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spk07: Ladies and gentlemen, thank you for standing by. Welcome to the Eturan fourth quarter 2021 results conference call. All participants are 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 Eturan's investor relations team at gkinvestor and public relations at 1-212-378-8040 or view it in the news section of the company's website, www.eturan.co.il. I would now like to hand the call over to Mr. Ehud Helst of GK Investor Relations. Mr. Helst, would you like to begin?
spk05: Yeah, thank you, Operator. Good day to all of you and welcome to Eturan's conference call to discuss the fourth quarter and full year 2021 results. I would like to thank E2R Management for hosting this conference call. With me today on the call are Mr. Ayar Sharadsky, the co-CEO, Mr. Uli Mizrahi, Deputy CEO and VP Finance, and Mr. Eli Kamal, the CFO of E2R. Ayar 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 questions and answers session. I would like to remind everyone that Safe Harbor and the press release also covers the contents of this conference call. And now, Ayar, would you like to begin, please?
spk08: Thank you, Ehud. I'd like to welcome all of you and thank you for joining us today. We are very pleased with our financial results. They represent a year of recovery in growth, returning to double-digit revenue growth, as well as strong profitability and double-digit EBITDA growth. We reported full-year revenues of $271 million and EBITDA of $73 million, a level we have only surpassed once in our history. I would like to focus on the very solid growth in the subscriber base, which was the most notable aspect of our fourth quarter 2021 results. We grow our subscriber base at the highest rate we have seen in our history with 44,000 net ads, bringing the total of almost 1.9 million subscribers. The aftermarket segment added 50,000 subscribers during the quarter and is approaching 1.5 million subscribers. The growth in subscribers came from both our traditional businesses and was boosted by our growth engines. These include increased traction from our usage-based insurance, UBI business in Israel, working with car financial companies in Brazil and Mexico, new activities with rental companies in South America, as well as growth from our US business. We expect this type of subscriber growth to continue into next year, and we have raised our expectation which were typically 20,000 to 25,000 net subscriber growth per quarter, or 80,000 to 100,000 per year, to between 140,000 and 160,000 per year in 2022. I want to discuss it runs overall ARPU. The new growth engines are at a lower revenue per user than the average of our traditional aftermarket business, which will have the effect of lowering our overall ARPU. However, I highlight that our gross margins on the lower ARPU subscribers are similar to that of the existing business. In addition, as our business scales up faster, we can better harvest the operating leverage which is inherent to our business model, where typically each individual subscriber rate does not require any growth in operating expenses. And those subscribers tend to stay with us for a long period. I would like to stress that while 2021 has so far been a strong year for it to run in terms of new subscriber growth, the real benefit from the additional subscribers that we gained in the past year will benefit us more toward the end of 2022, 2023 and beyond. With regard to the UBI business, in 2021 we won significant business and we are now working with all the seven major insurance companies in Israel. We continue to see increased traction as the Israeli consumer market become increasingly educated to the value that they gain by using a usage-based insurance plan, rather than fixed, especially since the walk-from-home trend has significantly reduced the typical commit. The corona slowdown created plenty of new markets and opportunities, and over that time, new car sales around the world went down. As I explained last quarter, we identified a strong second-hand car market in many of our geographies in Latin America, and new fintech startups as well as the large banks have come in to provide the financing in this market. However, they need a provider of location-based and connected car technology, such as E2One, to monitor the cars and driver behavior, and by this lower the risk of the loan against the car. We are quickly moving forward and are already working with financing companies with our solution. We're excited about this business and see great potential for additional growth in the coming years. I would like to address the electronic component shortage that has been widely reported over the past year and remains an issue for everyone. Despite the demand vastly exceeding the supply and high prices, we have successfully been managing through the shortage to date. In the current quarter, Q1 2022, we will see increased costs for raw components for our products, which will temporarily lower our product gross margins in the first half of 2022. It is important to note that as primarily a subscriber service business, the impact on it to run to date has been low, and has primarily been on the product revenue side which has smaller effect on our bottom line. Our continued profitability and ongoing cash generation enable us to share the rewards of our success with our shareholders. We have two programs. One is our regular dividends of $3 million to shareholders, and we issued a total of $12 million in 2021. Our second program is our share buyback. During 2021, we purchased $7.3 million worth 280,000 shares of Rituan. In summary, I am very pleased with our performance, both our traditional business and especially our growth engines, which we have seeded over the past few quarters, which we expect will accelerate our growth in the years ahead. The solid performance can be seen in the jump in our subscriber base, which has grown well ahead of our expectations and has allowed us to increase those expectations for the current year. I am more excited now than ever with our long-term potential over the coming years. And I will now hand the call over to Eli for a financial summary. Eli?
spk03: Thanks, Eyal. I will provide a short summary of the financial results. You can find the more detailed results that we issue in the press release earlier today. Revenues for the fourth quarter of 2021 were $70.4 million, and it 11% increase compared with revenues of $63.6 million in the fourth quarter of 2020. Revenues from subscription fees were $48.8 million, up 7% year-over-year. Revenues for 2021 were $270.9 million, 10% above the $245.6 million reported in 2020. Revenues from subscription fees were $189,000.6 million, representing an increase of 4% over 2021. The subscriber base amounted to $1,881,000 as of December 31, 2021, an increase of $44,000 net over that of the end of the per-year quarter, and an increase of $113,000 since the end of the fourth quarter last year. Fourth quarter product revenues were $21.6 million, up 21% year-over-year. Full year 2021 product revenues were $81.2 million, representing an increase of 30% compared with the same period last year. The geographic breakdown of revenues in the fourth quarter was as follows. Israel, 52%, Brazil, 20%, rest of the world, 28%. EBITDA for the quarter was $18.9 million, or 26.9% of revenues, an increase of 14% compared with an EBITDA of $16.6 million, or 26.1% of revenues, in the fourth quarter of last year. EBITDA for 2021 was $72.7 million, 26.8% of revenues, an increase of 56% compared to $46.7 million, 90% of revenues in 2020. Net income for the fourth quarter of 2021 was $9.6 million, 13.6% of revenues, or diluted earnings per share of $0.46, compared with $6.8 million, 10.7% of revenues, or diluted earnings per share of $0.33. Net income in 2021 was $34.3 million, 12.6% of revenue, or fully diluted earning per share of $1.65, an increase of 113%, compared with net income of $16.1 million, 6.6% of revenue, or fully diluted earning per share of $0.77 in 2020. In 2020, there was impairment charge of $13.5 million. Excluding the impairment charge, in 2021, the net profit increased by 16%. Cash flow from operation for the fourth quarter of 2021 was $16 million. Cash flow from operation for the year was $55.8 million. As of December 31st, 2021, the company had cash including multiple securities of $54.7 million and a debt of $31.4 million amounting to a net cash of $23.3 million. This is compared with cash including multiple securities of $78.8 million and a debt of $54.5 million amounting to a net cash of $24.3 million as of December 31, 2020. For the first quarter of 2021, a dividend of $3 million was declared. In the fourth quarter, under the renewed program, each one purchased 208,000 shares for a total of $5.4 million. During 2021, a total of 280,000 shares were purchased totaling $7.3 million. Share repurchases were funded by available cash and repurchases of Iturant's ordinary shares were made based on SEC Rule 10B-18. And with that, I'd like to open the call for a question and answer session. Operator?
spk07: Thank you. Ladies and gentlemen, at this time, we'll 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 two. 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 pull for your questions. The first question is from Tavi Rosner of Barclays. Please go ahead.
spk00: Hi, this is Chris Reimer on for TAVI. Thank you for taking my questions. First off, congratulations on this strong quarter. I wanted to touch on gross profit. You alluded to some of the supply chain issues in your comments. Could you just give some color on the moving parts into costs and what kind of things you're seeing in terms of cost inflation and supply chain issues?
spk04: As of today, as you mentioned, and we mentioned it on the script, the component shortage all over the world is getting bigger. And of course, as of now, we managed to deal with that in a good way. I believe, and as we mentioned, that during the first semester of 2022, we'll see some effect of this component shortage. And that, of course, will decrease the gross margin of the hardware segment a little bit, but it's not something that we see as significant or material for our business as the main 70% of our revenues is coming from the service revenues, and over there, there is no effect.
spk00: Got it. And then just in the subscriptions guidance, can you give any granularity into where you see the largest growth, either by product or geography?
spk08: Okay, as I said, we have, I would say, two types of growth in our subscriber base. One is the traditional, which is mainly SVR, stolen vehicle recovery, which is... quite having lower growth, the markets which we already dominate many years, such as Israel and Brazil. On the other hand, during the last two or three years, mainly during the corona, we identified other needs or we also looked for other segments which will allow us again to come and grow again when the corona will leave us. And as I mentioned in the last quarter and now, we identified main two segments. One is a finance company and even commercial bank that provide loans for people to buy cars. We do it mainly in Brazil and in Mexico. And we actually, I would say, almost invented this segment. And we see a lot of interest. And this contributes a few thousand per month in each of those countries, Brazil and Mexico. And the second segment, which in the past, specifically in Latin America, we didn't focus. We decided to focus during the corona is the B2B, the fleet management solution. And we are now having some strong channels such as leasing company and commercial rental cars companies. which are pushing our solutions to many fleets. And this is again a new segment that in the past we approach it only in the Israeli market. In Israel, for many years we are dominating the fleet management segment. Now we want to copy it to Latin America and we do it very fruitful. in Brazil and Mexico. This is why we succeeded to show higher growth than in the past. And the third one, which started also three years ago, is the usage-based insurance, which is currently available or currently has attraction only in the Israeli market, but we started three years ago and today, as I said, we have contracts and we distribute our solution among almost 100% of the Israeli insurance companies. The Israeli market is still under, I would call it, a stage of educating the audience to buy insurance based on their mileage, based on their driver behavior. This is something that we have to understand. It's changing the market totally. We have to educate the brokers. We have to educate the centers of the insurance companies. We do it quite impressive. And still the future is even, we expect a strong growth. But this is another segment which provides new subscribers that we didn't have in the past. Having said all this, I beg to you at the beginning of your question. Those segments and those specific B2B business required us to provide the services for these specific solutions with lower ARPU. If you consider the current ARPU of the group, you wouldn't see almost any change because when you have 1.8 million subscribers, even if you grow 100,000, the influence is quite low, but the delta, the new subscribers are with a lower ARPU. And when I'm saying lower, it's not dramatically lower. It's about two thirds, two thirds. If we have a average of a $10, nine to $10 ARPU of the group, here we are talking about a new ARPU for this new customers of six to $7. But it's very important to mention that since it's a B2B business or it's a B2B segment, our cost to maintenance, our cost to support each one of the subscriber is much lower, meaning on the profit side, we hope and we see that it will have at least the same profitability margins. So when the revenue grows, it will be lower than the number of subscribers expected But on the profit side, it should contribute us as our historical operating leverage contribution.
spk00: Got it. Thank you. Thank you. That was good color. I'll go back to the queue now.
spk07: The next question is from David Kelly of Jefferies. Please go ahead.
spk01: Hey, good afternoon, guys. Thanks for taking my questions. Maybe to follow up on the earlier supply chain discussion, I guess, are you seeing any shortages that are limiting volumes on the product side, or is the impact solely tied to input cost inflation at this point?
spk08: At the beginning, there was some, of course, some problem to understand where the market goes, where the prices go, what is the needs of our customers. But today, I'm happy to say that even in Q4, we succeed to deliver any request and what we did during the last six months is we prepared and we signed contract with suppliers for the next year and ahead of it with specific terms so I'm not expecting any shortage from our side to our customers we are answering all the requests. We have to understand that the request specifically in the OEM market is lower because if car manufacturers have their own problems with components, so we know that there are some plants in the world that even close their doors. We do not see this situation with our customers in Latin America. But of course, they sell less. I think that there is a decreasing of 20 to 25% in new car sales, which affect our OEM business. But back to your main question, we don't see, or we are not expecting, as of today, of course, we are not expecting any shortage from our side to our customers. We will provide less. any unit that they will ask. Of course, we increased our sales, we increased our inventory. The minuses or the disadvantages is it cost us more. And this is something that we said and also would answer. We have additional costs to our hardware, which means we're lowering some portion of our gross margins on the hardware. But if you go to our financial reports, you will see that it's, of course, every dollar is material, but generally speaking, it will not cause a high influence on our profits. And we will, I think we will have it part of the business today.
spk01: Okay, great. That's helpful. Thank you. And then back to the raise for your subscriber growth forecast. It's about 50,000 subscribers above your historic typical core outlook for the year. I was just hoping you could provide a bit more color on the core aftermarket business, how you're thinking about that, if there's any upside there, if this is solely raised due to some of the growth engines such as your UBI opportunity.
spk08: I think that the numbers and the forecast speaks for itself because if we're expecting to do on average something like 150,000 this year, which is about, I think that it should present historically something between two to three years in the past. So this, I think, is the strong proof of first that we choose the right time the right segment, the right ways. And now we're reaping the fruit. No doubt that when you have a subscriber-based business, it's taking time to, I would say, to change from growth subscribers to revenue and profits. This is why I said that we will see more material toward the end of this year and for sure for 2023. because then we will see the package of all these 100,000 new subscribers provide revenues on the same month, on the same quarter. I believe that those numbers of subscribers growth a year will turn shortly to a higher growth, mainly in the profits, as I said, because we are operating leverage model. Sometimes when people judge growth, They judge revenues-based. I think that in operating leverage business, it's very important, and this is how I see it, is to judge the company based on the profits and profitability because we don't have to grow a lot in the revenues to grow materially in the profits. And this is what I'm expecting to happen.
spk01: Okay, thank you. Last one for me, and then I'll pass it along. The financing opportunity you referenced in the prepared remarks, is that mostly U.S.-related via your buy-here, pay-here exposure, or are you also seeing opportunities in other regions as well?
spk08: So the answer is absolutely not. In the U.S., for almost 10 years, that's what we do. This is our main segment because the SVR in the U.S., is not a business, it's not attractive, and that's the segment that we are focused on in the last 10 years. And the U.S. business is focused on buy-year-pay-year, meaning financing the car, and then they use our system or other telematics company systems in order to secure the car loan. It hasn't been... part of financing in Latin America and we learn the finance market, we learn the subprime loans in Brazil and in Mexico and we decided it's a vital ground for us to offer it to finance companies and that's what we did during the last year and we succeed to convince some fintech companies that opens a marketing platform plus finance for second-hand cars as well as banks that finance new car sales. All of them or most of them really like our model and we explain how they can save money and make money from their finance deals and I'm happy that today this is one of our main growths And we just started it in April 2021. We have to understand. We are only in the beginning, and look how influenced it is with our current customer growth. And we only started.
spk01: Okay, got it. Thanks again for taking my questions. Appreciate it.
spk07: The next question is from Ellie Berenstein of Azioni Portfolio Management. Please go ahead.
spk06: Yes, guys, I wanted to ask regarding the new segment of the banks and the finance companies, just to get more idea, why do they really need your services? I mean, a bank that would like to give a new loan to a customer, why does he need to know the location of the vehicle or how it's driving?
spk08: Thank you. Explain what is their interest. So when they give a loan to someone and this someone... Most of the time, or sometimes, he has a subprime. He has no enough credit in his bank. And their confidence is based only on the car value. And when someone stops paying the monthly payments or the quarterly payments, they need to bring the car back. Usually, and one of the things that we learned also in the U.S. in the last decade, is that people, they don't pay and they continue. They are not criminal. Most, 95% of the situation, they are not criminal. 5% is like SVR because someone cheat the dealer. But most of the time, you're talking about normal people that just have no money to pay the banks and they continue to drive the car and they behave like the car belongs to them and they are not paying. Now, when we talk about countries as the size of Brazil, Mexico, or the US, they will not see the car. And the car is only literal. It's only literal. So by controlling the place and by controlling, by the way, the ignition and by the capability that we provide to send a buzzer with a notification to the customer, please pay unless we'll take the car, Most of the time it's help, and at the worst case, there is a repossess that we do for the banks. So this is the, and by the way, we showed in the U.S., which is a very large segment, there are many companies such as that do it, but in Brazil already, with any pilot that we did, we showed a very high return, let's call it return on their equity of the finance groups.
spk06: Okay, I see. Got it. Thank you. Another question. I wanted to know about the UBI proposition. So in Israel, it's obviously very strong with seven insurance companies. Can you take it to other places? I mean, I would guess that insurance companies all over the world would like to make this kind of insurance of mileage base. Is it possible to take it to Europe, for example, to penetrate to new places, Latin America?
spk08: Okay, we started in Israel, but be sure that the first thing after we have one or two years of operation in Israel, we are trying now to expand it to other markets, first to the geographies that we already operate. It's always better because it's, first of all, it's like upsell is dealing with the same customers that we have a very good relationship, so we try to do it in Latin America. I must say that... with a lot of experience with insurance companies. Insurance companies are very traditional, I would say are very heavy machines to change models which include billings, include actuar, and also in Israel it took us many years to convince the insurance companies that this can contribute to their offers and to their profits. Now I must say that it's not easy now to penetrate Brazil, Argentina, and Mexico. We have some pilots, but I see something that was at the beginning in Israel. It will change once the digital insurance companies will penetrate the market. It's just starting now in Latin America. And when this will start, the traditional insurance companies will have to find ways to be more advanced and more attractive with prices This is the window that allows us to penetrate so aggressively in Israel in less than two years with all the markets. So I believe that it will take one or two more years. But of course, everything that related to insurance industry in Israel, it will fit other markets. But we are now putting the seeds. We're creating the presentation, some pilots. But I don't want now to say that in 2022, we will see UBI customers from Latin America, but it will happen one day, of course.
spk06: Okay, I see. Thank you. Last question, I guess, for Eli. I saw in the cash flow statement this quarter, $11.3 million settlement of obligation to purchase non-controlling interest. Can you please remind us what it is and if any other payment is necessary in the future? Thank you.
spk04: Yeah, if you remember, in 2018, we acquired 81, almost 82% of road truck. And according to the agreement, in October, we finalized the rest of the shares. So actually, as of today, we are holding 100% of road truck, the OEM operation.
spk06: Okay, right. And in the minority, what will be left, basically?
spk04: There is no minority, I'm sorry. We purchased from the minority the 18%. Ah, the rest of the minority, we're talking about DRM, our subsidiary? Yes, which is about 49%.
spk06: Okay, got it. Thank you.
spk07: 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. There are no further questions at this time. Before I ask Mr. Shiratsky to go ahead with his concluding statement, I would like to remind participants A replay of this call will be available tomorrow on ITURAN's website, www.ituran.co.il. Mr. Sharatsky, would you like to make your concluding statement?
spk08: Yes. 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. Have a good day. Thanks.
spk07: Thank you. This concludes the ITURAN fourth quarter presentation. 2021 results conference call. Thank you for your participation. You may go ahead and disconnect.
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