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spk01: Ladies and gentlemen, thank you for standing by. Welcome to the Ituron second quarter 2021 results conference call. All participants are present in a 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 Eturan's Investor Relations Team at GK Investor and Public Relations at 1-646-688-3559 or view it in the news section of the company's website, www.eturan.co.il. I will now hand over the call to Mr. Ehud Helft of GK Investor Relations. Mr. Helft, would you like to begin?
spk03: Thank you, Operator. Good day to all of you and welcome to E2RUN's conference call to discuss the second quarter of 2021 results. I would like to thank E2RUN's management for hosting this conference call. With me today on the call are Mr. Eyal Sharatsky, the CEO, Mr. Udi Mizrahi, Deputy CEO and VP Finance, and Mr. Eli Kamar, CFO of E2RUN. Eyal will begin with a summary of the quarter results, followed by Eli with a summary of the financials. We will then open the call for the question and answer session. I'd like to remind everyone that the safe harbor and the press release also cover the content of this conference call. And now, Eyal, would you like to begin, please? Thank you, Eyal.
spk02: I'd like to welcome all of you and thank you for joining us today. We are very pleased with the results of the second quarter, which outperformed our expectations. Our results demonstrate that it will continue its recovery with both sequential as well as year-over-year revenue and EBITDA growths. This is despite continued impact from the pandemic, which still affects much of the world, especially in the countries in which we operate. We grow our subscriber base at the highest rate we have seen for many quarters with 24,000 net ads. While the OEM segment is now showing stabilization with 1,000 net ads, the strengths continue to be driven by the aftermarket segment with 23,000 net ads. This is a rate which is nicely ahead of our typical range of between $15,000 and $20,000. We are very happy with this solid increase and its promising scene for continued growth in the subscription revenues over the quarter ahead. Our business in Israel continues to contribute strongly to subscriber growth. Driven by the strong new car sales in the country, which has substantially recovered over, with 45% year-over-year new registration in the first half versus that of last year. In addition, our growth in Israel has also been driven by our usage-based insurance, or UBI, sales. It is worth mentioning that the aftermarket subscriber base in Brazil has stabilized, even though the situation with the pandemic still remains tougher. As the global recovery moves to a more solid footing with the associated recovery in global car sales, we are well positioned across all our geographies to capitalize on the ongoing recovery and renewed growth. However, I want to stress that the pandemic is still very much with us throughout the world and there continues to be uncertainty, including shortages of electronic components, which as of now has not had a significant impact on us. We continue to operate carefully and conservatively facing the challenges as they rise. From the profitability standpoint, for the quarter reported EBITDA of $18.2 million. This is our highest level in two years and again a strong testament to the overall resilience and stability of our business model. The operating leverage inherent in our business model, which enable us to add new subscribers on a mostly fixed operating base, will allow us to see a larger portion of future expected top line revenue growth drop down to the bottom line. This will improve our profitability margins as we grow. Our continued profitability and ongoing cash generation enable us to share the reward of our success with our shareholders via regular dividends of at least $3 million. Given our growth potential ahead, as well as the existing value we need to run, we believe our own shares represent good value and is another tool which we can use to enhance shareholder value. Our board of directors therefore renewed our share buyback program from 2019, of which $19 million remains and which will commence in the coming days. Before moving over to Eli for the financial summary, I wanted to take a moment to discuss Bring, which now has significant value to it to run. But with value not reflected in any of our financial statements and all the potential value is future upside. Bring's company, we see that in 2014, and is still valued at close to zero on our balance sheet. The company continues to grow quickly and has become a tech leader in the last mile delivery and fulfillment space. Now, seven years later, in Bring's most recent capital raising round, the company was valued at $1 billion, and Ituran holds, post the offering, 7.2% of the company's shares, remaining the largest shareholder. Bring is a testament to Ituran's ability to correctly read market trends and invest into disruptive mobility technologies, and we believe this strategy will continue to bring strong value to Ituuan's shareholders over the coming years. In summary, as we move through 2021, Ituuan is regaining growing strength, and I am excited with our potential over the coming quarters and years. Furthermore, we remain focused on shareholders' value, and we are taking additional steps to bring value to shareholders. I look forward to commencing our buyback plan in the coming days. I will now hand the call over to Eli for a financial summary.
spk05: Eli? Thanks, Seyal. I know that the summary results I present will be on a gap basis. Revenues for the second quarter of 2021 were $67.5 million, an increase of 27% compared with revenue of $53.3 million in the second quarter of 2020. Revenues from subscription fees were $46.9 million, an increase of 7% over the second quarter of 2020 revenues. The subscriber base amounted to 1,812,000 as of June 30, 2021. an increase of 24,000 net over the debt of the end of the period quarter, which includes a net increase of 23,000 in the aftermarket subscriber base and a net increase of 1,000 in the OEM subscriber base. Product revenues were $20.5 million, an increase of 114%. compared with that of the second quarter of 2020. Product revenues in the second quarter of 2020 were impacted due to the COVID-related economic shutdown throughout the world. The geographic breakdown of revenues in the second quarter was as follows. Israel, 52%, Brazil, 21%, rest of the world, 27%. Operating income in the quarter was $13.8 million, 20.4% of revenues, compared with an operating loss of $4.9 million in the second quarter of last year. EBITDA for the quarter was $18.2 million, 26.9% of revenues, compared with an EBITDA loss of $0.3 million in the second quarter of last year. Financial expenses for the quarter was $1 million compared with a financial income of $1.5 million in the second quarter of last year, which last year mainly relate to the Save-a-One increase in value in its market capitalization. Net income for the second quarter of 2021 was $9.1 million dollars 13.5 percent of revenues or earning per share of 0.44 dollar compared with the net loss of 6.3 million or loss per share of 0.3 dollar per share cash flow from operation for the second quarter of 2021 was 19 million dollars As of June 30, 2021, the company had cash including marketable securities of $71.8 million and debt of $38.5 million amounting to a net cash of $33.3 million. This compared with cash including marketable securities of $78.8 million and debt of $54.5 million amounting a net cash of $24.3 million as of December 31, 2020. For the second quarter of 2021, a dividend of $3 million was declared. On August 4, 2021, ITRAN announced that its Board of Directors made the decision to continue executing the $19 million remaining under a 25 million share buyback program that was first announced in 2019. The buyback program will commence on August 25th, 2021. The share repurchases, if any, will be funded by a variable cash and repurchases of it around ordinary shares will be made based on SEC rule 10B-18. And with that, I'd like to open the call for a question and answer session. Operator?
spk01: Thank you. 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. Your questions will be pulled in the order they are received. Please stand by while we poll for your questions. The first question is from Tavi Rosner of Barclays. Please go ahead.
spk06: good afternoon and thank you for taking my questions um i wanted to talk a little bit about the oem trend so if my model is correct i think this is the first quarter where we see a sequential high for at least two years and i'm wondering if you can comment a little bit on the underlying dynamics there and you know how you see the coming quarters you know going forward uh
spk02: First of all, of course there is an improvement and we saw it at the end of 2020 because when we talk about the OEM segment there is a very strong correlation between the production lines of the car. And during mid 2020, most of the production lines were closed because of the lockdowns and quarantines. So once it's opened, we saw it grow and this will allow us to grow our sales and our subscriber base from the OEM segment. Now we have to understand that there is also volatility in these specific segments because there is sometimes, I wouldn't call it seasonality, but there is different influences along the year. So in Q2 we succeed to grow with a positive net growth. I wouldn't say that this is something that I can surely say, but what I can say is that if In the last year, year and a half, we saw a decline and sometimes it was declined of tens of thousands per quarter. I am expecting that this will not happen and we will continue with the positive trend. It should be sometimes maybe close to zero, a little bit below. Of course, our wish is to go and continue and grow the net new subscribers. but it's difficult to forecast the OEM trend, but I'm quite sure that it will continue with a positive or close to break-even points.
spk06: Okay, that's helpful. And then moving to bring... I'm wondering, you know, if you can remind us of the accounting policy, whereas, you know, what would trigger you guys to kind of mark the market, the value of your investment? And then, I mean, theoretically, if you at some point were to, you know, dispose of your shares, I'm wondering what would you guys do with the proceeds?
spk02: Okay, first of all, I wrongly said, I think, that we hold 7.2%. So this is the right opportunity to correct myself. We hold 17.2% of rings. And the value, okay, general value today after the last round is $172 million. Of course, it's not reflected in our balance sheet based on accounting rules. regards the moment or the situation when we will show it on our P&L and then the balance sheet is in one of two events IPO or exit or of course liquid our shares I just want to mention that nowadays even private companies are the size of a unicorn companies there is a possibility and there is possibilities that you can liquid your shares without making an IPO. Currently, we are in a stage that our decision is to continue and hold those shares. And once it will be liquid in one of these three ways, of course it will contribute to our profit and the balance sheet. Now, once we do it, we will think what to do with the proceeds. It depends on the timing. Sometimes there will be a strategy which will say that we want to continue and go for, for example, for our next acquisition, for example. it always can be on the table to increase dividends or buyback. And in the end, it's very dependent on the situation, the timing and the opportunities at the same moment. Since it's not on the table now to liquidate those shares, no decision or depth or detailed discussion took place.
spk06: Thank you. Thank you. I appreciate the caller.
spk01: The next question is from David Kelly of Jefferies. Please go ahead.
spk08: Good afternoon, everyone, and thanks for taking my questions. And I appreciate the color on the regional aftermarket subscription drivers. I guess, how should we think about the sustainability of the outsized growth? I think you're now three quarters consecutive above the 20K growth. And secondarily, are you seeing any impact from the recent COVID case step up in the aftermarket business in the third quarter?
spk02: Okay. Regarding the aftermarket segment, we used, I would say, 2020, let's call it the year of the pandemic, to start thinking and find other segments in order to, back now, and I would say, of course, that we should put more efforts and resources And I'm happy that now we are reaping the fruits, and I will mention. And I'm talking specifically about Israel, Brazil, and Mexico, which are the three largest markets that we are operating. First of all is the traditional business, which is the SVR, which we're back to the trends that we were before the corona, leading the markets. We are the largest in Israel. We are the largest in Brazil. Most of the insurance companies and most of the car dealers are using our solutions. And when the numbers and when the markets came back to a commercial life, we're back as well now. But as you know, in Israel, we focused in developed markets. and educating the market for UBI usage-based insurance. And this is now contribute materially to the number of subscribers and to the end on sales to our customers in Israel, which allow us to increase the number of subscribers and also increase the output. Then when we talk about Brazil, we realized that there is a market where we didn't focus and our solution is better than the comparable companies, which is the fleet management. And at this segment, until the end of 2019 and beginning of 2020, we didn't put attention at all because we were very focused on the which is to run with insurance. Once we decide to take our technology from the Israeli market, duplicate it to the Brazilian market, I'm talking about gaining more and more market share and I will be a little bit arrogant and I think that in two or three years from now we will be the largest fleet management and telematics services in Brazil. We are growing exponentially from month to month and I really believe that in 2022 this will allow us to increase materially the numbers of subscribers, the net subscribers growth in Brazil apart from the e2run SVR and the third segment that we do it in Brazil and in Mexico by the way is duplicate our business from the United States. The US business of Ituran is quite small, but it's something that is very unique to the Ituran traditional applications. What we do for almost 15 years in the States, we provide location and data information from the car to finance companies that provide loans for subprime customers. This is something very typical in the US. It was less popular in Latin America, but when finance companies realized that there is a solution that can allow them to reduce the risk of unpaid loans, which is a solution such as we offer, so they uses our technology and services in order to promote financials to our subprime customers. And we're talking about tens of millions of loans per year in each of these two markets. So we just started. We cooperate or we provide our white label solution to large finance companies in Mexico and in Brazil. Some of them are from the world of the fintech, but some of them are traditional banks, and some of them are in pilot, but some of them already adapt our solution. And I really believe that, again, for the next future, this can be material number of subscribers for it to run in these two markets. Today we are leading this market, it's still not big, but we see during pilots and during tenders that we are the chosen solution, mainly because we have state of the art in terms of the technology and state of the art in terms of the quality of service compared to any company in our field. So to make the long story short, this is part of the reasons that we succeed to grow, and by the way, the pandemic is still there. I mean, once, I don't think it's going to happen shortly, but once the world will be with a zero pandemic, so of course then we will grow even more dramatically. But again, even at this world of today, even under this, some lockdowns, some slowdowns, I really believe that we will continue to grow on the aftermarket thanks to the idea that we did during 2020 and expand the segments that we are approaching. And I'm really optimistic that this will continue.
spk08: Okay, good. Thanks for that. And maybe just one quick follow-up on your UBI. comments specifically. I guess, could you give us a sense of kind of the growth rate you're seeing in usage-based insurance and maybe how impactful do you think that sub-segment or business line could be to the overall business in, let's say, the next three to five years?
spk02: First of all, since it's just started operating, 2020 at the beginning or the end of 2019 so the the growth is very high at the beginning because it was small numbers today we get to a much bigger numbers because as I said we educated I'm it's like we educated the market so it started with one insurance company adopted it then the second came then other insurance companies want to join because the comparable prices of policies were hitting the market, they want to compete. So today I must say that as I said in the end of 2019, 90% of the Israeli insurance companies have some offer of UBI policies and in 90% of them we are the supplier of a solution. So the numbers are growing. We are talking about thousands, thousands, few thousands per month. I'm expecting then during 2022 it will be more thousands per month. And this is something that can get to very big numbers of subscribers in a year from now. Also now it's quite impressive numbers. I'm sorry that I cannot provide specific details because As I said, we are kind of a white label for each insurance company. Each of those insurance companies has different prices, different brands, and by the way, different solutions they need. Some need mileage, some need driving behavior, some are digital companies, some are traditional companies. I'm not allowed, for commercial reasons, to provide specific details.
spk08: Okay, got it. That's fair. Appreciate all the color. I'll pass it along. Thanks.
spk01: The next question is from Sasha Karim of IPI. Please go ahead.
spk00: Hi, guys. I wanted to ask you firstly about your connected car division. Could you give us a rough idea for what the monthly ARPU is like in that division? If you can't give us numbers, maybe you can give us some kind of directional steer.
spk02: The answer, unfortunately, is the same as for the UBI. By the way, connected car is a general name for things which are not... SVR or fleet management. And when we talk about it, it includes UBI, it includes pay or buy, like the financial companies. It includes application where, for example, parents are using the system in order to control their youth drivers. It includes OEM. So it includes almost a third or 40% of the total operation of it to run. And again, because it's a very commercial, I would say, secret, I can't divide it and give specific numbers. But my recommendation is to look on the, I would say, on the overall ARPU, and this is part of it. Of course, some are lower, some are higher, but the influence on the average is, I think, it's a good way to look on it.
spk00: Okay, got it. Just to check, because in your annual report, when you look at the value-added services segment, you split it out into concierge services, connected car, and UBI, and the number you gave for subscribers in connected car was 468,000. It looked like it wasn't anything to do with UBI. So can you tell us what that 468,000 sub-number does include?
spk04: In the annual report, we separated between the UBI and the connected car.
spk00: So 468,000 is the connected car, which is sort of like the back office application with infotainment connectivity. Is that number purely related to that?
spk04: Yes.
spk00: Got it. I'm just going to try this. I don't know what you're going to say in response, but if I assumed that those pure connected car subs were doing something like $5 a month revenue, we'd come to something like $28 million annual revenue from that product. And if it's a high gross margin, if it's like a 90% gross margin, you can sort of conclude that that might even account for 20% of Itteran's total gross profit at group level. So, you know, I don't necessarily need you to confirm the numbers, but am I barking up the right tree? Is it quite a large business in gross profit terms now?
spk04: Just one reminder is that from the 400,000 connected car vehicles, the majority of them is coming from the OEM. The OEM is not including 90% margins.
spk00: Right, okay, so it's not, okay, it includes OEM, thank you, that answers my question. Could I also just ask a different question? How important was the U.S. in the second quarter in terms of the subscriber growth?
spk04: As we mentioned in the past in the previous conference called the U.S. and Israel, both of them are the main contributor to the aftermarket subscriber growth.
spk00: Great, thank you very much.
spk01: The next question is from Eli Bernstein of Ezioni Portfolio Management. Please go ahead.
spk07: Hi, thank you for taking my questions and congratulations on the results. I have just one question. If you spoke already about the future, can you please give us some color? I mean, let's say in the future, most of the cars will be electric cars. How is your business model affected by it or not affected? If you can please give a comment on that.
spk02: First of all, for us, for the services that we provide, there is no difference once the engine is based on fuel or based on electricity. We have no link to the type of the engine, so the services will be the same. Of course, one of the things that we do today is that the electric cars will have more capabilities for connectivities and for data that we can use or managing or provide additional services to the drivers with regards to battery situation, etc. But in terms of the typical services that I mentioned, such as stolen vehicle recovery, UBI, fleet management, finance cars, I don't think that there will be differences between regular fuel engines or electric cars.
spk07: Okay, so you don't see any risk of, I mean, electric cars coming with new software that can kind of take away of your UBI proposition? I don't see it as a risk.
spk02: again it's not specifically for electric cars but since if you look on our balance on our reports our hardware is a very very low if at all margins it's a tool to provide our services we will be happy to having a car with the right hardware that will need to connect with service providers such as us in each country, because each country has specific needs, specific mentalities, and there will be no one software and services that will be worldwide. For example, if we take the larger market, which is the United States, there is no stolen vehicle in the US, almost zero. So, for example, cars in the U.S., as it today, don't need it to run to prevent car theft. So the hardware can be the same, but the services and the services providers will still have to provide services. So for us, if every car will come, some of the barriers, which are the cost of the hardware, the reason, by the way, is, for example, in Israel, Only 40% of the new cars equipped with location and communication units is because the cost of the hardware. So once 100% of the cars in one day will arrive with the hardware and the customer will have it as a part of the car, I think that it only will be a... It will be a... something that will expand our penetration, will increase our penetration. Don't forget that most of our profitability and model is based on the services. So if it happens, I bless it.
spk07: Okay, thank you.
spk01: 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 poll for more questions. There are no further questions at this time. Before I ask Mr. Shirotsky to go ahead with his closing statement, I would like to remind participants that a replay of this call will be available tomorrow on Ituron's website, www.ituron.co.il. Mr. Shirotsky, would you like to make your concluding statement?
spk02: On behalf of management of Ituran, I would like to thank you, our shareholders, for your continued interest and long-term support of our business. I do look forward to speaking with you next quarter and hope that we will all see better times by then. Have a good day.
spk01: Thank you. This concludes the Ituran second quarter 2021 results conference call. Thank you for your participation. You may go ahead and disconnect.
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