Q4 2022 Ituran Location and Control Ltd Earnings Call

Ladies and gentlemen, thank you for standing by welcome to the each ran fourthquarter 20 twenty-two resolve conference call. All participants are present and listen only mode. Following management formal presentation instructions will be given for the question and answer session for opera.

Eight or assistance during the conference. Please press Star is zero as a reminder, this conference is being recorded.

Should have all received by now the company's press release, if you have not received it. Please contact each runs investor relations team at E. K Global Investor Relations at 12123788040 or view it in the news section of the company's web site W.

W. W. Dot <unk> Dot C O dot IL I.

I will now hand, the call over to Mister who'd helped of E. K Global Investor Relations Mister helped would you like to begin.

Yeah. Thank you up writer.

Good day to all of you and when countries are our conference call to discuss the fourth quarter from Ya.

22 results. So that's the thanks to our management philosophies call.

We've been on the call today.

S key that goes to you Mr. Williams W.

<unk> and did you find us and he said he'd come out and fearful.

Hey, I would begin with a summary of Dakota results go by any with some of the sauce.

That opened the closer the question and answer session.

I would like to remind everyone that the safe harbor in the groceries or silk. However, the content of this conference calls.

Now would you like to begin please thank you I'd like to work on all of you to a full year in fourth quarter 2022 calls.

Like to thank you for joining us today.

We are clearly very pleased with our achievements route 2022 from a financial perspective, we showed continued growth record for the revenue.

$293 million Redcoats will you be duh of $79 million.

From a strategic perspective receptive to me no subscriber Mark and I were subscriber goes strongly accelerated in 2022.

$185.

Net subscribers versus 130000 in 2021.

Representing 64% acceleration.

We believe that this new much higher subscribing. It ends will continue into 2023.

We showed was your last quarter, our expectations for the groceries global aftermarket subscriber base.

Standard between 182000 to 200000.

<unk> new subscribers annually.

I want to add that it is harder to fall because the OEM subscriber base growth rate is this depend on are all year customer sales and doesn't depend on us.

Strong subscriber rules, we have experienced in 2022 is starting to be reflected in your subscription revenue grows evenly.

Despite the currency headwind due to the dollar strengths compared with last year.

Q for subscription revenue grow up 10% year over year or 14% growth when calculating in local currencies.

Every reason to expect that these gross trend will continue well into 2023.

The gross margin or subscription fees continued to improve and we have seen sequential improvement throughout each quarter of 2022.

We started Q1 2022 is a subscription fee gross margin of 55.9%, which increase through 2022 by 200 basis points to 57.9% in queue for Ya.

He demonstrated that they are operating leverage in our model is becoming more apparent whereby we can add each new subscriber resolve the current spending significant increasing our course these.

These seem queasy subscribers came primarily from the growth in our traditional auto market business.

In summary, we are very pleased result performance in the fourth quarter, which culminated in excellent 22240 to run.

Both ongoing solid performance, you know traditional auto market business and especially the growth engines, we have seen it in the past two years.

Driving do subscriber growth, we expect that this accelerated subscriber growth will translate into increased subscriber revenue growth.

Thousand twenty-three and foster growing profitability as the operating leverage continues to work you know favorable we've already seen the initial fruits of these.

2022.

Looking ahead, we will leave the improvements we've made to our business in the past few years, especially the strongest subscriber girls are here to stay for the foreseeable future. We're excited for the your head and expect a positive trend that started in 2022 will continue into 2023 and by.

<unk>.

And with that a handover too early elephant he was always.

Thanks.

I will provide the short summary of the financial results.

You can find the more detail results that we issued in the press release early today.

Revenues for the fourth quarter of 212.

22, where it's $74.9 million, a 7% increase compared with revenue of $70.4 million last year.

Fourth quarter revenue from subscription fees were $53.9 million, an increase of 10% of the fourth quarter 2021 revenues in local currency terms subscription revenue grew by 14% compares with that of last year.

Revenues for 2022 was a record of 293000 point $1 million.

And.

8% increase over the 2000 $270.9 million reported in 2021, the local cast it turns revenue grew by 10% compared with that of 2021.

2022 revenues from subscription fees with.

$209.6 million, representing an increase of 10% over 2021.

In local currency turn subscription revenues grew by 11% compared with that of 2021.

The subscriber base amounted to $2 million 66, 6000 as of December 31st 2022.

This represents an increase of 46000 net over that of the end of the period of water an increase of 185000 year olds either.

During the quarter there wasn't an increase of 44000.

Auto market subscriber base and in <unk>, and an increase of 2000 and the Oems subscriber base.

Fourth quarter product revenues were $21.1 million, a decrease of 2% compared with that of the fourth quarter of 2000 2021, while we so a decrease in U S. Dollar terms, if we look at the product revenue in local currency thrown there was an increase of 4%.

Compared with that of the fourth quarter of 2021.

2022 product revenue, where $83.5 million, representing an increase of 3% compared with 2021 in local currency product revenue grew by 6% compared with that of 2021.

The geographic breakdown of revenues in the fourth quarter was his full Israel, 50%, Brazil, 25% rest of worth 25%.

For the quarter was $26 million or 27.4% of revenues.

An increase of 9% compared with an EBITDA or $18.9 million or 26.9% of revenue.

In the fourth quarter of philosophy.

Amy Therefore, 2022 was Ah records seven.

$78.9 million or 26.9% of revenue.

An increase of 9% compared to $72.7 million or 26.8% of revenues and 2021.

Net income for the fourth water was $9.6 million or 12.8% of revenues all dilute earnings per share of.

47 cents.

As a similar level of $9.6 million or.

13.6% of revenues or diluted earnings per share of 46% in the fourth quarter of last year.

Net income in 2022 was 37 $20 million or 12.7% of revenues or fully diluted earnings per share of $1.82 cents, an increase of 8% compared with a net income of $34.3 million or 12.

6% of revenues or fully diluted earnings per share of $1.65 cents.

2021.

Cash flow from operations for the fourth quarter of 2022.

Was $15.9 million of course.

Cash flow from operations for 2022 was $45.1 million.

I know that in 2021 operating cash flow was comfortably higher it's 55.8 million zoloft.

Somewhat lower operating cash generation in 2022 was primarily because our Brazilian business grew nicely in 2022, <unk> 2021, the growth was much more limited.

One of the business model, there is <unk> Ics, meaning that we pay in advance for the customers insurance policy.

And for their telematics units, while the customer payouts over the life of the service.

Therefore, the working capital is used at the business grows.

Therefore temporarily went down in 2022 as a result of this drunk business growth in Brazil in 2020 tools and we do expect operating cash flow to catch up as time goes by.

As of December 31st 2022, the company had cash including multiple securities of $28.2 million in depth of 12.2 million doors and mounting to a net cash of 16 million zoloft.

This is compared with cash, including multiple securities of $54.7 million and a depth of $31.4 million and mounting to a net cash of 20.

23.3 million Zoloft S as of December 31st 2021.

For the fourth quarter of 2022, a dividend of 3 million dollar was declared.

In the forest water under our share buyback program. Each one purchased 131000 shares for a total of $3 million. During 2000 2000 to a total of 357000 shares were purchased totaling 8.4 million.

Share repurchase were funded by Evaluable cash and repurchases of it runs ordinary shares were made based on S. A C rule 10, B dash 18, 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 will begin the question and answer session.

You have a question. Please press star one if you wish to cancel your request. Please press star too. If you are using speaker equipment timely with the handset before pressing the numbers have questions will be pulled in the order. They are received please stand by while we Paul for your questions.

The first question is from Chris Reimer of Barclays'. Please go ahead.

Hi, Thanks for taking my questions I wanted to ask about the subscriber.

This corner.

Taken lvn can you give any color on on the characteristics there <unk> with subscribe, there's or any changes in our customer behavior.

Typically as we always say the <unk>.

Typically.

We have no a lot of influence on.

It's a sales and marketing <unk>, we have it's.

Dale Wizard car producer and it just depends on his.

Sales in the market on the aftermarket of course, we have a much more.

Influence and this is why we succeed from time to time to promote new services, new technologies and allow us to get to new segments and currently in the after market sales we have a very.

Diversified.

A customer base and customer retention.

And as you know we have SVR, which is our tradition of business, where fleet management and recently in the last few years. We also have services for you'll be I and financial institutions. So during Q4.

We had a mixture of those services.

Okay, great and how should we be looking at gross margin going forward considering earlier in the year you had the weakness in products and we've seen a slight uptick. Since then just can you comment on some of the moving parts you see there.

Yes first of all during 2022.

We had a higher cost can say the highest cost of components, which is part of our <unk>, which is a condition for providing our services.

Based on the changes in the components markets, we know and I believe they're doing 2023, we will see improvements of of the margins when we sell hardware.

And the <unk>.

Thanks to dis and to the operating leverage model when we <unk> that are we adding as I said close to 200000, new subscribers are you <unk>.

Which no doubt that the additional revenue is much stronger than the needs of additional expenses. So overall from those two two a revenue source of it one I really believed that we will continue.

To show.

Growth in the gross margins.

Great. Thanks for that that's it for me.

The next question is from David Kelly of Jaffray's. Please go ahead.

Hi team this Gavin Kennedy on for David Kelly, Thanks for taking my questions Nice to hear your reader at your annual aftermarket growth guidance for 2023, there's target and plugged. The nice acceleration from 2022 can you just walk us through the main growth drivers here in more detail.

First of all we have to understand that growing.

Any number of growing to subscribers is accelerating the business because he's growing on the customer base that we finished 2022, so terrifically even hundred thousand additional subscribers ear or 80000, which was our average in the past allow us.

To increase our.

Profit margins and profitability.

So 180000, we have to understand.

It's a big each a large number and I wish that we will succeed to continued <unk> of this number every year in the future.

So I think that this is shows a very strong acceleration.

First.

Second as I said, we base our forecast on the <unk> mainly.

The a finance first of all okay.

I will repeat the last quarter as I said because of the let's say some economic I would say.

Oh.

Mhm.

Decrease in the walls and specifically the regions that we are operates so we see and we face inquiries.

Increasing of <unk> when to concentrate is higher insurance companies need to increase and we provide a solution, which we see more and more needs from insurance companies. So also the S. V R, which is a very tradition on segment of each one is not <unk>.

<unk> <unk>.

<unk> 2022, any started add to this the a two.

Segments, which we start recently, which is D U b I N D, India financing financing a full cars.

Banks or or Finton companies that provide.

Provide loans.

For people to buy cars, but they want to secure their cholesterol, which is the car.

And they use our solution and do something that we see how it spreads around a D. C. A market place. So having said that this is the reason why we believe that we will continue with the acceleration of our grossing subscriber base.

Got it makes sense and then it looks like you're operating income margins modestly increased 20 bps this quarter or the drivers here and how should we think about operating margin trajectory in 2023.

So as I said before if the gross margins or if our operating leverage model, which is derived mainly from a recurring revenue and add to this the changing in the situation of buying electric.

<unk> components for hardware, which is also decreased in the last month.

I believe the D C M.

We need to increase and grow our gross margins operating modules is what.

Okay. Thank you Tim.

The next question is from <unk> of O S. P. Please go ahead.

Hi, Good afternoon, I was hoping you could explain better I want to understand the differential of getting new subscribers and then those margins actually starting to expand cause I know, there's a lag time between Ah new subscribers actually seeing that profit come from that new subscriber how can we view.

That over the next year, given the high growth of subscribers in 2022, but yet you'll also having a high growth of subscribers in 2023. So I just wanted to know would there be a magic moment that will start to see this major expansion in the margins.

First of all as you so 200 basis points, it's not it's something that derived from these girls are subscribers in the end of the day.

Of course, what you say, it's right. If you'll look we also grows in 2021, we subscribers bought you start seat on in the beginning of 2022 now walking showed is after you. It's 2022 at the end of 2022. So now again, we will have the.

The contribution of what we added during 2022 starting influence on our results. In Q1 Q2, then add to this the new subscribers. So I believe in this is the reason I said that in the end of 2020 Sweet again, when you see another job of our.

Margins growing so it cannot grow with 20% from print from 57 to 70, it's growing 2%, 3% every year in three five years it should be very much area. But this is the reason as you said it takes time from disrupting Apple subscriber base to the moment that you.

C material number of your gross into profitability, but you all received.

And in terms of your cash so you have about what the 12 million net debt sorry, you have 12, 12 or 14 million four sorry $17 million net cash sorry are you going to pay off this to $12 million a dead or you just gonna leave it for now.

Okay. So actually the company's usually have no need for for any that the reason that you're <unk> seed when we acquired rolled truck today's spot for free to run a twin required at four years ago, we used a bank loan 40.

This acquisition.

The it's paid along with the time, we still have two two payments to pay until September D C and.

September will finish so I mean, okay Assembly, we would be in zero, Okay, escapade make yes, okay fair enough and at that point would that change your approach would you get more aggressive in buying back stock would you increase the dividend at that point in time in other words as we get to the second half of the year. It can we expect at the same time.

That the subscriber earnings are kicking in and you've paid off your debt when it makes sense to increase the dividend or do a large a share repurchase.

Of course, and as we just send we just declare.

And you can see it now and the sick and depressed and our board approved additional $10 million for D C or of by <unk> <unk>.

<unk>, yes. So what did you say is right, we feel comfortable with our cash position and we feel that the the best investment for US currently is to repurchase the shares of each one <unk>.

Compared to any other.

Yeah.

Possible investment Wisley scheme would it make sense to do a Dutch auction, where you essentially.

Give a price above where it is today and then.

You know a certain amount of money you allocate to that to buy out the shares instead of doing it drip by drip on a daily basis.

First of all is.

<unk>, it's in something that we didn't think about it specifically, but that will accept this alright.

Alright. This proposal to what you said and I will advise resolver financial advisors, Okay wonderful and there's I Wanna leave it off can you give us just some highlights on the investments that you have.

If there's any change to the investments.

Alright, you talked about we have to investments, which is <unk> an hour I would say financial.

Part, one is bringing which is a <unk> private a private company that we hold 17% It said tech startup.

And just to remind you that the last wronged round. He was only valuation of a $1 billion <unk> you need to buy.

My insight partners.

Since then the company covered with I would say enough Kish unwritten $50 million. So the company is enough cash for the coming years of course the situation today.

The tech companies that are changing a little bit this which I do see ecosystem.

Okay.

He didn't change how the business is goes but of course, we as part of the board.

Things more or less aggressively and we're more conscious but accompanies coin continued to perform based on it's a businessman cause we are not in a position now to sell out shows it's a private company in the markets. It's not I think it's not a new I think to do it now and.

And the second investment, which is holding shares of of save your favorite one wishes of publicly traded the company in the stock market in that case, we still have the the the the evaluation together.

It was the original of the shows in this again in this ecosystem and specifically in the Israeli stock markets win down shall we already a rope and those losses you know financial portion of June 2022, you can see it's it's cost us something like almost $5 million or.

Financial all sorts of course, not in cash and so today I will holdings there Warsaw, a few hundred thousand dollars. So I don't see that it will continue to let's say damaging part of our net income in 2023, okay. Thank you very much for the.

Overview and good luck and thanks again for the wonderful performance. Thank you very much.

If there are any additional questions. Please press star one if you wish to cancel your request. Please press star too. Please stand by while we Paul for more questions.

There are no further questions at this time before I ask Mister <unk> to go ahead with his closing statement I would like to remind participants that a replay of this call will be available tomorrow I need to Ron's website www.

<unk> Dot <unk> Dot C O dot I L. Mr. <unk> would you like to make your concluding statement.

Yes on behalf of management to free to run and we'd like to thank you for your continued interest in longterm support of a real business. We hope can be speaking with you over the coming quarter and if you are interested in meeting or speaking with us feel free to reach out our investory interesting. Thank you and have a good day.

Thank you. This concludes the two Ron Fourthquarter 2022 results conference call. Thank you for your participation you May go ahead and disconnect.

Mmm.

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