Ituran Location and Control Ltd (ITRN) 2012 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Ituran fourth quarter 2012 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. (Operator instructions) As a reminder, this conference is being recorded, February 19th, [2003] (sic).

You should have all received by now the Company's press release. If you have not received it, please call CCG Investor Relations at 1-646-201-9246.

I would now like to hand the call over to Mr. Kenny Green of CCG 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 fourth quarter and full year 2012 results. I'd like to thank Ituran's management for hosting this call.

With me today on the call are Mr. Eyal Sheratzky, Co-CEO, Mr. Eli Kamer, CFO, and Mr. Udi Mizrahi,VP of Finance. 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.

I would like to remind everyone that the Safe Harbor in the press release issued 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, and thank you for joining us today.

Overall, we are pleased with the results of the fourth quarter and 2012 overall. While the foreign currency had a negative effect on our revenues throughout the year, as well as in the fourth quarter, we are still pleased with the general trends of subscriber growth and subscriber revenue growth in local currency terms, which is clear in our results.

On a local currency basis, in the fourth quarter, our subscriber revenues grow nicely compared with the last year, by 8.5%, to $29.1 million. This was down to the growth in our subscriber base, growing by 44,000 since the end of last year, and in the past two quarters, 28,000, which is back to the -- our long-term average, and a level we are content with. These improvements are as a result of the fruits of our efforts, and changes we implemented this year and earlier this year, which as you can see, have been a success.

Product revenues also grow to $9.1 million, up from those of fourth quarter last year and the prior quarter. Our total revenues for the fourth quarter were $38.2 million, again, an improvement over last year and last quarter. We generated a strong operating cash flow in the quarter of $9 million. In 2012, we generated $32.5 million in cash.

In 2012, we shared a large portion of our $24.9 million in profits, issuing a total of $17.2 million in dividends to shareholders for the year.

I'd like to provide you an update with results to our performance in our two main regions, Brazil and Israel. In Brazil, our business is continuing to grow strongly, and Brazil is the main contributor to our subscriber growth.

Brazil in the world's fourth largest market for new car sales, up three places from last year. According to recent data from Brazil's National Association of Motor Vehicle Manufacturers, 3.8 million cars were sold in 2012, up 4.6% over 2011.

In Brazil, we believe that we are at the point where there is already strong market awareness of our brand. We continue to increase our sales direct to the private sector in Brazil, which is enabling us to increase our ARPU and grow our margins in the region over the long term.

Overall, our relationships with the insurance companies and the car companies continue to expand, and we are increasingly [commenting] ourselves as market leaders in the region.

In Israel, our business remains stable. We grow our subscriber base in the quarter, and business remains robust and cash generating.

In summary, our business performance remains on solid footing with stability and cash generation in Israel, with Brazil growing increasingly strongly. We have much to look forward to [in 2012].

I will now -- [on 2013]. I will now hand the call over to Eli for the financial revenue. Eli?

Thanks, Eyal. Revenues for the fourth quarter 2012 were $38.2 million, representing a 3.4% increase compared with revenues of $37 million in the fourth quarter of 2012. Revenue breakdown for the quarter was $29.1 million coming from subscription fees, a 2.4% year on year increase. Product revenues were $9.1 million, which were a 6.6% increase over the same quarter last year.

The geographic breakdown of revenues in the fourth quarter was as follows. Israel 48%, Brazil 40%, Argentina 9%, and USA 3%.

Gross margin in the quarter was 49.3%, compared with a gross margin of 50.5% in the fourth quarter of last year. Operating profit for the fourth quarter of 2012 was $8 million, or 21% of revenues compared with an operating loss of $300,000 in the fourth quarter of 2012.

It is important to note that in the fourth quarter 2012, the Company booked $7.3 million in legal expenses related to ICMS in Brazil. This is a provision for legal fees based on a success fee arrangement with our lawyers in Brazil. This is based on the estimates of the high probability of our success in the tax case in Sao Paulo. Excluding this, this operating income in 2012 would have been $7 million.

EBITDA for the quarter was $12.2 million, or 31.8% of revenues, compared to an EBITDA of $3.7 million, or 9.9% of revenues in the fourth quarter of last year.

Financial expense for the fourth quarter of 2012 was $28,000, compared with a financial income of $671,000 in the fourth quarter of 2012 -- 2011, sorry.

Net profit was $4.4 million, 11.5% of revenues, or fully diluted EPS of $0.21 in the fourth quarter of 2012, compared with an income of $1.6 million, 4.3% of revenue, or EPS of $0.08 in the fourth quarter of 2011.

Cash flow generated from operations during this quarter was $9 million. In terms of full year 2012 number, revenue for 2012 reached $150.3 million. This has decreased 6.1% over revenues of $160.2 million in 2011. On a local currency basis, and excluding the one-time sale of the large Mapa license last year, revenues grew by 6% year over year.

Revenue breakdown for the year was $114.6 million, coming from subscription fees, a 4.9% decrease year over year. Product revenues were $35.8 million, or a 10.1% decrease year over year.

Gross margin in the year was at 49.3%, compared with 49.6% in 2011. Operating profit for 2012 was $29.9 million, or 19.9% of revenues, compared with an operating profit of $26.6 million, or 16.6% of revenues in 2011.

EBITDA for the year improved to $44.6 million, or 29.7% of revenues, compared to an EBITDA of $43.6 million, or 27.2% of revenue in 2011. Net income in 2012 was $24.9 million, or 16.6% of revenues, representing diluted earnings per share of $1.19. This represents an increase, 16.9% in 2012, compared with $21.3 million, or 13.3% of revenues, or fully diluted earnings per share of $1.01 in 2011.

Cash flow from operations for 2012 was $32.5 million. As of December 31, 2012, the Company had net cash, including multiple securities and deposits for short and long-term of $34.2 million, or $1.63 per share. This is compared with $39.7 million, or $1.89 per share as of December 31, 2011.

The Board of Directors announced a dividend for the quarter amounting to $7 million. This amounts to $17.2 million for the full year, or $0.82 per share, which is 69% of the net profit for 2012. Based on an average share price during 2012 of $11.94, this represents a dividend yield of 7% for 2012. The dividend's record date is March 21, 2013, and the dividends will be paid on April 4, 2013, net of taxes and levies at the rate of 25%.

And with that, I'd like to hand you back over to Eyal.

Thank you, Eli. Looking ahead, we see continued potential growth, especially in Brazil, and our business performance remains on solid footing. We remain very well positioned as the leader in our main two markets, in Israel and in Brazil. We are a stable, profitable and cash generating company, and we expect this to remain through for the coming quarters and years, whatever changes the global economy may bring.

And with that, I would now be happy to take your questions. Operator?

Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. (Operator instructions) The first question is from Kfir Yagour of Ion. Please go ahead.

Good morning. Maybe you can give us some color on the low gross margin on the location based services side of the business, and maybe a comment about the high CapEx in the quarter. Thank you.

Can you repeat it, please? On the growth margin, with --

I think the gross margin for the location based services was 65%, which is quite low. If my calculation is right, it's 700 basis points below Q3.

Basically, it's --

60%.

60% of gross margin --

Same as last year.

The same as last year.

Excellent. My mistake, okay. And about the CapEx?

And again, if you can repeat the CapEx question?

It was quite higher, in towards [$4.-something] million, which is the -- wait, if I can find it -- the CapEx was $4.854 million, I think.

You are right. Actually, in Q4, we -- (inaudible) some better purchasing of inventory from our suppliers, which will remain and will support our growth in 2013. Probably, it will be reduced, because of this, at the beginning of the year on and next quarters. It's only a matter of timing, because it's allow us to get better prices.

I see. Just about the gross margin, if I look at the revenue of the location based services, it was $29.1 million in the fourth quarter, and the cost of goods sold was $13.07 million. So, the gross margin, the gross profit, was $9.1 million.

I don't know, it's -- I don't know what you see. It's 11 --

Yes, I see what you mean. I think there was a -- I think there was a mistake on the reported [tariff]. There was a shifting between the location based services and the wireless communication products.

So actually, let me tell you the right amount, the right number. The gross profit is the same. The gross profit is the same. Just the location based services, instead of the $13.1 million, it's actually $11.650 million. And wireless communication products, instead of the $6.3 million, it's $7.739 million. Okay? That was the -- this is the case.

Great. Okay. Thank you, guys. Bye, (inaudible).

(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?

Thank you. On behalf of the management of Ituran, I would like to thank you for your continued interest and long-term support of our business. And I do look forward to speaking with you and updating you again next quarter. Have a good day.

Thank you. This concludes the Ituran fourth quarter 2012 results conference call. Thank you for your participation. You may go ahead and disconnect.