorcycle.

Speaker 2

So instead of having nothing because they don't insure the insurance here is very, very expensive. So they decide to find a solution which reduce their risk as a motorcycle owner by installing it to run and of course join our customer base.

Speaker 6

Okay. Thank you. And another follow-up. How would you say investors should look at the growth going ahead talking about 25 even for Ituran, what should we look at?

Speaker 2

I'm always considering our growth in the profit side, the EBIT and the EBITDA because it's very important when we are kind of a SaaS company and we have a customer base of close to 2,400,000 subscribers, even if we grow 100,000 or 180,000 a year, the influence on the revenue is not so dramatic. But since we have an operating leverage model, it mean that we expecting to grow, 1st of all, our profit margin and second, our EBIT and EBITDA. And in that point, we already provide kind of guidance for 2024. And also it's not a guidance, but still it's something that we put as a goal and if we put as a goal, I believe that we believe that we will achieve it is to get EBITDA in 2025 of $100,000,000 Now, I have to put a note here, since our operation and our revenues comes from different currencies type and most of them are currencies of emerging market. It's something that we don't have any way to predict or to control.

Speaker 2

The like happened by the way in Q2. So when I say $100,000,000 of course it's based on the currencies as is now. But in terms of growth profits, I think that it's quite this is a very impressive goal.

Speaker 3

Okay, thank you.

Operator

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

Speaker 2

Yes. Hello. My question is on the ARPU this quarter, which declined compared to previous quarters that were obviously there was roughly 12 quarters of growth. So what else is going there besides the depreciation in currency against the dollar? Is it because of more sales to OEM or are there lower ARPU margin products?

Speaker 2

I think that if we eliminate the FX, you would say that the ARPU for Q2 is even higher. So this is the only reason that you see lower ARPU. In local currencies, we have higher ARPU. Although you're right, the OEM is lower, there is some application that we sell like a big data solutions for car dealers, it's lower, but still the variety is still taking our ARPU up in local currencies. Okay.

Speaker 2

Thank you.

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. Sharatzky, would you like to make a 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 of our business. In the coming months, we will be meeting with investors and presenting at 2 conferences, LD, Micro and EDAM and we hope to see some of you there. 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 guys.

Operator

Thank you. This concludes the Ituran second quarter of 2024 results conference call. Thank you for your participation. You may go ahead and disconnect.

Powered by Quartr