Ituran Location and trol .(ITRN) - 2019 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Non-GAAP revenues for Q3 2019 were $70 million, a 31% increase from $53.4 million in Q3 2018, with local currency growth at 33% year-over-year [18] - Non-GAAP operating profit for Q3 2019 was $13.7 million, slightly below the $14 million reported in Q3 2018, with local currency profit unchanged year-over-year [20] - Non-GAAP net profit was $7.8 million in Q3 2019, down from $12.5 million in Q3 2018, resulting in a fully diluted EPS of $0.37 compared to $0.60 [20] Business Line Data and Key Metrics Changes - The aftermarket business in Israel showed stable performance with a leading market share, while new car sales remained similar to 2018 levels [5][6] - In Brazil, the aftermarket business faced growth challenges, but net subscriber additions returned to over 20,000 per quarter as of mid-2019 [10] - The OEM business in Mexico faced challenges due to the discontinuation of 2G networks, but customers have started using 3G systems as of October [12] Market Data and Key Metrics Changes - Revenue breakdown for Q3 2019: Israel 40%, Brazil 34%, and the rest of the world 26% [19] - The aftermarket in Mexico is expected to launch in the second half of 2020, with positive impacts anticipated in 2021 [11] Company Strategy and Development Direction - The company aims to provide a financial breakdown of its two main business segments starting from Q4 2019 to enhance performance analysis [4] - Ituran is focusing on expanding its aftermarket business model into new geographies following the acquisition of Road Track, while also seeking cost synergies to improve margins [15][50] - The company is positioning itself as a leading mobility technology investor in Israel, with plans to leverage technological advancements in the consumer-oriented mobility market [17] Management's Comments on Operating Environment and Future Outlook - Management described 2019 as a transition year with various challenges, but expressed optimism about overcoming these hurdles and improving visibility in 2020 [56][58] - The management acknowledged the impact of economic conditions in Brazil and Argentina on OEM business, but emphasized efforts to maintain margins and subscriber retention [23][30] Other Important Information - Cash flow from operations during Q3 2019 was $11.5 million, with cash and marketable securities totaling $56.5 million and debt at $74.5 million [20] - A dividend of $5 million was declared for Q3 2019, with a record date of December 24, 2019 [21] Q&A Session Summary Question: OEM situation in Brazil and subscriber numbers - Management indicated that while subscriber numbers are stable, ARPU is expected to decline due to changes in the free trial period and economic conditions [22][23] Question: Subscriber retention rates - Retention rates post-free trial are above 35%, which is considered successful compared to industry standards [27][28] Question: Impact of reduced free trial period on Q3 results - The change from a six-month to a three-month free trial period had a significant impact, with a revenue decline closer to $1.5 million in Q3 [33] Question: Growth expectations in Mexico - The company is cautiously optimistic about the growth potential in Mexico, expecting significant growth in 2021 and 2022 as market education progresses [36][37] Question: Update on Road Track acquisition - Management believes the acquisition was strategically sound, providing a platform for expansion into new markets despite current challenges in Brazil [50][52] Question: Visibility on future performance - Management acknowledged that 2019 has been a transition year affecting visibility, but expects improved clarity and performance in 2020 [56][58]