Ituran Location and Control Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 28, 2025
Skip to Participants
Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Turan First Quarter twenty twenty five Results Conference Call. All participants are present in listen only mode.

Operator

Following management's formal presentation, instructions will be given for the question and answer session. 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 7040 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. Green, would you like to begin?

Kenny Green
Co-Founder & Director at EK Global Investor Relations

Thank you. Good day to all of you, and welcome to Ituran's conference call to discuss our first quarter twenty twenty five results. I would like to thank Ituran's management for hosting this conference call. With me today on the call are Mr. Eyal Sheretsky, CEO Mr. Udi Mizrahi, Deputy CEO and VP Finance 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. And now, Eyal, would you like to begin, please?

Eyal Sheratzky
Eyal Sheratzky
Co- CEO & Member of the board at Ituran Location and Control

Thank you, Kenny. I'd like to welcome all of you to our first quarter twenty twenty five result call and thank you for joining us today. We are pleased with our first quarter results presenting another quarter of year over year growth in revenue and profit across the geographies in which we operate. In the first quarter, we added a very high level of new subscribers amounting to 99,000 net. With this strong jump, we reached a major milestone, crossing 2,500,000 subscribers, ahead of our expectation.

Eyal Sheratzky
Eyal Sheratzky
Co- CEO & Member of the board at Ituran Location and Control

The significantly growth in the subscriber base during the quarter was partly due to an additional contribution from a new telematics service agreement that we signed with major car OEM manufacturer, Stellentis. As an initial part of this agreement, in March, Stellentis switched their SVR subscriber base to Ituran, and Ituran began providing services to the subscriber. Given the jump in subscribers, we increased our expectations for twenty twenty five subscriber goals to between 460,000 net new subscribers, implying a further 120,000 to 140,000 net new subscribers in the upcoming three quarters. The hard work we've done over the past year in bringing new and attractive applications, product, and services has brought these highly positive results. Looking ahead, we believe over the long term, the net subscribers ad will trend upward.

Eyal Sheratzky
Eyal Sheratzky
Co- CEO & Member of the board at Ituran Location and Control

Even while presenting excellent results, I want to add that similar to the last quarters, while showing growth in US dollar terms, the strengthening of the dollar versus many of the local currencies in which we operate, and in particular, the Brazilian real and the Mexican peso, had a deflating impact on our financial results when denominated in US dollar. In local currencies, in each of our regions, I know that we grow ahead of what our US dollar denominated results suggest. Our success reflects ongoing and growing demand for a location based product and telematic services in all our region, as well as traction for our new initiatives and services. With a good first quarter, and I want to summarize some of our activities which will continue to contribute to our growth and success. Israel, the high car theft rate is providing strong demand for our services and enabling us to reach additional new subscribers from part of the market that we previously untapped by us, such as lower priced new vehicles or the secondhand car markets.

Eyal Sheratzky
Eyal Sheratzky
Co- CEO & Member of the board at Ituran Location and Control

Our usage based insurance business in Israel continue to gain strong traction, bringing us new subscribers and is one of the reasons why we continue to see strong subscriber growth in Israel. Our product for Motorcycle is gaining traction across all our geographies in South America. Motorcycle significantly increased our total addressable market and continue to represent a very significant untapped market for us in all our region. And as I mentioned earlier, during the first quarter, we were very pleased to have signed a new OEM agreement with Stalentis, our new OEM customer, made a strategic decision to begin working with Ituran for telematic services, and in March, we started providing our services to their subscriber base. Stalentis is the largest car manufacturer in Latin America, which includes Fiat, Jeep, Peugeot, and many others.

Eyal Sheratzky
Eyal Sheratzky
Co- CEO & Member of the board at Ituran Location and Control

They choose to work with us because of their satisfaction with our technological and service capabilities. While contributing to both our top and bottom line, because we currently have wisdom an initial and limited OEM SVR service agreement, the Stalenti subscribers are at lower ARPU than day to run average. Following this initial agreement, we expect in the near future to broaden our scope of services to Stalentis. We view this new OEM agreement as an important milestone in expanding our OEM relationships globally. We believe it opens the door to further collaborations with Talendis in additional geographies as well as the potential to provide additional telematics services to the customer base.

Eyal Sheratzky
Eyal Sheratzky
Co- CEO & Member of the board at Ituran Location and Control

We remain in discussion with a number of other major OEM car manufacturer in addition to those that we already work with in order to bring our services to their subsidiaries elsewhere in South America. Ituran is a cash generating company, and we generated $15,500,000 in operating cash flow during the quarter. Ituran is focused on shareholder value creation, and as such, of directors decided to issue a dividend of $10,000,000 to shareholders. I remind you that in q four twenty twenty four, we increased our dividend policy by 25% from issuing $8,000,000 per quarter to $10,000,000. This represent 50¢ per share.

Eyal Sheratzky
Eyal Sheratzky
Co- CEO & Member of the board at Ituran Location and Control

Our dividend yield on an annualized basis represents a return around of 6%, which is a very solid return from a strong and stable company. We see our ongoing dividend as a reward to our shareholders for their loyalty and long term support of our company. In summary, we remain pleased with Ituran's performance. The first quarter was a quarter of continued growth for Ituran, particularly in term of top line revenue and subscriber growth, as well as from a strategic perspective, bringing a new OEM relationship and deal to Ituran. We believe we will continue to see growth throughout 2025, adding between two hundred twenty and two hundred forty thousand new subscribers in 2025.

Eyal Sheratzky
Eyal Sheratzky
Co- CEO & Member of the board at Ituran Location and Control

At the same time, we look for more avenues for accelerating our business even further across all our regions. We are very pleased to have reached a major milestone of Ituran with two and a half million paying subscribers, and I would like to thank and congratulate all our employees for this amazing achievement. And with that, I hand over to Eli. Eli, please go ahead.

Eli Kamer
Eli Kamer
Executive VP & CFO at Ituran Location and Control

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. First quarter revenues were a record $86,500,000 a 2% increase compared with revenues of $85,000,000 in the first quarter of last year. The strengthening of the U.

Eli Kamer
Eli Kamer
Executive VP & CFO at Ituran Location and Control

S. Dollar in the first quarter versus various local currencies in which it ran operating in impacted the revenues when translated into U. S. Dollar. In local currency, revenues grew by 7% year over year.

Eli Kamer
Eli Kamer
Executive VP & CFO at Ituran Location and Control

Revenues from subscription fees in the quarter were $62,200,000 an increase of 2% year over year and in local currency, an increase of 9%. Product revenues in the quarter were $24,300,000 an increase of 1% year over year and in local currencies, an increase of 3%. The subscriber base expanded to 2,508,000 by the end of the first quarter, an increase of 99,000 from the end of the previous quarter. The geographic breakdown of revenues in the first quarter was as follows: Israel Fifty Five Percent, Brazil Twenty Three Percent, rest of world 22%. EBITDA for the quarter was $23,300,000 or 26.9 of revenues, an increase of 4% compared with EBITDA of $22,300,000 or 26.3% of revenues in the first quarter of last year.

Eli Kamer
Eli Kamer
Executive VP & CFO at Ituran Location and Control

In local currencies, EBITDA grew 12% year over year. Net income for the first quarter was $14,600,000 or diluted earnings per share of $0.73 an increase of 12% compared to $13,000,000 or diluted earnings per share of $0.66 in the first quarter of last year. In local currency, net income grew 20% year over year. Cash flow from operation for the first quarter of twenty twenty five was $15,500,000 As of 03/31/2025, the company had net cash including marketable securities of $75,700,000 This is compared with net cash including marketable securities of $77,200,000 as of year end twenty twenty four. The Board of Directors declared a dividend of $10,000,000 for the quarter.

Eli Kamer
Eli Kamer
Executive VP & CFO at Ituran Location and Control

The current dividend takes into account the company's continuing strong profitability, ongoing positive cash flow and strong balance sheet. And with that, I'd like to open the call for the question and answer session. Operator?

Operator

Thank you. Ladies and gentlemen, at this time we will begin the question and answer session. If you have a question, please use the raise hand button located at the bottom of your screen. The first question is from Sergey Gilyanov of Freedom Capital Markets. Please go ahead.

Sergey Glinyanov
Investment Research Analyst at Freedom Broker

Good day, gentlemen. Do you hear me well?

Operator

Yes. Loud and clear.

Sergey Glinyanov
Investment Research Analyst at Freedom Broker

So great. In terms of new agreements, does it imply you set up your equipment and provide services for each produced car by Stellantis in Latin America, Or you have some options for them?

Eyal Sheratzky
Eyal Sheratzky
Co- CEO & Member of the board at Ituran Location and Control

Sergey, this agreement that we report, that we published is currently at this stage, as we said, is to provide services based on technology, which was already implemented in the past in the cars of Spinantis. Of course, we see this agreement as an opportunity to broaden the relationship. And probably in the future, we hope that we will have the ability to add other services as well as hardware in some models. But this, what we published yesterday, it's to provide services.

Sergey Glinyanov
Investment Research Analyst at Freedom Broker

Okay. Got it. And is total effect on your subscription base in place? It seems you raised your subscription base guidance range by 40 thousands in midpoint exactly what we saw in q one considering previous run rates.

Eyal Sheratzky
Eyal Sheratzky
Co- CEO & Member of the board at Ituran Location and Control

So This agreement was Hello?

Sergey Glinyanov
Investment Research Analyst at Freedom Broker

Yes. Yes.

Eyal Sheratzky
Eyal Sheratzky
Co- CEO & Member of the board at Ituran Location and Control

This agreement is in place since March, meaning in Q1 there is no almost zero influence. But it's also important for me to mention, when we talk about services and specifically OEM deals, which was a large quantities, but which is with a lower ARPU. So it's taking time that it become material because don't forget, we had before this quarter about 2,400,000 subscribers. The additional influence in the short term is smaller. But the important thing in each and one of these contracts is that we're talking about longer term relationship.

Eyal Sheratzky
Eyal Sheratzky
Co- CEO & Member of the board at Ituran Location and Control

We're talking about growing customer base from this customer. And when it's exponentially increased, the margins increased, so the contribution to the total results of Vitoran will appear in the future, but then it will be more material. But I don't think that it's the right way to judge a contract now for the next for this quarter or for the next quarter because the customer base, the revenues that we have from subscribers at all are much higher than only this. But in the future, this contract will ramping up every month, every quarter, and it will be more contribution to our results.

Sergey Glinyanov
Investment Research Analyst at Freedom Broker

Okay. But what what what did primarily affect your ramp up of subscription base? Because recently, it was roughly 40,000 per quarter, and now we see that it's roughly 100,000.

Eyal Sheratzky
Eyal Sheratzky
Co- CEO & Member of the board at Ituran Location and Control

Actually, the agreement includes the first stage gaining to Iran a bulk of Stellantis car owners, okay, as a first stage. And then they will continue on an annual basis based on their sales. So the number that we show at Q1, it's not a typical number. This is why we provide expectation that the next quarters will continue to be about 40,000 per quarter and not as Q1 almost 100,000. We got initial bank of customers at one time now.

Eyal Sheratzky
Eyal Sheratzky
Co- CEO & Member of the board at Ituran Location and Control

Of course, they will be with us a few years according to the contract. But now every month, Stellantis will continue to add subscribers, but it will be not on the same level that the initial one was.

Sergey Glinyanov
Investment Research Analyst at Freedom Broker

Yes. I got it. That's exactly what I'm interested in. And now turning to your financial figures. Eddie, that's question for you.

Sergey Glinyanov
Investment Research Analyst at Freedom Broker

I I guess product gross margin is increases substantially. Have we taken some steps to improve that? And what should we think about it for next couple of quarters?

Eli Kamer
Eli Kamer
Executive VP & CFO at Ituran Location and Control

Gross margin, if we split it to two, we're talking about the gross margin relates to the Telematics Services, it's actually improved a little bit. And this is due to the operating leverage that we have in our business model. So if you are asking me for the future as long as we continue to increase our subscriber base, I don't see any reason why the gross margin on the Telematics services should improve a little bit. Regarding the Telematics products gross margins that increase, then it relates to cost savings that we are doing all the time and volatility between the quarters because there is a mix of products that sometimes change from that you are selling one or more product with a different gross margin. So that is a little bit bit of volatility as well.

Sergey Glinyanov
Investment Research Analyst at Freedom Broker

Yes. Thank you. Got it. And what's about operation expenses? It seems your R and D and marketing expenditures rise faster than revenue. What should we think about it?

Eli Kamer
Eli Kamer
Executive VP & CFO at Ituran Location and Control

If I'm looking at the R expenses, it's more or less represent about 5.5% of the revenues and it's quite stable along the time. So if you're asking me going forward, that's a reasonable assumption to use for the future.

Sergey Glinyanov
Investment Research Analyst at Freedom Broker

Okay. Understood. And I think the last question, is increased CapEx attributable to new agreements? And what level should we expect for 2025?

Eli Kamer
Eli Kamer
Executive VP & CFO at Ituran Location and Control

Yes. Regarding CapEx, you have to remember that that's it includes a lot of consideration of volatility due to the fact of couple of things. One, the company is making purchases of machines, vehicles and how does it not spread equally among the quarters. And second also inventory, I will not say fixed assets or inventory that we are using in Brazil and Argentina that usually depends on that we can buy it on bulks and things like that. Q1 for your question was higher than the average. But looking forward, the CapEx should go down if you would compare, I mean, the second quarter and moving forward.

Sergey Glinyanov
Investment Research Analyst at Freedom Broker

Okay. Thank you. Got it. And yeah, I have one more question about, insurance market in LatAm. Just wondering and, would like to hear your thoughts about it.

Sergey Glinyanov
Investment Research Analyst at Freedom Broker

What do you expect from LATAM insurance market? For instance, in Brazil, despite despite car thefts are declining, insurance insurance cost rises rapidly, especially for the most popular cars like Fiat. Do you consider it as a potential opportunity for it to run-in terms of consumer demand transition into UBI insurance? What are your perspectives for the next couple of years on that sales field?

Eyal Sheratzky
Eyal Sheratzky
Co- CEO & Member of the board at Ituran Location and Control

First of all, we don't see declining cost of freight. We have to understand that with all the respect to Ituran, when we have a few hundred thousands of cars, when we talk about tens of millions driving on the roads, still we usually have more a better approach to cars which are more popular to be stealing, whether it's insurance companies or even consumers. We are we don't see the trend that you mentioned. I know that some models, sometimes it has a volatility, but overall, we see a high demand in Brazil for car sales solution, specifically the insurance companies that we work with and especially the audience when we talk about IntoOne Configura that we approach. So we don't see that.

Eyal Sheratzky
Eyal Sheratzky
Co- CEO & Member of the board at Ituran Location and Control

Regard UBI, I said it in the past, we're always knocking on the doors of our partners, the insurance companies and provide them this solution. Unfortunately, Brazil as well as Mexico, which is the two largest countries in South America, the insurance companies are not willing to explore this journey, which mean to change their Actuaric methodology and implement software and integration with this solution. So the only country, by the way, that we succeed to have some deals, it's Argentina. But I think that the competition between insurance companies, digital insurance companies penetration, prices that should that go went down and will continue probably will create more vertical ground for accepting a UBI solution. And once it will happen, I believe and we do the best that we can to be there based on the strong relationship that we have with major players in the insurance industry.

Eyal Sheratzky
Eyal Sheratzky
Co- CEO & Member of the board at Ituran Location and Control

But currently, Brazil and Mexico, the short future, are not the market that we expect to sell DUBI.

Sergey Glinyanov
Investment Research Analyst at Freedom Broker

Okay. That's all from me. Thank you for taking my question, gentlemen.

Operator

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

Chris Reimer
Chris Reimer
Analyst at Barclays Capital

Hi. Thanks for taking my questions and congratulations on the strong results. I'd like to mentioned the lower ARPU for customers on deals of the type of of Stellanis with the bulk customers. I was wondering if you could talk a little bit about the attrition rates and customers that leave or are finished with their contracts. Is the is does it work that you get new customers at a higher ARPU or because of these large deals, are some of the new customers coming in at a lower ARPU than the ones that are leaving?

Eyal Sheratzky
Eyal Sheratzky
Co- CEO & Member of the board at Ituran Location and Control

First of all, it should be clear. Our customer is Stellantis. I mean all the accounts and the calculation and the ARPU and everything done through them. The customer get it as a free trial, as a part of, let's say, like having the car, he has these services, which for us is good because we don't have to convince the customer, we don't have to work consumer by consumer. The checks come from one institutional player, etcetera.

Eyal Sheratzky
Eyal Sheratzky
Co- CEO & Member of the board at Ituran Location and Control

But once the time, which is usually between two to three years, sometimes five years of these free services, we have the ability to approach the customers when they finish the free trial and to offer them the services, which by the way has two additional, I would say, benefits. First of all, the prices that we offer the renewals are higher because to convince Talendis to pay for hundreds of thousands of subscribers, of course, it's related to a very high discount or high lower ARPU or to a lower ARPU. When you go customer by customer, when we do the renewals, if they had satisfaction with the three or five years of services, it will be easier for us to convince them to pay a higher service fees. So this is the situation here. We don't have the churn, I would say, is lower because there is no economic pressure on the driver or the car owner.

Chris Reimer
Chris Reimer
Analyst at Barclays Capital

Got it. Yes, okay.

Eyal Sheratzky
Eyal Sheratzky
Co- CEO & Member of the board at Ituran Location and Control

By the way, the situation with all the OEM deals. Now regarding ARPU, I don't I'm not sure if you ask this specifically, but I would add that the ARPU is lower because it's only service. There is no we are not leased any hardware, which we have to integrate it in the monthly service fees like we do, for example, with the Nissan. So it's only the service, so it's lower. Second, we are talking about kind of services that since we don't have the hardware and all the back office related to the hardware, so the margins are dramatically higher than a typical service or full connected car services, which the ARPU is higher, but the gross cost also higher, the direct cost also higher. So the margin is higher here.

Chris Reimer
Chris Reimer
Analyst at Barclays Capital

Got it. Thanks. That's really helpful. And I was wondering if you could talk a little about the dynamics in the market for the product revenues and how you see the pipeline evolving throughout the year?

Eli Kamer
Eli Kamer
Executive VP & CFO at Ituran Location and Control

Theoretically, again, usually the pipeline regarding we have orders, but it's on a daily basis that we receive. Of course, there are some backlogs of orders that we know from OEMs that we plan and we manufacture the units in order to provide it. So we are ready always to promote or to provide the deliveries to our customers. So we have stock, enough stock whenever they need. Of course, based on demand, of course, we can increase the inventory or reduce the inventory based on that.

Eli Kamer
Eli Kamer
Executive VP & CFO at Ituran Location and Control

Regarding the gross margins that you mentioned, that's really there is a lot of volatility over here along the quarters. And this is why it's very hard to say. But I would say even going forward around the 20%, twenty five % makes sense to me on a gross margin for the product revenues. But it depends on the product mix.

Chris Reimer
Chris Reimer
Analyst at Barclays Capital

Got it. Thanks. That's it for me.

Operator

Thank you. 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.ituran.co.il. Mr. Sharotsky, would you like to make your concluding statement?

Eyal Sheratzky
Eyal Sheratzky
Co- CEO & Member of the board at Ituran Location and Control

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. 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 first quarter twenty twenty five results conference call. Thank you for your participation. You may go ahead and disconnect.

Executives
    • Eyal Sheratzky
      Eyal Sheratzky
      Co- CEO & Member of the board
    • Eli Kamer
      Eli Kamer
      Executive VP & CFO
Analysts
    • Kenny Green
      Co-Founder & Director at EK Global Investor Relations
    • Sergey Glinyanov
      Investment Research Analyst at Freedom Broker
    • Chris Reimer
      Analyst at Barclays Capital
Powered by Quartr

Key Takeaways

  • Net subscriber milestone: Added 99,000 net new subscribers in Q1, surpassing 2.5 million and raising FY 2025 net addition guidance to 460,000.
  • Signed a strategic OEM telematics agreement with Stellantis, onboarding their SVR base in March at lower ARPU but laying groundwork for broader services globally.
  • Strengthening of the US dollar versus the Brazilian real and Mexican peso deflated reported revenue and profit, even as local-currency revenues grew 7% and EBITDA rose 12%.
  • Record Q1 performance with $86.5 million in revenue (+2% y/y), $23.3 million in EBITDA (+4%), $14.6 million in net income (+12%), $15.5 million operating cash flow, and a $10 million dividend.
  • Launched a motorcycle product across South America, significantly expanding total addressable market in an untapped segment.
AI Generated. May Contain Errors.
Earnings Conference Call
Ituran Location and Control Q1 2025
00:00 / 00:00

Transcript Sections