Ladies and gentlemen, thank you for standing by. Welcome to the Ituran second quarter 2022 results conference call. All participants are at present in listen only mode. Following management's presentation, instructions will be given for the question and answer session. For operator assistance during the conference, please press star zero. 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 the company'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 would now like to hand the call over to Mr. Ehud Helft of EK Global Investor Relations. Mr. Helft, would you like to begin?
Yeah. Thank you, operator. Good day to all of you, and welcome to Ituran conference call to discuss the second quarter 2022 results. I would like to thank Ituran management for hosting this conference call. With me today on the call are Mr. Eyal Sheratzky, the CEO, Mr. Udi Mizrahi, Deputy CEO and VP Finance, and Mr. Eli Kamer, the CFO of Ituran. 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 questions and answer session. I'd like to remind everyone the safe harbor in the press release also covers the content of today's conference call. Now, Eyal, would you like to begin, please?
Thank you, Ehud. I'd like to welcome all of you, and thank you for joining us today. We are very pleased with the results of the second quarter, especially at a time when components supply chains remain tight and new car sales remain constrained. In particular, the above average growth in our aftermarket subscriber base has continued for the second quarter this year, and we have so far added 91,000 subscribers in 2022. We're on target to reach the top end or even exceed our expected range of between 140,000-160,000 for the year. This is also reflected in the current quarter subscription revenues, which were $52 million, growing at 11% year-over-year and 4% sequentially.
We grew our overall subscriber base at a record of 48,000 net adds, bringing the total to just shy of 2 million subscribers as of June end. The primary contributor was the aftermarket segment, which added 50,000 subscribers during the quarter. The third quarter in a row in which we have experienced this increased level. This increase in subscribers came from both the growth in our traditional aftermarket business that was also boosted by the various growth engines that we have seen over the past few quarters. As I shared with you last quarter, the expectations for subscriber growth is between 140,000-160,000 net subscribers for the year.
The second quarter's net adds are clearly indicating that we are well on the right trend, that we will likely surface the high end of the target range that we set for ourselves. Our overall results demonstrate that Ituran is a strong, healthy and growing business, and I'm very proud of our recent achievements, despite the background of what are many macro challenges. As we discussed with you in our last quarter's call, the shortage of electronic components is the most notable macro issue impacting us. While some of the component costs we've been able to pass on to customers, we indicated that our product growth margins would be impacted, which has been clear in the first two quarters of this year. However, the good news is we now see stabilization in the components market, and we are now buying at more normal prices.
The improvement in the situation should be reflected in our growth margin toward the end of this year. As we also discussed last quarter, another impact of the component shortage has been on the major car OEMs, which are less able to manufacture cars to meet demand and therefore we are indirectly impacting in our OEM subscriber base. However, even here we have seen an improvement. The decline of 2,000 subscribers in our OEM base in Q2 has diminished compared with the 16,000 decline that we experienced in Q1. In summary, all in all, I'm very pleased with our performance. I am most pleased with the ongoing strength in subscriber growth, which is the key to our long-term profitable growth. We are at the cusp of a subscriber base of 2 million customers paying us on a regular monthly basis for one or more of our services.
Both ongoing solid performance in our traditional aftermarket businesses, especially our growth engines, are driving these subscriber growth. These subscriber growth will ultimately translate into increased subscriber revenue growth and profitability in the year ahead. As we enter the second half of 2022 and many of the challenges seem to be moving behind us, I'm more excited now than ever with our long-term potential. With that, I hand over to Eli. Eli, please go ahead.
Thanks, Eyal. I know that summary results I present will all be on a GAAP basis. Revenues for the second quarter of 2022 were $73.4 million, an increase of 9% compared with revenues of $67.5 million in the second quarter of 2021.
Revenues from subscription fees were $52.3 million, an increase of 11% over second quarter 2021 revenues. The subscriber base amounted to 1,972,000 as of June 30, 2022, an increase of 48,000 net over that of the end of the prior quarter, which includes a net increase of 50,000 in the aftermarket market subscriber base and a net decrease of 2,000 in the OEM subscriber base. Product revenues were $21.1 million, an increase of 3% compared with that of the second quarter of 2021. The geographic breakdown of revenues in the second quarter was as follows. Israel 61%, Brazil 24%, rest of world 25%. Gross profit for the quarter was $33.8 million, 46.1% of revenues.
9% increase compared with the gross profit of $31.1 million, 46.2% of revenue in the second quarter of 2021. The gross margin in the quarter on subscription revenues improved to 56.8%, compared with 55.5% in the second quarter of 2021. The gross margin on product was 19.6% in the quarter, compared with 24.8% in the second quarter of 2021. As discussed last quarter, the product margin was impacted by higher components prices, which have been high since the end of last year due to the ongoing global shortage of components, as well as the product mix sold in the quarter.
As Eyal mentioned, as the shortage of components has begun to ease, we expect improvements in our product gross margin towards the end of the year. Operating income for the quarter was $14.4 million, 19.7% of revenue, an increase of 5% compared with $13.8 million, 20.4% of revenue in the second quarter of last year. EBITDA for the quarter was $19.4 million, 26.5% of revenue, an increase of 7% compared with an EBITDA of $18.2 million, 26.9% of revenue in the second quarter of last year. Financial expenses for the quarter was $1.4 million compared with the financial expenses of $1 million in the second quarter of last year.
Net income for the second quarter of 2022 was $8.7 million, 11.9% of revenues, or earnings per share of $0.43, compared with a net income of $9.1 million, 13.5% of revenue, or earnings per share of $0.44. Cash flow from operations for the second quarter of 2022 was $10.9 million. As of June 30, 2022, the company had cash including marketable securities of $33.2 million and a debt of $20.1 million, amounting to a net cash of $13.1 million.
This is compared with cash including marketable securities of $54.7 million and a debt of $31.4 million, amounting to a net cash of $23.3 million as of December 31, 2021. For the second quarter of 2022, a dividend of $3 million was declared. This is in line with the board's current policy of issuing at least $3 million on a quarterly basis. Under the current buyback program, we started on August 3, 2021, 146,589 shares amounting to $3.4 million was purchased in the second quarter and approximately $8 million remains under the current program.
The share repurchases, if any, will be funded by available cash and repurchases of Ituran ordinary shares will be made based on SEC Rule 10b-18. With that, I'd like to open the call for a question and answer session. Operator?
Thank you. Ladies and gentlemen, at this time we will begin the question and answer session. If you have a question, please press star one. If you wish to cancel your request, please press star two. If you are using speaker equipment, kindly lift the handset before pressing the numbers. Your questions will be called in the order they are received. Please stand by while we poll for your questions. The first question is from Chris Reimer of Barclays. Please go ahead.
Hi. Thank you for taking my questions. I wanted to go back to what you mentioned in your opening comments about the OEM subscriber levels, and considering it was less of a decrease sequentially, do you see this as a kind of turning point where there is now more supply at the OEMs? Or do you see that it might be even more prolonged, the lack of materials at the OEMs?
Hi. As we always stated, the OEM market is something that we have no, I would say, a direct influence like we do in the aftermarket. We are very dependent on the OEMs producers. In that case, I can't tell you what's going to be in the future. At this current quarter, we saw better productions and better sales. Of course, we have to understand that it's dependent on two things. One is the total sales, and second is the market share on a specific time of our customer. In Q2, it showed better position. Still saying very general, I still think that the car manufacturers' situation, I'm not sure that it's the shortage and the shipment problems behind them.
I wouldn't say that it's going to change-
Mm-hmm.
Dramatically, but there is some shifts between quarters, so I cannot focus quarter by quarter.
Understood. I also wanted to ask if you could expand a little on the usage-based insurance business, and what the further growth opportunities are for that area.
As we said, the current geography that we made penetrations, and we are currently, I would say almost the sole provider of this solution to the entire insurance groups in Israel.
Mm-hmm.
This segment is continuing to grow. Some of the insurance companies are strongly growing this segment. Some of them are still offering it, but they are promoting more the traditional insurance. Overall, we see growth year over year, and we believe that it's only the beginning. Regarding other geographies that we operate, we have advantages, which is mainly Latin America. We have some discussion, but again, as I said, I think that the market education that we are doing will take longer than it's as it was at the beginning in Israel. It will take more time before we will succeed to go commercially to the markets.
Mm-hmm.
If it's Mexico or Brazil. The main market we grows the UBI, usage-based insurance solution, is in Israel.
All right. Okay. Thank you very much. That's it for me.
The next question is from Gavin Kennedy. Please go ahead.
Hi, team. This is Gavin Kennedy on for David Kelley. Thanks for taking my question. You posted a third consecutive quarter of at least 50,000. Looking for that. Can you just provide more details on what is specifically driving strength here? Then secondarily, how should we think about aftermarket book cadence in the back half of the year and into 2023?
First of all, again, I have to remind everybody that, during the, let's say the corona period, we said that we had to invent or to start looking for new segments and new application, such as the UBI, which is growing, such as the car selling or finance companies that finance car selling. We did it mainly in Mexico and Brazil, when new fintech companies use our solution to secure their collaterals, which is the car when they finance it. We succeed also to grow and to expand this segment. Also, the traditional SVR, whether it's in Israel and also in Brazil, we succeed to penetrate and gaining more and more market share during the corona in the second-hand cars, but now also for the new cars.
We see also that this segment, which is traditional, but this is our, I would say, bread and butter. This bread and butter had more and more butter, and we really succeed also to increase this subscriber base, again, mainly in Israel and Brazil. Overall, the new segments and our ability to gain more market share and more penetration in the traditional segment allow us to show, I would say, this dramatic growth in subscribers. I know that it's still not translated into the bottom line yet, because this is a way of operating leverage of the business. Now, it still costs us to bring these customers.
Once we will translate all these 150,000 subscribers in 2023 to a full revenue streams, and the cost will stay as it is now or will not grow as it grew recently, I believe that we will be able to show higher growth in the profits. Regarding the numbers, we forecasted 140,000-160,000 for this year. As we can see, we did 91,000 in the first half. I just want to remind you that this includes the OEM, and the OEM is a negative growth, has a trend. Without it, we would be much higher. Now, regarding the second half, as I said, we believe that we will be...
We believe that if things will move as is, we probably will be at least high number of the range, and hopefully we will succeed to be beyond it. We still have time to the end of the year. Remember that there is always some shifts between quarter. I'm optimistic. I see a very strong trend toward our solutions, and I believe that the number will be at least the higher number of the range.
Got it. As a follow-up, subscriber gross profit expanded to 57%, which is pretty notable in this quarter. Can you provide more commentary on what drove the improvement here, and is this a sustainable margin level going forward?
No. You're talking about the overall gross profit. I think that the gross profit for the services are higher. If you consider the total gross profit of the revenues, this is a different reason, and I can explain. I said it, the shortage of components is influenced our hardware sales, mainly in Israel. In Israel. In Latin America, we have a Comodato solution, which is kind of a leasing. It's less influenced the hardware sales. But in Israel, which represent 50% of the revenues, but represent almost 80% of the hardware sales, we had to buy this inventory in a much higher prices. When we bought it was at the beginning of the change in the components shortage, Q3 of 2021.
Now it translates, when you sell the inventory, it translates to our P&L. As I said a quarter ago, we have a few million dollars which we paid higher for, so the cost of goods sold now translating higher to our P&L. I believe the Q3 should be the last quarter when we will get rid of the higher cost of those components. During 2022, after this shock of the world of the shortage, we succeed to buy new inventories and make CapEx in lower prices. Not lower compared to the past, but much lower compared to the current prices that we bought. I'm expecting that overall Q4, and for sure for the second half of 2023, these costs will translate to lower costs and to higher gross margins.
I believe that the profitability, the gross margins, which in the end is also influenced, EBIT margins and the net profit will be, I believe, materially better.
Thank you, Tamir.
The next question is from Boris Schneider of More Mutual Funds. Please go ahead.
Thank you for taking my question. I have a question about the Favor One, and what? Hello?
The voice is disconnected.
Hello?
The next question is from Albert Horovitz of OSB. Please go ahead.
Hi, good afternoon. First of all, thank you for a really good quarter. Given the backdrop that's out there, I think you guys did amazing. I was wondering if you could maybe give us a view to 2023. It would seem to me that gross margins should actually expand in 2023. If the growth continues on the subscriber growth, and it would perhaps even accelerate. Could you give us a glimpse of what your view would be? Could we see an acceleration of growth in 2023 and a commensurate profitability?
Without talking about, you know, guidance or numbers, generally speaking, Ituran business model is very easy, I think, and very high. We have a very high visibility. Of course, there's some always things. Like, for example, if you go back to the corona, nobody expected it, and it's influenced, and we have to organize for it, et cetera. If the things will continue as the first half of 2022, as we show today, and with a shortage of components which we already handled it. It's not apparent in our P&L because things are in processes always. You cannot buy an inventory today and get with it tomorrow. It's taking time because we hold inventories, we hold contracts.
During the first half, we succeed to grow materially higher in subscribers, which is our, in the end of the day, the most profitable segment of the business. On the other end, the hardware side, we pay the price, let's call it, for the beginning or the last year, high prices. Now we changed it. If the growing in subscribers will continue at this rhythm, and we do more to do more, and I believe that we have the potential market today to do more. No doubt that at this case, your statement is the very, very right. That's the operating leverage model of our recurring revenue business. That's what we aim. It's our expectations. Let's wait, let's see.
Okay. Just finally, if you could comment, I think last quarter, you didn't comment on it, but Bringg. If you could give us a sense of where Bringg is right now, is there any potential of them IPO-ing, and what is the current market value of Bringg, and how is the business doing?
Okay. Since Bringg is a private company, a startup, Israeli startups, the last financial round was declared by the company, and the valuation was $1 billion, and the company raised more than $100 million. The company is in a good shape in terms of of financials and in operation, but we never thought that the IPO will come this year or next year. Now, when we all know where the market, the stock market and the economy is, and it's not only Bringg. Many other companies, even more mature companies, I don't see plenty of IPOs happening on a daily basis.
I'm not expecting, but I'm really expecting that the company is in a good shape from financial and operational side, and they will continue to grow, to become market leaders in their industry. In three, four to five years, when the market will allow companies to do IPO at this stage, I hope that they will be ready with higher revenues and higher profits.
Okay. Just to remind, you still own 17% of Bringg?
Yes, yes.
Okay.
Since this round, we didn't do.
Would you sell any, at these levels, at this valuation?
No.
Okay. Okay, beautiful. Thank you.
Welcome.
If there are any additional questions, please press star one. If you wish to cancel your request, please press star two. Please stand by while we pull some more questions. 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?
Hi. On behalf of management of Ituran, I would like to thank you, our shareholders, for your continued interest and long-term support of our business. I do look forward to speaking with you next quarter. Thank you, and have a good day.
Thank you. This concludes the Ituran second quarter 2022 results conference call. Thank you for your participation. You may go ahead and disconnect.