Ladies and gentlemen, thank you for standing by. Welcome to the Ituran Fourth Quarter 2022 Results Conference Call. [Operator Instructions] As a reminder: This conference is being recorded. You should have all received by now the company's press release. If you have not received it, please contact Ituran's Investor Relations team at EK Global Investor Relations at 1 (212) 378-8040; or view it in the news section of the company's website, www.ituran.co.il. I will now hand the call over to Mr. Ehud Helft of EK Global Investor Relations. Mr. Helft, would you like to begin?

Thank you, operator. Good day to all of you. And welcome to Ituran's conference call to discuss the fourth quarter and full year 2022 results. I would like to thank Ituran management for hosting this call. With me on the call today are Mr. Eyal Sheratzky, the Co-CEO; Mr. Udi Mizrahi, Deputy CEO and VP, Finance; and Mr. Eli Kamer, the CFO. Eyal will begin with a summary of the quarter results, followed by Eli with a summary of the financials. We will then open the call for the question-and-answer session. I would like to remind everyone that the safe harbor in the press release also covers the content of this conference call. And now Eyal, would you like to begin, please?

Thank you, Ehud. I'd like to welcome all of you to our full year and fourth quarter 2022 call, and I would like to thank you for joining us today. We are clearly very pleased with our achievements throughout 2022. From a financial perspective, we showed continued growth with record full year revenue of $293 million, record full year EBITDA of $79 million. From a strategic perspective, we surpassed the 2 million subscriber mark. And our subscriber growth strongly accelerated in 2022, adding 185,000 net subscribers versus 113,000 in 2021, representing a 64% acceleration. We believe that this new, much higher subscriber net adds will continue into 2023. As we shared with you last quarter, our expectations for the growth rate in our global aftermarket subscriber base stand at between 180,000 to 200,000 net new subscriber adds annually. I want to add that it is harder to forecast the OEM subscriber base growth rate, as these depend on our OEM customer sales and doesn't depend on us. The strong subscriber growth we have experienced in 2022 is starting to be reflected in the subscription revenue growth even despite the currency headwind due to the dollar strength compared with last year. Q4 subscription revenue grow up 10% year-over-year or 14% growth when calculating in local currencies. We have every reason to expect that this growth trend will continue well into 2023. The gross margin on subscription fees continued to improve, and we have seen sequential improvements throughout each quarter of 2022. We started Q1 2022 with a subscription fee gross margins of 55.9%, which increased through 2022 by 200 basis points to 57.9% in Q4. It demonstrate that the operating leverage in our model is becoming more apparent, whereby we can add each new subscriber without a corresponding significant increase in our costs. This increase in subscribers came primarily from the growth in our traditional aftermarket business. In summary, we are very pleased with our performance in the fourth quarter, which culminated an excellent 2022 for Ituran. Both ongoing solid performance in our traditional aftermarket business and especially the growth engines we have seeded in the past years are driving these subscriber growth. We expect that this accelerated subscriber growth will translate into increased subscriber revenue growth in 2023 and faster-growing profitability as the operating leverage continues to work in our favor. We've already seen the initial fruits of this in 2022. Looking ahead, we believe the improvements we have made to our business in the past few years, especially the strongest subscriber growth, are here to stay for the foreseeable future. We're excited for the year ahead and expect the positive trend that started in 2022 will continue into 2023 and beyond. 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 early today. Revenues for the fourth quarter of 2022 were $74.9 million, a 7% increase compared with revenue of $70.4 million last year. Fourth quarter revenue from subscription fees were $53.9 million, an increase of 10% over fourth quarter 2021 revenues. In local currency terms, subscription revenue grew by 14% compared with that of last year. Revenues for 2022 was a record of $293.1 million, an 8% increase over the $270.9 million reported in 2021. In local currency terms, revenue grew by 10% compared with that of 2021. 2022 revenues from subscription fees were $209.6 million, representing an increase of 10% over 2021. In local currency terms, subscription revenues grew by 11% compared with that of 2021. The subscriber base amounted to 2,066,000 as of December 31, 2022. This represents an increase of 46,000 net over that of the end of the period quarter and an increase of 185,000 year-over-year. During the quarter, there was an increase of 44,000 in the aftermarket subscriber base and an increase of 2,000 in the OEM subscriber base. Fourth quarter product revenues were $21.1 million, a decrease of 2% compared with that of the fourth quarter 2021. While we saw a decrease in U.S. dollar terms, if we look at the product revenues in local currency terms, there was an increase of 4% compared with that of the fourth quarter 2021. 2022 product revenue were $83.5 million, representing an increase of 3% compared with 2021. In local currency terms, product revenue grew by 6% compared with that of 2021. The geographic breakdown of revenues in the fourth quarter was as follows: Israel, 50%; Brazil, 25%; rest of world, 25%. EBITDA for the quarter was $20.6 million or 27.4% of revenues, an increase of 9% compared with an EBITDA of $18.9 million or 26.9% of revenue in the fourth quarter of last year. EBITDA for 2022 was a record $78.9 million or 26.9% of revenue, an increase of 9% compared to $72.7 million or 26.8% of revenues in 2021. Net income for the fourth quarter was $9.6 million or 12.8% of revenues or diluted earning per share of $0.47, at a similar level of $9.6 million or 13.6% of revenues or diluted earnings per share of $0.46 in the fourth quarter of last year. Net income in 2022 was $37.1 million or 12.7% of revenues or fully diluted earning per share of $1.82, an increase of 8% compared with net income of $34.3 million or 12.6% of revenues or fully diluted earning per share of $1.65 in 2021. Cash flow from operations for the fourth quarter of 2022 was $15.9 million. Cash flow from operations for 2022 was $45.1 million. I note that, in 2021, operating cash flow was comparably higher at $55.8 million. The somewhat lower operating cash generation in 2022 was primarily because our Brazilian business grew nicely in 2022, while in 2021 the growth was much more limited. One of the business models there is Ituran com Seguro, ICS, meaning that we pay in advance for the customers' insurance policy and for their telematics units, while the customers pay us over the life of the service. Therefore, the working capital is used as the business grows. It therefore temporarily went down in 2022 as a result of the strong business growth in Brazil in 2022. And we do expect operating cash flow to catch up as time goes by. As of December 31, 2022, the company had cash, including marketable securities, of $28.2 million; and debt of $12.2 million, amounting to a net cash of $16 million. This is compared with cash, including marketable securities, of $54.7 million; and debt of $31.4 million, amounting to a net cash of $23.3 million as of December 31, 2021. For the fourth quarter of 2022, a dividend of $3 million was declared. In the fourth quarter, under our share buyback program, Ituran purchased 131,000 shares for a total of $3 million. During 2022, a total of 357,000 shares were purchased, totaling $8.4 million. Share repurchase were funded by available cash. And repurchases of Ituran's ordinary shares were made based on SEC Rule 10b-18. And with that, I'd like to open the call for a question-and-answer session. Operator?

[Operator Instructions] The first question is from Chris Reimer of Barclays.

I wanted to ask about the subscriber mix this quarter and the slight uptick in OEM. Can you give any color on the characteristics there you're seeing with subscribers or any changes in customer behavior?

Typically, as we always say, the -- typically we have no a lot of influence on, let's say, sales and marketing of the OEM. We have -- it's a deal with a car producer and it's -- depends on his sales in the market. On the aftermarket, of course, we have much more influence. And this is why we succeed, from time to time, to promote new services, new technologies; and allow us to get to new segments. And currently, in the aftermarket sales, we have a very diversified customer base and customer retention. As you know, we have SVR, which is our traditional business. We have fleet management. And recently in the last few years, we also have services for UBI and financial institutions, so during Q4, we had a mixture of those services.

Okay, great. And how should we be looking at gross margin going forward considering, earlier in the year, you had the weakness in products and we've seen a slight uptick since then? Just can you comment on some of the moving parts you see there?

Yes. First of all, during 2022, we had higher costs, I can say the highest costs, of components which is part of our hardware, which is a condition for providing our services. Based on the changes in the components markets, we know and I believe that during 2023 we will see improvements of the margins when we sell hardware. And thanks to this and to the operating leverage model, when we know that we're adding, as I said, close to 200,000 new subscribers a year, which no doubt that -- the additional revenue is much stronger than the needs of additional expenses. So overall, from those 2 revenue source of Ituran, I really believe that we will continue to show growth in the gross margins.

The next question is from David Kelley of Jefferies.

This is Gavin Kennedy on for David Kelley. Nice to hear you reiterate your annual aftermarket growth guidance for 2023. This target implies a nice acceleration from 2022. Can you just walk us through the main growth drivers here in more detail?

First of all, we have to understand that growing -- any number of growing the subscribers is accelerating the business because it's growing on the customer base that we finished 2022, so theoretically, even 100,000 additional subscribers a year, or 80,000 which was our average in the past, allow us to increase our profit margins and profitability. So 180,000, we have to understand it's a big -- it's a large number. And I wish that we will succeed to continue this growth of this number every year in the future, yes. So I think that this is -- shows a very strong acceleration, first. Second, as I said, we based our forecast on mainly the finance -- first of all -- okay, I will repeat the last quarter as I said. Because of the -- let's say, some economic, I would say, decrease in the world and specifically in the regions that we operate -- so we see and we face increasing of cost of freight. When the cost of freight is higher, insurance companies' needs increase. And we provide a solution which [we seed] more and more needs from insurance companies. So also, the SVR, which is a very traditional segment of Ituran, is now growing since 2022 when it started. Add to this the 2 segments which we start recently, which is the UBI; and the finance for cars, banks or fintech companies that provide loans for people to buy cars, but they want to secure their collaterals which is the car. And they use our solution, and this is something that we see how it's spread around this marketplace. So having said that, this is a reason why we believe that we will continue with the acceleration of our growth in subscriber base.

Got it, makes sense. And then it looks like your operating income margins modestly increased 20 bps this quarter. What were the drivers here? And how should we think about operating margin trajectory into 2023?

So as I said before, if the gross margins or if our operating leverage model which is derived mainly from our recurring revenue -- and add to this the changing in the situation of buying electric components for our hardware, which has also decreased in the last months. I believe that this will lead to increase and grow our gross margins, operating margins as well.

The next question is from Abba Horovitz of OSP.

I was hoping you could explain better. I want to understand the differential of getting new subscribers and then those margins actually starting to expand, because I know there's a lag time between a new subscriber and actually seeing that profit come from that new subscriber. How can we view that over the next year given the high growth in subscribers in 2022 but yet you're also having a high growth in subscribers in 2023? So I just want to know. Will there be a magic moment that we'll start to see this major expansion in the margins?

First of all, as you saw, 200 basis points, it's not -- it's something that derived from this growth of subscribers, in the end of the day. Of course, what you say is right. If you look: We also grows in 2021 with subscribers, but you'll start to see it only in the beginning of 2022. Now what we've shown is after a year. It's 2022, the end of 2022. So now again we will have the contribution of what we added during 2022 starting influence on our results in Q1, Q2; then add to this the new subscribers. So I believe, and this is the reason I said, that in the end of 2023 again we'll see another jump of our margins growing. So it cannot grow 20% -- from 57% to 70%. It's growing 2%, 3% every year. In 3, 5 years, it should be very material, but this is the reason. As we said, it takes time from this ramping up of subscriber base to the moment that you see material number of your growth in the profitability, but you always see it.

Okay. And in terms of your cash. So you have about, what was it, 12 million net debt -- sorry. You have $12 million or $14 million -- sorry, $17 million net cash. Sorry. Are you going to pay off this $12 million of debt? Or are you just going to leave it for now?

Okay. So actually the company is -- usually has no need for any debt. The reason that you see -- still see it, when we acquired Road Track -- today, it's part of Ituran, but when we acquired it 4 years ago, we used a bank loan for this acquisition. And it's paid along with time. We still have 2 payments to pay until September this year, and in September, we will finish. So I mean in September we'll be in 0, so we have to pay it back, yes.

Okay, fair enough. And at that point, would that change your approach? Would you get more aggressive in buying back stock? Would you increase the dividend at that point in time? In other words, as we get to the second half of the year, can we expect -- at the same time that the subscriber earnings are kicking in and you've paid off your debt, would it make sense to increase the dividend or do a larger share repurchase?

Of course. And as we just send -- we just declared -- and you can see it now in the SEC and in the press. Our Board approved additional $10 million for this year of buyback of Ituran shares, yes. So what you say is right. We feel comfortable with our cash position. And we feel that the best investment for us currently is to repurchase the shares of Ituran compared to any other possible investment [with this scale].

Would it make sense to do a Dutch auction where you essentially give a price above where it is today and then a certain amount of money you allocate to that to buy out the shares instead of doing it drip by drip on a daily basis?

First of all, it's the -- it's something that we didn't think about it specifically, but I will accept this proposal of what you said and I will advise with our financial advisers.

Okay, wonderful. And there's -- I want to leave it off. Can you give us just some highlights on the investments that you have, if there's any change to the investments?

We talked about -- we have two investments which is -- sits on our, I would say, financial part. One is Bringg, which is Bringg is a private company that we hold 17%. It's a tech start-up. And just to remind you: that the last round, round E, was on a valuation of $1 billion. That was led by Insight Partners. Since then, the company covered with, I would say, enough cash, $150 million, so the company has enough cash for the coming years. Of course, the situation today with tech companies that changed a little bit this -- I would say, this ecosystem didn't change how the business [is good], but of course, we as part of the Board face things more -- less aggressively and with -- more conscious, but the company is going -- continue to perform based on its business plan. Of course, we are not in a position now to sell our shares. It's a private company, and the market -- it's not -- I think it's not the right thing, to do it now. And the second investment, which is holding shares of SaverOne, which is a publicly traded company in the Israeli stock market. That case, we still have the valuation, together with the rest of the shares in this -- again, in this ecosystem and specifically in the Israeli stock markets, went down, so we already wrote those losses in our financial portion of the P&L during 2022. You can see it's cost us something like a -- almost $5 million financial losses, of course not in cash. So today, our holdings there are worth a few hundred thousand dollars, so I don't see that it will continue to -- let's say, damaging part of our net income in 2023.

[Operator Instructions] There are no further questions at this time. Before I ask Mr. Sheratzky to go ahead with his closing statement, I would like to remind participants that a replay of this call will be available tomorrow on Ituran's website, www.ituran.co.il. Mr. Sheratzky, would you like to make your concluding statement?

Yes. On behalf of management of Ituran, I would like to thank you for your continued interest and long-term support of our business. We hope to be speaking with you over the coming quarter. And if you are interested in meeting or speaking with us, feel free to reach out to our investor relations team. Thank you, and have a good day.

Thank you. This concludes the Ituran Fourth Quarter 2022 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.