Ituran Location and Control - Q1 2024

Transcript

Operator (participant)

Ladies and gentlemen, thank you for standing by. Welcome to Ituran's first quarter 2024 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. As a reminder, this conference is being recorded. You should have all received by now the company's press release. If you have not received it, please contact Ituran's Investor Relations team at EK Global Investor Relations at 1-212-378-8040, or view it in the news section of the company's website at www.ituran.co.il. I would now hand over the call to Mr. Kenny Green of EK Global Investor Relations. Mr. Green, would you like to begin?

Kenny Green (Co-Founder, and Director)

Thank you, operator sir. Good day to all of you, and welcome to Ituran's conference call to discuss the first quarter 2024 results. I would like to thank Ituran's management for hosting this conference call. With me on the line today are Mr. Eyal Sheratzky, CEO, Mr. Udi Mizrahi, Deputy CEO and VP Finance, and Mr. Eli Kamer, CFO of Ituran. Eyal will begin with a summary of the quarter's results, followed by Eli with a summary of the financials. We'll then open the call for the question and answer session. I would like to remind everyone that the safe harbor statements in today's press release also covers the contents of this conference call. And now, Eyal, please, please begin.

Eyal Sheratzky (CEO)

Thank you, Kenny. I'd like to welcome all of you to our first quarter 2024 call, and I would like to thank you for joining us today. We are pleased with our results, especially in the ongoing growth in revenues and continued improvement in profits, as well as the additional net subscribers we brought in the quarter, which came in at the high end of our expectations. As our strong financial results demonstrate, our business remains in good shape and continue to be resilient against challenges. I also want to highlight that part of our resilience is due to Ituran being a globally diverse business with a loyal subscriber base of 2.3 million customers in Israel, Brazil, and other countries in Latin America and around the world.

Our subscriber base added 39,000 subscribers in the quarter at the high end of our expectation of between 35,000 and 40,000 net new subscribers per quarter. This is well in advance of the long-term rate we had in prior years, which was typically between 20,000 per quarter and 25,000 per quarter, and has come about due to our more diverse global footprint, as well as the new service we continue to bring to our end markets. I would like to highlight what is happening in the Israeli market. In recent quarters, we've seen steady rise in theft rate, which has somewhat intensified in the last quarter. As a result, insurance companies are pushing their customers to install an SVR unit and connect to the theft prevention service, even in vehicles that are not new or have a lower initial value than in the past.

The outcome of this is that SVR penetration has gone up and our TAM has grown, and we, as the clear market leader, are enjoying an accelerated growth of subscribers in Israel. Given the strong net cash position of $53.9 million, our ongoing growth and our solid profitability, we are pleased to again declare a quarterly dividend of $8 million, in line with the dividend policy we updated just last quarter. We are very pleased to share the fruits of our success, and we see our ongoing dividends, a reward to our loyal shareholders for their long-term support of our company. Given the stability of our business, last quarter, we began to provide EBITDA guidance in addition to the guidance on subscriber.

Eli Kamer (CFO)

...$8 million or 26.2% of revenues in the first quarter of last year. Net income for the first quarter was $13 million, or diluted earnings per share of $0.66, at an increase of 15% compared to $11.4 million, or diluted earnings per share of $0.56 in the first quarter of last year. Cash flow from operation for the first quarter of 2024 was $11.4 million. As of March thirty-first, 2024, the company had cash, including marketable securities, of $54.2 million and debt of $0.3 million, amounting to a net cash position of $53.9 million.

This is compared with cash, including marketable securities, of $53.6 million and debt of $0.6 million, amounting to a net cash position of $53 million as of year-end 2023. The board of directors declared a dividend for the quarter of $8 million, in line with the company's recently updated dividend policy, which was increased by 60% in the previous quarter. The current dividend takes into account the company's continuing strong profitability, ongoing positive cash flow, and strong balance sheet. And with that, I'd like to open the call for the question and answer session. Operator?

Operator (participant)

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're using speaker equipment, kindly lift the handset before pressing the numbers. Your questions will be followed in the order that they are received. Please stand by while we call for your questions. The first question is from Chris Reimer of Barclays. Please go ahead.

Christopher Reimer (Equity Research Analyst)

Yeah, hi. Thanks for taking my questions, and congratulations on the strong results. I wanted to ask if you could comment about the product mix, specifically as it pertains to the gross margin, and any comment on moving parts around that would be helpful.

Eyal Sheratzky (CEO)

Hi. So, basically, during the first quarter of 2024, our sales, which derived from the Israeli market, was much higher than the average since we had to compensate Q4 when the war here started, and there was almost a shutdown of two months, which were October and November. So I think that it's not a typical quarter in terms of the ratio between the sales and the services. This is basically the major difference. It's not represent forward the-- this sales amount.

Christopher Reimer (Equity Research Analyst)

Got it. And more specifically, also around Israel, can you comment on any of the trends you're seeing versus last quarter? And if maybe you're seeing some traction that's outperforming your, your expectations?

Eyal Sheratzky (CEO)

Yes. So the situation in Israel, and it didn't start because of the war, so it's kind of a trend that started soon after the COVID, and it's ramped up in the last two years. And today, we are facing a material, I would say, growth in car theft rate. When car theft rate is high, it means that the insurance companies are increasing the insurance premiums, and they're also much more needs security solutions for the car to prevent these car thefts. And in that case, when we are the dominant player in Israel by providing this solution, we see a high attraction, high request. And as I said in my speech...

We are even facing something that we never faced in the 30 years since the inception of the company, is that even car models which are, let's call it, second-hand, that when they was bought as a brand-new car 3 and 5 years ago, and they didn't install security and SVR solution, today, when they come to renew their insurance policy, they are required to put location and SVR solutions. And it's mean that, as you mentioned, we are see growth in Israel, which is more than we expected for this year. Yes.

Christopher Reimer (Equity Research Analyst)

More. That's great, thanks. That's it for me.

Operator (participant)

Ladies and gentlemen, if there are any additional questions, please press star one. If you wish to cancel your request, please press star two. Please stand by while we poll for more questions. The next question is from Boris Schneider of More Investment House. Please go ahead.

Boris Schneider (Head of Global Research and Fund Manager)

Yes, hi. Just a question on your 20-F on the growth in Brazil, which is actually even higher than the growth in Israel. So if you could speak on what's driving that, and how do you see this going forward?

Eyal Sheratzky (CEO)

Just to be clear, the 20-F is actually representing the year 2023. I can, of course, give information regarding 2023. And as you remember, during the end of 2022, we signed a contract with Santander Bank regarding providing a solution for finance that they provide for car buyers. And this support our growth in Brazil in 2023. It's continued, by the way, because it's under the contract also in 2024, but we have to take into consideration that there is always, after 18 months, this is the contract's churn. So the growth from Santander, by definition, will decrease.

Although we are selling the same quantities, but the growth is not the same as when the contract started, because always at the beginning, there is no churn. After 18 months, the churn has come. I'm not expecting that 2024 in Brazil will be the same growth as it was in 2023. But on the other segments, we are not seeing any dramatic changes, meaning we continue to sell our retail solution. There is always some volatility between months, and the expectations are to keep the same numbers. And looking forward, we are doing a lot of, I would say, work in order to penetrate new segment and expand the financial customers.

For talking for mid and longer term, I am expecting that we will continue to show growth in Brazil as well.

Boris Schneider (Head of Global Research and Fund Manager)

Okay. And previously you mentioned also in your last several calls, I think you mentioned on the insurance of the motorcycles, which is a vertical that you didn't penetrate in Brazil. Is there any update on this?

Eyal Sheratzky (CEO)

Yes, of course. There is no update. We just started to sell solutions for motorcycles. It's something quite new, so it's still not has a dramatic influence on our subscriber base in Brazil, but we see again that it's ramping up. And I believe that, as always, when you issue a new solution for a new segment, it's... And when we are talking about subscribers, and when the company has 2.3 million, so it's taking time until it's something that it's become more material. So I believe that during 2025, 2026, the motorcycle segment will support the additional growth that we expect.

Boris Schneider (Head of Global Research and Fund Manager)

Okay. Last, final question, in terms of the gross margin for your products, it was low, even lower than during the crisis of the supply chain. How should we think about in the future quarters?

Eli Kamer (CFO)

Yeah, it was a little bit low, like 4% less, but you need to remember that usually there is a mixture of products that we are selling all over the country. So basically, this is the range, more or less, of, let's say, gross margin of 20%, a little bit up or down, but that, that's the range.

Boris Schneider (Head of Global Research and Fund Manager)

Thanks.

Operator (participant)

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 Ituran's IR website at www.ituran.co.il. Mr. Sheratzky, would you like to make your closing statement?

Eyal Sheratzky (CEO)

Yes. 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. We hope to speak with some of you over the coming quarters. 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. Thank you and have a good day.

Operator (participant)

Thank you. This concludes Ituran's first quarter of 2024 results conference call. Thank you for your participation. You may now go ahead and disconnect.