Ituran Location and trol .(ITRN) - 2020 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenues for Q1 2020 were $68.4 million, a decrease of 7% compared to $73.6 million in Q1 2019, but an increase of 4% from the previous quarter [25] - Subscription fee revenues were $49 million, representing an 8% decrease year-over-year and a 1% decrease from the previous quarter [26] - Net income for Q1 2020 was $6.4 million, or 9.3% of revenues, a decrease of 21% compared to $8.1 million in Q1 2019, but an increase of 29% from the previous quarter [31] - Operating income was $10.1 million, or 14.7% of revenues, a decrease of 25% year-over-year but an increase of 3% from the previous quarter [29] Business Line Data and Key Metrics Changes - The subscriber base amounted to 1,794,000 as of March 31, 2020, with 17,000 new aftermarket subscribers added, while the OEM subscriber base declined by 4,000 [27] - Product revenues were $19.4 million, a decrease of 5% compared to Q1 2019 but an increase of 22% from the previous quarter [27] Market Data and Key Metrics Changes - In Israel, aftermarket business remained stable until March, with new car sales down 35% in March and 90% in April due to the pandemic [10][15] - In Brazil, new car sales were down 22% in March and 77% in April, reflecting significant economic weakness [15] Company Strategy and Development Direction - The company aims to expand its usage-based insurance (UBI) offerings beyond Israel into Argentina and Brazil, having signed agreements with multiple insurance companies [12][14] - Cost-cutting measures include salary reductions of up to 30% and a suspension of dividend payments to preserve cash [19][20] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about returning to growth once the pandemic's impact subsides, highlighting the resilience of the business model with a strong subscriber base [22][23] - The company expects Q2 2020 to see the most significant impact from the pandemic, with EBITDA projected to decline by 10% to 20% compared to Q1 [22] Other Important Information - The company had cash and marketable securities of $50.1 million and net debt of $13.4 million as of March 31, 2020 [33] - The company repurchased a total of 227,828 shares amounting to approximately $6 million [34] Q&A Session Summary Question: Recovery expectations in Israel vs. Brazil - Management indicated that Israel is expected to recover more smoothly than Brazil due to the timing of the pandemic and the reopening of car dealerships [36][38] Question: Headcount reductions and cost savings - Management clarified that most cost reductions came from salary cuts rather than layoffs, with some temporary reductions in workforce due to decreased service needs [42][44] Question: Magnitude of cost savings in Q2 - Management stated that significant cost reductions were implemented to offset expected declines in revenue, with a conservative estimate of a 10% to 20% decline in EBITDA for Q2 [46][47] Question: OEM business pressures - Management noted that the OEM business in Brazil and Argentina was already under pressure before the pandemic, and the situation is expected to worsen due to the decline in car sales [48][49] Question: Currency impact on financials - Management acknowledged a currency impact of around $0.5 million in Q1 2020 compared to the previous year, primarily due to the weakness of the Brazilian real [52] Question: Use of capital and dividends - Management emphasized a conservative approach to capital use, focusing on preserving cash and being prepared for potential market opportunities [53] Question: Subscriber growth expectations - Management expressed cautious optimism about subscriber growth in Q3, contingent on market conditions improving [56][58]