Q2 2021 Ituran Location and Control Ltd Earnings Call
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Ladies and gentlemen, thank you for standing by welcome to the <unk> second quarter 2021 results Conference call. All participants are present in a listen only mode. Following management's formal presentation instructions will be given for the question and answer session for operator assistance.
During the conference. Please press Star Zero as a reminder, this conference is being recorded you should have all received by now the Companys press release, if you have not received it please contact each runs investor relations team.
At GK Investor and public relations at 1646688559 or view it in the news section of the company's website www dot need to run that C. O Dot IL I will now hand over the call to Mr. Ehud Helft GK Investor Relations.
Mr. Helft would you like to begin.
Operator, good day.
To all of you and welcome to <unk> conference call to discuss the second quarter of 2021 results.
I would like to thank each one management for hosting this conference call.
With me today on the call, let me say Azure as Kate as CEO. He said, what he Mizrahi, Deputy CEO and VP finance and Mr. Eddie come our CFO feature.
Yeah, I will begin with a summary of the quarter results, followed by India with a summary of the financials.
We'll 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 cover the contents of this conference call.
And now Eyal would.
Would you like to begin please thank you.
Like to welcome all of you and thank you for joining us today.
We are very pleased with the results of the second quarter, which outperformed our expectations.
Our results demonstrate <unk> continued its recovery with both sequential as well as year over year revenue and EBITDA growth.
Despite continued impact from the pandemic, which still ethics much of the world, especially in the countries in which we operate.
We grow our subscriber base at the highest rate we have seen for many quarters with 24000 net adds.
While the OEM segment is now showing stabilization with thousands net adds the strength continued to be driven by the aftermarket segment with 23000 net adds.
This is a rate which is nicely ahead of our typical range of between 20015.
We are very happy with the solid increase in its promising seemed for continued growth in subscription revenues over the water it.
Our business in Israel continued to contribute strongly to subscriber growth.
Even by strong new car sales in the country, which is substantially recovered over.
With 45% year over year, new registration in the first half versus that of last year.
In addition, our growth in Israel has also been driven by our usage based insurance UBI sales.
It is worth mentioning that the aftermarket subscriber base in Brazil has stabilized.
Even so the situation with the pandemic still remain tough to do.
As the global recovery moves to a more solid footing with the associated recovering global car sales.
We are well positioned across all of our geographies to capitalize on the ongoing recovery in renewed growth. However, I want to stress that the pandemic is still very much with us throughout the world and there continues to be uncertainty, including shortages of electronic component, which is now has not had a <unk>.
Significant impact on us.
We continue to operate carefully and cons server digitally facing the challenges as they arise.
From a profitability standpoint for the quarter reported EBITDA of $18.2 million D. C is our highest level in two years and again, a strong testament to the overall resilience and stability of our business model.
The operating leverage inherent in our business model, which enable us to add new subscribers on a mostly fixed operating base will allow us to see a larger portion of future expected topline revenue rose dropdown to the bottom line.
This will improve our profitability margins as we grow.
Our continued profitability and ongoing cash generation enable us to share the rewards of our success with our shareholders.
We have regular dividends of at least $3 million.
Given our growth potential ahead as well as the existing value as they need to run we believe our own shares represent good value and as another tool, which we can use to enhance shareholder value. Our board of directors. Therefore renewed our share buyback program for 2019 of which $19 million.
<unk> remains in which will commence in the coming days.
Before moving over to early 40 financial summary, I wanted to take a moment to discuss Brean.
Which now has significant value to run.
But we as value not reflected in any of our financial statement and all the potential value is future upside.
Bringing his company, we see that in 2014.
And you still are valued at close to zero on our balance sheet. The company continues to grow quickly and has become a tech leader in the last mile delivery and fulfillment space now seven years later and brings most recent capital raising wrong. The company was valued at $1 billion I need to run hard.
Post the offering seven 2% of the company's shares remaining the largest shareholder.
Bring is a testament to <unk> ability to to correctly read market trends and invest into disruptive mobility technologies and we believe this strategy will continue to bring strong value to shareholders.
Shareholders over the coming years.
In summary, as we move through 2021.
One is regaining growing strengths and I am excited resolve potential over the coming quarters and you.
Furthermore, we remain focused on shareholder value and we are taking additional steps to bring value to shareholders I look forward to commencing our buyback plan in the coming days.
I will now hand, the call over to Ali for the financial summary.
Let's say I know that the summary results I present.
<unk> will be on a GAAP basis.
Revenue for the second quarter of 2021 were $67.5 million, an increase of 27% compared with revenue of <unk>.
$3.3 million in the second quarter of 2020.
Revenues from subscription fees were $46.9 million, an increase of 7% of our second quarter 2020 revenue.
The subscriber base amounted to 1.812 million as of June 32021, an increase of 24000 net overdid that of the <unk>.
End of the period quarter, which include a net increase of 23000 and the aftermarket markets affect subscriber base and a net increase of 1000.
In the OEM subscriber base.
Product revenues were $25 million, an increase of 114% compared with that of the second quarter of 2020.
Product revenues in the second quarter of 2020 were impacted due to the Covid led economy shutdown throughout the world.
The geographic breakdown of revenue and the second quarter was as follows Israel, 52%, Brazil, 21% rest of 427%.
Operating income in the quarter was $13.8 million, 24% of revenue compared with an operating loss of $4.9 million in the second quarter of last year.
EBITDA for the quarter was $18.2 million 2026, 9% of revenues compared with an EBITDA loss of 0.3 million in the second quarter of last year.
Financial expenses.
For the quarter was $1 million compared with net financial income of $1.5 million in the second quarter of last year.
Which lost here, mainly relate to the save a watt increase invaluable in its market capitalization.
Net income for the second quarter of 2021 was $9.1 million 13, 5% of revenue or earnings per share of zero.
$44 compared with a net loss of $6.3 million or a loss per share of 0.3 dollar.
Yes, sure cash flow from operations for the second quarter of 2021 was $19 million.
Yes.
As of June 32021, the company had cash, including marketable securities of $71.8 million and depth of $38.5 million amounting to a net cash of $33.3 million daus, these compared with cash including marketable securities.
Two of $78.8 million and depth of $54.5 million.
And mounting.
Net cash of $24.3 million as of December 31, 2020.
For the second quarter of 2021 dividend of $3 million was declared.
On August 4th 2021, each one and now that its board of directors made the decision to continue executing.
Executing the $19 million remaining under a $25 million share buyback program that was first announced in 2019.
The buyback program will commence on August 25, two.
2021.
The share repurchases, if any will be funded by a valuable cash cash and repurchases of it rack ordinary shares will be made based on SEC rule that'd be dash 18.
And with that I'd like to open the call for the question and answer session operator.
Thank you ladies and gentlemen at this time, we'll begin the question and answer session. If you have a question. Please press star one if you wish to cancel your request. Please press star two if you are using speaker equipment kindly lift the handset before pressing the numbers questions will be pulled in the order they are.
Please standby, while we poll for your questions.
Okay.
The first question is from Tabby Rosner of Barclays. Please go ahead.
Good afternoon, and thank you for taking my questions.
I wanted to talk a little bit about the OEM trends.
My mother is correct I think this is the first quarter, where we see a sequential high for at least two years and I'm wondering if you can comment a little bit on the underlying dynamics, there and how you see that coming quarters going forward.
Hi, Tim first of all.
Yeah.
Of course, there is a.
Rules, and we saw we'd sort of the.
In the end of 2020, because when when we talk about the OEM segment. There is a very a strong correlation.
Between the production production lines of the car.
And during mid 2020, most of the production lines.
We're close because of the Lockdowns and quarantines.
So once it's opened a we saw <unk> grow and this should allow us to grow our sales in our subscriber base from the OEM segment.
No we have to understand that there is also a.
Volatility in these specific segments, because there is sometimes I wouldn't call it seasonality, but there is a different influences how long do you. So in Q2 always succeed to grow.
Uh huh.
With a positive net gross.
I wouldn't.
Say that D. C is something that I can surely say, but what I can say is that if in the last a year.
Even the house, we saw a decline in some time it was declined or tens of thousand per quarter.
I am expecting that this will not happen and we are in we will continue with the positive trend. It should be sometimes may be close to zero in a little bit below of course, our wishes to go and continue and grow the net new subscribers, but it's.
It's difficult to forecast the OEM, a trend, but I'm quite sure that Oh, it will continue with a positive or.
Close to a breakeven points.
Okay. That's helpful and then moving to bring.
I'm wondering if you can remind us of the accounting policy, whereas you know what would trigger you guys to kind of mark to market the value of the of your investment.
And then theoretically if you were to a point, where you know you spoke of your shares.
I'm wondering what you guys do with the proceeds.
Ah Okay first of all I want to wrongly said I think that we all seven 2%. So this is the right opportunity to correct myself, we hold 17, 2% of brink's.
And the value Okay general value today after the last round as a $172 million of cause it's not reflected in our balance sheet based on accounting rules regards the moment or the situation when we will show it on our P&L.
And then the balance sheet is in a one off to our events.
P O or exists.
And of course linked with our shares I just want to mention that nowadays even private companies.
Size of a unicorn companies there is a possibility and there is a possibilities that.
You can liquid your shares without making an IPO.
Currently we are in a stage that we our decision is to continue and hold those shares.
And then once it will be liquid in one of these three ways of course, it will contribute to our profit and the balance sheet now once we do it we will seek what to do with the proceeds.
It's depend on the on the timing, sometimes the there will be strapped.
Strategy, which we'll say that we want to continue and go for example for our mix there.
The acquisition for example.
It always can be.
It can be on the table to increase dividends or buyback.
And Indiana.
It's very depend on the situation the timing and the opportunities at the same moment since it's not on the table now to liquid.
Those shares are no decision or depth or detailed discussion took place here.
Thank you I appreciate the color.
The next question is from David Kelley of Jefferies. Please go ahead.
Good afternoon, everyone and thanks for taking my questions and I appreciate the color on regional aftermarket subscription drivers I guess, how should we think about the sustainability of the outsize growth I think you're now three quarters consecutive.
Above the 20 K growth.
And secondarily.
Are you seeing any impact from the recent Covid case step up in the aftermarket business in the third quarter.
Okay.
Okay. So.
Regarding our after market segment, we did a we used I would say 2020, but let's call it.
Europe the pandemic.
You are start seeing can find other segments.
In order to back now and I would say of course.
That we should put more efforts and resources and I'm happy that now we are reaping the fruits and I will mention and I'll talk specifically about Israel, Brazil and Mexico.
Which are the three largest market that we are operating.
Yes.
First of all is that traditional business, which is the SVR, which are we back to the.
Trends that we were before the Corona, leaving the markets. We are the largest in Israel. We are the largest in Brazil. Most of the insurance companies and most of the car dealers are using our solutions and are and when the numbers and when the markets came back to.
To a commercial life.
We bet because we all know.
But as you know in Israel, we are we focused in the in developed and educating the market for UBI usage based insurance.
This is now contribute materially to the number of subscribers.
Subscribers and two D a.
Add on sales.
To our customers in Israel, which allow us to increase the number of subscribers and also increase the output.
Ah.
And then when we talk about Brazil, we realize that there is a.
Market.
We didn't focus and our solution is better than the.
Comparable companies, which is the fleet management.
At this segment.
Until.
The end of 2019 and beginning of 2020, we didn't put attention at all because we were very focused on the one can see Google which is used to run with insurance once we decide to take our technology from the Israeli market duplicate it to the Brazilian market I'm talking.
About gaining more and more market share and I will be a little bit arrogant and I figured in in two or three years from now will be we will be the largest fleet management and telematics services in Brazil.
We are growing.
Exponentially from months to months and I'm really believed that in 2022.
This will allow us to increase materially the numbers of subscribers.
The net subscriber growth in Brazil.
Apart from the Ito run SVR.
And as said the segments that we do it.
In Brazil.
And in Mexico by the way.
Is.
Duplicate our business from the United States. The U S business of it run is quite small, but it's something that is very unique to each run traditional.
Applications.
What we do for almost 15 years into states we provide.
Location and data information from the car to finance companies that provide loans fall away.
Subprime customers. This is something very typical in the U S was less popular in Latin America, but when a finance companies realize that there is a solution that can allow them reduce the risk of unpaid loans.
Which is a solution such as we offer so they are users of our technology and services in order.
To promote financials.
Subprime customers and we're talking about.
Tens of millions of loss per year in each of these two markets. So we just started.
We have a corporate we cooperate we provide our a white label solution to large finance companies in Mexico and in Brazil. Some of them are from the Waldorf the fintech, but some of them are traditional banks.
Some of them are in pilot, but some of them already adopt our solution.
And I really believe that again for the next.
<unk>.
Future. This can be material number of subscribers for it to run in these two markets.
Today, we are leading this market is still not big but we see during bylaws enduring tenders that are we all just chosen solution.
Mainly because we have state of the art in terms of the technology instead of the art in terms of the quality of service compared to any company in our space. So.
To make the long story short this is part of the reasons that we succeed to grow and by the way the pandemic is still there.
I mean was I am not I don't think its going to happen shortly but it was the wall will be with the zero pandemic. So of course, then we will grow.
Even more dramatically, but again, even at this world of today, even under this some lockdowns some slowdowns.
I really believe that we will continue to grow.
On the after market.
<unk> to the idea that we did during 2020 and expand.
The segments that we are approaching and I'm really optimistic that this will continue.
<unk>.
Okay got it thanks for that and maybe just one quick follow up on your UBI.
Comment specifically I guess could you give us a sense of kind of the growth rates you're seeing in <unk>.
And usage based insurance and maybe how impactful do you think that sub segment or business line could be to the overall business and let's say the next three to five years.
First of all since its just started.
In 2020 at the beginning or the end of 2019. So the growth is very high at the beginning because it was a small numbers today, we get to a much bigger numbers.
Because as I said, we educated.
Like we educated the market. So we started with one insurance company adopted it then the second game than other insurance companies want to join because the comparable.
Prices of policies, where a heated market they want to compete.
Compete so today I must say that as I said in the end of 2019.
90% of the Israeli insurance companies are have some offer of UBI policies.
And in 90% of them we are the we are.
The supplier of our solution. So the numbers are growing we are talking about thousands thousands few thousands per months.
Im expecting then during 2022 it will be more spill months and this is something that can get to very big numbers of subscribers.
In a year from now also now it's quiet impressive numbers I, sorry that I cannot provide specific details because as I said, we are kind of a white label for each insurance company. Each of those insurance companies has different prices different brands and by the way different solution they need.
Some needs mileage signing driving behavior. Some are digital companies. Some are traditional companies im not allow off from a commercial reasons to provide the specific details.
Okay got it that's fair I appreciate all the all the color I'll pass it along thanks.
The next question is from Sasha Karim of Ipi. Please go ahead.
Hi, guys I wanted to ask you fussy about Youll connected car division.
Could you give us a rough idea for what the monthly off who is like in that division.
Give us numbers, maybe you can give us some kind of directional steer.
Yeah.
Don throughout Unfortunately is the same as for the UBI by the way connected car is a general name for things which are not.
We are or fleet management, and when we talk about it it includes UBI exclude a.
By utilizing the financial companies it's include.
Application where.
For example parents are using.
The system in order to control their use drivers. It's includes OEM. So it includes.
Almost a third or 40% of the total operation of it to run and again, because it's a very commercial.
I would say a secret it.
Divide it and give specific numbers, but.
My recommendation is to look on the.
I'd say on the.
Overall, our pool and this is part of it of course, some are lower as some are higher but the influence on the average is.
Is it I think it's a good way to look like.
Okay could I, just just to check because in your annual report.
You look at the value added services segment, you split it out since the concierge services connected car and UBI.
And the number you gave for subscribers in connected car was 468000, it looked like it wasn't anything to do with UBI.
Can you tell us what that 468000 sub number it does include.
Yeah.
In the annual report, we separated between the UBI to in the connected car.
So 268000 is the connected car, which is sort of like the back office application with infotainment connectivity is that number is purely related to that yet.
Got it.
I'm just gonna try try this I don't know what you're going to say in response, but if I assume that those fuel connected car stops were doing something like $5 a month.
Revenue would come to something like $28 million annual revenue from that that product and if it's a high gross margin. If it's like a 90% gross margin you can sort of concur.
Conclude that that might even account for 20% of <unk> total gross profit at group level.
So I don't necessarily need to confirm the numbers, but I might my barking up the right tree is a quite a large business in gross profit times now.
Just one reminder is that just from.
From the 400000.
Car vehicles majority of them is coming from the OEM to OEM is not including 90% margin.
Right, Okay. So its not okay.
I think you've answered my question.
I also just ask a different question how important was the U S. In the second quarter in terms of the subscriber growth.
As we mentioned in the past in the previous conference call. The U S and Israel both of them are the main contributor to the aftermarket subscriber growth.
Great. Thank you very much.
The next question is from L. Lee Bernstein.
The only portfolio management. Please go ahead.
Hi, Thank you for taking my questions and congratulations on the results I have just one question is you spoke already about the future can you. Please give us some color I mean.
Let's say in the future most of the cars will be electric cars.
And how is your business model actually debate are not affected.
If you can please give a comment on that.
First of all.
For us for the services that we provide there is no difference was once the engine is based on fuel, though based on the electricity we have no any correlate.
Any link to the type of the engine. So the services will be the same of course, one of the things that we do today is that the electric cars will have more capabilities for connectivity and for data that we can use or <unk>.
Managing or provide additional services to the drivers.
With regards to battery situation et cetera, but in terms of the typical services.
<unk> mentioned, such as stolen vehicle recovery UBI fleet management finance cars.
I don't see that there will be differences between.
Recalls are a few engines or electric cars.
Okay. So you don't see any risk of yeah, I mean electric cars coming with the new software.
Can you kind of take.
Take it away.
UBI proposition.
No one piece of the risk.
Again, it's not a specific issue for electric cars, but since if you look on our balance on our reports.
Our hardware.
Is it a is a very very low if at all margins.
To provide our services, we will be happy.
Two.
Having a car.
The rights are hardware.
We'll need to.
To connect with our service provider such as us in each country because each country has a specific.
His needs specific mentalities and are there will be no one our software and services that will be worldwide. For example, if we take the larger market, which is United States. There is no stone.
Starting to vacate in the U S. Almost zero. So for example cars in the U S as it today.
Don't need it to run to prevent cost saves.
So the hardware can be the same but the services.
And the services providers.
Still have to provide the services so for US if every call will come some of the barriers, which are the cost of the Alba. The reason by the way. This for example in Israel.
40% of the new cars equipped with a location in communication units is because the cost of the hardware. So once 100% of the cars in one day will arrive.
With the hardware and the customer will have it as a part of the car I think that it's only will be.
Yeah.
It will be a <unk>.
Something that will.
<unk>, our penetration will increase our penetration don't forget its most of our profitability and mobile based on the services.
So if it's happened.
Melissa.
Okay. Thank you.
Is there any additional questions. Please press star one if you wish to cancel your request. Please press star two please standby, while we poll for more questions.
There are no further questions at this time.
Before I ask Mr. <unk> to go ahead with his closing statement I would like to remind participants that a replay of this call will be available tomorrow on <unk> website Www Daddy to run that C. O that IL Mr shall Roski would you like to make your concluding statement.
On behalf of management of it to run and we'd like to thank you our shareholders for your continued interest and long term support of our business I do look forward to speaking with you next quarter and hope that we will all see better times might have a good day.
Thank you. This concludes the to run second quarter 2021 results conference call. Thank you for your participation you May go ahead and disconnect.
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