Ituran Location and Control Ltd (ITRN) 2023 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Ituran third quarter 2023 results conference call. All participants are at present in listen-only mode. (Operator Instructions) 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 one two three seven eight eight zero four zero, or view it in the News section of the company's website, www.ituran.co.il. I will now hand over the call to Mr. Kenny Green of EK Global Investor Relations. Mr. Green, would you like to begin?

Thank you. Good day to all of you and welcome to Ituran's conference call to discuss the third quarter 2023 results. I would like to thank Ituran's management for hosting this conference call. With me today on the line are Mr. Eyal Sheratzky, CEO; Mr. Udi Mizrahi, Deputy CEO and VP Finance; and Mr. Eli Kamer, CFO of Ituran 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'd like to remind everyone the Safe Harbor statement in the press release we issued earlier today also covers the contents 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 2023 call, and I would like to thank you for joining us today. We are pleased with our results of the third quarter. Ituran business remained strong and in solid growth phase. Our subscriber base continue to show strong growth, adding 45,000 aftermarket subscribers, as well as 3,000 OEM subscribers net, which is well ahead of our long-term rate we had in 2021 and earlier of between 20,000 to 25,000 per quarter.

The ongoing growth in our subscriber base continues to benefit our financial results in Q3. Subscription revenues grow at 12% year-over-year. For the past few quarters, our subscription fees have been constantly at new record levels and our profits measured in either net income or EBITDA have been at multiyear highs. As you can imagine, we are pleased with our results and the progress we have made in 2023.

As we discuss our quarterly results, I would like to discuss the recent war in Israel. First and foremost, our thoughts are with those affected by these events. As I said a few weeks ago, Israel is a small country. Such that everyone knows a family that has either had a son, daughter, parent or grandparent murdered or kidnapped by Hamas. We pray for the victims as well as their families, friends, and loved ones. I stress that we are resilient people and unfortunately have much experience in working and overcoming challenging times.

Ituran is a globally diverse business with operations primarily in Israel and Brazil, but also in many other countries in Latin America as well as elsewhere in the world. And therefore, any impact in one specific region will have a limited effect on Ituran's overall business. Any impact is obviously localized to Israel only currently. In Q4, we would expect the overall subscriber growth rate to slow somewhat to between 30,000, 35,000.

This will be due to the longer period of lower car sales in Israel in October initially due to the holiday season, which seasonally recurs every year, and following that and an extend further to the breakout of fall. There will also be some additional expenses related to mitigating some of the negative effect of the war and in supporting our communities that have been affected. Overall, we expect that the impact from the war on our performance for the year will not be significant at all.

Naturally, the safety and well-being of our employees remains our highest priority. We continue to closely monitor the situation and we have in place measures to ensure the safety of our employees while maintaining global business continuity. I am very proud of the courage and commitment of the Ituran team, both in Israel and globally and wish to personally thank them for their resilience and dedication during these times.

Given our ongoing cash generation and our strongly increasing net cash level starting from the current quarter, we have decided to revert to a formal dividend policy and increase our dividend from $3 million per quarter to $5 million per quarter. We are very pleased to share the fruit of our ongoing profitable growth and is a reward to our loyal shareholders for their long-term support of our company.

In summary, 2023 continues to be a solid year of performance for Ituran in all respects. Solid performance in our traditional aftermarket business as well as stability in the OEM business. And especially the growth engines we have seeded in the past year are all driving our strong subscriber growth and record revenue. While the war in Israel will have some marginal impact on Ituran, our growing 2.2 million plus subscriber base globally paying us continuously on an ongoing monthly basis for our ongoing services provided us with significant resilience even in more challenging environments.

As has been true throughout our long history and will continue ahead, our constantly growing subscriber growth will continue to translate into increased revenues with faster growing profitability over the long-term due to the operating leverage inherent to our business. For the foreseeable future, we anticipate the overall growth trend that have characterized Ituran over many years will continue.

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. Revenue for the first third quarter of 2023 were $81.1 million, a 12% increase compared with revenue of $72.7 million last year. In local currency, the year-over-year growth was 13%.

Third quarter revenue from subscription fees were $60.2 million, an increase of 13% over the third quarter 2022 revenue. In local currency, the year-over-year growth was 14%. The subscriber base amounted to 2,210,000 as of September 30, 2023. This represents an increase of 48,000 net over that of the end of the (technical difficulty) quarter and an increase of 190,000 year over year.

During the quarter there was an increase of 45,000 in the aftermarket subscriber base and an increase of 3,000 in the OEM subscriber base. First quarter product revenue were $20.9 million, an increase of 7% compared with that of the third quarter of 2022.

The geographic breakdown of revenues in the third quarter was as follows. Israel, 47%; Brazil, 28%; rest of world 25%. EBITDA for the quarter was $22.5 million or 27.8% of revenues, an increase of 15% compared with an EBITDA of $19.6 million or 27% of revenues in the third quarter of last year. In local currency, the year-over-year growth was 14%. Net income for the third quarter was $12.5 million or 15.4% of revenue, or diluted earnings per share of $0.63, an increase of 24% compared to $10.1 million or 13.9% of revenues, or diluted earnings per share of $0.49 in the third quarter of last year.

In local currencies, the year over year growth was the same at 24%. Cash flow from operation for the third quarter of 2023 was $20.5 million. On the balance sheet, as of September [30], 2023, the company had cash, including marketable securities of $40 million and a debt of $2 million amounting to a net cash of $38 million. This is compared with cash, including marketable securities of $28.2 million and a debt of $12.2 million amounting to a net cash of $16 million as of December 31, 2022.

The Board of Directors declared that starting from the third quarter of 2023, the company will return to its former dividend policy which had been in place of continue until the fourth quarter of (technical difficulty) 2019. The former dividend policy and dividend policy going forward from the current quarter will be for the issuance of $5 million dividend per quarter.

This represents a 67% increase from the more recent policy of $3 million dividend per quarter. In the third quarter, under the buyback program, it was purchased 73,000 shares for a total of $1.9 million. Share repurchases were funded by available cash and repurchases of its run ordinary share were made based on SEC Rule 10B-18.

And with that, I'd like to open the call for the question and answer session. Operator?

(Operator Instructions) Chris Reimer, Barclays.

Hi. Thanks for taking my questions. And congratulations on the strong results. I wanted to ask about Israel given your exposure, both in terms of revenues and employee base. You noted the weakness in subscribers for the next quarter. But I was wondering if you could discuss a little further the impact and if it might impact margins, et cetera, just how things are playing out.

Hi. As I said, as we're expecting it and what we see on the daily work is that it will not be significant, as I said. But we have to consider the situation in the car showrooms and the first months of this quarter, which was October. And in October, we had to, I would say, influences on the Israeli car sales market. One was the holidays, which is something which is happen almost every year between September or October, which the -- it's a holiday and most of the showrooms are closed.

And to this situation that we -- was started in October 7, which lead to about two weeks of shutdown of all the Israeli, I would say, economic war. Today, we see again that everything is ramping up again. Things are start to -- come to a normal -- let's say, in normal business days, but it's something that -- it's still not in 100%. And in order to be conservative, that's why we are expecting this -- let's say, this a slowdown for Q4.

But when we look the graph now, we absolutely expecting that it will be one quarter influence, maybe one more month because we see that, as I said, the Israeli people and the Israeli economy is now start to coming back. So it will not be significant. Add to do some expenses, as I said, that in Israel, we have people went to reserve. So we have to support the families, et cetera, which is a one-time expenses. Again, it's not material, but I felt duty to mention it.

Got it. Got it. Thanks. And then just about some of the market dynamics. Can you give any color in Brazil, on how things are looking there? And especially what kind of traction you're seeing with the deal with Santander?

Brazil is on the same -- I would say, the same situation and trends and we faced it during the last almost two years, which is a very strong demand. First of all, from the stolen vehicle recovery needs, which is our, I would say, bread and butter of our business. Second, the B2B businesses, which we started with Santander, as we -- of course, as we reported. This business is a typical B2B based on a contract, based on our numbers.

We have to consider a few things which -- since we started it as a pilot and then the contract were signed, but we -- almost after 12 months working with Santander in different phases of this contract, we have to understand that in a few months, we start seeing also churn. So this will turn from our new contract to a very, I would say, material cash [cow] contract. But with this, we go to -- or we will do our best to expand it to our other banks or other segments.

And I would say now, with now any commitment of course, that this deal makes a lot of attraction in the Brazilian market for solutions, not only for banks, for banks, for rental companies, et cetera, for our solutions. And we have today a [series] of discussions with other players also from the OEM market.

And I hope that during 2024, we will be in a position to have a maybe new contract, may be a new deal, which will -- again, which will allow us to grow through the next years. So to make this long story short, Brazil is in a very good situation, very good trend, and we have to take care for our future growth as well.

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

(Operator Instructions) 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 website, www.ituran.co.il. Mr. Sheratzky, would you like to make your concluding statement?

On behalf of the management of Ituran, I would like to thank you, our shareholders, for your continued interest and long-term support for 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, 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 the Ituran third quarter 2023 results conference call. Thank you for your participation. You may go ahead and disconnect.