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Q1 2023 Earnings Conference Call
spk02: Ladies and gentlemen, thank you for standing by. Welcome to the Eturan first quarter 2023 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 EK Global Investor Relations at -378-8040 or view it in the news section of the company's website .co.il. I will now hand over the call to Mr. Kenny Green of EK Global Investor Relations. Mr. Green, please begin.
spk01: Thank you. Good day to all of you and welcome to Eturan's conference call to discuss the first quarter 2023 results. I would like to thank Eturan's management for hosting this conference call. With me today on the call are Mr. Eyal Sharatzky, CEO, Mr. Udi Mizrahi, Deputy CEO and VP Finance, and Mr. Eli Kamar, CFO of Eturan. 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 statement in today's press release also covers the contents of this conference call. And now Eyal, please go ahead.
spk04: Thank you, Kenny. I'd like to welcome all of you to our first quarter 2023 call and I would like to thank you for joining us today. We are clearly very pleased with our achievements in the first quarter. The year has kicked off with a robust start and the solid subscriber growth we saw throughout 2022. And now in the first quarter, it's clearly having a positive impact on our financial performance. In this quarter, we experienced record subscriber revenues with record subscriber growth margins and also saw our highest quarterly net income and EB DYN over four years. From a strategic perspective, we experienced strong growth in subscribers, adding a net total of 49,000 subscribers, of which 44,000 were from the aftermarket and 5,000 were OEM additions. As we shared with you last quarter, our expectations for the growth rate in our subscriber base stand at between 180,000 to 200,000. Net new subscribers as annually and we are on track. As our results show, the strong subscriber growth we have experienced now for a few quarters is being increasingly reflected in the subscription revenue growth, even despite the currency headwinds due to the dollar strengths compared with last year. Q1 subscription revenues grew at 11% year over year or 16% growth when calculated in local currencies, which naturalized the effect of the exchange rate on our growth. We have every reason to expect that this growth trend will continue well into 2023 and beyond. The gross margin on subscription fees continue to improve, and we have seen sequential improvements throughout each quarter last year and now a record subscriber gross margin of .1% in Q1. It demonstrated the operating leverage in our model is becoming increasingly apparent, whereby we can add each new subscriber without a corresponding significant increase in cost, and it will continue to benefit us in the coming quarters. As you remember, we recently entered a few new verticals, which are performance well, such as the finance segments and the UBI. This is helping us to get traction and continue to increase our overall subscriber base. As far as the Israeli market goes, it is worthwhile noting that after many years in this market, we've seen a recent increase in the safe trades and a dramatic increase. With thanks to our good performance in this vertical of stolen vehicle recovery, it increases the need of the insurance companies to use our services. In summary, we are very pleased with our performance in the first quarter, and it represents a great start to 2023. Both ongoing solid performance in our traditional aftermarket business, a good recovery in the OEM business, and especially the gross engines we've seeded in the past years are all driving this subscriber gross. While we are aware of the global economic slowdown ahead, our 2 million plus subscriber base paying us on an ongoing monthly basis give us significant liabilities. Furthermore, our recent accelerated subscriber gross will continue to translate into increased subscriber revenue gross throughout the coming year, with faster growing profitability as the operating leverage continues working in our favor. We've already seen the early fruits of our recent success in the current quarter. Looking ahead, we are confident the improvement we have made to our business over the past few years, leading to today's robust subscriber gross, are here to stay for the foreseeable future. We are excited for the year ahead, and anticipate a positive trend will continue throughout 2023 and beyond. And with that, I hand over to Eli. Eli, please go ahead.
spk03: 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. Revenues for the first quarter of 2023 were $79.5 million, a .3% increase compared with the revenue of $72.1 million last year. First quarter revenues from subscription fees were $55.8 million, an increase of 11% over first quarter 2022 revenues. The subscriber base amounted to ,115,000 as of March 31, 2023. This represents an increase of $49,000 net over that of the end of the period quarter, an increase of $191,000 -over-year. During the quarter, there was an increase of $44,000 in the aftermarket subscriber base and an increase of $5,000 in the OEM subscriber base. First quarter product revenues were $23.7 million, an increase of 8% compared with that of the first quarter of 2022. The geographic breakdown of revenues in the first quarter was as follows. Israel 51%, Brazil 24%, rest of world 25%. EBITDA for the quarter was $20.8 million or .2% of revenues, an increase of 8% compared with EBITDA of $19.3 million or .7% of revenues in the first quarter of last year. Net income for the first quarter was $11.4 million or .3% of revenues or diluted earnings per share of $0.56 per share compared to $8.7 million or .1% of revenues or diluted earnings per share of $0.43 per share in the first quarter of last year. Cash flow from operations for the first quarter of 2023 was $17.4 million. On the balance sheet, as of March 31, 2023, the company had cash including marketable securities of $33.5 million and debt of $9.2 million amounting to a net cash of $24.3 million. This is compared with cash including marketable securities of $28.2 million and debt of $12.2 million amounting to a net cash of $16 million as of December 31, 2022. For the first quarter of 2023, a dividend of $3 million was declared. In the first quarter, under our share buyback program, Iturán purchased 54,000 shares for a total of $1.2 million. Share repurchases were funded by a valuable cash and repurchases of Iturán 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?
spk02: 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're 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 Chris Reimer of Barclays. Please go ahead.
spk05: Hi, thank you for taking my questions. I was wondering if you could start with giving any color around the uptick in the OAM subscribers this quarter and what kind of went into that and is it a recovery or is it more of a one-time thing?
spk04: Hi. So actually we think it's something that starts showing the changes in the components problems that the world will face and its influence primarily on the car producers. Don't forget that most of the car produced today is based on computers and components. So I think that this allows the manufacturers of the brands that we work with to produce more cars because the request was there. They couldn't supply the request and now it looks like they succeed to do it better. So when it happens, of course it influences positively on our growing in the OAM segment. As I said in the past, it's something that has some seasonality, has some volatility, depends on things which we cannot influence, but it looks like, or our assumption that it will continue in the coming year, maybe we'll face some quarters differently, but we think like it's a recovery.
spk05: Excellent. Thanks. And can you talk a little about operating expenses and what kind of strategies you're putting into place to create more operating leverage?
spk04: So basically we should consider that when you grow 200,000 subscribers a year and when you want to develop and offer new solutions, it requests us from time to time, of course, to add human resources for each of these, I would say, aspects. One is the service side and second is the R&D side. But currently I would say that after the last years when we saw that our expenses are growing and we couldn't see the influence in the revenue side, I think that 2023 will show that now the operating leverage will demonstrate to our P&L because the revenue of reaping these fruits happening now
spk04: we will see that the margins are increasing. We show it in Q1 and I believe it will continue in the next quarter.
spk05: Got it. Okay, that's it for me. Thank you.
spk02: 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. The next question is from Sasha Karin. Please go ahead.
spk00: Hi, Jens. Congrats on the quarter. First question for me will just be on guidance for subscriber growth going forward. Do you have any more specific comments, quantitative comments you can make on the pace of subscriber growth in the coming quarters and how you arrive at those numbers?
spk04: Hi. The guidance regarding subscribers we already gave in the end of 2022 and as we said today, we are still solid with those expectations. Of course, it's based on our assumption and our 2022 track records of the new segment that we penetrate during 2021 and 2022 and also assuming that we will continue to integrate our brand in that segment and also in the traditional segment which are fleet management and SVR which we see more and more attraction in Latin America and recently, and I mentioned it in my speech today, in Israel after many years we see that the cost of freight increasing dramatically something that encouraging the insurance companies to add more and more models which in the last even decade they didn't require these kind of models to install security and location solutions which will allow us also to increase our penetration to new segments but also to straighten our guidance of new subscribers along the year.
spk00: Thank you. Next one for me would be on inventory. I'd say inventory investment in CAPEX seemed very low in the first quarter. Does this, it didn't sound like it from your comments but does this maybe indicate some reduced confidence about generating additional subscriber growth in Israel and Brazil because it could be considered a leading indicator?
spk04: When there was a shortage of components and we knew that we are facing a new growth of subscribers we did a very aggressive inventory purchase
spk04: order not to be in a problem of supplying this new growth so last year we had a very aggressive inventory purchase when again the shortage stopped or declined we continued to be in a position to buy with a, let's call it a normal inventory timeline so we saw kind of a decline that you could see in this quarter I believe and expect that the Q1 CAPEX is something that represents a quarterly CAPEX because of course even in inventory there's some volatility we can see but again it shouldn't be dramatically along the year.
spk00: We noticed also sales and marketing ticked up in Q1 are there any specific projects you're investing in right now for example do you feel the timing is right maybe to push ICS in Mexico and in general what can we expect in terms of OPEX will it rise each quarter this year?
spk04: Sasha forgive me that I can't see it as long as we know and I see there is no any or at least no big change in sales and marketing so can you appoint me the specific the
spk03: proximity $3.3 million in Q1 and also in Q4 last year
spk00: apologies yes I'm looking at GNA maybe you could just give us a feeling for SGNA in total going forward
spk04: Since part of some compensation policy and inflation growing can influence you it depends on the result so you still can see that in terms of percentage I would say that it's more correct to judge the SGNA based on the percentage of revenues and this is quite stable
spk00: and my last one would just be on fleet management subscribers your 20F implies that the growth there slowed from 30% in 2021 to 20% growth in 2022 should we expect that slowing to continue or do you have reasons to believe it can reaccelerate?
spk04: I think again that in order to make it more right way when you have a subscriber base and it's growing so by definition in percentage it will decrease for example when you grow from 100,000 subscribers with another 100,000 subscribers you're growing 100% when you have 2 million and you're growing 200,000 you're growing only 10% so the percentage is something that you always have to check or to watch with the absolute numbers because our subscriber base is increasing and this is the same situation with the fleet management today when we have almost double fleet management numbers then five years ago so in percentage even if we grow double than we grew five years ago in terms of new subscribers in percentage it will be less always so please I think that we are not expecting that it will decrease we're expecting to continue the trend but in percentage it will look always smaller
spk00: Understood, thanks very much
spk02: 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
spk02: are no further questions at this time Before I ask Mr. Sharovski to go ahead with his closing statement I would like to remind participants that a replay of this call will be available tomorrow on eTuran's website .co.il Mr. Sharovski, would you like to make your concluding statement?
spk04: On behalf of management of eTuran I would like to thank you all for your continued interest and long term support of 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
spk02: Thank you This concludes the eTuran first quarter 2023 results conference call Thank you for your participation You may go ahead and disconnect