Ituran Location and Control Ltd. (ITRN) Q3 FY2025 Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. My name is Kenny Green. I'm part of the Investor Relations team at Ituran. I would like to welcome all of you to Ituran's results Zoom webinar, and I would like to thank Ituran's management for hosting this call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded, and the recording will be available from the link in the earnings press release and on Ituran's website from tomorrow. With me today on the call are Mr. Eyal Sheratzky, CEO; Mr. Udi Mizrahi, Deputy CEO and VP Finance; and Mr. Eli Kamer, CFO of Ituran. Eyal will begin with a summary of the quarter's results, followed by Eli with a summary of the financials. We will then open the call for the question-and-answer session. You should have all by now received the company's press release. If not, please view it on the company's website. I'd like to remind everyone that the safe harbor statement in today's press release also covers the contents of this conference call and the associated presentation. And now Eyal, would you like to begin, please?

Thank you, Kenny. I'd like to welcome all of you to our third quarter 2025 results call, and thank you for joining us today. We are very happy with the results of the third quarter, which was strong across all key parameters. In particular, we are very pleased with the revenue growth. And we continue to grow, driven by our long-term efforts and success in bringing existing as well as new customer value-adding telematics and connected car products and services. In addition, we are also constantly bringing additional OEM partners to our growing roster, an example of which was Stellantis last quarter, and we are in active discussions with others. Our results show an ongoing expansion across our target geographies in our large subscriber base of over 2.5 million subscribers. In the third quarter, we added 40,000 net subscribers. We are on track to add between 220,000 and 240,000 net new subscribers in 2025, which will represent a very strong year of subscriber growth. We had a good third quarter, and I want to summarize some of our activities, which contribute to our growth and success. We continue to see solid demand for our location-based products and telematics services in all our regions as well as traction from our new initiative and services. In Israel, the high car theft rate in Israel continued to provide strong demand for our services in the country, and we are reaching additional new subscribers from parts of the market that were previously untapped by us such as lower-priced new vehicles or the secondhand car market. Our usage-based insurance business in Israel is also seeing good traction and bringing continued strong subscriber growth. In Latin America, we continue to expand our reach. Our new product targeting the motorcycle market is gaining strong traction across South America, especially on the back of our partnership with BMW Motorrad in Brazil. Motorcycles are significant market opportunity, being the top mode of transportation in many parts of the world. It significantly increased our total addressable market. With Brazil as our starting point, we plan to scale into other high-growth motorcycle markets through partnerships with local OEMs as well as sales to the aftermarket. Our Ituran Mob, smart mobility platform, is a unique technology and solution enabling remote vehicle access, real-time telematics and efficient fleet management for shared mobility and rental fleet applications. Ituran Mob was launched first in Brazil and has been gaining solid traction here, where it is being adopted by a growing number of fleet operators and rental companies. Based on the strong market interest and success we've seen in Brazil, we are now introducing it to the United States market. We recently established operation for Ituran Mob in the United States. We have identified a strong need in the U.S. for our solution, particularly among the thousands of small to medium car rental companies, which include hundreds of thousands of cars. These companies could benefit from this type of technological solution, making the rental process more user-friendly and efficient. This creates a new long-term avenue of growth alongside our core telematics and subscriber-based businesses. Ituran generated a high level of cash in the quarter, amounting to $21.3 million in operating cash flow during the quarter. Due to our continued profitability and strong cash generation, we declared a dividend of $10 million to shareholders for the quarter. I remind you that at the end of last year, we increased our dividend policy by 25%, from issuing $8 million per quarter to $10 million per quarter. This represents $0.50 per share. Our dividend yield on an annualized basis represents a return of around 5%, which is a very solid return from a strong and stable company. During the quarter, we purchased $1.5 million in shares under our buyback program. As of the end of the quarter, we had around $5.2 million still available under this program. We see our ongoing dividend and buyback as a reward to our shareholders for their loyalty and long-term support of our company. And in summary, we remain very pleased with Ituran's performance in the third quarter and more generally, Ituran's long-term and ongoing performance. At the same time, we look for more avenues to bring further growth to our business across all our regions, and the recent launch of Ituran Mob is an example for this. We constantly aim to bring new products and services to both existing customers and new customers as well as partnerships with new OEMs, new financing companies and other leading companies. 2025 marks 20 years as a public company and 30 years as a company. We look forward to opening the Nasdaq market on Tuesday next week, November 25, and we thank both the Nasdaq as well as our shareholders for the long-term support of our business. And with that, I hand over to Eli. Eli, please go ahead.

Thanks, Eyal. I will provide a short summary of the financial results. You can find the more detailed results that we issued in the press release earlier today. Third quarter revenues were $92.3 million, an 11% increase compared with $83.5 million in Q3 of last year. Subscription fees were $67.6 million, up 13% year-over-year and representing 73% of total revenues. Product revenues were $24.7 million, up 4% year-over-year. Our subscriber base reached 2,588,000 at quarter end, an increase of 40,000 in the quarter. Year-over-year, the subscriber base grew by 219,000. The geographic breakdown of revenues in the third quarter was as follows: Israel 55%, Brazil 23%, rest of world 22%. EBITDA was $24.6 million, 26.7% of revenues, up 6% year-over-year, compared with EBITDA of $23.3 million, 27.9% of revenues in the third quarter of last year. Net income for the third quarter was $14.6 million or diluted earnings per share of $0.74, an increase of 7% compared to $13.7 million or diluted earnings per share of $0.69 in the third quarter of last year. Cash flow from operations for the third quarter of 2025 was $21.3 million. As of September 30, 2025, the company had net cash, including marketable securities, of $93.1 million. This is compared with net cash, including marketable securities, of $77.3 million as of year-end 2024. The Board of Directors declared a dividend of $10 million for the quarter. The current dividend takes into account the company's continuing strong profitability, ongoing positive cash flow and strong balance sheet. During the quarter, we purchased $1.5 million in shares under our buyback program. As of the end of the quarter, we had around $5.2 million available under this program. And with that, I'd like to open the call for the question-and-answer session. Operator?

[Operator Instructions] Our first question will be from Chris Reimer of Barclays.

Congratulations on the strong results. I was wondering if you could give a little more color on the launch in the U.S. What's the target market? Do you have any idea of how big it is? And when might you expect it to bear fruit?

Okay, absolutely. Before we decide to go from Brazil directly to the U.S. market, which is, I think, the most luxury market for this kind of solutions, we did a survey, and we got information that in the United States, there are tens of thousands of rental companies. It's true that about 5 of them are representing more than 60% of the market, and these are the big names. At the first and the beginning, we are not aiming them as our segment. But the other represent hundreds of thousands of rental cars. We are talking about small and medium rental companies from one family that holds 10 or 15 cars that they rent it or some mid-companies with 100, 200, 300 cars. All of them are local. All of them are -- or most of them are not nationwide. And they have a very strong demand for a solution that, first of all, will allow them to save their costs, and I will explain. In order today for a business that has 20, 30 cars to meet the customers, they have to go and meet each customer, give him the key of the car, then bring it back. It requires drivers. It requires service or in the worst case, they have to open an office, put a desk, put the people, put software, et cetera. And when you have 20, 30 cars, it's a dramatically high expense and it's dramatically lowering the chance to make money from your rental company. What we provide is that you don't have to do almost anything except having the cars because everything done on the streets, everything done that you have a dashboard as a rental company owner, a small rental company owner, and you can know every minute what is with the cars, who is driving the car, how much money this car will provide you. And that's done by having a smart key in the car, having the system that we developed through Ituran Mob, our small subsidiary for this technology and innovation. And in Brazil, by the way, we do it for almost 3 years. It's a very successful solution. Add to this that even in Israel, the largest leasing and rental company in Israel, Shlomo LeaseCar, changed a technology that they found in the world because we didn't have it in the past to our technology. They threw to the garbage about 2,000 hardwares that they paid and installed in their rental cars. And now we are the partners and our units and services are also in Israel. I'm not -- I'm talking about the U.S. because Israel, by definition, is a small market. It's maybe attractive, but it's not having a major influence on our future results. But the U.S. market, and it's important to mention, we are, I think, the first. I mean, we heard or we know about companies that tried. They have a very -- not the same technology, let me -- I don't want to be arrogant. And when they tried, the technology didn't work. They tried to do it in small city, one small city. But they are not really big technology or communication players that develop or represent it to the U.S. market. So we are in the beginning of this industry, I would say, in the States. There are companies dealing with remote rentals, but not renting the car itself. There are companies that provide services to rental companies, like an integrators, software companies. That's good. This is, by the way, it's an advantage for us because we can partner with them. But before we do it, we have a solution which we can go independently by ourselves. We already have pilots in the area of Orlando and New York with some small rental companies that are very satisfied. The response that we get is very, very good. I'm saying it's not something that will happen tomorrow. We are opening a new, I think, a new niche, a new segment, a new market. It's also requires adaptations. But I think that, let's say, the dream here is huge.

Got it. Got it. That's really great color. Maybe just touching on OpEx. What was driving the increase in operating expenses this quarter, and how should we be looking at margin expansion into next year?

If we are talking about the increase in the OpEx, the big majority of it is coming from the FX effect, and that, of course, increased the absolute numbers of the OpEx. And if we are talking about the margins, again, I don't see any reason that as long as we continue to increase our subscriber base, and this is exactly according to the guideline, and I'm assuming next year the same, that the margins will increase as well.

Got it. And maybe if I could just one more. How do you feel the subscriber momentum is performing versus your original guidance for the year? And can you give any color on where you're seeing the most traction?

As I said in my speech is that we provide kind of a guidance of 220,000 to 240,000. And according to the 9 months and the current data that we have is that we will meet this range, which is the highest, I think, ever in the 30 years of Ituran. And the drivers are absolutely across all the regions. And it's included also from the OEM. It's included the aftermarket that we do in Brazil, which is including the insurance companies and it's also including the financial solution that we provide to banks. And also with a very major influence on the subscribers that we add during 2025 is Israel. And this is thanks to the requirement by insurance companies relatively to the cost of rate is very high. So more and more new cars, but more important is secondhand cars that in the past didn't require for the policy security system, now they require and Ituran is the first choice in Israel by far of any other security solution, and this allowed us to grow in 2025 dramatically as well in Israel. And I will add that the UBI also has some volatility. 2023, we did a very high growth in subscribers. 2024, we had to expand the customers that we are approaching. And in 2025, we had another large insurance company that we developed for them a solution. And they also -- during the second quarter of 2025, they started using our UBI solution in high numbers. So overall, this is the driver.

Our next question is going to be from Allen Klee of Maxim Group.

Great. You talked about how motorcycles are important in South America and your partnership with BMW. How -- what are you -- could you talk about kind of how you're looking at increasing the uptake in this market?

Yes. Brazil, and especially, but also the rest of Latin America is a very -- motorcycles -- I'm talking about mid-to-heavy engine motorcycles, which is quite an expensive vehicle, is very popular. The ratio between 4-wheel drive and 2-wheel drive, it's very different than, for example, in other countries in the Western world, many people using motorcycles. Ituran always has a solution, but our solution was a little bit, I would say, not reliable enough to provide insurance companies with a low premium to motorcycles. This is first. Second, even the motorcycles themselves were in a situation that they didn't want to add cost to their motorcycles. But in the last 2 years, we developed, thanks to our innovative teams, a unit which is state-of-the-art for a security system and application for the driver on a motorbike. And what we did first, we used our OEM capabilities and teams, and we started negotiating. As you remember, maybe the first one was with Yamaha. Yamaha is our first customer for almost 2 years, 18 months. And then now, as we publish, we signed an OEM deal with BMW Motorrad in Brazil. The idea is that this is an untapped market for telematics solutions. And we're talking about the potential of millions of motorbikes that fitting these needs and can pay it compared to the price of the motorbike. So we started with an OEM. This allows us to create reliability. This allows us to partnering with brands. The guys of motorbikes are like sports car. If somebody is driving a BMW, he will be very loyal. The same Honda, Yamaha, et cetera, specifically in Brazil. So we knew that partnering with a big brand in the OEM will, again, provide reliability. And now what we see is attraction also from the aftermarket. Because if someone comes to a dealer of BMW to have some treatment to the motorbike or to buy something, now he is asking or he will see that there is a solution by Ituran. So we really believe that we just started. I am expecting that it will bring us tens of thousands of subscribers -- of new subscribers starting 2026. And it will grow as we will expand the segment and our customer, whether it will be B2B with other motorbike manufacturers. There are other names that we are starting to talk with. I'm not saying whether it will finish with a deal or not, but we see attraction. And a major portion of this market is the second market, the aftermarket. And this is something, again, that I believe can be very important with influence, again, on the results in 2 to 3 years from now.

I understand that Israel is an attractive market, but not that large. And you have a large opportunity in Latin America, South America. How do you think about like, first, the size of the opportunity in South America. And then also, is it possible over the next couple of years that there could be other geographies that might make sense?

First of all, we are not passing any opportunity. But by talking about how we focus, so the Latin America market, whether it's Central or South America, it's a huge market, which is, by the way, it's kind of an emerging market. So there is still a growing segment that we couldn't penetrate, whether it's because of price, whether it's because of awareness. So for us, the first online is to expand and continue expanding our business in Latin America because the synergy that we can create, the relationship, the brand. And we're still, I think, in the beginning of tapping this market. So this is regarding how we focus, but in an opportunistic way. Of course, when we go into some -- when we look at the rest of the world, we are more looking at doing it by M&A, by acquisition. Because for us to start a new business from scratch, for example, in U.K. or in Europe, it will require high resources because we have 0 resources now there. And until the moment that we will turn it to major revenues and major profits, it will take a long time. At the size of Ituran, the way that we are looking at other geographies is by M&A, but of course, we are looking. It should be something that meets our DNA, meets our criteria. And our criteria is not a too small company. But on the other hand, a company that has assets that we can leverage such as partners or customers, a system of employees, control centers, et cetera. But to make the long story short, we still focus on Latin America and in the U.S., as I said.

Our next question will be from Sergey Glinyanov from Freedom Capital Markets.

So first of all, my applause to Ituran on another successful quarter. You guys beat market expectations, both on revenue and EPS. But now I'm interested in revenue dynamics. It seems your ARPU is increasing. Is it basically a product and service mix or something more fundamental as the core?

Sergey, ARPU is going up due to the fact of the FX. FX has been better in Q3 this year. Therefore, the ARPU went up as well.

Okay. And some kind of follow-up about your Ituran Mob in North America. So do you have any expectation about the revenue next year?

We never provide guidance about revenues, but I must tell you that we do all we can to make more revenues than this year.

Our next question will be from Evan Tindell of Bireme Capital.

My question is, I've heard that some theft insurance providers in Israel are not requiring Teslas to have your system. I was just wondering, is that true? And then secondarily, like a follow-up to that is, over 10 -- over like 5 to 10, 15 years, something like that, do you guys worry that more manufacturers will be able to sort of figure out how to do the internal telematics systems and anti-theft systems well enough to disintermediate you guys?

Okay. So just to explain how is the process specifically in Israel because there is a regulation. In Israel, insurance company cannot decide for their insurers or to require in their policy a specific brand, a specific solution. What they allowed to do is, for example, if they want to have a location unit with a real-time alert with a 24/7 control center, that's what they put in the policy. Now you as the insurer has to decide what company you choose. So never, never, since the inception of Ituran, insurance companies didn't say, install Ituran or install other name. This is what nice with Ituran. We are not the chosen of the insurance company. We are the chosen of million subscribers in Israel. This is what the story. And how we do it? With our channels and the channels at that case are car dealers, car importers. Just to remind you, in Israel, there is no manufacturers. But in Israel, there is car importers, which represent manufacturers. So Ituran has a very strong partnership -- relationship along the years. And this is the reason why 20 years ago, Ituran was declared as a monopoly in the telematics business in Israel. And this is why I can say and publish that Ituran has something like 85% to 90% market share. So it's saying that 10% of the industry by other companies. But for us, it's good. We have competition, but we lead the competition very, very strongly. So this is regard this question. Regarding the second question, as we prove in the OEM business in Latin America, and General Motors is a very good example. Historically, we started by selling hardware and services. But Ituran always was built on a recurring revenue. Always we were built as a service-oriented company. For us, the hardware in the car is a tool, is a tool to bring customers. But our -- I would say, our gold medal is to have a customer many years paying every month. For that, we don't need the hardware, but we need -- yes, we need a car manufacturer or in Israeli, a car dealer or a shop to say, "Okay, I'm selling a car with a telematics solution, but the company that can provide the services." And for example, when we talk about SVR, this is the market that we are very active, Israel, Latin America, very hostile environment. No technology will recover the car. The recovery of the car is done by people sitting in a control center, provide information to enforcement people on the field. We have intelligence, we have drones. Those things are aside the technology. So as long as we can sell and specifically in emerging markets, our technology as the state-of-the-art, it's very -- the companies, for example, that sell cars in Israel, even the Chinese companies, they are not providing communication telematics solution, for example, in Hebrew. They are not providing the data that's relevant and don't -- and they will not immigrate it for those small markets. On the other hand, in Brazil and in Mexico, we are connecting to those manufacturers from the first level. So I think that -- for us, it's more important to provide the service to have the recurring revenues. Today, 95% of our customers, which is car dealers, car manufacturers and any other customers still buy our hardware. But there are a few percentage which use their own hardware. We're willing -- for us, it's okay. For us, it's okay. So it maybe grow. This percentage will grow, I agree with you, in the next decade. But still, it's not something that we see as aiming the business of Ituran.

Great. And one other question. Could you update us on your efforts in India?

I didn't talk about India today specifically because there was a few quarters that I mentioned this joint venture that we have in India. And since this growing market is very, very, very slow, I didn't find reason to repeat things that I said in the past. But for you, I can say we have a joint venture in India. We signed a large contract with Mercedes-Benz for commercial cars, but with low margins. The current problem in India is that the market is premature. The financial capabilities of businesses as well as retail is very low. So we have to find very specific deals to make money. But India is for a long term. India has a lot of potential as we see it for the future. And we are the main telematics or one of the main telematics player there on the ground.

Thanks, Evan. So that will end our question-and-answer session. Eyal, if you would like to go and make your concluding statements.

On behalf of the management of Ituran, I would like to thank you, our shareholders, for your continued interest and long-term support of our business. We look forward to continuing our accomplishment over the next decade. If you are interested in meeting or speaking with us, feel free to reach out to our Investor Relations team. And with that, we end our call. Thank you, and have a good day.