Q3 2024 Ituran Location and Control Ltd Earnings Call
Speaker Change: Ladies and gentlemen, thank you for standing by. The conference will begin shortly.
Speaker Change: Professor Eyal Sheratzky, Eli Kamer, Kenny Green, Ehud Helft, John Green, Ehud Helft, Kenny Green, Ehud Helft, Kenny Green, John Green
Speaker Change: Ladies and gentlemen, thank you for standing by. Welcome to the E-TU-RON third quarter of 2024 results conference call.
Speaker Change: 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. As a reminder, this conference is being recorded.
Speaker Change: You should have all received by now the company's press release.
Speaker Change: If you have not received it, please contact E-TU-RAN's Investor Relations Team at ekglobalinvestorrelations at 1-212-633-4243.
378-
Speaker Change: 8040, or view it in the news section of the company's website, www.eturan.co.il. 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.
Speaker Change: Good day to all of you and welcome to Ituram's conference call to discuss the third quarter 2024 results.
Speaker Change: I would like to thank It Runs Management for hosting this call. With me today are Mr. Eyal Sheratzky, CEO, Mr. Udi Mizrahi, Deputy CEO and VP Finance, and Mr. Eli Kamer, CFO, Obituan. 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 Change: I would like to remind everyone that the Safe Harbor Statement in today's press release also covers the content of this conference call. And now, Eyal, would you like to begin, please? Thank you, Kenny. I'd like to welcome all of you to our third quarter, 2020, for Call, and thank you for joining us today.
Speaker Change: We are pleased with our third quarter results, presenting steady growth in revenue and profit across the geographies in which we operate. We are also happy to report a high level of 40,000 net subscribers ad in the quarter.
which came in at the top end of our expectations.
Speaker Change: The results were achieved despite the negative impact of the U.S. dollar strength in the quarter, which lowered our local currency denominated results when presented in U.S. dollars.
Speaker Change: In fact, in local currency terms, our growth in most of the geographies in which we operate was even higher.
Speaker Change: which is between 35,000 and 40,000. Our ongoing success reflects continued demand for a location-based product and telematic services, as well as
Speaker Change: traction from the new initiatives and services we continue to launch in the various geographies in which we operate.
Last week, we announced a five-year contract with Nissan Chile.
Speaker Change: We have a long-term partnership with Nissan, one of the world's leading automakers and OEMs, and have partnered with them for many years in Mexico.
Speaker Change: Under our new contract with them, it will provide Nissan Chilean customers with vehicle location units pre-installed in three new vehicle models, which potentially is tens of thousands of vehicles over the years.
We will also provide telematics and stolen vehicle recovery services.
Speaker Change: Following a Nissan Chile customer scout purchase, they will enjoy a year's free trial of e-Touran services.
Speaker Change: Paid by Nissan, after which they will have the option to continue with their service, which they will pay to Nissan and E-Touran.
Customers will have access to comprehensive Nissan branded on-vehicle application.
Speaker Change: Additionally, the customer will also have access to E-to-Run Chile's 24-hour contract center, assistance in the event of vehicle theft, and emergency services such as breakdown assistance and towing.
Speaker Change: This new agreement in Chile is the culmination of well over a year's discussions on how we can replicate our strong service for Nissan in Mexico and bring this service to the customers in Chile.
Regions with Nissan in the future.
Speaker Change: We are also aiming to build a strong aftermarket business in Chile, leveraging the strong experience we have in this market in many of the other regions in which we operate.
Speaker Change: We are also in active discussions with a number of major OEM car manufacturers, in addition to those that we already work with.
Speaker Change: We are looking to bring new OEM partners, as well as broaden the services we provide existing OEMs to additional countries in South America.
We see strong long-term growth potential via this initiative.
Speaker Change: From a financial perspective, even with the currency headwinds throughout the past year, we remain on track to meet our targets.
Speaker Change: We will trade that for 2024. Our guidance is full year EBITDA of between 90 and 95 million dollars We continue to expect that for the quarter Subscriber growth will be between 35 and 40 thousand net new subscribers
Thank you. Thank you. Thank you.
Speaker Change: Given the strong net cash position of over 67 million dollars, our ongoing cash generation
Speaker Change: which came to $17.2 million in the quarter, we continue to share a strong quarterly dividend of $8 million with our shareholders.
Speaker Change: This dividend is at the same level that we issued last quarter and 60% increased over that of the year ago quarter.
Speaker Change: Our dividend yield, on an annualized basis, represents a return of over 6%, which is a very solid return from a strong and stable company.
Speaker Change: We see our ongoing dividend as a reward to our shareholders for their loyalty and long-term support of E2R.
In summary,
Speaker Change: We remain pleased with Ituran's performance. Our consistently growing subscriber growth will continue to translate into increased revenue, improved margins, and better profitability growth over the long term due to the operating leverage inherent to our business.
Speaker Change: We aim to enhance our subscriber growth and we are currently engaged in active discussions with a number of major OEM car manufacturers.
both current and new potential customers.
Speaker Change: to bring our services to additional countries in South America as well as new OEM customers across all our regions. I look forward to updating you on our progress again in the coming quarter.
Speaker Change: And with that I hand over to Eli. Eli, please go ahead. Thanks Eyal. I will provide a short summary of the financial results. You can find the more detailed results that we issued in the press release earlier today.
Eli Kamer: Third quarter revenues were $83.5 million, a 3% increase compared with revenues of $81.1 million last year.
Eli Kamer: The strengthening of the U.S. dollar in the third quarter versus the various local currencies in which it operates in impacted the revenues when translated into U.S. dollars. In local currencies, revenues grew by 7% year over year.
from the end of the previous quarter.
Eli Kamer: The geographic breakdown of revenues in the third quarter was as follows. Israel 53%, Brazil 23%, rest of world 24%.
Eli Kamer: EBITDA for the quarter was $23.3 million or 27.9% of revenues.
Eli Kamer: An increase of 4% compared with EBITDA of $22.5 million or 27.8% of revenues in the third quarter of last year.
In local currencies, EBITDA grew 9% year-over-year.
Eli Kamer: Net income for the third quarter was $13.7 million or diluted earnings per share of $0.69, an increase of 9% compared to $12.5 million or diluted earnings per share of $0.63 in the third quarter of last year.
In local currency, net income grew 14% year-over-year.
Eli Kamer: Cash flow from operation for the third quarter of 2024 was $17.2 million.
Eli Kamer: As of September 30, 2024, the company had cash, including multiple securities, of $67.5 million and a debt of $0.2 million, amounting to a net cash position of $67.3 million.
Eli Kamer: This is compared with cash including multiple securities of $53.6 million and a debt of $0.6 million amounting to a net cash position of $53 million as of year-end 2023.
Eli Kamer: The Board of Directors declared dividends for the quarter of $8 million. The current dividend takes into account the company's continuing strong profitability, ongoing positive cash flow, and strong balance sheet.
Speaker Change: And with that, I'd like to open the call for the question and answer session. Operator?
Thank you.
Thank you.
Speaker Change: Ladies and gentlemen, at this time we will begin the question and answer session. If you have a question, please press star 1. If you wish to cancel your request, please press star 2. If you are using speaker equipment, kindly lift the handset before pressing the numbers.
Episode 2
Speaker Change: The first question is from Sergei Glinyanov from Freedom Capital. Please go ahead.
Speaker Change: Hello everyone. So, it's obviously resilient results. But we see price company decline in service segment might be caused not only by currency fluctuation but something else. Thank you.
Speaker Change: Service revenues, as you mentioned, you are talking comparing to last year or comparing to the previous quarter?
Speaker Change: Kamper and previous year. The previous year, yes. So service revenues did went down by almost $600,000 but the main reason is the currency exchange effect. So if you exclude it, you are getting only the currency on that was about an effect of $3 million. So basically their service revenues went up as expected.
Thank you.
Speaker Change: Okay, thank you. They also say the operation margin is better due to GNA decrease. What is the main component which impacted on it?
Speaker Change: The margin for the third quarter operating margins were 22% comparing to last year was 20.8% so basically the margins went up and the main reason is the operating leverage in the business model.
Speaker Change: The first time I've seen this video, I've seen it in the video.
Speaker Change: Okay, got it. And yeah, you mentioned that recently you signed an agreement with Nissan Chile.
May, any further agreements post product revenue sales?
Speaker Change: The contract is a typical contract that we have for many years with Nissan in Mexico.
Speaker Change: Of course, Chile is a smaller market than Mexico, but still, since it's a longer term contract, we are talking about tens of thousands of new customers slash subscribers, because the contract includes hardware and services that Nissan is paying directly to us.
Speaker Change: Add to that our experience with renewals that allow us to extend the contract also with the renewals to a higher profits and profitability along the years.
Thank you.
Thank you a lot. That's all my questions.
Speaker Change: The next question is from Alan Klee from Maxim Group. Please go ahead.
Alan Klee: Yes, hello, could you talk a little, like your partnerships with,
Alan Klee: potential ones or whatever with automakers, financing companies, and auto insurance companies.
Alan Klee: What would you say are the major hurdles to get through to get someone to sign up?
Alan Klee: And what are the most compelling arguments that you can make to them for someone to decide to sign up? Thank you.
Ehud Helft
There are several reasons that...
Let's call it the cell cycle.
in this B2B segment.
is long. First of all...
Alan Klee: if we consider a car brand, manufacturer, which is very international, or if it's a bank, such as Santander, or it's insurance companies that can be, again, Muffred, Generali, HDI, etc.
Alan Klee: So first of all it's their decision to go and offer and invest because they have to pay in the end of the day for those solutions.
Alan Klee: in their strategy. So this is their own decision, of course.
Alan Klee: We have a strong rule here to convince them that it will be something with benefits. Second, once they decide, they have to choose the right partner. And then we get into technology aspect.
Alan Klee: installations, facilities, and how it's spread around large regions such as Brazil, Mexico, and other countries.
Alan Klee: So this takes a lot of time. It includes validation. It includes pilots. And third is how the contract looks like. Then there is a negotiation that takes time. Usually, customers want to pay less.
Suppliers want to get more.
Alan Klee: They're the KPIs, etc. So when you take these three aspects...
Alan Klee: It's taking a long time. And the last one, which is another thing that we should create confidence, when a company such as Nissan has to attach their brand.
Alan Klee: with a brand of a supplier like it to run, because everybody know in Mexico for example that we are the supplier and every driver that drive a Nissan car.
And here's a problem.
Alan Klee: It's a Nissan problem. So they have to know that they attach their brand to a brand which they can trust.
Alan Klee: that it will not downgrade their own brand, as this is one of the most important things that we are very, very, I think, happy with.
I hope I answered it. Thank you.
Speaker Change: Yeah, that was great. Could you talk about some of the bigger countries that you're in? What is it about the environment there that?
Speaker Change: makes it attractive for your product. And there are other countries that you're, that you see as big opportunities that you also see the setup positive.
Ah
Speaker Change: The basic for us is that we have a lot of experience and we have a lot of, let's say, a large operation and our brand is strong in almost most of the countries in Latin America. This is something very important.
Speaker Change: Then, the need in those countries is stronger, the security, people have more security problems.
Speaker Change: They need more, I would say, someone or a solution that will provide them more confidence.
Speaker Change: and this is the main reason, this is, I would say, the main driver.
Speaker Change: Then, each country has a different mentality. In Brazil, for example, most of the people cannot afford themselves full insurance, as an example. So, we found a solution, like you know, the ICS.
Speaker Change: which is kind of a e-to-run with insurance and in that case we are selling something very unique which is only only a CalThefts insurance
Speaker Change: monthly payment and this something that allowed a large segment that do not insure his car and on the other hand it attach other insurance companies to do it with us and not create cannibalism for their main business
Speaker Change: And also when you talk about if we go to other segment again Which is the car manufacturers or car dealers they want to offer and to show their customer that they take care
Speaker Change: for their security, they care for their car even after they took it out from the dealer. So this is the reason why Latin America, or I would say more globally, emerging markets are a fertile ground for e-to-run businesses.
Eyal Sheratzky,
Speaker Change: Thank you. My last question is, you look at, you're involved in usage-based insurance. And can you talk about how, what you do and where you see the opportunity there?
Ehud Helft
Speaker Change: It comes from a basic idea that as much as a driver drives more mileage, or
His driving skills are better and more secure.
Speaker Change: So insurance companies will have less expenses because they will have less accidents and they will have less payment of claims. So, on the other hand, insurance companies can get something which they can customize the premium.
So, when you attach this to, I think, to...
Speaker Change: components is something that we thought going to be very interesting for insurance companies.
Speaker Change: It takes also time, it's a longer sell cycle because we know that insurance companies is something very traditional.
very large, very large corporates.
Speaker Change: So it takes time to change from the traditional methods to something which is more customized, dependent on technology. I am happy that in Israel we succeeded to do it about two, two and a half years ago by convincing the first insurance company that
adopt our solution.
Speaker Change: Since then, I would say that a major portion of the insurance industry and the insurance companies in Israel decide to join this train.
Speaker Change: adapt our technology and in terms of technology we have two types of offer one offer include using our hardware and service
that our hardware for this
Speaker Change: solution has a module that provides the data that allows to evaluate the risk of the driver online and then create the right billing methods for his risk.
and the second is without the hardware, using the phone
Speaker Change: iPhone or the Android application that we attach to our software and also with some partners that we
integrated in order
Speaker Change: To do it without hardware in the car, in terms of our own, I would say, profitability, it's very equal, the prices are different, it depends what is the contract and the program that each insurance company did with us.
Still.
Speaker Change: Look at that. It's something that will take more time because we have to convince them and it's also in Israel took us a few years
Speaker Change: That's great. I actually did have one other question I just thought of. For your announcement with Santan Beer.
Speaker Change: Could you just explain what you think the size of that opportunity could be?
Speaker Change: The announcement we sent on there was, I think, almost two years ago. This is when we started the contract. By the way, also after almost a year of pilot.
and we are talking about hundreds of thousands of subscribers
Speaker Change: that derive from their needs to secure their collateral when they provide loans to car buyers.
This is something that we...
Aim to expand.
On an annual basis, it's provided us...
Speaker Change: tens thousands of subscribers but we have to to be aware that those subscribers are for uh 18 or 24 months and when they finish their loan or their risk to pay the loan going or decreasing uh then of course uh Santander release them from the uh service with it run so it's kind of a cycle.
Speaker Change: So in the end it will be hundreds of thousands of subscribers, the net should be around 100,000 or 150,000 on average every year.
Speaker Change: Only in Brazil, by the way, only in Brazil, I hope, and we are doing our efforts to extend it to other Santander regions in Latin America.
Eyal Sheratzky,
Speaker Change: The next question is from Chris Reimer from Barclays. Please go ahead.
Eyal Sheratzky,
Ah, no.
Speaker Change: Most of our, first of all, we have a diversified business, diversified between segments, very diversified between geographies, so even if there is something which is not material in one area, which I cannot appoint specifically, but I'm saying it in general, still it will be edged by others, there is no synchronicity.
as a group.
Speaker Change: Got it. Yeah, and just touching on the motorcycle insurance product, can you give any color as to how that's trending? What's the initial reaction been like?
Uh...
It started then a
Speaker Change: Motorcycle insurance is a very risky segment for insurance because there is a lot of car theft. It's easy to steal a motorcycle more than steal a car. But we succeed to develop a solution which provides more security to those motorcycles.
Speaker Change: and even here we have two different, I would say, drivers. In Israel, for example, people that buy motorcycles, they do not insure.
Speaker Change: So they use our solution to reduce their risk as motorcycle owners.
Speaker Change: because we have high rate of recovery a motorcycle based on the technology and using AI with it to run a back office software and in Brazil
Speaker Change: Since the motorcycle market is very very large compared to the total vehicle market and insurance companies
Speaker Change: needs and want to insure motorcycles but the risk was very high so we succeeded to reduce it and we came out with this proposal about a year ago and we see more and more attraction which ramping up our customer base.
that get also motorcycle drivers and motorcycle insurers.
Great, thanks. That's it for me.
Speaker Change: The next question is from Josh Strauss from Peckin Hardy. Please go ahead.
Josh Strauss: Yeah, I had a couple of questions. First, I'd like to talk about the core market of Israel.
Josh Strauss: and in the face of, you know, pretty rough economy in Israel right now, you know, GDP down, you know, double digits.
Josh Strauss: how you're able to keep the business as stable as it is. So, let's just start there.
Speaker Change: Ok, so first of all, you're right, the car importers went down.
Speaker Change: It's because of the situation, because of the dollar and the cost for cows here, etc.
Speaker Change: The thing that supports our growth in Israel, even at these tough times, is that...
Speaker Change: The calcifrate went dramatically high, and this is not something unique.
Speaker Change: We have to understand, in countries where there is no security problems or economic problems, usually the violence is...
Speaker Change: growing, and when the violence is growing, it means that also cars have trade.
going. And this situation in Tehran
Speaker Change: I would say, you know, getting more attraction and the needs of solutions such as we provide become stronger. So just to explain.
This is the first year after almost a decade.
that we get
Speaker Change: Tens of thousands of cars that when they were bought a year or two years ago
Speaker Change: The insurance companies didn't ask for a security system now when they want to renew their insurance policy.
They send us to install...
Security System when 90% of them installed it to run.
Speaker Change: So, in one hand, we are losing brand new cars, but on the other hand, we get a more, let's call it kind of a second hand or old car.
Regards, the rest of the business.
Speaker Change: And of course, October, November, December 23, everything here was shut down. But we recovered and...
Speaker Change: except, you know, living not in a very quiet area, the things are moving and the commercial life almost become to a normal.
Speaker Change: Right, right. Well that's helpful. You know, certainly, you know, most of the population in the Tel Aviv-Jerusalem area, that's not particularly surprising, but it just...
Speaker Change: For us at the other side of the pond, it's hard to imagine such a stable business than Visible Business 4, but thanks for the call. Can we talk about Bring? Is there any updates here on what's going on with Bring?
Speaker Change: We understand that the last round that was done on the valuation of a billion dollars
Speaker Change: and the investment that led by Insight Partners of more than $100 million.
Speaker Change: There were different times in terms of financial market for start-ups.
So, of course, yeah
Speaker Change: It's not a thing that we can do now, for example, to liquid our holdings, whether it's by IPO or by M&A or by sell it in the market. So we prefer to be wise and be wait. Of course, we are.
Speaker Change: In part of the board members, we know what's going on and we're really Optimistic regard being in a good position in the future to do it
Speaker Change: I just remind, I just want to remind you that bring...
Speaker Change: value in our balance sheet is zero, so I believe that in the future it will contribute or will be a bonus of profits.
Speaker Change: Right, right, right. No, no, I remember all too well. And the market value is at zero, too, and they shouldn't. I agree. One more question.
Speaker Change: So, I was looking at your cash flow statement, and you've got almost a $4 billion gap in terms of increasing in other current and non-current assets.
Speaker Change: And I just, year over year, and I wanted to know what was, what's going on there. What does that mean?
Thank you.
Which item you are talking about?
In your cash flow statement, year over year, on the
Speaker Change: It's not much of a difference from a nine-month standpoint, but in a three-month standpoint, there's a $4 million difference in terms of increase in other current and non-current assets.
Speaker Change: This year you had an increase of $957,000. Last year was a decrease of $2.9 million.
I'm trying to find it so I can help you.
It's a very casual theme.
Speaker Change: Let me check and we can get back to you on that because there is nothing specific. There's probably it's working capital that there is a volatility between quarters or between periods. There is nothing specific you know that on this item that can change but again we can check it and get back to you.
Speaker Change: I mean, yeah, I'm very curious on whether or not it's...
Speaker Change: Um, the, uh, you know, uh, revenues on the balance sheet haven't not yet hit the income statement or something like that. So, yeah, please just shoot me a note or give me a call and let me know what the story is there. Okay. Um, but, uh, that's it for now. Great quarter, guys. Keep going. I'm looking forward to see this stock going up to 40.
Speaker Change: If there are any additional questions, please press star 1. If you wish to cancel your request, please press star 2. Please stand by while we pull for more questions.
Eyal Sheratzky, Eli Kamer, Kenny Green, Ehud Helft
Eyal Sheratzky,
Speaker Change: There are no further questions at this time. Before I ask Mr. Sheratzky to go ahead with his closing statement, I would like to remind participants that a replay of this call will be available tomorrow on EITURON's website, www.eituron.co.il. Mr. Sheratzky, would you like to make your concluding statement?
Thank you. Thank you.
Mr. Sheratzky: On behalf of the management of Ituran, I would like to thank you, our shareholders, for your continued interest and long-term support of our business.
In the coming months, we will be meeting with investors.
Mr. Sheratzky: and presenting at LD Micro and EDAM and we hope to see you soon there.
Mr. Sheratzky: If you are interested in meeting or speaking with us, feel free to reach out to our investor relations team. And with that, we end our call and have a good day.