Ituran Location and trol .(ITRN) - 2022 Q4 - Annual Report

Financial Performance - Total revenues for 2022 reached $293.07 million, a 8.2$270.88 million in 2021[32] - Telematics services revenue grew to $209.56 million in 2022, up 10.5$189.65 million in 2021[32] - Net income attributable to company stockholders increased to $37.10 million in 2022, up 8.3$34.26 million in 2021[32] - Gross profit margin improved to 46.9% in 2022 from 47.2% in 2021[32] - Dividend declared per share decreased to $0.56 in 2022 from$0.90 in 2021[33] - Total revenues for Telematics services in 2022 were $209.6 million, compared to$189.6 million in 2021 and $182.9 million in 2020[210] - Total revenues for Telematics products in 2022 were$83.5 million, compared to $81.3 million in 2021 and$62.7 million in 2020[210] - Israel generated $103.3 million in Telematics services revenue in 2022, up from$96.5 million in 2021 and $85.1 million in 2020[210] - Brazil generated$66.7 million in Telematics services revenue in 2022, up from $55.2 million in 2021 but down from$60.0 million in 2020[210] Subscriber and Market Growth - Subscribers of telematics services reached 2.066 million in 2022, a 9.8% increase from 1.881 million in 2021[34] - The company's telematics services accounted for 71.5% of its revenues in 2022, with approximately 738,000 subscribers in Israel, 558,000 in Brazil, and 770,000 in other countries as of December 31, 2022[103] - The company had approximately 738,000 subscribers in Israel as of December 31, 2022[125] - In Brazil, the company had approximately 558,000 subscribers as of December 31, 2022[125] - The company had approximately 770,000 subscribers in countries excluding Israel and Brazil as of December 31, 2022[126] - The company's telematics services subscriber base grew to 2,066,000 in 2022, up from 1,881,000 in 2021, with Israel contributing 738,000 subscribers[208] - The company's Brazilian market continues to show growth potential due to high car theft rates and demand for telematics services[205] Operational Costs and Expenses - Research and development expenses increased to $16.85 million in 2022, up 19.5$14.10 million in 2021[32] - Cash and cash equivalents decreased to $28.17 million in 2022 from$54.71 million in 2021[33] - Total assets stood at $290.93 million in 2022, slightly down from$293.02 million in 2021[33] - Capital expenditures in 2022 were $26.5 million, primarily for operational equipment, compared to$16.6 million in 2021 and $10.2 million in 2020[100] - Telematics services cost of revenues includes staffing, maintenance, operation of control centers, and communication costs[213] - Telematics products cost of revenues primarily consists of production costs from third-party manufacturers and installation fees[214] - Research and development expenses are primarily for salaries, materials, and overhead related to telematics product design and development[215] - Selling and marketing expenses include advertising, salaries, commissions, and promotional expenses[216] - General and administrative expenses consist of salaries, bonuses, and accounting costs[217] Risks and Challenges - The company relies on third-party intellectual property licenses for SVR services and telematics products, and the loss of these licenses could adversely affect revenues[50] - The company's telematics products depend on government-issued radio frequency licenses, and third-party use of these frequencies could disrupt operations and increase costs[51] - The company's SVR services business model depends on specific market conditions, and the absence of these conditions could harm revenues and growth potential[52] - The company outsources telematics product manufacturing to third parties, and any disruption in manufacturing could impact revenues and profit margins[54] - The company faces potential annual costs of up to$4 million USD due to the cancellation of Generation 2.0 technology in Israel starting in 2026[58] - The company has increased inventory orders for semiconductors to 12 months in advance due to shortages, leading to higher product costs[67] - Inflation and rising interest rates in key operating territories have increased financing and operational costs, potentially impacting financial results[68] - The company is subject to a class action lawsuit in Israel claiming damages of approximately $85.2 million USD, which could significantly impact operations if unsuccessful[71] - The company operates base sites in Israel, Brazil, and Argentina without full compliance with local building permits, risking enforcement actions that could disrupt network coverage[74] - Currency fluctuations in multiple operating countries may result in valuation adjustments and negatively impact financial results[76] - The company is considered a monopoly in Israel under the Israeli Antitrust Law, potentially facing financial sanctions of up to NIS 100 million (approximately$28.4 million) or 8% of annual revenues for breaches[81] - In Argentina, most of the company's base sites operate without local Municipality permits, risking fines and potential closures[177] Acquisitions and Investments - The company completed the acquisition of Road Track Holding S.L. (now Ituran Spain Holdings S.L.) for a total cost of $103 million, combining shares and cash[98] - The company holds a 16.9$1 billion following a $100 million funding round in 2021[183] - The company invested$1.7 million in SaverOne, holding approximately 3.2% of its share capital, with a fair value of $0.2 million as of December 31, 2022[184][185][186] Geographic and Market Operations - The company operates in multiple markets, including Israel, Brazil, Argentina, Mexico, Ecuador, Colombia, the United States, and Canada, with additional services provided through distributors[96] - The company's "Connected Car" service is operational in Israel, Brazil, Colombia, Mexico, Argentina, and Ecuador[135] - The company's "Usage Based Insurance" (UBI) service is implemented and marketed by the majority of insurance companies in Israel[136] - The company's stolen vehicle recovery system operates in Israel, Brazil, Mexico, Colombia, Ecuador, and Argentina, with private enforcement units in these regions[114] - The company operates in multiple countries including Israel, the US, Brazil, Argentina, Mexico, Ecuador, and Colombia with a diverse range of competitors[148] - In Colombia, the company pays 2.2$200 to $2,200 per site[200] ESG and Corporate Governance - The company is committed to ESG practices, including ethical business conduct, anti-corruption policies, and diversity initiatives[156][157][158][159][160] - The company holds trademarks such as "Ituran" and "Mr. Big" registered in multiple jurisdictions[155] Real Estate and Leasing - The company leases 64,750 square feet of office space in Israel for$1,323,000 annually, with the lease ending in April 2029[192] - In Argentina, the company leases 8,611 square feet of office space for AR$12,772,992 ($98,253) annually[193] Customer and Service Metrics - The company provides fleet management services to approximately 504,000 end-users through corporate customers and 24,000 distributors as of December 31, 2022[106] - The company's stolen vehicle recovery (SVR) services are used by individual vehicle owners, car manufacturers, and insurance companies, with some insurance companies directly subscribing on behalf of their customers[105] - The company's value-added services include 24-hour on-demand navigation guidance, traffic reports, and concierge services in Israel, Argentina, Ecuador, Colombia, and Brazil[107] - The company provided fleet management services to approximately 504,000 corporate customers and individuals as of December 31, 2022[132] - The company anticipates at least 90% of subscription fees from the prior quarter will recur in the following quarter, based on a historical average churn rate of 3% per month[211] Manufacturing and Supply Chain - Manufacturing operations are conducted in Israel and China, with ISO 9001 certification and high automotive standards ensuring product reliability[150] - The company relies on single or limited sources for several components, maintaining strong supplier relationships to secure favorable pricing and access to latest technologies[151] - The company's telematics products segment includes short- and medium-range two-way telematics products, integral to its telematics services[204]