Q1 2022 Ituran Location and Control Ltd Earnings Call
Ladies and gentlemen, thank you for standing by the conference will begin shortly.
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Ladies and gentlemen, thank you for standing by and welcome to the <unk> first quarter 2022 results Conference call. All participants are present in listen only mode. Following management's formal presentation instructions will be given for the question and answer session for operator assistance. During the conference. Please press Star Zero as a reminder, this conference is being recorded.
Have all received by now the Companys press release, if you have not received it please contact <unk> 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 one dot C O that I am I will now hand over the call to Mr. <unk>.
Any green of GK Investor Relations, Mr. Green would you like to begin.
Good day to all of you and welcome to <unk> Conference call to discuss our first quarter 2022 results I would like to thank <unk> management for hosting this call This conference call.
With me today on the line I'm Gonna stay all Sieracki CEO , Mr. <unk>, <unk>, Deputy CEO , and VP finance and Mr. Eddie come our CFO Avi store.
Al will begin with a summary of the quarter's results followed by Eddie with a summary of the financials. We will then open the call for the question and answer session.
I'd like to remind everyone that the safe Harbor statement in today's press release also covers the contents of this conference call and now Eyal would you like to begin in place.
Thank you Kenny I'd like to welcome all of you and thank you for joining us today.
We are very pleased with our financial results kicking off 2022 with very strong subscriber growth in the first quarter, which is the clearest indication of our success.
This is also reflected in the current quarter subscription revenues, which surpassed $50 million growing at 10% year over year.
We grew our overall subscriber base at 43000 net ads, bringing the total to over $1 9 million subscribers.
The after market segments added a record of 59000 subscribers during this quarter.
This increase in subscribers came from both the growth in our traditional after market business.
But it was also boosted by the various growth engine that we have succeeded over the past few quarters.
This included the increased.
Traction from our usage based insurance UBI business in Israel.
Working with car financing companies in Brazil, and Mexico.
New activities with rental companies in South America, as well as as well as continued growth performance from our U S business.
As I discussed last quarter.
We expect these type of subscriber growth to continue throughout this year with expectation of between 140 to 160000 net subscriber ads.
And the first quarters sub ads is clearly, indicating that we are on the right trend.
As you can see it run as a very strong healthy and growing business and I'm very proud of our recent achievements and this is despite the background of what our many macro challenges.
The most notable macro issue, which impact us are the supply chain constraints.
First as you know this is an issue that has already impacted us for much of the pursuit.
Because of the shortage of parts, we are seeing significant price increases on scarce components that we need.
We had to buy some components on the spot market.
At inflated prices.
This increases the cost of goods and lower somewhat the gross margins of the products that we sell.
Some of the cost increase we have been able to pass some but not all of them.
Second the impact of this is actually on the large Oems that we work with that sell cars in Brazil, Argentina, Mexico, Ecuador, and Colombia.
The Oems are unable to manufacture and sell cars to meet the demand and therefore, we are indirectly impacted as new subscriber adds are below the level of subscription that come to an end.
This impacted the OEM subscriber base and we had a net decline of 16000 in the quarter.
During the quarter.
We use our solid cash position to grow our inventory to ensure that first of all we continue to have the components, we need to build products and second to have the product in place for new customers that are coming in which you can see from the strong aftermarket subscriber growth.
With regard to the UBI business one of our main gross engines, which has gained strong traction in the past year. As you know we are now working with all seven major insurance companies in Israel.
These really consumer market is becoming increasingly educated to devalue. It again by using a usage based insurance plan rather than fixed, especially as soon as the work from home trend has significantly reduced the typical clients.
Our rollout in Israel has proven to be successful and we look to replicate the success in our other markets in the coming quarters and years.
Another growth engine, which is gaining traction as our services to the second hand car market.
Because of the shortage of components and ultimately new cars, which I discussed before.
The second hand car market has grown stronger everywhere.
This can be seen by the increase in secondhand car prices in the past year and not just in the U S but globally.
New Fintech startups as well as the large banks have come in to provide financing to this growth market. It to run provides the location based and connected car technology to a number of financing customers in Latin America, which will monitor the cars and the driver behavior and lowered the risk of the loan against the car.
I know that while there is a pilot and ultimately car shortage.
This company still do not currently sell as much as they could in the housing market. However, we are growing the business all the time and see the car shortage situation as temporary.
We are looking constantly to bring in new financing customers and brought into service to additional geographies.
We're excited about this business and see great potential for additional growth in the coming years.
In summary, all in all I'm very pleased with our performance most our traditional business and especially our growth engines, which we expect will accelerate our growth in E rate.
The solid performance can be seen most by the jump in our subscriber base, which is growing well ahead of our traditional expectation and now stand in between as I said 140, and 160000 in a year.
And we are at the cusp of a subscriber base of 2 million customers play.
Playing us on a regular monthly basis for one or more of our services.
We are pleased with our financial performance and while as is often the case there is some noise from currencies and mark to Mark financial expenses.
The Big picture shows that we clearly have a healthy and growing business.
I'm more excited now than ever with a long term petition over the coming years.
And I will now hand, the call over to early <unk>.
Financial summary.
Yeah.
Thanks.
I will provide the profiling results you can find the more detailed results as we show in the press release earlier today.
Revenues for the first quarter 2022 were $72 1 million, an increase of 7% compared with revenues of $67 4 million.
The first quarter of 2021.
Revenues from subscription fees, whereas $52 million, an increase of 10% of their first quarter 2021 revenue.
The subscriber base amounted to 1.924 million as of March 31st.
2022, this represents an increase of.
43000, net over that of the end of the third quarter and an increase of 136000 year over year.
During the quarter there.
There was an increase of 59000 in the auto market subscriber base and a decrease of 16000 in the OEM subscriber base.
The decrease in the OEM subscriber base was primarily due to a lower cost sales and OEM privately.
As a result of the global.
Supply chain issue and parts shortage.
Product revenues were $21 8 million an increase of.
Points.
Five 8% compared with that of the first quarter of 2021.
The geographic breakdown of revenues in the first quarter was as follows Israel, 53%, Brazil, 21% rest of world 26%.
The gross margin in the quarter.
Subscription revenues, which was 55, 9% compared with 55, 1% in the first quarter of 2021.
The gross margin on product was 23, 7% in the quarter compared with 25, 4% in the first quarter of 2021 and the product margin was somewhat impacted due to the product sales mix as well as significantly increased post prices.
Of component due to the global shortage.
EBITDA for the quarter was $19 $3 million or 26, 7% of revenues, an increase of 13% compared with EBITDA of $17 1 million.
Or.
25, 4% of revenue in the first quarter of last year.
I would like to address the financial expenses.
Financial expenses for the quarter was $2 $6 million compared with financial expenses of $1 million in the first Waldorf last year.
The increase was primarily due to the fall and the public market value of our holding in favor one.
Which amounted to $4 million and the current quarter.
Net income for the first quarter of 2022 was $8 7 million daus or 12, 1% of revenue or diluted earnings per share of 43 cents.
Compared with $8 3 million or 12, 3% of revenue diluted earnings per share of <unk> 40.
Yes.
Cash flow from operations for the first quarter of 2022 was $7 million.
As of March 31st 2021, 22, the company had cash, including marketable securities of $45 2 million and a short and long term bank credit.
$6 $5 million amounting to a net cash of $18 $7 million.
This is compared with cash, including marketable securities of $54 $7 million and a short and long term bank credit of $31 4 million amounting to a net cash of $23 3 million as of.
December 31st 2021.
For the first quarter of 2022 and dividends of 14 cents per diluted share approximately $3 million was declared this is in line with the board's current policy of issuing at least $3 million on a quarterly basis.
I've never under the new renewed buyback announced almost for 2021.
In 2021, a total of 280000 shares were purchased totally totaling $7 3 million.
The buyback was renewed on April one two.
2022, and we will announce.
<unk> in the second quarter in next quarter's results and analysis.
Share repurchases were funded by a valuable cash and the purchase of it run ordinary shares were made based on SEC rules tend.
Can be dash 18.
And with that we would like to open the call for a question and answer session operator.
Thank you ladies and gentlemen at this time, we will begin the question and answer session and you have a question. Please press star one if you wish to cancel your request. Please press star two have you are using speaker equipment kind of lift the handset before pressing the numbers youre questions will be pulled in the order. They are received please stand by while we poll for your questions.
Our first question is from daily David Kelley of Jefferies. Please go ahead.
David Kelly, Thanks for taking my questions.
It looks like OEM sub saw the biggest quarterly decline since the COVID-19 related downturn in early 2020.
You touched on it briefly in the prepared remarks, but can you provide more details on what drove the sub losses here.
Is it fair to assume the declines continue at this level or should we expect improvement in the back half of the year as global global auto production improves.
As you know the OEM says these are the only thing, which influenced our OEM installations and since.
Shortage influenced small dramatically the car industry.
We see that are in the markets that we operate but also on the rest of the world, but you understand and see the market.
There is a decline of.
Approximately 20% in sales will fall in new cars.
When we finish the free trials that the Oems are.
<unk> from US we are always working to renew.
On on the base of <unk>.
The customer that we have.
That starts paying directly and this usually up enough to about so if we see that today, just says 20% less than a year ago.
Assuming that the conversion rate of the renewals are in the same levels, but the new car Saturdays law, where it's automatically create a net decline in our subscriber base and that's what we report no.
Looking a fault.
Yeah.
Nobody expect this segment to change in the next.
Couple of quarters already because the shortage is not something that everybody can assure will we love change in these periods of time, so we assume that a decent numbers you saw.
We will continue to see.
During 2022.
In the end of the day, we know that the demand is higher.
So like we face us in the end of the Corona in the markets that we saw one time with very high sales of cars.
One is the shortage of components will finish.
And we believe that there says will grow.
Dramatically higher in the first quarters after it.
And then we will succeed to overcome these say declining customer base I, just want to add something which is very important.
The profitability for each one on the OEM.
Subscribers in the OEM.
It's much much lower than our profitability in the aftermarket subscribers.
So when you see today that we grow the after market.
In more than 50000, even closer to 60000 and.
And on the other hand, we lost 16000 on theory OEM.
It's much better than the opposite of course, the best is to grow in all the segments, but as long as we know the situation is not depend on us it's not depend on markets needs its depends on something which today I think each day.
But let's say if the pandemic of the of the all industries, which is the components I think that our D. C is the.
The best case scenario on these with these problems.
I'm not expecting that we will grow.
Our net subscribers in the OEM.
Looking ahead in the coming quarters, but again.
And I'm much more happy and satisfied if we succeed to do our numbers in the after market, which are dramatically higher and multi pad by more than two or three than we did.
In the last years every year.
Great and then just as a follow up.
This release mentioned that product margins were negatively impacted by mix as well as increased spot prices of components.
Can you just quantify the impact that shortages and increased spot buys have had on your gross profit.
And should we assume that second quarter gross margins would be at a similar level before improving in the back half of the year, where do you expect gradual improvement in margin margins starting next quarter.
First of all I think that you can annualize it from there.
Gross margin that we have on product compared to last year.
A 2% less which is almost 10% lower profitability on product. This is happened only because of the cost of our inventory, but what you see today.
He's an inventory that we purchased six or nine months ago. This was at the beginning or the first time that we faced the shortage.
And all the war, let's say it wasn't kind of a historic situation and we first vote on the spot prices with a very high.
A prices first to secure our supply chain now.
Today, when we are eight to nine months after it I'm here.
Happy to say that we are no longer buy at those prices, meaning we succeed after understanding what's going to be all needed and what our customer needs and what is the level of sales of hardware we've made the orders.
For more than 18 months in advance and we didn't have to pay again to spot prices that we paid.
A year ago.
Today, what do we see in our P&L is what we paid for the inventory.
But now it's appear in the P&L and it's of course, creating a declining.
Gross margin on hardware.
Just rough number for this quarter it was more than $1 million.
This is something that will we will live with <unk> in the next quarter or two.
But looking forward.
We expect again, we expect nobody really can assure for longer term, but for the meter and for 2023 that we are in a very good shape of inventory by the way.
If you look on our.
Our Oh.
Our our cash position.
The cash flow this quarter, you will see and that is look dramatically lower but part of it is because we already acquired high inventory in the lower prices.
And this of course today sitting in the balance sheet, but once we really sell it in three six months from now because this is the time of our inventory.
We will see increasing in our profitability on the hardware because those inventory already way acquired by us in a much lower price than those that you see today in the period.
So we will have to leave one or one and a half quarter more with this a lot.
Call it damage of about million dollar, but theyre looking more mid and longer term.
We are more optimistic that we will turn the profitability to become higher again.
Great. Thanks for taking my questions.
The next question is from Tavy Rosner of Barclays. Please go ahead.
Alright, thanks for the presentation most of my questions have been asked.
I wanted just to ask about <unk>.
It sounds like a real differentiator.
And I'm wondering what's your go to market equally I mean, I know, you're very present in Israel, but outside of Israel.
Are you marketing solutions to.
Kind of new logos, and what you see as the potential there down the road.
It to run.
By definition is today I would say, we are providing kind of a black box with a.
Tens of noodles.
Blake books and need to depend on the market need to depend on the customer needs and those things are changing between geographies.
Israel today, we're educated and I think that.
The insurance industry in Israel <unk>.
Change to be much more customized and this fits the Israeli market of course for us it's more than a commercial why solution and a revenue generator of course, it's also providing us with a kind of a local pilar could say for the rest of the world.
But are.
We realize other segments for example in Latin America as I mentioned, the finance market that they want to secure the collateral.
And when we talk with the same customers, which can be insurance companies will finance companies about UV are all customized.
And the customers.
Some of them now start to understand what we're talking about those are have very heavy company.
Companies insurance is a very traditional.
Our industry and it will take more time, we do some pilots in Brazil, we do some pilots in Argentina.
I wouldn't.
Count that this will contribute to sell you'll be out of Israel in 2022 and.
For the first half of 2023, but the eve from now based on the movements of the markets.
I hope and I want to believe that our what we will achieve in Israel will support our.
Our.
Exporting this.
Solution also to other geographies and this is by the way always was really to one when we started with our.
Our our main traditional segment, which is stolen vehicle recovery in Israel.
No one in the World did it and we came to Brazil, we came to Argentina. It took us about three to five years to convince insurance companies that this is a solution and today.
Easter routing Sao Paolo and look at and stolen vehicle recovery in Brazil.
It's a it's a generic <unk> solution.
So I'm told.
Totally believe that in a year from now or a little bit more than this we relieve the UBI market also in Latin America, but it will take more time.
Okay. Thanks I appreciate the color is helpful.
Yeah.
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. Schlotzky's to go ahead with his closing statement I would like to remind participants that a replay of this call will be available tomorrow on he took on the website www dot need to run that C. O that I am, especially about SKU and do you like to make your concluding statement.
On behalf of the management of it Ron I would like to thank you our shareholders for your continued interest and long term support of our business and I do look forward to speaking with you on the next quarter. Thank you very much and have a good Dave.
Thank you. This concludes the Eaton Vance first quarter 2022 results conference call. Thank you for your participation you May go ahead and disconnect.
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