Ituran Location and Control Ltd. Q1 2023 Earnings Call

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Sure.

Thank you.

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Ladies and gentlemen, thank you for standing by welcome to the two Ron first quarter 2023 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.

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 8-K Global Investor Relations at one to one to 3788040.

Or you are in the news section of the company's website www dot need to run that C. O that I am I will now hand over the call to Mr. Kenny Green of E. K Global Investor Relations. Mr. Green. Please begin. Thank you good day to all of you and welcome to each of our conference call to discuss the third.

First quarter 2023 result.

Well I'd like to thank each wants management for hosting this conference call with me today on the call I mean, they all sharansky CEO , Mr. Wooziness, Raffi, Deputy CEO , and VP finance and Mr. Eddie come our CFO , albeit off a.

<unk> 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 would like to remind everyone that the safe Harbor statement in today's press release also covers the contents of this conference call and now a L. Please.

Please go ahead, thank you Kenny and I'd like to work a little view to our first quarter 'twenty to 'twenty three call and I would like to thank you for joining us today.

We're clearly very pleased with our achievements in the first quarter.

The year is kicked it off with a robust start and a solid subscriber growth we saw throughout 2022.

And now in the first quarter is clearly having a positive impact on our financial performance.

In this quarter, we experienced record subscriber revenues with record subscriber gross margins and also so our highest quarterly net income and you'd be down over four years.

From a strategic perspective, we experienced strong growth in subscribers, adding a net total of 49000 subscribers of which 44000 were from the aftermarket and 5000.

OEM additions as we shared with you last quarter, our expectations for the growth rates in our subscriber base stand up between 180000 to 200000 net.

Net new subscribers as annually and we are on track.

As a result showed a strong subscriber growth we have experienced now for a few quarters is being increasingly reflected in our subscription revenue growth even despite the currency headwinds due to the dollar strength compared with last year.

Q1 subscription revenues grew at 11% year over year or 16% growth when calculated in local currencies, which naturalize the effect of the exchange rate on our gross.

We have every reason to expect that this growth trend will continue well into 'twenty, two 'twenty three and beyond.

The gross margin on subscription fees continue to improve and we've seen sequential improvements throughout each quarter last year and now erectile subscriber gross margin of 58, 1% in Q1.

We demonstrated the operating leverage in our model is becoming increasingly borrowings whereby we can add each new subscriber without a corresponding significant increase in cost and it will continue to benefit us in the coming quarters.

If you remember we've recently entered a few new verticals, which are performance words, such as the finance segments in the UBI.

This is helping us to get traction and continue to increase our overall subscriber base.

As far as the Israeli market goes it is worthwhile, noting that after many years in this market. We've seen a recent increase in the surf traits and a dramatic increase we thanks to our good performance.

This.

Vertical stolen vehicle recovery it increases the need of the insurance companies to use our services.

In summary, we are very pleased with our performance in the first quarter and represent a great start to 2023.

Both ongoing solid performance in our traditional aftermarket business a good recovery in the OEM business and especially the growth engines. We have succeeded in the past years are all driving new subscriber growth.

While we are aware of a global economic slowdown I head, our 2 million plus subscriber base paying us on an ongoing monthly basis give us significance as islands. Furthermore, our recent accelerate subscriber growth will continue to translate into increased subscriber revenue rolls through.

Route the coming year.

With faster growing profitability as the operating leverage continue working in our favor.

We've already seen the early fruits of our recent success in the current quarter.

Looking ahead, we are confident the improvements we have made to our business over the past few years, leading to today's robust subscriber growth are here to stay for the foreseeable future.

We're excited for the Red and anticipate a positive trend will continue throughout 2023 and Bob and.

And with that I hand over to Ellie Ellie is go ahead.

Thanks Al.

I will provide a short summary of the financial results you can find a more detailed result, since we issued in the press release earlier today.

Revenues for the first quarter 2023 were $79 5 million.

10, 3% increase compared with revenue of $72 1 million last year.

First quarter revenues from subscription fees were $65 $8 million an increase of <unk>.

11% over first quarter 2022 revenues.

Subscriber base amounted to $2 million 115000.

As of March.

31 2023.

This represents an increase of 49000 net all the debt offtake and also Victoria quarter, an increase of 191000 year over year.

Yeah.

During the quarter, there was an increase of 44000 and the aftermarket subscriber base and an increase of 5000 and the OEM subscriber base.

First quarter broadcast revenues were $23 $7 million, an increase of 8% compared with that of the first quarter of 2022.

The geographic breakdown of revenues in the first quarter was as follows Israel, 51%, Brazil, 24% rest of 425%.

EBITDA for the quarter was 20.8.

$8 million or 26, 2% of revenues, an increase of 8% compared with EBIT of $19 3 million or 26, 7% of revenue in the first quarter of last year.

Net income for the first quarter was $11 4 million or 14, 3% of revenues all diluted earnings per share of 56 cents per share compared to $8 7 million adult alcohol 12, 1% of revenues all diluted earning per share.

Or 43 cents per share in the first quarter of last year.

Cash flow from operations for the first quarter of 2023, what was $17 4 million daus.

On a cash on debt on the balance sheet as of Swatch, 31st 2023, the company had cash including marketable securities of $33 5 million.

And that's of $9 2 million amounting to a net cash of $24 3 million.

This is compared with cash, including marketable securities of $28 $2 million and depth of $12 2 million amounting to a net cash of six <unk> as of December 31, 2022.

For the first quarter of 2023 of dividends of screaming in the dollar was declared.

In the first quarter under our share buyback program. Each one purchased 54000 shares for a total of $1 $2 million.

Share repurchases were funded by available cash and repurchases of it rack ordinary shares were made based on SEC rules tend be das 18.

And with that I'd like to open up 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. 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 kind of lift the handset before pressing the numbers youre questions will be pulled in the order. They are received please standby while we poll.

For your question.

Okay.

Yeah.

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

Hi, Thank you for taking my questions I was wondering if he could start with giving any color around the uptick in the OEM subscribers this quarter and what kind of went into that and is it is it a recovery or is it more of a one time thing.

Hi, so actually.

We think it's something that start joined to the changes in the components are.

Our problems that are in the world would face any influence.

It primarily on the car producers don't forget that most of the call produced today.

Based on computers and components, so I think that this allow them.

The manufacturers of the brands that we work with.

To produce more car.

Because they request.

Once there they couldn't supply the request and I always look like.

They succeed to do it better so when when it happened of course is influence.

Positively on our growing in the OEM segment.

As I said in the past is something that has some seasonality has some volatility depend on are things, which we cannot of course influence, but it looks like or our assumption that.

It will continue.

In the coming I would say are you maybe will face some quarters differently, but.

Think like it's recovered.

Excellent thanks and.

Can you talk a little about our operating expenses and what kind of strategies, you're putting into place to create more more operating leverage.

So basically.

Uh huh.

We should consider that when you grow 200000 subscribers to use a year and when you want to develop and offer new solutions is request us from time to time of course to add our human resources for each of these.

I would say.

[noise] aspects one is the service side and secondly is the R&D side, but currently I would say that after after D. A.

Thus views when we sold our expenses are growing and we couldn't see.

The influence and the revenue side I think that the 2023.

We've shown that now the operating leverage will demonstrate to our P&L because the revenue.

Reaping these fruits.

<unk> happening now.

We can see that the.

Margins, but the margins are increasing we show it in two months and it leaves us to continue.

In the next quarters.

Got it.

Okay. That's it for me thank you.

Hmm.

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.

The next question is from Sasha Colleran. Please go ahead.

Hi, gents and congrats on the quarter.

So last question for me would just be on them.

Guidance for subscriber guys going forward do you have any more specific comments quantitative comments you can make on the pace of subscriber cards.

And then in the coming quarters, and how you arrive at those numbers.

Hi.

The guidance as regards subscribers, we already gave.

In the end of our 2022 and as we sit today, we still are solid with those expectations.

Of course, it's based on our assumption in our 2022 track Records.

The new segment that we penetrate during 2021 and 2022.

And also assuming that we will.

Continue to integrate our Brent in that segment and also in the traditional segment, which are fleet management, and SVR, which we see more and more attraction in Latin America.

<unk> recently and I mentioned it in my speech today.

Israel after many years.

We see that the cost of freight increasing dramatically something that oh.

Encouraging the insurance companies to add more and more models, which in the last even decade.

They didn't required this kind of modest to installed security and location solutions, which will allow us also to increase our penetration to new segments, but also to Australia.

Our guidance of our new subscribers along to you.

Thank you and next one for me would be on.

Inventory inventory investment in Capex seemed very low in the first quarter.

Does this mean it doesn't sound like it from your comments, but does this maybe indicate some reduced confidence about.

Generally seek additional subscriber growth in and its round in Brazil, because it could be considered a leading indicator.

Uh huh.

When there was a shortage of components.

Components and we knew that.

We are in we are facing a new growth of subscribers we are.

Did the very aggressive AR inventory purchase.

In order to not to be in.

In the problem.

Problem.

And supplying.

Those new these new growth so last year, we had a very aggressive inventory purchase when the again the shortage a stope ore declined.

We continue to be in a position to buy with.

Not let's call it a normal inventory inventory a timeline. So we saw kind of a decline that you saw it could see it in this quarter I believe and expect that the Q1 capex.

It's something that Ah represents a quarterly capex of course, even in inventory, there's some some volatility.

We can see but again it shouldn't be dramatically along with these.

Mhm.

And we noticed so lets say sales and marketing ticked up in Q1 is there any are there any specific projects you are investing in right. Now for example, do you feel the timing is right, maybe just push Ics in Mexico.

And in general what can we expect in terms of Opex when it rise each quarter this year.

Yeah.

Such as forgive me that I can't see it as long as we know and they see there is no way.

Any or at least no big change in sales and marketing. So can you point me to specific to.

Approximately $3 $3 million in Q1, and also in Q4 of last year.

Apologies, yes, yeah, I'm looking at I'm looking at G&A.

Maybe you could just give us a feeling for SG&A entitle going forwards.

Seen saw part of some our compensation policy.

Inflation growing can.

Can influence us is depend on the results. So you still can see that in terms of percentage and he's very I would say that it's more correct to a judge Judy SG&A based on a percentage of our revenues and this is quite stable.

Yeah.

Okay. Thanks, and my my last one would just be on fleet management subscribers. Your 20-F implied the gross that slowed from 30% in 2021% to 20% growth in 2022.

Should we expect that slowing to continue or do you have reasons to believe that can reaccelerate.

I think again this AR in order to make it more it seemed more right way.

When you have a subscriber base and its growing so by definition in percentage.

It will be.

Decrease for example, when you grow from 100000 subscribers with another 100000 subscribers you're growing on represent when you have $2 million and you're growing 200000, youre growing only 10%. So the percentage is something that you always have to to check or to watch.

The absolute numbers because of our subscriber base is I'm seeing that increasing and this is the same situation with the fleet management to do.

Today, when we have almost doubled fleet management.

Numbers than five years ago. So in percentage, if we even if we grow <unk>.

A double than we grow.

Five years ago in terms of new subscribers and percentage it will be less always so please.

And I think that the we are not expecting that it will decrease we're expecting to continue to trend but in percentage.

Each will look always are smaller.

Understood Thanks very much.

Yeah.

Okay.

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. Sieracki 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 dot E to run that C. O that I am Mr. Sharansky would you like to make your concluding statement.

And on behalf of management to put Toronto, we'd like to thank you all for your continued interest and long term support of our business. We hope to be speaking with some of you over the coming quarter and if youre interested.

Meeting or speaking with us feel free to reach out or Investor relations team and with that we end our call. Thank you and have a good day.

This concludes the Turan first quarter 2023 results conference call. Thank you for your participation you May go ahead and disconnect.

Yes.

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Okay.