Q4 2021 Ituran Location and Control Ltd Earnings Call
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Ladies and gentlemen, thank you for standing by welcome to the <unk> fourth quarter 'twenty 'twenty. One results conference call. All participants are at present in listen only mode. Following management's formal presentation instructions will be given for the question 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 you took on the Investor Relations team at GK Investor and public relations at one to one to 3788040 or view it in the news section of the company's website.
Www Dot Ito and that's C O that IL I would now like to hand, the call over to Mr. Hu. The house of GK Investor Relations. Mr House would you like to begin.
Yes. Thank you operator, good day to all of you and welcome to <unk> conference call to discuss the fourth quarter.
Full year 2021.
I would like to thank you to our management for hosting this conference call.
With me today on the call, let me say I shall ask it of course.
What do you mean, the Rockies Deputy CEO and VP finance.
So how do you come out of the CFO .
Yeah, I don't think even with some of the quarterly results followed by a summary of the financials.
Well then open the call for question and answer session.
I'd like to remind everyone. The safe Harbor in the press release also covers the contents of this conference call.
No Yeah would you like to begin please.
Thank you and I'd like to welcome all of you and thank you for joining us today.
We are very pleased with our financial results they represent a year of recovery and growth returning to double digit revenue growth as well as strong profitability and double digit EBITDA growth.
We reported full year revenues of $271 million and EBITDA of $73 million live and we have only surpassed once you know what your story.
I would like to focus on the very solid growth in the subscriber base, which was the most notable aspects of our fourth quarter 2021 results.
We grew our subscriber base at the highest rate we have seen in our history with 44000 net ads, bringing the total almost 1.9 million subscribers.
The aftermarket segment added 50000 subscribers during the quarter and ease of approaching $1 5 million subscribers.
The growth in subscribers came from both our traditional businesses and was boosted by a lower gross engines.
This include increased traction from our usage based insurance UBI business in Israel, working with scar financial companies in Brazil, and Mexico, new activities with rental companies in South America as well as growth from our U S business. We expect this type of subscriber growth to continue into next year.
And we have raised our expectation, which was typically 20 to 25000 net subscriber gross per quarter or 80 to 100000 per year to between 140 and 160000 per year.
In 2022.
I want to discuss each runs overhaul our pool.
The new growth engines are at a lower revenue per user than the average of our traditional aftermarket business, which will have the effect of lowering our overall output.
However, I highlight that our gross margins on the lower our subscribers are similar to that of the existing business.
In addition, as our business scale up faster, we can better how does the operating leverage which is inherent to our business model. We're typically each individual subscriber it does not require any growth in operating expenses and also survivors tend to stay with us for a long period.
I would like to stress that while 2021 has so far been stronger year for each one in terms of new subscriber goals. They really benefit from the addition of subscribers that we gained in the past year will benefit us more toward the end of 2020 to 2023 and beyond.
With regard to the UBI business in 2021, we won significant business and we are now working with all of the seven major insurance companies in Israel. We continue to see increased traction as these really consumer market become increasingly educated to the value that they gained by using a usage based insurance plan rather than fixed.
Especially since the work from home trend is to see if we can see if we can actually reduce the typical.
Okay.
The Corona slowdown created plenty of new markets and opportunities and over that time, new cost says around the world wind down.
As I explained last quarter, we identified as strong secondhand car market in many of our geographies in Latin America, and new Fintech startups as well as the large banks have come into.
Into providing financing in this market however, they need and provide off location based in connected car technology, such as the two one to monitor the calls and driver behavior and <unk> lowered the risk of the loan against the car.
We are quickly moving forward and are already walking with financing companies because our solution.
We're excited about this business and see great potential for additional growth in the coming years.
I would like to address the electronic component shortage that has been widely reported over the past year and remains an issue for everyone.
Despite a demand vastly exceeding the supply and high prices, we exit we have successfully been managing through the shortage to date in the current quarter.
Q1, 2022 we will see increased cost parole components for our products.
She will temporary lower our product gross margins in the first half of 2022.
It is important to note that this is primarily a subscriber service business the impacts don't need to run to date has been low and has primarily been on the product revenue side, which has smaller effect on our bottom line.
Our continued profitability and ongoing cash generation enable us to share the rewards of our success with our shareholders. We have two programs. One is a regular dividends of $3 million to shareholders and we issued a total of $12 million in 2021, our second program is our share buyback during.
2021, we purchased $7 3 million dollar.
<unk> 280000 shares of 51.
In summary, I'm very pleased with our performance, both our traditional business and especially our growth engines, which we have seeded over the past few quarters, which we expect will accelerate our growth in the use of it.
The solid performance can be seen in the jump in our subscriber base, which has grown well ahead of our expectations.
And has allowed us to increase dose expectation or the current to you I'm more excited now than ever with our long term potential over the coming years.
And I will now hand, the call over to Andy for a financial summary Haley.
Thanks.
I will provide the short a short summary of the financial results you can find it in more detail.
<unk>, that's we issue in the press release earlier today.
Revenues for the fourth quarter of 2021 were $17 $4 million.
11% increase compared with revenue of $663 $6 million in the fourth quarter of 2020.
Revenues from subscription fees were $48 8 million.
Up 7% year over year.
Revenues for 2021 were.
$217 9 million, 10% above the $245 6 million reported in 2020.
Revenues from subscription fees were 189000 point $6 million.
Presenting an increase of 4% over 2021.
The subscriber base amounted to 1.881 million end of December 31st 2021, an increase of 44000 net over that of the end of the period quarter and an increase of 113000 soon.
At the end of the fourth quarter loss last year.
Fourth quarter product revenues were $21 $6 million up.
At 21% year over year.
Full year 2021 product revenues were $81 2 million, representing an increase of 30% compared with the same period last year.
The geographic breakdown of revenues in the fourth quarter, while this fall he Israel, 52%, Brazil, 20% rest of 428%.
EBITDA for the quarter was $18 $9 million or 26, 9% of revenues, an increase of 14% compared with an EBITDA of $16 $6 million or 26, 5% of revenues in the same in India.
Fourth quarter of last year.
EBITDA for 2021 was $72 7 million Daus 26, 8% of revenues, an increase of 56% compared to $46 7 million us 90% of revenues in 2020.
Net income for the fourth quarter of 2021 was $9 6 million.
13, 6% of revenues or diluted earnings per share of zero point for $46 compared with $6.8 million 10 point, 0.7% of revenues.
Earnings per share of zero point thirty-three dollar.
Net income in 2021 was $34 3 million 12, 6% of revenues or fully diluted earnings per share of $1. One point 65 doors, an increase of 101 one.
113% compares with net income of $16 2 million six 6% of revenues or fully diluted earning per share of zero point $77 in 2020.
In 2020, there was an impairment charge of $13 $5 million excluding.
Excluding the impairment charge in 2021, the net profit increased by 16%.
Cash flow from operation.
The fourth quarter fourth quarter of 2021 was $16 million.
Cash flow from operations for the year was $65 8 million.
As of December 31st 2021, the company had cash including marketable securities of.
$54 $7 million and a depth of $31 4 million amounting to a net cash of $23 $3 million.
As compared with cash, including marketable securities of $78 8 million dollar and a depth of $54 5 million amounting to a net cash of $24 3 million as of December 31, 2020.
For the first quarter of 2021 dividend of $3 million was declared.
In the fourth quarter.
Under the renewed program each one purchased 208000 shares for a total of $5 $4 million.
During 2021 and total of 280000 shares were purchased totaling $7 3 million daus.
Share repurchases were funded by available cash and repurchases of Pizza rock Bolting every shares were made based on SEC rule okay.
10 10.
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And with that I'd like to open the call for a 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.
Using speaker equipment kind of lift the handset before pressing the numbers Youre question Dolby pull them. The order. They are received please standby while we poll for your questions.
The first question is from Tabby Rosner Barclays. Please go ahead.
Hi, This is Chris Reimer on for Kathy. Thank you for taking my questions first off congratulations on the strong quarter I wanted to touch on our gross profit.
I alluded to some discipline chain issues in your comments.
Could you just give some color on the moving parts into costs and what kind of.
What kind of things youre seeing in terms of cost inflation and supply chain issues.
Yeah.
As of today, and as you mentioned and we mentioned it on the on the screen.
The shortage component the component shortage all over the world is getting bigger and of course as of now we didn't say, we managed to deal with that.
In a good way I believe and as we mentioned that during the first semester of 2022.
We'll see some effect of this component shortage and that of course.
We decreased the gross margin on the hardware segment, a little bit, but it's not something that we see a significant or material for all of the business is the main 70% of our revenues is coming from the 77 using over there there is no effect.
Got it.
And then just in the subscription guidance you can give any granularity into where you see the largest stuporose either by product or geography.
Okay.
<unk> said.
We have I would say two type of a growth in our subscriber base. One is the traditional which is mainly a S. V are stolen vehicle recovery, which is a quiet having a lower gross well the markets are which we already are dominant menu use such as Israel and Brazil.
The other hand during the last.
Two or three years, mainly doing the Corona, we identified our other needs or we also looked looked for our other segment, which will allow us again to to come and grow again when the Corona.
Yeah, we leave us and.
As I mentioned in the last quarter and now.
We identified a main to segment. One is are you as a finance company and even commercial banks that provide loans for for people to buy cars, we do it mainly in Brazil and in Mexico, and we are actually I would say almost invented this.
ER segment, and we see a lot of interest and this contribute a few thousands per months in each of those are countries, Brazil, and Mexico, and the second segment, which in the past specifically in Latin America, we didn't focus.
We decided to focus during the Corona is the b to B the fleet management solution.
And we are now having some are strong channels, such as leasing company and commercial rental car companies, which are pushing our solutions to many.
Many fleets and this is again a new segment that are in the past week.
We approach it only in the Israeli market in Israel.
We are for many years, we are dominating the fleet management segment now we want to compete to Latin America, and we do it very fruitful in the Brazil and Mexico. This is the.
Why we succeed to show higher gross debt in the past that and the third one which it started also a two years ago is the usage based insurance, which is currently.
Available currently has attraction only in the Israeli market, but we started three years ago and today as I said, we have a contract and we distribute our solution among almost 100% of the Israeli insurance companies.
We all still Israeli market is still under I would call it a stage of floor.
Oh for educating the audience to buy insurance based or based on their mileage based on there.
And driver behavior is something that we have to understand is changing the market totally we have to educate the brokers will be after a decade at the centers of the insurance companies, we do it a quiet.
Impressive and still the future is even a week, we expect a strong growth, but this is another.
Segment, which provide a new subscribers with that we didn't have in the past having say all of this.
Back to you at the beginning of your question.
Those segment in those specific b to B business required us to provide the services for these specific solutions with.
The lower ARPA.
If you consider the current our pools to group you wouldn't see almost.
Any change because when you have 1.8 million subscribers, even if you grow 100000.
The influence is quite low, but the desktop the new subscribers are with it.
Lower ARPA and when I'm, saying lower it's not dramatically lower it's about two third to sell it if we have a average of $10 nine to $10.
Our pool of the group here, we are talking about and you are pool for these new customers or six to $7, but it's very important to mention that since it's a bit too be business or it's a bit too be segment.
Where cost to maintenance our cost to support each one of our subscribers is much lower meaning on the profit side, we hope and we see that it will have at least the same profitability margins.
So in the revenue grows it will be lower than the number of subscribers is expected, but on the profit side. It should contribute to us is our historical operating leverage contribution.
Got it.
Thank you. Thank you that was great color I'll go back to the queue now.
The next question is from David Kelley of Jefferies. Please go ahead.
Hey, good afternoon, guys. Thanks for taking my questions maybe to follow up on the earlier supply chain discussion I guess are you seeing any shortages that are limiting volumes on the product side or is the impact solely.
Tied to input cost inflation at this point.
At the beginning there was some of course, some problem too to understand where the market goes where the prices goes what is the needs of our customers, but today I'm happy to say that even in Q4.
We succeed to deliver.
Any request and what we did during the last six months.
We are prepared and we signed contract with with.
Suppliers for the next.
The next year and a N a handle feet with a specific terms, so I'm not expecting any.
Shortage from our side to our customers. We are answering all the request we have to understand that their request specifically in the OEM market is lower because he for car manufacturers has their own problems with our components.
So we know that some plants in the world that even close the doors are.
We are not.
See this situation with our.
Customers in Latin America, but of course these cells less I think that there is a decreasing or 520% to 25% in new car sales, which affect our OEM business.
But back to your main question, we don't see well we are not expecting as of today of course, we are not expecting any.
<unk> from our side to our customers we will.
Provide any.
Unit that they will ask of course, we increased our says we increased our inventory.
The minus is the disadvantages is it cost us more and do something that we said and also we'll be answer we have additional cost to our.
The hardware.
It's all hardware, which mean we lowering.
Some portion of our gross margins on the hardware, but if you go to our financial reports you will see that each set a of course every dollar is material but.
Generally speaking it will not cause a high.
Hi influence on our profits and we will I think we will.
Heavy part of the business today.
Okay. Great. That's helpful. Thank you and then and then back to the.
Raise full year of subscriber growth forecasts you know, it's about 50000 subscribers above your historic typical core outlook for the year I was just hoping you could provide a bit more color on the core aftermarket business, how you're thinking about that if there's any upside there as if this is solely a raise.
Due to some of the growth engines, such as your your UBI opportunity.
I think that the numbers in the forecast speaks for itself because.
If we are expecting to do on average something like 150000.
D C.
We choose it's about I think that are.
Present, historically something between two to three years in the past. So this I think is the strong proof of first that we choose the right.
The right segment to ride the wave and now we are reaping the fruit no doubt that when you have a subscriber base business.
It's taking time to I will say that to change from gross subscribers to revenue and profits.
Why I said that we will see more material.
Toward the end of this year and for sure for 2023, because then we would have seen the package of all of these 100000 new subscribers.
Provide a.
Revenues on the same also in the same quarter.
This I believe that those numbers of subscribers grows. So you will tend to will turn shortly to a higher growth mainly in the profits as I said, because we are operating leverage model, sometimes when people.
People judge grows the judge revenues based I think that in operating leverage business.
Very important and this is how I see it is to judge the company based on the profits and profitability because we don't have to grow a lot in the revenues to grow materially in the profits in this what I am expecting.
Yeah.
Happened.
Okay. Thank you last one for me and then I'll pass it along to the financing opportunity you referenced in the prepared remarks.
That mostly U S related via your buy here pay your exposure are you also seeing opportunities in other regions as well.
Ah So the answer is absolutely not in the U S. A for almost 10 years. That's what we do this is our main Sigma because D. S. We are in the U S is not a business not their attractive and that's the segment that we are focused in the last 10 years and the U S business is.
Yeah.
They focus on.
On the Bayou pale and meaning financing the car and then they use our system or other telematics companies systems in order to secure the call alone.
It hasn't been.
Out of financing in Latin America, and we.
Learn the finance market, we lend to subprime loans in Brazil, and in Mexico, and we decided that the ease of virtual ground for us to offer it to our finance companies and that's what we did.
During the last year, and we succeed to convince some fintech companies that.
Opens.
<unk>.
Marketing platform, plus finance for second hand cars as well as banks that finance new car sales.
Yeah.
All of them or most of them really like our model and we explained how they can save money and make money from their finance deals and I'm happy that today. This is one of our main growth and we just started it in FY 'twenty.
'twenty one we have to understand we are only in the beginning and look how influence. He says is our current customer growth.
We only started.
Yeah.
Okay got it thanks again for taking my questions I appreciate it.
Our next question is from Alliancebernstein of Etzioni portfolio management. Please go ahead.
Yes, guys.
Wanted to ask regarding incremental.
Companies and just get more a idea why do they really need your services I mean, and then it would like to give.
New loan with customer why does he need to know the location of the vehicle how we drive it. Thank you.
Ive spend what is their interest so when they give the alone.
To someone.
And is this.
Someone most of the times will sometimes he is a subprime is no enough credit ease.
Bank and.
There are.
Dennis is based only on the car value.
And when someone stopped paying the monthly payments or the quarterly payments they need to bring to call back usually and.
One of the things that we learned also in the U S. In the last decade.
People. They don't ban the continued there are not that they're not criminals most 95% of the situation. They are not criminals, 5%. It's like yes, we are because someone.
Cheat the dealer, but most of the times you're talking about.
Normal people that just have no money to pay the banks and they continue to drive the car and they behave like the car belongs to them and they are not paying now when we talk about countries as the size of Brazil, Mexico or the U S.
They will not see the car and the car is their only.
Only literally it's only literally so by by controlling the place and by controlling by the way the ignition and Baidu capability that we provide to send the buzzer within notification to deep customer. Please pay unless will take the car most of the time.
Itself and the worst case, there is a ripple says that we do for the banks.
So this is the and by the way we showed in the U S, which is a very a large segment. There are many companies such as they do it.
But in Brazil already with any pilot that we do we showed a very high return let's call. It return on their equity off the finance groups.
Yeah.
Oh, Okay got it thank you.
Another question I wanted to know about the Upi proposition so in Israel, It's obviously very soon.
Insurance companies can you take it to other places.
I would guess it I mean insurance companies all over the world.
To make this kind of insurance.
Mileage.
Possible to take it to Europe for example to penetrate to new places in Latin America.
Ah Okay, we started in Israel, but be sure that are depressing. After we have one or two years of operation in Israel and we are trying now to expand it to other markets first of all the geographies that we're already operate its always better because it's first of all it's like upsell is.
Dealing with the same customers that we have a very good relationship. So we tried to do it in Latin America, I must say that with a lot of experience with insurance companies and insurance companies are very traditional I.
I would say are very heavy machines to change motors, which include billings include Ah <unk> and also in Israel. It took us many years.
To convince the insurance companies that this can contribute to their to their offers and to their profits.
Now I must say that it's not easy now to penetrate Brazil.
Argentina and Mexico.
We have some pilots, but I see something that was at the beginning and Israel.
Will change once the digital insurance companies will penetrate the market you're just starting now in Latin America and when this will start the traditional insurance companies, we love to find ways to be more advanced and more attractive with prices. This is the window that allow us to penetrate so.
So aggressively in Israel in less than two to use with other markets. So I believe that it will take one or two more use but of course everything that are related to insurance industry in Israel.
It will be it will fit other markets, but we are now putting the seeds, we creating the presentation. Some pilots, but I don't want to know too to.
To say that in 2022, we will see you be I E customers from Latin America, and but it will happen one day of course.
Okay. Thank you and last question I guess for early winter.
So statement this quarter living with $3 million settlement obligations purchased non controlling interest can you. Please remind us what it is and if any other payments.
Necessary in the future.
Yes, if you remember in 2018, we acquired 81, almost 82% of road track and the according to the agreement in October we finalized the rest of the shares still actually as of today, we are holding 100% of world.
The OEM operation.
Okay all right.
In the minority what will be left.
There is no minority I'm sorry.
We purchased the minority that we purchased from them I know, 18% or the rest of the minority were talking about CRM, our CRE yeah.
Which is about 49%.
Okay.
Thank you.
If there are 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.
Yeah.
There are no further questions at this time before I ask Mr. <unk> to go ahead with his concluding statement I would like to remind participants that a replay of this call will be available tomorrow on <unk> website, www dot dot dot IL. That's just sort of ask you what do you like to make your concluding statement.
Yes on behalf of management of each 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 have a good day. Thanks.
Thank you. This concludes the Heathrow in fourth quarter 2021 result conference call. Thank you for your participation you May go ahead and disconnect.
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