Ituran Location and trol .(ITRN) - 2019 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Non-GAAP revenues for Q2 2019 were $72.2 million, a 25% increase from $57.7 million in Q2 2018. In local currency terms, revenue would have grown by 33% year-over-year [18] - Adjusted EBITDA for the quarter was $20.6 million, a 15% increase compared to $17.8 million in Q2 2018. In local currency terms, the increase was 24% year-over-year [19] - Net profit was $9.6 million, or fully diluted EPS of $0.46, a decline of 20% year-over-year compared to $12 million, or EPS of $0.57 in Q2 2018 [20] - Cash flow from operations during the quarter was $16.3 million, with cash including marketable securities of $62.8 million and debt of $76.2 million, resulting in a net debt position of $13.4 million [21] Business Line Data and Key Metrics Changes - The aftermarket subscriber growth rate exceeded 20,000 in Q2 2019, returning to strong growth levels seen in previous years [4] - The active subscriber base at the end of Q2 was 1,757,000, with 1,250,000 from retail and 507,000 from OEM. The company added 21,000 aftermarket subscribers but experienced a decline of 47,000 OEM subscribers due to a reduction in the free trial period [13] - Subscription fees contributed $52.7 million, a 27% year-on-year increase, while product revenues were $19.6 million, a 21% increase over the same quarter last year [18] Market Data and Key Metrics Changes - Geographic revenue breakdown for Q2 was 38% from Israel, 38% from Brazil, and 24% from the rest of the world [18] - The company noted significant currency impacts, particularly from the Brazilian real and Argentinian peso, affecting revenue translation to U.S. dollars [13] Company Strategy and Development Direction - The company aims to leverage its new usage-based insurance (UBI) product as a significant growth vector across all regions [9] - The Road Track acquisition is intended to enhance the company's footprint as a major telematics player throughout Latin America [11] - The company is focused on cross-selling capabilities to newly acquired customers and expanding services into new countries [14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in improved financial performance towards the end of 2019 and into 2020, citing strong aftermarket subscriber growth and successful implementation of dynamic pricing in Brazil [4][14] - The management acknowledged challenges in the OEM segment due to economic conditions in Brazil but remains optimistic about stabilizing subscriber numbers [32] Other Important Information - A dividend of $5 million was declared for Q2 2019, with a record date of September 26, 2019, and payment scheduled for October 10, 2019 [22] - The company has initiated a $25 million share buyback program approved by the Board [16] Q&A Session Summary Question: Insights on aftermarket subscriber growth exceeding expectations - Management attributed the growth to the successful launch of a dynamic pricing system in collaboration with insurance companies in Brazil, which allowed for more customer recruitment and profitability [25] Question: Outlook on margin expansion in the aftermarket business - Management indicated that while subscriber growth is expected to continue, the financial results will take time to reflect this growth due to the fixed cost structure [28][29] Question: Impact of OEM subscriber decrease - The decrease was primarily due to a reduction in the free trial period by an OEM customer in Brazil, which led to a one-time drop in subscribers [31] Question: Expectations for OEM subscriber numbers in Q3 - Management expects OEM subscriber numbers to stabilize in Q3, with no further significant declines anticipated [35][52] Question: Clarification on gross margin trends - Management explained that recent declines in gross margin were due to the slow growth in Brazil, but they expect margins to improve as subscriber numbers increase [42][47]