Q2 2023 Ituran Location and Control Ltd Earnings Call

Speaker 1: Thanks for watching!

Speaker 2: Ladies and gentlemen, thank you for standing by. Welcome to Yiturang's second quarter, 2023 results conference call. All participants are present in this anomaly mode. For the formal presentation, instructions will be given for the question and answer session.

Speaker 2: For operator assistance during the conference, please press star zero. As a reminder, this conference is being recorded.

Speaker 2: You should have all received by now the company's press release. If you have not received it, please contact Ito-an's investor relations team at EK Global Investor Relations at 1 212 378 8040.

Speaker 2: or view it in the news section of the company's website at www.ituan.co.il

Speaker 3: I will now hand the call over to Mr. Kenny Green of EK Global Investor Relations. Mr. Green, would you like to begin? Thank you, operator. Good day to all of you and welcome to Eterun's conference call to discuss the second quarter 2023 results. I would like to thank Eterun's management for hosting this conference call.

Speaker 3: With me on the line today are Mr Eyal Sharatsky, CEO , Mr Udi Mizrahi, Deputy CEO and VP Finance and Mr Eli Kamar, CFO of E2On. Eyal will begin with a summary of the quarter's results, followed by Eli with a summary of the financials. We will then open the call for the question and answer session.

Speaker 3: I would like to remind everyone that the Safe Harbors statement in today's press release also covers the contents of this conference call. And with that Eyal, would you like to begin please? Thank you Kenny. I'd like to welcome all of you to our second quarter 2023 call and I would like to thank you for joining us today. We are clearly very pleased with our achievements in the second quarter.

Speaker 4: 2023 has so far been an excellent year for e2run. e2run's business is in strong growth phase with the subscriber base growing twice as fast as we grow in the past years.

Speaker 4: This jump in growth rate is now clearly benefiting our financial results.

Speaker 4: For the past few quarters, our subscription fees have been constantly at new record levels each quarter and our profits, measured in either net income or EBITDA, at four-year hight.

Speaker 4: As you can imagine, we are very pleased with our results and the progress we've made.

Speaker 4: Given the way our business is structured with a core and stable subscriber base of well over 2 million paying a monthly retainer and the clear long term visibility this provides, we have very reason to expect that the current positive trends will continue throughout 2023 and into 2024 and beyond.

Speaker 4: From a strategic perspective, we experience strong growth in subscribers, adding a net total of 47,000 subscribers, of which 45,000 were from the aftermarket and 2000 were from the OEM. As I mentioned, this strong subscriber growth is now being reflected in our Record Subscription Revenue.

Speaker 4: subscription revenue grow at 13% year-over-year or 17% growth when calculating in local currencies.

Speaker 4: which naturalize the effects of the exchange rate on our growths. Over the first few years, we've entered into a few new verticals, such as a financing business, which are performing well and acting as growth engines. They are one of the main reasons that our business continue to grow well. During the quarter, we announced that the Brazilian subsidiary entered a partnership with Santa Deo Brank.

Speaker 4: which firmly solidified our presence in the automotive financing market. These strategic alliance aimed to broaden the Brazilian cow ownership market by facilitating the credit approval for automatic financing with it to run the LeMatic services and Santander's financing at attractive rates and credit insurance. This new deal demonstrates that this finance vertical is performing more.

Speaker 4: and we are looking to cover additional markets, and geographies with existing and other finance customers. In terms of the Israeli market, due to the general macroeconomic limit, we have seen a strong increase in the theft rates.

Speaker 4: Due to our good performance over many years in this vertical of stolen vehicle recovery, it increases the need of the insurance companies to use our services.

Speaker 4: While this is very much the case in Israel, we also see similar trends throughout Latin America with the general economic climate contributing to an increase in car safe rates.

Speaker 4: This is ultimately leading to an increase in demand for services from insurance companies.

Speaker 4: This also provides our business with some defense in the face of an economic slota.

Speaker 4: Finally, we've launched a new product in Latin America, focused on connectivity and stolen vehicle recovery for the motorcycle market, which is a new sector for us. In 2022 on, there were an estimated records of 5.4 million

Speaker 4: Motorcycle sold in Latin America and we believe our new solution presents a very attractive proposition for this sector

Speaker 4: We are already seeing interest from manufacturers and insurance companies and we are already in discussions. We see strong potential from this new product and service in the region for the coming years.

Speaker 4: And in summary, we are very pleased with our results of the quarter and 2023, the shaping up to be record here for it to one in all.

Speaker 4: We are very pleased with our results of the quarter and 2023 is shaping up to be record here for into one in all respects.

Speaker 4: Sorry for the performance in our traditional aftermarket business as well as recovery in the OEM business.

Speaker 4: and especially the gross engines, we've seated in the past years how all driving our strong subscriber growth and record revenue. While we continue to monitor talk of a potential global economic slowdown ahead, historically we found the theft rates tend to increase in economic downtimes, increasing the demand for our services and buy on that.

Speaker 4: Our 2.2-minus subscriber base paying us on an ongoing monthly basis.

gives us significant resilience in our phonymic environment.

Looking ahead, we expedited our recent accelerated subscriber loss, we'll continue to translate into increased revenues, with faster growing profitability.

due to the operating leverage inherent to our business. We are excited for the coming quarters and anticipate a positive trend will continue throughout 2023 and by on. And with that, I end over to Oli. Eli, please go ahead.

Thank you, Al. I will provide a short summary of the financial results. You can find the more detailed results that we shoot in the press release earlier today.

Revenues for the second quarter of 2023 were $28.6 million, and 11% increase compared with revenues of $73.4 million last year.

In local currency, the year of a year growth was 15%.

Second quarter revenues from subscription fees were $59.2 million dollars and increase of 13% over the second quarter of 2022 revenues.

In local currency, the year-over-year growth was 17%.

Prior base amounted to 2,162,000 as of June 30, 2023. This represents an increase of 47,000 net over that of the end of the period quarter.

and an increase of 190,000 EuroVU.

During the quarter, there was an increase of 45,000 in the aftermarket subscriber base and an increase of 2000 in the OM subscriber base. Second quarter product revenue were $22.5 million, an increase of 7%.

Compared with that of the second quarter of 2022. The jail graphic breakdown of revenues in the second quarter was followed. Israel 48% Brazil 26% Red of World 26%. E?pdgvfaperc ???vidratb

21.8 million dollars or 26.7% of revenues an increase of 12% compared with EBIDA of 19.4 million dollars or 26.5% of revenues.

in the second quarter of last year. In local currencies, the year of the year growth was 15%.

Net income or the second quarter was $12.2 million, or 15% of revenues or the eluded earning per share of $0.61.

An increase of 40% compared to $8.7 million or $11.9% of revenues or diluted earnings per share of 43 cents in the second quarter of last year.

In local country, the year of the year growth was 44%.

Cash flow from operation for the second quarter of 2023 was $17.5 million. On the balance sheet as of June 30, 2023, the company had cashed including multiple securities of.

$34.5 million and a debt of $4.5 million amounting to a net cash of $30 million.

This is compared with cash, including market-based securities of $28.2 million and a depth of 12.2 million dollars, amounting to a net cash of $16 million as of December 31, 2021.

For the second quarter of 2023, a dividend of $3 million was declared.

In the second quarter, under our share buyback program, it won purchased 155,138 shares for a total of $3.5 million. Share repurchases were funded by a valuable cash and repurchases of its run-ordinated shares were made based on SSL rules.

If you wish to cancel your request, please press start two. If you are using speaker equipment, kindly lift the handset before pressing the numbers. Your questions will be pulled in the order they are received. Please stand by while we pull for your questions. The first question is from Chris Reimer of Barclays. Please go ahead. Yeah, hi. Thanks for taking my question. Congratulations on the strong results. You mentioned in the past operational leverage and I was wondering how much expansion is possible under the current operational conditions you have right now.

Practically when you look on the numbers today, so we actually increased from 20 to 20.4% in a very short period. And now we expect that this trend will continue. This is actually...

while they're carrying revenue or more than allow us to do in the future.

And you view what is underpinning the consistent subscriber growth? Can you repeat it regarding subscribers? Correct. Can you repeat your question, please? Yes, I'm sorry. And you view what is underpinning the consistent subscriber growth? I think generally I said it so first of all the traditional segments.

which are very depend on carcass afraid. It's in the last quarters and as we see, it's in a growth mold which create a strong request.

from, I would say, insurance companies as well as even the car owner needs to secure the car more and more because it's a lot. So this is from something that depends on the economy as well as the financing market, which we...

penetrate just recently and We see that after this penetration Other players in Brazil as well as in other countries in Latin America are interesting in this solution and Of course there is always the the regular growth

drivers such as our brand is the strongest one in the region, very high credibility from B2B and B2C customers. So we have a good feedback from the market plus new segments that we entered recently.

We believe that this will demonstrate or will lead to the growth of the subscribers.

Thanks a lot. That's really good color. The next question is from Josh Strauss of Peck and Hardy. Please go ahead.

Josh, we don't hear you, but you can go ahead and ask a question. Sorry, my bad. I was on mute. Good morning. Good to see this terrific quarter, guys. Thanks for taking my call.

I wondered whether or not you could provide any color on what's happening with BRING. I know it's a passive private investment, but I was curious to get any color that you would provide on what's going on with that investment.

Practically, BRING is going quite well with its business plan and let's call it internal and privately held projections. I think that we had...

We did the right move when we did the last round about a year, a year and a half ago, before the changes in the stock market and the financial markets, and the company did the right adjustment.

to use those proceeds for more years than we thought at the beginning because we have to adjust the company to the financial markets. But from the operational side of view, the company is really...

provide the results as it's a work course. I want to remind all of you that it's something that is only on our rebalance sheet and it's a zero value in our rebalance sheet so it does not influence anything in our...

P&L and I would say that it's a hiding asset which we count that it's in the future, of course, will provide profits.

Well, I'm looking forward to seeing that thing getting monetized at some point in the future.

The second question I had was, a couple of years back, you had levered up the balance sheet slightly, which was unlike you guys historically because you've been a pretty conservative management team, in order to buy Road Track. And…

Over the years you've been paying back your debt and your gross debt is almost zero. Your net debt has been positive for some time. And you know, I'm very thankful for the buybacks and the dividends. But I'm curious on how the plans may or may not change.

that your debt is, your gross debt is almost zero. Your net debt has been positive for some time. And I'm very thankful for the buybacks and the dividends. But I'm curious on how the plans may or may not change.

going forward given the war chest of cash that you have. Is it going to be just more of the same in an occasional small early stage VC investment in Israeli companies that are related to your business? Do you just give us a color on what your plans are over the next couple of years?

First of all, the investment in the small as you said, VCs or startups, which is a link to potential systems or mobility market is something that has nothing with the loan that we took because we do it, you know, it's a...

let's say on an arrogant way, it's not the material cash that we use. The main cash needs that we did was to, as you said, to acquire our road truck. Now it's the last payment of our loan after these five years. And...

Simultaneously, of course, we increase our cash flow position and cash flow generation. So actually, as we did in the past, we have no any intent to keep the money for nothing in the bank. First of all, we will do our best to keep the money from going to the bank.

to use the money that we generate for growth. It means most of the time for acquisition, for partnerships and things like this. If we find it, this is the first priority.

But this is not something easy. We are conservative. We don't want just to spend money and say that we did. By the way, regard Roadtruck today, we are very happy that we did it. The contribution of Roadtruck today is causing it to run. It's fully merged to the business and integrated.

and we create the synergy and everything now is as we sought to do and since we did it on a conservative way it succeeded. If we find something that will be good for our unorganic growth...

We will do it first. Of course, if not, or meanwhile, as long as we generate cash, of course we will let all our shareholders, of course, to benefit from this cash flow. As, by the way, we did simultaneously with the debt, because if you can, for example, take this quarter,

needed for growth, we will, for at least, I will recommend our board to increase this dividends or buy-back of course depend on the situation.

But we will not keep the money. We keep, we always think how to grow with this money.

Thank you very much. Good luck guys. Thank you very much.

I repeat, if there are any additional questions, please press star 1.

If you wish to come to your request, please press star 2. Please stand by while we call for more questions. The next question is from Abba Horovitz from Old School Partner. Please go ahead. Thank you. Hi Eyal and congratulations on a real milestone. This is quite an amazing quarter relative to the last couple years.

I wanted to really drill down on the motorcycle opportunity. And if I may ask, are you selling anything to the motorcycle market? And how rapidly do you see this being implemented? And how meaningful can it be to the overall business?

Okay, so I will divide it for the two different markets. One is the Israeli market where we for a few years already sell a product and service for motorcycles, but we have to understand that in Israel, which is different than in Latin America, the motorcycle trend...

quite low, meaning most of the people buy cars than expensive motorcycles, so the market here in Israel for us is a niche, I mean we do it with the insurance companies sometimes or with some some

But what we realized after we covered a car environment in Latin America, and again we looked for additional growth segments, we understood that, for example in Brazil, cars and motorcycle ratio is very not similar but almost similar.

millions of motorcycles being sold every year only in Brazil.

The situation is that, and this is all around the world, it's very difficult to ensure motorcycles. It's more risky to the insurance companies, and it's the nature of a motorcycle.

So the prices of insurance are very high, but on the other end it's a segment which insurance companies don't want to live. And on the other end, the motorcycle dealers and producers want to find a solution for their customers. So we start, of course, reaching this market and as we did with the finance.

a unit which is very very customized for a motorcycle driver and a motorcycle which include application, includes the SVR, includes other sensors which will create benefit to the drivers

And we went with this to the market and we see a lot of attraction now. As every segment, when we start, I'm not saying that tomorrow it will be material because we have already 2.2 million subscribers. It takes time to show something which will be more material for, let's say, to announce it and to see it.

in the results but since we believe that this can be something material, something that can be sustained in the coming future, this is the reason why I decided to share it today.

To understand that we found in other segments, we do our best to penetrate and to lead this segment specifically in Brazil and in Latin America. And really I can't now talk about numbers.

or who are the potential customers in terms of manufacture or insurance companies. But we really feel that it will happen and there is attraction.

are the potential customers in terms of manufacture or insurance companies, but we really feel that it will happen and there is attraction and this is...

I believe will be more substance in the coming or in the future years. Okay. Would this mean that using this product now, an insurance company would be more willing to provide a cheaper insurance alternative and that's what this product is doing? Or would it even, would someone get this product without the insurance even? Okay. So, some of the…

and rental companies and the manufacturers actually spread motorcycles around the country for renting whether it's a hourly renting like a right kind of ride sharing or rent it for like a leasing so in that case

those dealers and manufacturers also interesting in a solution to I would say to secure their assets, their assets they rented. So they want a solution because a financial, a high financial damage is when those motorcycle being still.

Okay, and would it be safe to assume that you'll be able to leverage the monitoring part of the business from the same infrastructure that you have currently?

Of course, everything we do by the way, at the end of the day I would say that it run today it's a black box first, this black box can get any firmware we want so when we find a segment we take the same black box give it to our R&D people

and then they develop the firmware which will allow this black box to be offered to other segments. So it's like a module. So in terms of technology we use always the same technology. This is why we can leverage it, this is why we can create operating leverage for those technologies. On the other hand, in the service side...

When we talk about SVR, this is our speciality. But when we talk about other services, of course, that we do on the job train, and we learn what is the needs of the market, but we are a service company. So for us, it's something that must be excellent.

So, at the end of the day, of course, we use and integrate always our current infrastructure.

Is it the same price as a car would be or is it cheaper than a car? It will be already a cheaper product. The installation which is part of the cost is also cheaper because the nature of the motorcycle for installation is easier than when you are cutting a car to install a unit. But in terms of the service side it depends on what type of services.

it's the same as the car if it's only SVR whether it's included application whether you want for example as you know it run as or you don't know I will remind three years ago we acquired a company in Brazil which is a company that developed a car sharing and riding a billing and and managing a solution

So after that we now offer it as a part of our black box, so in that case when we talk about renting motorcycles or renting cars for example, with this technology we charge more, depend what is the service that the customer needs.

Okay, well thank you very much Ayo, good luck. Thank you. Thank you very much.

The next question is from Josh Strauss of Peck & Hardy. Please go ahead.

Hi, thanks again for taking my call. So you talked in the past, and I don't know if you talked about it on this call, about re-establishing, maybe not re-establishing the long term, re-accelerating the business you're doing with OEMs in Brazil. And I wondered if there was any...

longer because of all the validation that we have to do. And every country, by the way, has to approve from scratch any validation. But I just can say that we are...

working or we believe that we will succeed to expand our relationship with the current car manufacturers to other geographies, of course mainly in the near future in Latin America to other countries.

I don't know yet to say which country, what will be the specific contract and quantities, but I know and to tell that we see attraction, we see and we discuss it. And I believe, or at least I want to believe, that we will be able to expand it to other countries. And I believe that we will be able to expand it to other countries.

based on the OEM segment. Okay. And what about the progress you're making with financial institutions in Brazil for the subprime customer? I'm trying to get my arms around how material that opportunity is in the years ahead. I know.

We're still in the early part of developing that market, but I'm just trying to understand how big that market really can be both in Brazil and elsewhere for trying to monitor the sub-prime cost for insurance companies and what have you.

So currently or a month ago we report about I think a very luxury contract that we did with one of the largest banks in the world, Santander in Brazil. Santander on exclusive basis will finance cars and we talk about

very important customer-based potential through Santander and

This is regarding the Brazilian market currently. Of course, as we know, Santander has offices.

all around Latin America. So I believe I want to use

The contract is very mutual, very material for us. And of course when what we see, when I say attraction, when other banks or other finance companies see or learn about the contract that we did with Santander, we see that they, of course, want to find a way to copy it. Without the Brazilian market, the contract with the commercial bank is under exclusivity from both sides. So we will have, or we will regard Brazil in the coming years. We will have to, of course, find a way to copy it.

I just lost you for a second. I heard almost all of it. Great. Thank you very much. I appreciate it. Thanks. Thank you. The next question is from Fred Foulkes of Boston University. Please go ahead. Good morning. Congratulations on an outstanding quarter and this very informative call. I just was curious given all the

challenges and troubles in your country right now. Is that having any impact on worker productivity, recruiting, retention, et cetera? Actually, no. Actually, no. I think that the situation here in Israel is mainly from the political side. I would say the...

It's not influenced directly yet. And as I said, e-Turan also historically, when the economy is in bad shape, so unfortunately the violence and the culture rate increasing.

In this situation, the request for our solutions is increasing and the needs become much more strong.

Currently it's not influenced, but I'm not expecting that it will influence.

If you come to Tel Aviv you will feel that nothing happened by the way, but you know, the press is different than the life

But yes, we have a challenge now here.

Thank you and congratulations on your leadership. Thank you very much.

The next question is from Charles Elliott of IPI. Please go ahead.

Hi, I'd like to ask about a deal that you announced in July .

with 99, a ride share company acquired by DD Chuqing, where you will provide SCR on their BYD models. And it sounds like a small deal in itself, but I wondered if it could be.

pretty significant because this would be your first step into being a platform for car sharing.

Just for a curious point, what did you mean? Where did we report it? It was in a Brazilian newspaper, I think it was on 28th of July . Of course we didn't report it from, you know...

for the NASDAQ and SEC aspects because it's not a material deal currently, but you're right. BYD launched their brand in Brazil together with us and what they did was a kind of mutual, I would say, mutual marketing way.

As I said, BYD spread cars around São Paulo in order to rent it on hourly or daily rent. They need our units in order to control it, to bill it, and of course to secure it. So we are their partners for Brazil.

but at this stage it was, I would say, BYD marketing or BYD penetration program. So it's not yet something that we can say that it will lead, for example, to an OEM deal in Brazil, but we've been choosing as their partners for...

this specific campaign. For the future, let's see. Of course, it's very luxury, again, very luxury transaction, very luxury relationship, because we know that BYD is now in a very strong penetration also to Latin America.

but it just started and as I said, OEM, this is something which has a long cycle. But we also think for the long way and for the marathon and for the long future. So we started with this, we have nothing to announce now, but for the future we will see what happens.

it just started and as I said OEM deals is something which has a long cycle but we also think for the long way and for the marathon and for the long future so we started with this with nothing to announce now but for the future we will see what happened. Great thank you!

There are no further questions at this time. Before I ask Mr. Shirazki to go ahead with his closing statement, I would like to remind all participants that a replay of this call will be available tomorrow on Eteran's website at www.eteran.co.il. Mr. Shirazki, would you like to make your concluding statement? Yes, I would like to make my closing statement. Mr. Shirazki, would you like to make your closing statement? Yes, I would like to make my closing statement.

On behalf of our management of E2RUN, I would like to thank you, our shareholders, 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 you are interested in meeting or speaking with us, please feel free to reach out to our investor relations team. And with that, we end our call. Thank you and have a good day.

Thank you. This concludes eToran's second quarter 2023 results conference call. Thank you for your participation. You may now go ahead and disconnect.