Ituran Location and trol .(ITRN) - 2019 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Non-GAAP revenues for Q4 2019 were $66.2 million, a decrease of 17% compared to $79.4 million in Q4 2018 [17] - Non-GAAP operating profit for Q4 2019 was $11.8 million, down from $18.9 million in Q4 2018 [18] - Non-GAAP net profit for Q4 2019 was $6.6 million, or fully diluted EPS of $0.31, compared to $12 million or EPS of $0.56 in Q4 2018 [19] - Revenues for the full year 2019 were $283 million, an increase of 12% compared to $253.6 million in 2018 [20] - Non-GAAP net income for 2019 was $33.3 million, or fully diluted EPS of $1.58, down from $47.8 million or EPS of $2.27 in 2018 [21] Business Line Data and Key Metrics Changes - The aftermarket business in Israel added approximately 20,000 net subscribers in Q4 2019, marking a recovery [5] - The OEM business in Brazil and Argentina faced challenges, with a decline of 22,000 subscribers in Q4 2019 due to reduced free trial periods [18][12] - Product revenues for Q4 2019 were $15.8 million, a 34% decrease compared to the same quarter last year, primarily due to lower contributions from the OEM business [18] Market Data and Key Metrics Changes - Geographic revenue breakdown for Q4 2019: Israel 43%, Brazil 31%, rest of the world 26% [18] - The aftermarket business in Brazil is expected to continue its recovery, while the OEM business is projected to face ongoing challenges [10][12] Company Strategy and Development Direction - The company aims to leverage its usage-based insurance (UBI) offering in Israel to drive subscriber growth and revenue [7] - Plans to expand the ICS program in Mexico, with expectations for significant revenue impact in 2021 [11] - The company is focusing on cost-cutting measures in Brazil and Argentina to improve margins in the OEM segment [14] Management's Comments on Operating Environment and Future Outlook - Management believes Q4 2019 represents the bottom and expects sequential growth throughout 2020 [4][15] - The company anticipates that the impact of the coronavirus will shift some revenues from Q1 to Q2 2020, but does not expect significant direct effects [14] - Management is optimistic about growth in the Indian market, with ongoing pilots and negotiations [16] Other Important Information - The company declared a dividend of $5 million for Q4 2019, with a record date of March 24, 2020 [22] - As of December 31, 2019, the company had cash of $54.3 million and debt of $67.9 million, resulting in net debt of $13.6 million [21] Q&A Session Summary Question: Can you run us through the dynamics through the different geographies? - Management indicated that Q4 was the bottom for results, with expectations for recovery in the aftermarket in Brazil and ongoing challenges in the OEM segment [25][30] Question: What triggered the impairment at Road Track? - The impairment was due to accounting requirements following the acquisition, influenced by reduced forecasts in the Brazilian and Argentinian markets [32][33] Question: Could you update us on the OEM renewal rates? - Renewal rates remain around 35%, but absolute numbers have decreased due to challenges in Brazil and Argentina [36] Question: How should we think about the dollar magnitude of cost synergies in 2020? - Management could not provide specific numbers but expects benefits from cost-cutting measures to materialize in 2020 [37] Question: How do you see the shift in the OEM business impacting margins? - While hardware sales have lower margins, the overall OEM business is expected to see higher margins as the company integrates its teams and operations [39] Question: Can you provide an update on the Indian market? - The Indian market is currently in pilot mode, with expectations for significant deals in 2021 based on current negotiations [49]