Ituran Location & Control Ltd. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Quarterly Performance: Fourth quarter showed year-over-year growth in revenue and profit across geographies. Local currency growth outpaced US dollar-denominated results. 40,000 net subscriber adds in the quarter, third consecutive quarter above or at the top of expectations.
• Strategic Partnerships: In India, JV with Lumax concluded a validation and trial with Daimler India Commercial Vehicles, expecting to sell tens of thousands of connected devices annually. In Chile, signed a five-year contract with Nissan, and in Mexico, awarded Nissan's supplier of the year in the after-sales accessory category. Actively discussing with major OEM manufacturers in South America.
• Product Launches and Growth: Usage-based insurance business in Israel gaining traction. Motorcycle product launched in 2024 has strong traction in South American geographies.
• Dividend Increase: Board increased quarterly dividend payment by 25% from $8 million to $10 million per quarter, citing strong profitability, cash flow, and balance sheet.

Segment Performance

• Fourth Quarter 2024: Revenues were $82.9 million, a 7% increase year-over-year (11% growth in local currency). Subscription fees revenue was $61.5 million (4% year-over-year growth, 9% in local currency), accounting for 74.2% of total revenue. Product revenues were $21.3 million (16% year-over-year growth, no change in local currency), accounting for 25.8% of total revenue. The subscriber base reached 2,409,000 by the end of the quarter, an increase of 40,000 from the previous quarter. Geographic breakdown of fourth-quarter revenues: Israel 52%, Brazil 25%, Rest of world 23%.
• Full Year 2024: Revenues were a record $336 million, a 5% increase over 2023. Subscription fees revenue was $242.5 million (3% year-over-year growth, 7% in local currency), accounting for 72% of total revenue. Product revenues were $93.8 million (10% year-over-year growth, 10% in local currency), accounting for 28% of total revenue. EBITDA for 2024 was $91.3 million (27.1% of revenue), net income was $53.7 million, and cash flow from operations was $74.3 million. The company had a net cash position of $77.3 million as of December 31, 2024.

Guidance

• Subscriber Growth: Expect subscriber adds in 2025 to accelerate to between 180,000 and 200,000, over 20% ahead of 2024 rates.
• EBITDA: Due to significant currency volatility since the prior guidance issuance, providing US dollar-denominated EBITDA target is not meaningful; focus remains on subscriber growth.
• Dividend: Quarterly dividend increased to $10 million per quarter, reflecting strong profitability and cash flow.

Risks

• Currency Impact: Strengthening of the US dollar versus local currencies (e.g., Brazilian real, Mexican peso) negatively impacted financial results when denominated in US dollars.
• Volatility: Ongoing currency volatility makes predicting US dollar-denominated EBITDA targets difficult as currencies are out of the company's control.

Q: In the press release, you mentioned product mix impacted on gross margin. Could you put some colors about that? Is the primary effect from sales for two-wheeled vehicles?

A: The gross margin is affected by product mix. It depends on what is sold in various regions and products. There is volatility between quarters, and product mix is the main effect.

Q: You outlined a pretty positive subscriber base growth expectation. What is the main point of growth you see over the year 2025, I mean?

A: Divided by geographies: Israel - gaining market share due to high car theft rate and usage-based insurance growth; Brazil - motorcycle solution traction and expanding finance segment with banks; OEM - attracting more international brands and broadening services to existing OEMs in South America.

Q: So you still expect $100 million EBITDA in 2025, is that right?

A: The US dollar-denominated guidance was set a year ago, but currency volatility since then makes it not meaningful. Currencies have changed significantly, and with natural hedges in local operations, profit in each region is more visible, so EBITDA target based on currencies is not useful.

Q: Are you going to increase subscription fees in 2025? And if yes, what rate should we expect in local currencies for Israel and Brazil?

A: We always consider pricing, but there is no new decision currently. Pricing will be reviewed along the year based on profitability and costs.

Q: Can you comment on the contribution of the OEMs of subscribers versus retail?

A: OEM part grows at lower margins compared to retail. Major growth still comes from retail, but working to attract more OEM contracts which will contribute in 2025.

Q: You pointed out traction in the new products, but could you give us a sense of how much the new products represent in revenues versus total product traditional product?

A: New products like usage-based insurance, motorcycles, and finance with banks have contributions but are not very high yet. Specific ratios of new products to traditional products are not disclosed.

Q: In this first quarter, there was a growth of 7% in your subscribers, but 9% in constant currency in revenues from subscriptions. So is there any particular product or increase in prices you can point out that contributed to this increase in ARPU in constant currency?

A: No specific reason other than currency exchange effect. Prices in local currencies are mostly stable.

Q: How should we think on the ARPU excluding the currencies effect for 2025 given your increase in the number of subscriber additions?

A: With a 2.4 million customer base and expected growth, the mixture of growth (some lower ARPU from new solutions and OEM contracts) will have very little influence on absolute ARPU.