Q2 2022 Ituran Location and Control Ltd Earnings Call
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You bet.
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Ladies and gentlemen, thank you for standing by welcome to the East are on second quarter 'twenty 'twenty. Two results conference call. All participants are at present in listen only mode. Following management's formal presentation instructions will be given for the question and answer session for operator assistance during the conference. Please press Star zero.
This conference is being recorded.
You should have all received by now the Companys press release, if you have not received it please contact <unk> Investor Relations team at E. K Global Investor Relations at one to one to three seven to 88040 or view it in the news section of the company's website www dot each.
Iran. Dr. T O dot IL I would now like to hand, the call over to Mr. Ehud Helft of E. K Global Investor Relations. Mr House would you like to begin.
Thank you operator.
All of you and welcome to <unk> conference call to discuss the second quarter 2022 results I would like to thank each one management for hosting this conference call with me today on the call are Mr. Ashok <unk> CEO , Mr. Mizrahi, Deputy CEO and VP Finance, let me say, how do you come out of the CFO of <unk>.
I will begin with a summary of the quarter's results followed by Andy with the summary of this in action. We will then open the call for questions and answer session.
I'd like to remind everyone that the safe Harbor in the press release also covers the content of this conference call.
Oh, Yeah and would you like to begin please.
Thank you Eric.
I'd like to welcome all of you and thank you for joining us today.
We are very pleased with the results of the second quarter, especially at a time when component supply chain remain tight and new car sales remain constrained.
In particular, the above average growth in our aftermarket subscriber base has continued for the second quarter of this year and we have so far is at 91000 subscribers in 2022, we're on target to reach the top end or even exceed our expected range of between 140000.
160040.
This is also reflected in the current quarter subscription revenues, which surpassed $52 million growing at 11% year over year and.
And 4% sequentially.
We grow our overall subscriber base to a record of 48000 net ads, bringing the total.
To just shy of 2 million subscribers as of June <unk>.
The primary contributor was the aftermarket segment, which added 50000 subscribers during the quarter the third quarter in a row in which we have experienced this increased level.
This increase in subscribers came from both the growth in our traditional aftermarket business, but was also boosted by the various growth engines that we have succeeded over the past few quarters.
As I shared with you last quarter.
The expectations for subscriber growth is between 140 to 160000 net subscribers at 40.
The second pool, just sub adds are.
Clearly, indicating that we are well on the right trend.
We will likely surpass the high end of the target range that we set for.
Ourselves.
Our overall results demonstrate that it run as a strong healthy and growing business and I'm very proud of our recent achievements. Despite the background swapped out at me.
Many macro challenges.
As we discussed with you in our last quarter's call. The shortage of electronic components is the most notable macro issue impacting us.
While some of the components of course, we have been able to pass on to customers. We indicated at our product gross margins would be impacted which has been clear in the first two quarters of this year.
However, the good news is that we now see stabilization in the component market and we are now buying a small <unk>.
Normal prices they.
The improvement in the situation should be reflected in our gross margin towards the end of this year.
We also discussed last quarter another impact of the component shortage has been on the major car Oems.
Which are less able to manufacture cards to meet demand and therefore, we are indirectly impacting in our OEM subscriber base.
However, even here we have seen an improvement there.
The decline of 2000 subscribers in our OEM base in Q2.
Has diminished compared with 16000 decline.
We experienced in Q1.
In summary.
All in all I'm very pleased with our performance I am most pleased with the ongoing strength in subscriber growth, which is the key to our long term profitable growth.
We're at the cusp of a subscriber base of 2 million customers paying us on a regular monthly basis for one or more of our services.
Both ongoing solid performance in our traditional aftermarket businesses, especially our growth engines are driving new subscriber growth.
Subscriber growth will ultimately translate into increased subscriber and revenue growth and profitability in the year ahead.
As we enter the second half of 2022, and many of the challenges seem to be moving behind us I'm more excited now than ever.
Our long term potential and with that I hand over to Amy <unk>.
Please go ahead.
Thanks, Adam.
The summary results I present will all be on a GAAP basis.
Revenues for the second quarter of 2022 were $73 4 million, an increase of 9% compared with revenues of $67 $5 million in the second quarter of 2021.
Revenue is from subscription fees were $52 3 million, an increase of 11% over second quarter 2021 revenue.
The subscriber base amounted to 1.972 million as of June 32022, an increase of 48000 net over that of the end of the period quarter.
Which includes a net increase of 50000 in the aftermath to market subscriber base.
And a net decrease of 2000 and the OEM subscriber base.
Product revenues were $21 $1 million, an increase of 3% compared with that of the <unk>.
Second quarter of 2021.
The geographic breakdown of revenues and the second quarter was as follows Israel, 51%, Brazil, 24% rest of 425%.
Gross profit for the quarter was $33 8 million Daus 46, 1% of revenue.
9% increase compared with a gross profit of $31 $1 million 46, 2% of revenues in the second quarter of 2021.
The gross margin in the quarter on subscription revenues improved to 56, 8% compared with 55, 5% in the second quarter of 2021.
The gross margin on product was 19, 6% in the quarter compared with 24, 8% in the second quarter of 2021.
As discussed last quarter, the product margin was impacted by higher confidence prices, which have been high since the end of last year due to the ongoing global shortage of confidence as well as the product sales mix sold in the quarter.
As he had mentioned.
As the shortage of confidence has began to ease we expect improvements in our product gross margin towards the end of days.
Operating income for the quarter was $14 4 million 19, 7% of revenue an increase of 5% compared with $13 $8 million.
94% of revenues in the second quarter of last year.
EBITDA for the quarter was $19 4 million or 26, 5% of revenue an increase of 7% compared with an EBITDA of $18 $2 million 26, 9% of revenues in the second quarter of last year.
Financial expenses for the quarter was $1 4 million compared with financial expenses of $1 million in the second quarter.
Last year.
Net income for the second quarter 2022 was $8 7 million 11, 9% of revenues or earnings per share of 43.
Compared with a net income of $9 1 million 13, 5% of revenues or earnings per share of 44.
Cash flow from operations for the second quarter of 2022 was.
$10 $9 million.
As of June 32022, the company had cash, including marketable securities of $33 2 million and a depth of $21 million amounting to a net cash of $13 $12 million.
This is compared with 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 of December 31st 2021.
For the second quarter of 2022 of dividend of $3 million was declared he sees in the line with the board's current policy of issuing at least $3 million on a quarterly basis.
Although the current buyback program.
On August .
For 2021 146500.
89 shares amounting to $3 $4 million was purchased in the second quarter and approximately $8 million remains under the current program.
So this the share repurchases if any will be funded by a variable cash and repurchases of it run all the initiatives will be made based on FCC rule 10, B Dash 18, and with that I'd like to open the call for a question and answer session operator.
Yeah.
Yeah.
Thank you ladies and gentlemen at this time, we will begin the question and answer session. Do you have a question. Please press star one if you wish to cancel your request. Please press star two they're using speaker equipment kindly lift the handset before pressing the numbers or questions will be pulled in.
The order. They are received please stand by while we poll for your questions.
The first question is from Chris Reimer of Barclays. Please go ahead.
Hi, Thank you for taking my questions.
I wanted to go back to what you mentioned in your opening comment.
The OEM subscribers at home.
And considering it was less of a decrease.
Sequentially do.
Do you see this as a kind of turning point, where there is now a more supply at the Oems or do you think.
Or would you see that it might be even more prolonged the.
The lack of materials at the Oems.
Hi, as we always stated the OEM our market is something that is a we have no I would say direct influence like redoing the aftermarket to be able to very depend.
On the Oems.
Uh huh.
Our producers are and in that case I can't tell you.
What's going to be in the future a discount in the quarter.
We sold.
Better production and better sales of cost.
To understand that it's depend on two things one is the total sales and secondly is the market share on the.
A specific time of our customer so in Q2, it shows better position steel.
I am very general and I still think that the car.
Car.
Manufactures situation.
I'm not sure that it's.
The shortage.
The shipment problems.
Behind them.
So I wouldn't say that he is going to change dramatically but.
There is some shifts between quarters, so I cannot.
I cannot forecast quarter by quarter.
Understood.
I also wanted to ask if you could expand a little on that Gee you Ya.
<unk> insurance business.
And what the further growth opportunities are for that area.
Is as we said the.
Current geography.
We are made penetrations and we are currently.
Uh huh.
The I would say almost a sole provider of this solution to the entire insurance groups in Israel.
This dish.
This segment has continued to grow.
Some of the insurance companies are strongly grow this segment some of them are still offer it but there are more promoting the traditional insurance, but overall, saying.
We see growth.
Year over year.
And Oh, we believe in it it's only still only the beginning.
We got other geographies that we operate in we have advantages, which is mainly Latin America.
We have some discussion, but again as I said I think that our market education that we are doing will take longer than it's as it was at the beginning in Israel, which will take more time before we really succeed to go.
Commercially full commercially to the markets, if it's Mexico or Brazil. So the main markets. We grows the UBI usage based insurance solution is in Israel.
Yes.
Got it okay. Thank you very much that's it for me.
Yeah.
Okay.
The next question is from Gavin Kennedy. Please go ahead.
Hi, Jim This is Gavin Kennedy on for David Kelly, Thanks for taking my questions.
Also the third consecutive quarter of at least 50000 aftermarket so that.
Can you just provide more details on what is specifically driving the strength here and then secondarily, how should we think about aftermarket sub cadence in the back half of the year and into 'twenty three.
Uh huh.
First of all again I have to reminds everybody that during the <unk>.
I'd say the Corona period, as we said that we had to.
Invent or to start looking for new segments, and new application, such as <unk>, which is growing such as the Ah Ah Ah Ah.
Car selling or finance companies.
That finance car selling and we did it's mainly in Mexico and Brazil.
And our new Fintech companies use our solution to secure their collateral which is the carbon they final seat.
We succeed also to grow and to expand this segment also the traditional SVR wherever you seen Israel and also in Brazil.
We succeed to penetration gaining more and more market share during the Corona in the secondhand cars, but now also for new cars and we see also the D segment, which is traditional but this is our I would say this is our.
But there these are bread and butter had more and more butter and we really succeed also to increase do you see this subscriber base again, mainly in Israel and Brazil. So overall, the new segments and our ability to gain more market share and more penetration in the traditional segments allow us to show I would say.
Dramatic growth in subscribers.
No that it's still not a translated into the.
Bottom lives yet because this is the way of far.
And operating leverage of the business now, we still have cost us to bring discussed symbols.
Once we will translate all of these 150000 subscribers in 2023.
Food revenue streams and the cost will stay as it is now or will not grow as it grows recently I believe that we will be able to show a higher growth in the profits.
In regard to the numbers, we forecasted 140 to 160000.
For the 20.
So do you see and as we can see we did 91.
91000.
In the first half I just want to remind you diseases include the OEM and the OEM is in is a negative growth.
As the trend without it we would be.
Much Ohio, No regard as second half.
As I said, we believe that we will be we believe that these things will move.
As these we probably are.
We'll be the at least as high a number of the range and hopefully we will succeed to be beyond it but we still have time to the end of the even remember that.
The.
There is always some shifts between quarter I'm optimistic I see a very strong trend towards our solutions.
I believe that the number.
It will be at least the higher number of the range.
Got it and then as a follow up.
Subscriber gross profits expanded its 57%, which was pretty remarkable in this quarter can you provide more commentary on what drove the improvement here and is this a sustainable margin level going forward.
No youre talking about the overall gross profit I think that the gross profit for the services that are higher.
If you consider the total gross profit of the revenues. So this is a different <unk>.
Different reason and I can explain.
And I said it.
The.
Shortage of components.
Components is influenced our hardware sales mainly in Israel in Israel in Latin America, we have Como that'll solution, which is kind of a leasing it's less influence their hardware sales, but in Israel, which represents 50% of the revenues.
But represent almost 80% of our powder ourselves.
We had to buy inventory in a much higher prices.
So when we bought it it was at the beginning of the change in the.
Component shortage.
Q3 are for 2021.
But now you just translate when you sell the inventory translate to our P&L. So as I said a quarter ago. We have few millions of dollar which will we paid higher so the cost of goods sold.
Now translating higher to our P&L.
I believe the Q3 should be the last quarter. When we will I say drum up we will get sweep of the higher <unk>.
Most of those components.
During 2022. After these saw I'd say this shock of the walls of the shortage, we succeed to buy new inventories and make capex in a lower prices not lower compared to the past, but much lower compare to the current prices that we vote. So I'm.
<unk> the total out of Q4.
For sure for the second half of <unk>.
1023.
This Ah Ah.
Cost.
Will translate to lower cost and to higher gross margins. So I believe that the profitability the gross margins, which India any social influence the EBIT margins.
And the net profit will be.
I believe a materially better.
Okay.
Yeah.
Okay. Thank you Tim.
Hum.
The next question is from Boris Schneider of more mutual funds. Please go ahead.
Thank you for taking my question.
It's actually a question about a favorable one.
Yeah.
Hello.
Okay voice is disconnected.
Hello.
Okay.
Uh huh.
The next question is from Abba Horovitz of OSB. Please go ahead.
Hi, Good afternoon first of all thank you for a really good quarter given the backdrop. That's out there I think you guys did amazing I was wondering if you could maybe give us a view to 2023. It would seem to me that our gross margins should actually expand in 2023 and if the <unk>.
With continues on the subscriber growth and perhaps even accelerate.
Could you give us a glimpse of what your view would be could we see an acceleration of growth in 2023, and a commensurate profitability.
Without talking about you know a guidance or our numbers are generally speaking it to run.
Uh huh.
Business model is very easy I think.
We have a very high visibility of course, there's some and always are things which in.
For example, if you go back to the Corona Nobody expects that Eaton its influence and we have to organize for each et cetera, but if these things will continue as the second the first half of 2022 as we showed today.
And are we is there a shortage of components, which we already handle it it's not a pure yet in our P&L because things are in process as always you cannot buy in inventory today and get really tomorrow, it's taking time, because we hold inventories we old contract, but during the first half.
We succeed to grow materially higher in subscribers, which is our in the end of the day. The most profitable segment of the business and on the other end the hardware side.
We paid the price let's call it for the beginning or the last few years a high.
This is now we changed it so.
The growing in subscribers will continue at this region and we do more to do more and I believe that three six week, we have the potential.
<unk> market today to do more so no doubt that in this case your statement is there.
Very very right, that's the operating leverage model off.
Of our recurring revenue business, so thats, what we aim this our expectations.
But let's see let's see okay, all right and just finally, if you could comment I think last quarter you.
You didn't comment on it but bring if you could give us a sense of where bring is right. Now is there a are any potential of them IPO ing it and what what is the current market value of bringing how is the business doing.
Okay. So since brings is a private company startup he's already startups. So they lost a phy.
Financial round was.
<unk> by the company and the valuation was billions of dollars and the company raised more than 100 million to what other companies in a good shape in terms of.
Financials and in operation, but.
We never thought that the IPO will come.
This year or next year now.
When we all know where the market the stock market and the economy is and.
And it's not only bring many other companies even more mature companies I don't see a plenty of ipos happening on a daily basis, So I'm not expecting but I'm really expecting that the company is in a good shape from financial and operational side and that will continue.
Continue to grow continue to to.
Become market leaders in their industry.
And in a three or four to five years when the market.
Will allow companies.
Do I feel at this stage I would be I hope that they will be ready with the higher revenues and higher profits.
Okay, and just to I remind this is you still own 17% bring.
Brink, yes, yes.
And this round we didn't it would you sell any at these levels at this valuation.
No okay.
Okay.
Okay beautiful thank you welcome.
Yeah.
Hum.
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.
There are no further questions at this time before I ask Mr. Shiraz keep 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 I believe.
W. W. Dot it Turan Dot C O dot I am Mr. Sharansky would you like to make your concluding statement.
Okay.
Hi.
On behalf of management of it to run I would 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.
Thank you and have a good day.
Okay.
Thank you.
Clues the eater on second quarter 'twenty two.
Two results conference call. Thank you for your participation you May go ahead and disconnect.
Okay.
Okay.
Okay.
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