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spk01: Ladies and gentlemen, thank you for standing by. Welcome to Iteran's second quarter 2023 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. 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 Itoan's investor relations team at EK Global Investor Relations at 1-212-378-8040 or view it in the news section of the company's website at www.itoan.co.il. I will now hand the call over to Mr. Kenny Green of EK Global Investor Relations. Mr. Green, would you like to begin?
spk05: Thank you, Operator. Good day to all of you, and welcome to ITERUN's conference call to discuss the second quarter 2023 results. I would like to thank ITERUN's management for hosting this conference call. With me on the line today are Mr. Eyal Sharadsky, CEO, Mr. Udi Mizrahi, Deputy CEO and VP Finance, and Mr. Eli Kamar, CFO of ITERUN. 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 harbour statement in today's press release also covers the contents of this conference call. And with that, Eyal, would you like to begin, please?
spk02: Thank you, Kenny. I'd like to welcome all of you to our second quarter 2023 call, and I would like to thank you for joining us today. We are clearly very pleased with our achievements in the second quarter. 2023 has so far been an excellent year for it to run. It runs businesses in strong growth phase with the subscriber base growing twice as fast as we grew in the past years. This jump in growth rate is now clearly benefiting our financial results. For the past few quarters, our subscription fees have been constantly at new record levels each quarter and our profits measured in either net income or EBITDA at four-year highs. As you can imagine, we are very pleased with our results. and the progress we've made. Given the way our business is structured with a core and stable subscriber base of well over 2 million paying a monthly retainer and the clear long-term visibility this provides, we have very reason to expect that the current positive trends will continue throughout 2023 and into 2024 and beyond. From a strategic perspective, we experienced strong growth in subscribers, adding a net total of 47,000 subscribers, of which 45,000 were from the aftermarket and 2,000 were from the OEM. As I mentioned, this strong subscriber growth is now being reflected in our record subscription revenue. This is even despite the currency headwind due to the dollar strength in 2023. Q2 subscription revenue grow at 13% year-over-year, or 17% growth when calculated in local currencies, which naturalized the effects of the exchange rate on our growth. Over the past few years, we've entered into a few new verticals, such as a financing business, which are performing well and acting as growth engines. They are one of the main reasons that our business continues to grow well. During the quarter, we announced that the Brazilian subsidiary entered a partnership with Santander Bank, which firmly solidified our presence in the automotive financing market. This strategic alliance aimed to broaden the Brazilian car ownership market by facilitating the credit approval for automotive financing with Ituran's Telematic Services and Santander's financing at attractive rates and credit insurance. This new deal demonstrates that this finance vertical is performing well and supporting our overall subscriber growth. Furthermore, we see further potential and we are looking to cover additional markets and geographies with existing and other finance customers. In terms of the Israeli market, due to the general macroeconomic limit, we have seen a strong increase in the theft rates. Due to our good performance over many years in this vertical of stolen vehicle recovery, it increases the need of the insurance companies to use our services. While this is very much the case in Israel, we also see similar trends throughout Latin America, with the general economic climate contributing to an increase in car safe rates. This is ultimately leading to an increase in demand for our services from insurance companies. This also provides our business with some defense in the face of an economic slowdown. Finally, we've launched a new product in Latin America focused on connectivity and stolen vehicle recovery for the motorcycle market, which is a new sector for us. In 2022 only, there were estimated records of 5.4 million motorcycles sold in Latin America, and we believe our new solution presents a very attractive proposition for this sector. We are already seeing interest from manufacturers and insurance companies, and we are already in discussions. We see strong potential from this new product and service in the region for the coming years. And in summary, we are very pleased with our results of the quarter, and 2023 is shaping up to be record year 421 in all respects. Solid performance in our traditional aftermarket business, as well as recovery in the OEM business, and especially the growth engines we've seeded in the past years, are all driving our strong subscriber growth and record revenue. While we continue to monitor talk of a potential global economic slowdown ahead, historically we've found the theft rates tend to increase in economic downturns, increasing the demand for our services and beyond it. Our 2.2 million subscriber base paying us on an ongoing monthly basis gives us significant resilience in our economic environment. Looking ahead, we expect that our recent accelerated subscriber growth will continue to translate into increased revenues with faster growing profitability due to the operating leverage inherent to our business. We are excited for the coming quarters and anticipate a positive trend will continue throughout 2023 and beyond. And with that, I hand over to Oli. Eli, please go ahead.
spk04: 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 second quarter of 2023 were $28.6 million, an 11% increase compared with revenues of $73.4 million last year. In local currency, the year-over-year growth was 15%. Second quarter revenues from subscription fees were $59.2 million, an increase of 13% over the second quarter 2022 revenues. In local currency, the year-over-year growth was 17%. The subscriber base amounted to $2 million 162,000 as of June 2023. This represents an increase of 47,000 net over that of the end of the period quarter and an increase of 190,000 year-over-year. During the quarter, there was an increase of 45,000 in the after-market subscriber base and an increase of 2,000 in the OEM subscriber base. Second quarter product revenue were $22.5 million, an increase of 7% compared with that of the second quarter of 2022. The geographic breakdown of revenues in the second quarter was as follows. Israel, 48%. Brazil, 26%. rest of the world, 26%. EBITDA for the quarter was $21.8 million, or 26.7% of revenues, an increase of 12% compared with EBITDA of $19.4 million, or 26.5% of revenues, in the second quarter of last year. In local currencies, the year-over-year growth was 15%, Net income for the second quarter was $12.2 million, or 15% of revenues, or diluted earnings per share of $0.61, an increase of 40% compared to $8.7 million, or 11.9% of revenues, or diluted earnings per share of $0.43 in the second quarter of last year. In local currency, the year-over-year yields growth was 44 percent cash flow from operation for the second quarter of 2023 was 17.5 million dollars on the balance sheet as of june 30 2023 the company had cash including multiple securities of 34.5 million dollars and a debt of $4.5 million amounting to a net cash of $30 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 31st, 2022. For the second quarter of 2023, a dividend of $3 million was declared. In the second quarter, under our share buyback program, each one purchased 155,138 shares for a total of $3.5 million. Share repurchases were funded by a valuable cash, and repurchases of its run 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.
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 one. 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 polled in the order they are received. Please stand by while we poll for your questions. The first question is from Chris Rainer of Barclays. Please go ahead.
spk08: Yeah, hi. Thanks for taking my question. Congratulations on the strong results. You mentioned in the past operational leverage, and I was wondering how much expansion is possible under the current operational conditions you have right now?
spk02: Practically, when you look on the numbers today, we actually increased from 20 to 20.4% in a very short period, and we expect that this trend will continue. This is actually what the recurring revenue model allows us to do in the future.
spk08: Okay. In your view, what is underpinning the consistent subscriber growth?
spk02: Can you repeat it regarding subscribers?
spk05: Chris, can you repeat your question, please?
spk08: Yes, I'm sorry. In your view, what is underpinning the consistent subscriber growth?
spk02: Actually, I think that... generally I said it so first of all the traditional the traditional segments which are very depend on cost of rate it's in the last quarters and as we see it's in a gross mode which create a strong request for from, I would say, insurance companies, as well as even the car owner needs to secure the car more and more because it's hurting them a lot. So this is from something that depends on the economy, as well as the financing market, which we penetrated just recently, and we see that after this penetration, other players in Brazil as well as in other countries in Latin America are interesting in this solution and of course there is always the regular growth drivers such as our brand is the strongest one in the region very high credibility from B2B and B2C customers So we have a good feedback from the market, plus new segments that we entered recently. We believe that this will demonstrate or will lead to continue of the growth of the subscriber base.
spk08: Got it. Thanks a lot. That's really good, Keller.
spk01: The next question is from Josh Strauss of Peckinhardy. Please go ahead.
spk05: Josh, we don't hear you. But you can go ahead and ask your question. Sorry, my bad.
spk06: I was on mute. Good morning. Good to see this terrific quarter, guys. And thanks for taking my call. I wondered whether or not you could provide any color on what's happening with Bring. I mean, I know it's a passive private investment, but I was curious if you had any color that you might be able to provide on what's going on with that investment.
spk02: Practically, Bring is going quite well with its business plan, and let's call it internal and privately owned investment. projections. I think that we did the right move when we did the last round about a year and a half ago before the changes in the stock market and the financial markets and the company did the right adjustment to use those proceeds for more years then we thought at the beginning, because we have to adjust the company to the, again, to the financial markets, but from the operational side of view, the companies really provide the results as it's worked. Of course, I want to remind all of you that it's something that It's only on our balance sheet, and it's a zero value in our balance sheet, so it's not influenced anything in our P&L. And I would say that it's a hiding assets, which we count that it's in the future, of course, will provide a profit.
spk06: Got it. Got it. Okay. Thank you. Well, I'm looking forward to seeing that thing getting monetized at some point in the future. The second question I had was, you know, a couple years back, you had levered up the balance sheet slightly, which was unlike you guys historically because you've been a pretty conservative management team, in order to buy RoadTrack. And over the years, you've been paying back that debt, and your debt is Your gross debt is almost zero. Your net debt has been positive for some time. And, you know, I'm very thankful for the buybacks and the dividends. But I'm curious on how the plans may or may not change going forward, given the war chest of cash that you have. Is it going to be just more of the same in an occasional small... early stage VC investment in Israeli companies that are related to your business? Can you just give us a color of what your plans are over the next couple of years?
spk02: First of all, the investment in the small, as you said, VCs or startups, which is a link to potential systems for mobility market is something that has nothing with the loan that we took because we do it, you know, it's a Let's say on an arrogant way, it's not the material cash that we use. The main cash needs that we did was to, as you said, to acquire our road track. Now it's the last payment of our loan after these five years. And simultaneously, of course, we increase our cash flow position and cash flow generation. So actually, as we did in the past, we have no any intent to keep the money for nothing in the bank. So first of all, we will do our best to use the money that we generate for growth. It means most of the time for acquisition, for partnerships and things like this. If we'll find it, this is the first priority. But this is not something easy. We are conservative. We don't want just to spend money and say that we did. By the way, regard road track. Today we are very happy that we did it. The contribution of road track, today it's called it run. It's fully merged to the business and integrated and we create a synergy and everything now is as we sought to do And since we did it on a conservative way, it succeeded. If we find something that will be good for our unorganic growth, we will do it first. Of course, if not, or meanwhile, as long as we generate cash, of course, we will let all our shareholders, of course, to benefit from this cash flow. As by the way, we did simultaneously with the debt. Because if you can, for example, take this quarter, you see that almost $7 million went back to the shareholders or by dividends or by buyback. And of course, if we will generate more cash and we will not need it for growth, we will, or at least I will recommend our board, To increase this dividends or buyback, of course, depends on the situation. But we will not keep the money. We always think how to grow with this money.
spk06: Right, right. Okay.
spk02: Well, thank you very much.
spk06: Good luck, guys. Thank you very much.
spk01: I repeat, if there are any additional questions, please press star 1. If you wish to cancel your request, please press star two. Please stand by while we call for more questions. The next question is from Abba Horowitz from Old School Partner. Please go ahead. Thank you.
spk07: Hi, Eyal, and congratulations on a real milestone. This is quite an amazing quarter relative to the last couple years. I wanted to really drill down on the motorcycle opportunity. And if I may ask, are you selling anything to the motorcycle market? And how rapidly do you see this being implemented? And how meaningful can it be to the overall business?
spk02: Okay, so I will divide it for the two different markets. One is the Israeli market, where we for a few years already sell a product and service for motorcycles, but we have to understand that in Israel, which is different than in Latin America, the motorcycle trend is quite low, meaning most of the People buy cars than expensive motorcycles. So the market here in Israel for us is a niche. I mean, we do it with the insurance companies sometimes or with some dealers. But what we realized after we covered a car environment in Latin America, and again, we looked for additional growth segments, we understood that, for example, in Brazil, cars and motorcycle ratio is very, not similar, but almost similar. Millions of motorcycles being sold every year only in Brazil. The situation is that, and this is all around the world, it's very difficult to insure motorcycles. It's more risky to the insurance companies and it's the nature of motorcycle. So the prices of insurance are very high. But on the other end, it's a segment which insurance companies don't want to believe, don't want to leave. And on the other end, the motorcycle dealers and producers want to find a solution for their customers. So we start, of course, reaching this market. And as we did with the finance, as we did with the fleet management in the past, we were the first to build or to develop internally a unit which is very, very customized for a motorcycle driver and a motorcycle which includes application, includes the SVR, includes other sensors which will create benefit to the drivers. And we went with this to the market and we see a lot of attraction now. As every segment, when we start, I'm not saying that tomorrow it will be material because we have already 2.2 million subscribers. It takes time to show something which will be more material for, let's say, to announce it and to see it in the results. But since we believe that this can be something material, something substance in the coming future. This is the reason why I decided to share it today to understand that we found in other segments we do our best to penetrate and to lead this segment specifically in Brazil and in Latin America and really I can't now talk about numbers or who are the potential customers in terms of for manufacture or insurance companies, but we really feel that it will happen and there is attraction and this is I believe will be more substance in the coming or in the future years.
spk07: Okay. Would this mean that using this product now
spk02: insurance company would be more willing to provide a cheaper insurance alternative and that's what this product is doing or would it even would someone get this product without the insurance even okay so some of the some of the this segment I would divide it to two in one hand it's insurance companies that of course with the right solution they will be able to to join, let's call it our ICS, also for motorcycles. And also in Brazil, especially, it's very, very common to rent motorcycles. And the rental companies and the manufacturers actually spread motorcycles around the country for renting, whether it's a hourly renting like right kind of ride-sharing or rent it for like a leasing so in that case those dealers and manufacturers also interesting in a solution to, I would say, to secure their assets. Their assets, they rent it. So they want a solution because a high financial damage is when those motorcycles being steal.
spk07: Okay. And would it be safe to assume that you'll be able to leverage the monitoring part of the business from the same infrastructure that you have currently?
spk02: Of course, everything we do, by the way, in the end of the day, I would say that it ran today, it's a black box first. This black box can get any firmware we want. So when we find a segment, we take the same black box, give it to our R&D people, and then they develop the firmware which will allow this black box to be offered to other segments. So it's like a modules. So in terms of technology, we use always the same technology. That's why we can leverage it. This is why we can create operating leverage for those technology. On the other end, in the service side, when we talk about SVR, this is our speciality. But when we talk about other services, of course, that we do on the job train and we learn what is the needs of the market, but we are a service company. So for us, it's something that we must be excellent. So in the end of the day, of course, we use and integrate always our current infrastructure.
spk07: Okay. And is it the same price as a car would be, or is it cheaper than a car?
spk02: It will be, or it's already a cheaper product. The installation, which is part of the cost, it's also cheaper because the nature of the The nature of the motorcycle for installation is easier than when you are cutting a car to install a unit. But in terms of the service side, it depends what type of services. It's the same as the car. If it's only SVR, whether it includes application, whether you want, for example, as you know, it runs as, or you don't know, I will remind. Three years ago, we acquired a company in Brazil which is a company that developed a car sharing and riding billing and managing solution. So after that, we now offer it as a part of our black box. So in that case, when we talk about renting motorcycles or renting cars, for example, With this technology, we charge more. Depends what is the service that the customer needs.
spk07: Okay.
spk02: Wow.
spk07: Thank you very much, Ayal. Good luck. Thank you. Thank you very much.
spk01: The next question is from Josh Strauss of Peckinhardy. Please, go ahead.
spk06: Hi. Thanks again for taking my call. So you had talked in the past, and I don't know if you talked about it on this call, about reestablishing, maybe not reestablishing long-term, reaccelerating the business you're doing with OEMs in Brazil. And I wondered if there was any additional progress worth noting there.
spk02: Actually, OEM and manufacture is something that the cycle is usually much longer because all the validation that we have to do, and every country, by the way, has to approve from scratch any validation, but I just can say that we are working or we believe that we will succeed to expand our relationship with the current car manufacturers to other geographies. Of course, mainly at the near future in Latin America to other countries. I don't know yet to say which country, what will be the specific contract and quantities, but I know and to tell that we see attraction, we see and we discuss it. And I believe, or at least I want to believe, that we will be able to expand it to other countries based on the OEM segment.
spk07: Okay.
spk06: And what about the progress you're making with financial institutions in Brazil for the subprime customer? I'm trying to get my arms around how... material that opportunity is in the years ahead. I know we're still in the early part of developing that market, but I'm just trying to understand how big that market really can be, both in Brazil and elsewhere, for trying to monitor the subprime customer for insurance companies and what have you.
spk02: Currently, or a month ago, we reported about, I think, a very luxury contract that we did with one of the largest banks in the world, Santander, in Brazil. Santander, on an exclusive basis, will finance cars, and we talk about very important customer base potential through Santander. And this is regarding the Brazilian market currently. Of course, as we know, Santander has offices all around Latin America. So I believe, I want to use this contract to leverage out of Brazil, but for the time now, only this contract is very much mutual, very material for us. And of course, what we see, when I say attraction, When other banks or other finance companies see or learn about the contract that we did with Santander, we see that they, of course, want to find a way to copy it, regard the Brazilian market. The contract with the commercial bank is under exclusivity from both sides. So we will have or we will regard Brazil in the coming years, we will have to, of course, other kind of finance companies, but not a commercial bank. Just to mention that Santander in Brazil is the largest for this segment. Anyway, this is why we decide to go on a close basis. And of course, it's open. I think it's open segments for other banks and other places in the world.
spk06: Josh, is that... Sorry, I just lost you for a second. I heard almost all of it. Great. Thank you very much. I appreciate it. Thanks. Thank you.
spk01: The next question is from Fred Fawkes of Boston University. Please go ahead.
spk00: Good morning. Congratulations on an outstanding quarter and this very informative call. I just was curious, given all the challenges and troubles in your country right now, is that having any impact on worker productivity, recruiting, retention, etc.?
spk02: Actually, no. Actually, no. I think that the situation here in Israel is mainly from the political side. I would say it's not influenced directly by yet. And as I said, it ran also historically when the economy is in a bad shape. So unfortunately, the violence and the cost of freight increasing. And in this situation, the request for our solutions is increasing, and the needs become much more strong. So I'm not Currently, it's not influenced, but I'm not expecting that it will influence. But if you come to Tel Aviv, you will feel that nothing happened, by the way. But, you know, the press is different than the life. But, yes, we have a challenge now here.
spk00: Thank you, and congratulations on your leadership.
spk02: Thank you very much.
spk01: The next question is from Charles Elliott. of IPI. Please go ahead.
spk03: Hi, I'd like to ask about a deal that you announced in July with 99, a ride share company acquired by DD Chuching, where you will provide SVR on their BYD models. And it sounds like a small deal in itself, but I wondered if it could be pretty significant, because this would be your, Itoran's, first step into being a platform for car sharing.
spk02: Just from a curious point, what did you mean? Where did we report it?
spk03: It was in a Brazilian newspaper, I think it was on 28th of July.
spk02: Okay, we didn't, of course, we didn't report it from, you know, for the NASDAQ and SEC aspects because it's not a material deal currently, but you're right. BYD launched their brand in Brazil together with us, and what they did is was a kind of mutual, I would say, mutual marketing way. As I said, BYD spread cars around Sao Paulo in order to rent it on an hourly or daily rent. And they need our units in order to control it, to build it, and of course to secure it. So we are their partners for Brazil. But at this stage it was, I would say, a BYD marketing or BYD penetration program, so it's not yet something that we can say that it will lead, for example, to an OEM deal in Brazil, but we've been chosen as their partners for this specific campaign. For the future, let's see. Of course, it's a very luxury transaction, very luxury relationship. because we know that BYD is now in a very strong penetration also to Latin America. But it's just started. And as I said, OEM deals is something which has long cycles. But we also think for the long way and for the marathon and for the long future. So we started with this. We have nothing to announce now. But for the future, we will see what happens.
spk03: Great. Thank you.
spk01: There are no further questions at this time. Before I ask Mr. Shirazki to go ahead with his closing statement, I would like to remind all participants that a replay of this call will be available tomorrow on Ituran's website at www.ituran.co.il. Mr. Shirazki, would you like to make your concluding statement?
spk02: Yes. On behalf of our management of Ituran, I would like to thank you, our shareholders, 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, please feel free to reach out to our investor relations team. And with that, we end our call. Thank you and have a good day.
spk01: Thank you. This concludes Ituran's second quarter 2023 results conference call. Thank you for your participation. You may now go ahead and disconnect.
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