Ituran Location and Control Ltd. (NASDAQ:ITRN) Q2 2023 Earnings Call Transcript
Ituran Location and Control Ltd. (NASDAQ:ITRN) Q2 2023 Earnings Call Transcript August 15, 2023
Ituran Location and Control Ltd. beats earnings expectations. Reported EPS is $0.61, expectations were $0.53.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Ituran’s Second Quarter 2023 Results Conference Call. [Operator Instructions] 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.ituran.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?
Kenny Green: Thank you, operator. Good day to all of you and welcome to Ituran’s conference call to discuss the second quarter 2023 results. I would like to thank Ituran’s management for hosting this conference call. With me on the line today are Mr. Eyal Sheratzky, CEO; Mr. Udi Mizrahi, Deputy CEO and VP Finance; and Mr. Eli Kamer, CFO of Ituran. 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 with that, Eyal, would you like to begin, please?
Eyal Sheratzky: 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 as so far been an excellent year for Ituran. Ituran’s business is in strong growth sales with the subscriber base growing twice as fast as we grow 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 added net income or EBITDA at 4-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 are 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 grew 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 continued 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 aim to broaden the Brazilian car ownership market by faciliating the credit approval for automatic financing with Ituran Telematics Services and Santander’s financing at attractive rates and credit insurance. These new deals demonstrate 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 set 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 contributed to an increase in car set 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.
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Finally, we’ve launched a new product in Latin America, focused on connectivity of stolen vehicle recovery for the motorcycle market, which is a new sector for us. In 2022, only, there were an estimated record 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 a record year for Ituran 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 seen that 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 found the set 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 results in our economic environment. Looking ahead, we expected 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 the positive trend will continue throughout 2023 and beyond. And with that, I hand over to Eli. Eli, please go ahead.
Eli Kamer: 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 of 2022 revenues. In local currency, the year-over-year growth was 17%. Prior base amounted to 2,162, 000 as of June 30, 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 aftermarket 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 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 revenue 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 revenue 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 growth was 44%.
Cash flow from operations for the second quarter of 2023 was $17.5 million. On the balance sheet, as of June 30, 2023, the company had cash, including marketable securities of $34.5 million 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 31, 2022. For the second quarter of 2023, a dividend of $3 million was declared. In the second quarter, under our share buyback program, is one purchased – 165,138 shares for a total of $3.5 million. Share repurchases were funded by available cash and repurchases of Ituran 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?
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