Ladies and gentlemen, thank you for standing by. Welcome to the Ituran First Quarter 2023 Results Conference Call. All participants are at present in listen-only mode. Following management's formal presentation, instructions will be given for the question-and-answer session. [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 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 over the call to Mr. Kenny Green of EK Global Investor Relations. Mr. Green, please begin.

Thank you. Good day to all of you, and welcome to Etalon's conference call to discuss the first quarter 2023 results. I would like to -- I would like to thank each Ituran's management for hosting this conference call. 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. I would like to remind everyone that the safe harbor statement in today's press release also covers the contents of this conference call. And now Eyal, please go ahead.

Thank you, Kenny. I'd like to welcome all of you to our first quarter 2023 call, and I would like to thank you for joining us today. We are clearly very pleased with our achievements in the first quarter. The year has kicked off with a robust start and the solid subscriber growth we saw throughout 2022. And now in the first quarter is clearly having a positive impact on our financial performance. In this quarter, we experienced record subscriber revenues with record subscriber gross margins and also saw our highest quarterly net income and EBITDA in over 4 years. From a strategic perspective, we experienced strong growth in subscribers, adding a net total of 49,000 subscribers, of which 44,000 were from the aftermarket and 5,000 were OEM additions -- as we shared with you last quarter, our expectations for the growth rate in our subscriber base stand up between 180,000 to 200,000 net new subscribers as annually, and we are on track. As our results show the strong subscriber growth we have experienced now for a few quarters is being increasingly reflected in the subscription revenue growth. Even despite the currency headwinds due to the dollar strength compared with last year. Q1 subscription revenues grew up 11% year-over-year or 16% growth when calculated in local currencies, which naturalized the effect of the exchange rate on our growth. We have every reason to expect that this growth trend will continue well into 2023 and beyond. The gross margin on subscription fees continue to improve, and we have seen sequential improvements throughout each quarter last year and now a record subscriber gross margin of 58.1% in Q1. We demonstrated the operating leverage in our model is becoming increasingly apparent, whereby we can add each new subscriber without a corresponding significant increase…

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. Revenues for the first quarter of 2023 were $79.5 million, a 10.3% increase compared with the revenue of $72.1 million last year. First quarter revenues from subscription fees were $55.8 million, an increase of 11% over first quarter 2022 revenues. The subscriber base amounted to 2,115,000 as of March 31, 2023. This represents an increase of 49,000 net over that of the end of the prior quarter, an increase of 191,000 year-over-year. During the quarter, there was an increase of 44,000 in the aftermarket subscriber base and an increase of 5,000 in the OEM subscriber base. First quarter product revenues were $23.7 million, an increase of 8% compared with that of the first quarter of 2022. The geographic breakdown of revenues in the first quarter was as follow: Israel, 51%; Brazil, 24%; rest of world 25%. EBITDA for the quarter was $20. 8 million or 26. 2% of revenues, an increase of 8% compared with EBIT of $19. 3 million or 26. 7% of revenue in the third quarter of last year. Net income for the first quarter was $11.4 million or 14.3% of revenues, or diluted earnings per share of per share compared to $8.7 million or 12. 1% of revenues or diluted earnings per share of $0.43 per share in the first quarter of last year. Cash flow from operations for the first quarter of 2023 was $17.4 million. On a cash -- on the balance sheet, as of March 31, 2023, the company had cash, including marketable securities of $33.5 million and debt of $9.2 million, amounting to a net cash of $24.3 million. This is compared with cash, including marketable securities of $28.2 million and debt of $12.2 million, amounting to a net cash of $16 million as of December 31, 2022. For the first quarter of 2023, a dividend of $3 million was declared. In the first quarter, under our share buyback program, Ituran purchased 54,000 shares for a total of $1.2 million. Share repurchases were funded by variable cash and repurchases of Ituran 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 was wondering if you could start with giving any color around the uptick in the OEM subscribers this quarter? And what kind of went into that? And is it -- is it a recovery? Or is it more of a onetime thing?

So actually, we think it's something that starts showing the changes in the components problems that the world will face and it's influenced primarily on the car producers. Don't forget that most of the car produced today is based on computers and components. So I think that this allows the manufacturers of the brands that we work with to produce more car because the request was there. They couldn't supply the request, and now it's looked like they succeed to do it better. So when it happens, of course, it influenced positively on our growing in the OEM segment. As I said in the past, it's something that has some seasonality, has some volatility depend on things which we cannot, of course, influence. But it looks like our assumption that it will continue in the coming, I would say, year. Maybe we'll face some quarters differently, but we think like it's recovered.

Excellent. And can you talk a little about operating expenses? And what kind of strategies you're putting into place to create more.

And offer new solutions is request us from time to time, of course, to add human resources for each of these, I would say, aspects. One, it's the service side and second is the R&D side. But currently, I would say that after the last years when we so that our expenses are growing, and we couldn't see the influence in the revenue side. I think that 2023 will show that now the operating leverage will demonstrate to our P&L because the revenue reaping this fruits happening now, we will see that the margins that the margins are increasing. We show it in 2 months, and I believe that it will continue in the next quarter.

[Operator Instructions] The next question is from Sasha Karim.

Congrats on the quarter. First question for me would just be on guidance for subscriber growth going forward. Do you have any more specific comments, quantitative comments you can make on the pace of subscriber growth in the coming quarters and how you arrive at those numbers?

The guidance regards subscribers, we already gave in the end of 2022. And as we said today, we're still solid with those expectations. Of course, it's based on our assumption and our 2022 track records of the new segment that we penetrate during 2021 and 2022. And also assuming that we will continue to integrate our brand in that segment and also in the traditional segment, which are fleet management and SVR, which we see more and more attraction in Latin America and recently, and I mentioned it in my speech today, in Israel, after many years, we see that the cost of freight increasing dramatically something that encouraging the insurance companies to add more and more models, which in the last even decade, they didn't require these kind of models to install security and location solutions, which will allow us also to increase our penetration to new segments, but also to strengthen our guidance of new subscribers along the year.

Next one from me would be on inventory -- inventory investment and CapEx seemed very low in the first quarter. Does this. It doesn't sound like -- but does this maybe indicate some reduced confidence about generating additional subscriber growth in Israel and Brazil because it could be considered a leading indicator?

When there was the shortage of components, and we knew that we are -- we are facing a new growth of subscribers we did a very aggressive inventory purchase in order not to be in a problem of supplying those new -- this new growth. So last year, we had a very aggressive inventory purchase when the -- again, the shortage stop or decline we continue to be in a position to buy with, let's call it, a normal inventory time line. So we saw kind of a decline that you saw it -- could see it in this quarter. I believe and expect that the Q1 CapEx is something that represents a quarterly CapEx. Of course, even in inventory, there's some volatility that we can see. But again, it shouldn't be dramatically a long day.

We noticed also sales and marketing ticked up in Q1. Is there any -- are there any specific projects you're investing in right now? For example, do you feel the timing is right, maybe to push ICS in Mexico? And in general, what can we expect in terms of OpEx? Will it rise each quarter this year?

Sasha, forgive me that I can't see it. As long as we know and I see there is no any or at least no big change in sales and marketing. So can you point me the specific.

Approximately $3.3 million in Q1 and also in Q4 last year.

Apologies. Yes, I'm looking at G&A. Maybe you could just give us a feeling for SG&A in total going forward.

Since part of some compensation policy and inflation growing can influence you is dependent on the results. So you still can see that in terms of percentage in this very, I would say, that it's more correct to judge the SG&A based on percentage of revenues, and this is quite stable.

Got it. And my last one would just be on fleet management subscribers, your 20-F implies that the growth slowed from 30% in 2021 to 20% growth in 2022. Should we expect that slowing to continue? Or do you have reasons to believe it can reaccelerate?

I think, again, that in order to make it more, I think, more right way, when you have a subscriber base and it's growing. So by definition in percentage, it will decrease. For example, when you grow from 100,000 subscribers with another 100,000 subscribers, you're growing 10%. When you have 2 million and you're growing 200,000 you're growing only 10%. So the percentage is something that you always have to check or to watch with the absolute numbers because our subscriber base is something that's increasing, and this is the same situation with the fleet management. Today, when we have almost double fleet management numbers, then 5 years ago. So in percentage, even if we grow double then we grow Five years ago, in terms of new subscribers in percentage, it will be less always. So please, I think that we are not expecting that it will decrease we're expecting to continue the trend. But in percentage, it will look always smaller.

[Operator Instructions] There are no further questions at this time. Before I ask Mr. Eyal 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. Shaeratzky, would you like to make your concluding statement?

On behalf of management to Ituran, I would like to thank you all for your continued interest and long-term support of our business. We hope to be speaking with some of you over the coming quarters and if you are interested 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.

Thank you. This concludes the Turon First Quarter 2023 Results Conference Call. Thank you for your participation. You may go ahead and disconnect.