Ituran Location and Control Ltd.

Ladies and gentlemen, thank you for standing by. Welcome to the Ituran's first quarter 2024 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 Ituran'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.eturan.co.il. I would now hand over the call to Mr. Kenny Green of EK Global Investor Relations. Mr. Green, would you like to begin?

Thank you, Operator Sam. Good day to all of you and welcome to Iteran's conference call to discuss the first quarter 2024 results. I would like to thank Iteran's management for hosting this conference call. With me online today are Mr. Eyal Sharadsky, CEO, Mr. Udi Mizrahi, Deputy CEO and VP Finance, and Mr. Eli Kamar, CFO of Iteran. Eyal will begin with a summary of the quarter's results, followed by Eli with a summary of the financials. We'll then open the call for the question and answer session. I'd 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 begin.

Thank you, Kenny. I'd like to welcome all of you to our first quarter 2024 call, and I would like to thank you for joining us today. We are pleased with our results, especially in the ongoing growth in revenues and continued improvement in profits, as well as the additional net subscribers we brought in the quarter. which came in at the high end of our expectations. As our strong financial results demonstrate, our business remains in good shape and continues to be resilient against challenges. I also want to highlight that part of our resilience is due to it being a globally diverse business with a loyal subscribers of 2.3 million customers in Israel, Brazil, and other countries in Latin America and around the world. Our subscriber base added 39,000 subscribers in the quarter, at the high end of our expectation of between 35,000 and 40,000 net new subscribers per quarter. This is well in advance of the long-term rate we had in prior years, which was typically between 20,000 and 25,000 per quarter, and has come about due to our more diverse global footprint, as well as the new service we continue to bring to our end markets. I would like to highlight what is happening in the Israeli market. In recent quarters, we've seen a steady rise in theft rate, which has somewhat intensified in the last quarter. As a result, insurance companies are pushing their customers to install an SVR unit and connect to the theft prevention service, even in vehicles that are not new or have a lower initial value than in the past. The outcome of this is that SVR penetration has gone up and our time has grown and we, as the clear market leader, are enjoying an accelerated growth of subscribers in Israel. Given the strong net cash position of $53.9 million, our ongoing growth and our solid profitability, we are pleased to again declare a quarterly dividend of $8 million in line with the dividend policy we updated just last quarter. We are very pleased to share the fruits of our success, and we see our ongoing dividends a reward to our loyal shareholders for their long-term support of our company. Given the stability of our business, last quarter we began to provide EBITDA guidance in addition to the guidance on subscriber growth, which we used to do. As a reminder, for 2024, Our guidance is fully EBITDA of between $90 and $95 million, and we expect to cross the $100 million EBITDA landmark in 2025. We believe that our first quarter results put us well on track, and we reiterate this expectation. We expect subscriber growth to continue growing at around current rates of between 35 and 40,000 net new subscribers per quarter. I note that these expectations are as of today. Our EBITDA expectations are based on relevant currency levels remaining around current average rates and assume that current global macroeconomic situation globally and political situation specifically in Israel do not significantly worsen. In summary, the first quarter of 2024 has started very well with solid performance and we believe that 2024 will continue on this trend. I believe that our constantly growing subscriber growth will continue to translate into increased revenues, increased gross profit, with faster growing profitability over the long term due to the operating leverage inherent to our business. And with that, I hand over to Eli. Eli, please go ahead.

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. First quarter revenues were $85 million, a 7% increase compared with revenue of $79.5 million last year. Revenues from subscription fees in the quarter were $60.9 million, an increase of 9% over the first quarter of 2023 revenues. Product revenues in the quarter were $24.1 million, an increase of 2% year-over-year. The subscriber base expanded to 2,291,000 by the end of the first quarter, an increase of 39,000 from the end of the previous quarter. During the quarter, there was an increase of 33,000 net in the aftermarket subscribers base and an increase of 6,000 net in the OEM subscribers base. The geographic breakdown of revenues in the first quarter was as follows. Israel, 52%, Brazil, 26%, rest of the world, 22%. EBITDA for the quarter was $22.3 million, or 26.3% of revenues, an increase of 7% compared with EBITDA of $20.8 million, or 26.2% of revenues in the first quarter of last year. Net income for the first quarter was $13 million, or diluted earnings per share of 66 cents, an increase of 15% compared to $11.4 million or diluted earnings per share of 56 cents in the first quarter of last year. Cash flow from operations for the first quarter of 2024 was $11.4 million. As of March 31, 2024, the company had cash including multiple securities of 54.2 million dollars and debt of 0.3 million dollars amounting to a net cash position of 53.9 million dollars. This is compared with cash including marketable securities of 53.6 million dollars and debt of 0.6 million dollars amounting to a net cash position of 53 million dollars as of year end 2023. The Board of Directors declared a dividend for the quarter of $8 million in line with the company's recently updated dividend policy, which was increased by 60% in the previous quarter. The current dividend takes into account the company's continuing strong profitability, ongoing positive cash flow, and strong balance sheet. And with that, I'd like to open the call for the question and answer session.

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 that they are received. Please stand by while we pull for your questions. The first question is from Chris Ramer of Barclays. Please go ahead.

Yeah, hi, thanks for taking my questions and congratulations on the strong results. I wanted to ask if you could comment about the product mix specifically as it pertains to the gross margin and any comment on moving parts around that would be helpful.

Hi, so basically during the first quarter of 2024, our sales, which derived from the Israeli market, was much higher than the average since we had to compensate Q4 when the war here started and there was almost a shutdown of two months, which were October and November. So I think that it's not a typical... quarter in terms of the ratio between the sales and the services. This is basically the major difference. It's not represent forward this sales amount.

Got it. And more specifically also around Israel, can you comment on any of the trends you're seeing versus last quarter, and if maybe you're seeing some traction that's outperforming your expectations?

Yes, so the situation in Israel didn't start because of the war, so it's kind of a trend that started soon after the COVID and it's ramped up in the last two years and today we are facing a material, I would say, growth in cost of freight. When cost of freight is high, it means that the insurance companies are increasing the insurance premiums and they also much more need security solutions for the car to prevent these car thefts. And in that case, when we are the dominant player in Israel by providing this solution, we see a high attraction, high request. And as I said in my speech, we are even facing something that we never faced in the 30 years since the inception of the company, is that even car models, which let's call it secondhand, that when they were bought as a brand new car three and five years ago, and they didn't install security and an SBR solution, today, when they come to renew their insurance policy, they are required to put location and SBR solutions. And it means that, as you mentioned, we are seeing growth in Israel, which is... more than we expected for DCU. Yes.

That's great. Thanks. That's it for me.

Ladies and gentlemen, 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 Boris Schneider of More Mutual Funds. Please go ahead.

Yes, hi. Just a question on your 20S on the growth in Brazil, which is actually even higher than the growth in Israel. So if you could speak on what's driving that and how do you see this going forward?

Just to be clear the 20F is actually representing the year 2023 and I can of course give information regarding 2023 and as you remember during the end of 22 we signed a contract with Santander Bank regard providing a solution for finance, finance that they provide for car buyers, and this support our growth in Brazil in 2023. It's continued, by the way, because it's under the contract also in 2024, but we have to take into consider that there is always after 18 months, this is the contract's adjourn, So the growth from Santander, by definition, will decrease. Although we are selling the same quantities, but the growth is not the same as when the contract started, because always at the beginning there is no churn. After 18 months the churn has come. So I'm not expecting that 24 in Brazil will be the same growth as it was in 23. But on the other segments, we are not seeing any dramatic changes, meaning we continue to sell our retail solution. There is always some volatility between months and the expectations are to keep the same numbers. And looking forward, we are doing a lot of, I would say, work in order to penetrate new segments. and expand the financial customers. So talking for a mid and longer term, I am expecting that we will continue to show growth in Brazil as well.

Okay. And previously you mentioned also in your last several calls, I think you mentioned on the insurance of the... motorcycles, which is the vertical that you do penetrate in Brazil. Is there any update on this?

Yes, of course. There is no update. We just started to sell solutions for motorcycles. It's something quite new, so it still has a dramatic influence on our subscriber base in Brazil, but we see again that it's ramping up. And I believe that, as always, when you issue a new solution for a new segment, and we are talking about subscribers, and when the company has 2.3 million, so it's taking time until it's something that has become more material. So I believe that during 2025, 2026, the motorcycle segments will support the additional growth that we expect.

And the last final question, in terms of gross margin for your product, it was low, even lower than during the crisis of the supply chain. How should you think about the future quarters?

Yeah, it was a little bit low, like 4% less, but you need to remember that usually there is a mixture of products that we are selling all over the country. So basically this is the range more or less of let's say gross margin of 20%, a little bit up or down, but that's the range.

Thanks.

There are no further questions at this time. Before I ask Mr. Shiratsky to go ahead with his closing statement, I would like to remind participants that a replay of this call will be available tomorrow on Ituran's website at www.ituran.co.il. Mr. Sheratsky, would you like to make your closing statement?

Yes. On behalf of the 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 speak with some of you over the coming quarters. If you are interested in meeting or speaking with us, feel free to to reach out to our investor relations team. And with that, we end our call. Thank you and have a good day.

Thank you. This concludes the first quarter of 2024 results conference call. Thank you for your participation. You may now go ahead and disconnect.