Ladies and gentlemen, thank you for standing by. Welcome to the Ituran first quarter 2021 results conference call. All participants are present in a listen-only mode. Following management's formal 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 Ituran's investor relations team at GK Investor & Public Relations at 1-646-688-3559, or view it in the news section of the company's website, www.ituran.com. I would like to hand over the call to Mr. Ehud Helft of GK 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 first quarter 2021 results. I would like to thank Ituran management for hosting this conference call. With me today on the call are Mr. Eyal Sheratzky, Co-CEO, Mr. Udi Mizrahi, Deputy CEO and Deputy Finance, and Mr. Eli Kamer, 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. Now, Eyal, would you like to continue?
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 first quarter, which outperformed our expectations. We demonstrate that Ituran is well on the way to full recovery and renewed growth. This is despite ongoing impact from the pandemic, which still affect many of geographies in South America in which we operate. Not only have we maintained our profitability and strengths, we grow our subscriber base at the highest rate we have seen for many quarters, at 20,000 net adds. While the OEM segment is stabilizing, the strength was driven by the aftermarket segment, which grew at a remarkable 25,000 net. This is a rate which is nicely ahead of our typical range of between 15,000 and 20,000.
We are very happy with this strong increase. It is promising sign for potential growth in subscription revenues over the many quarters ahead. For the first quarter of 2021, revenues were at $67 million, 6% ahead of those of the fourth quarter and just 1% behind the $68 million reported in the first quarter of last year, pre the pandemic. All this demonstrate that Ituran has now recovered to its former strength and is primed for renewed growth in the quarters ahead. On the profitability side, as you know, over the past year, we carefully managed the business which allowed us to maintain our cash generation and profit.
As we return to the growth trend in the coming quarter, we expect that the operating leverage inherent in our business model, which enable us to add subscribers on a more or less fixed operating base, will allow us to see the top-line revenue growth from the increase in subscribers drop down to the bottom line. From the profitability standpoint for the quarter, we reported EBITDA of $17 million, our highest level since before the pandemic. It is strong statement to the overall resilience and stability of our business model. On the cash side, we have first quarter cash flow from our operating activities at $9.2 million, bringing our cash and marketable securities position to $70 million. I'd like to go into more details on the various parts of our business.
During the quarter, as I said, our aftermarket business returned to about its normal growth rate of 25,000 new net adds. The regions that were particularly strong were Israel and the U.S. It is worth mentioning that in Brazil, even though the situation with the pandemic still remains tough, we are pleased with the stabilization in the aftermarket subscriber base. I note that in Q1, Israel had its highest level of new car sales in history, an increase of 18% year-over-year increase. This is another sign that 2021 has started well in our key geographies. Many countries in South America are still highly impacted by the virus, and the economies remain weakened, but we are seeing improving trends in Brazil and in Mexico. During the quarter, we saw an overall decline of 5,000 OEM customers. This decline has slowed from last year, and it's moving in the right direction.
One of the major goals of the acquisition of the OEM business was to harvest synergies across our entire business and in all the various geographies, cross-selling, and replicating successful business models and sales from one region to another. We are very much in the process of doing this now and tapping our large subscriber base of almost 1.8 million with loyal paying customers to bring them new and valuable telematics and related services by which we can organically grow our sales. In summary, overall, we are pleased with our start to 2021. Ituran has resumed its growth trend, and the strong increase in subscriber base sets us up well for the coming quarters. I will now hand the call over to Eli for the financial review. Eli?
Thanks, Eyal. I note that the results we present will all be on a GAAP basis, including adjusted EBITDA, which exclude revenues and costs related to the purchase price allocation. We believe this will provide a better understanding of our ongoing performance.
Revenues for the first quarter of 2021 were $67.4 million, a decrease of 1% compared with revenues of $68.4 million in the first quarter of 2020. In local currency terms, first quarter revenues were at the same level as those of the first quarter of last year. Revenues from subscription fees were $45.6 million, a decrease of 7% over first quarter 2020 revenues. In local currency terms, first quarter subscription fees decreased by 4% year over year. The subscriber base amounted to 1,788,000 as of March 31st, 2021. This represents an increase of 20,000 net over that of the end of the previous quarter. During the quarter, there was an increase of 25,000 in the aftermarket subscriber base and a decline of 5,000 in the OEM subscriber base. Product revenues were $21.7 million, an increase of 12% compared with that of the first quarter of 2020.
The geographic breakdown of revenues in the first quarter was as follows: Israel 52%, Brazil 22%, rest of world 26%. Operating income for the quarter was $12.8 million or 19% of revenue, an increase of 27% compared with an operating income of $10.1 million, or 14.7% of revenue in the first quarter of last year. EBITDA for the quarter was $17.1 million, or 25.4% of revenues, an increase of 12% compared with an EBITDA of $15.3 million or 22.4% of revenues in the first quarter of last year. Financial expenses for the quarter was $1 million, compared with the financial expenses of $700,000 in the first quarter of last year. Net income for the first quarter of 2021 was $8.3 million, or 12.3% of revenues, or earnings per share of $0.40.
This is an increase of 13% compared to a net income of $6.4 million and an earnings per share of $0.31 per share in the first quarter of 2020. Cash flow from operations for the first quarter of 2021 was $9.2 million. As of March 31st, 2021, the company had cash, including marketable securities, of $17.1 million and debt of $41.8 million, amounting to a net cash of $28.3 million. This is compared with cash, including marketable securities of $78.8 million and debt of $54.5 million, amounting to a net cash of $24.3 million as of December 31st, 2020. For the first quarter of 2021, 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. With that, I'd like to open the call for the question and answer session. Operator?
Thank you. Ladies and gentlemen, at this time, we will begin the question and answer session. The first question is from Tavy Rosner of Barclays. Please go ahead.
Hi, this is Tavy Rosner. Thanks for taking my question, and congratulations on the quarter. You had another very strong quarter in hardware, both on sales and margins. I recall last quarter that was related to some inventory restocking. Could you give some color on whether that continued in Q1? Then as a follow-up, have you or your customers been impacted by any supply chain shortages this year that we should consider for the outlook? Thank you.
Usually Q1 is very strong in terms of the OEM purchasing process since in Latin America, the OEM plants are. It's the last quarter of the year. This is how they consider it. They are increasing their volumes and their inventory. This is typically, I would say, the highest season from the OEM purchase point. Also in Israel, as I mentioned, Q1 was the highest ever of sales of new cars in Israel, which of course create correlation between purchasing the hardware and install it. It was strong, and it's not a one time, but it shows a little bit of seasonality in hardware sales for us.
Usually Q2 and Q3 are a little bit weaker than Q1 and Q4. As you remember, still the contribution of hardware sales to our overall profits is lower than, of course, the service revenues. Still, this is the reason for Q1. Yes.
Appreciate the color. Thank you.
The next question is from David Kelley of Jefferies. Please go ahead.
Sorry. Thanks for taking my questions. Two from me, maybe to start, the step up in the U.S. aftermarket subscriber business, just hoping you could provide a bit more color, driver to the contribution there and maybe remind us of the size of your U.S. business and how the competitive landscape shapes up there. It'd be great.
Just to remind everyone that our main segment in the United States market is what they call buy here, pay here, which represent financing people to buy the cars in the dealers' shops. In some events, those finance dealers would like to control payments of their customers. They're using systems like our systems and others in order to control payments. During last year, I think that after a while, our solution showed a very excellent application solution, very reliable, and we succeed to increase our penetration to additional master dealers in the United States, a trend which I believe will continue. We are now putting more resources in marketing and sales because we found that we have advantage, which we have to turn to sales. I think that we are gaining more market share. I think we have a better solution.
Fortunately or unfortunately, during the pandemic, we succeed to increase our market share and grow the subscribers there now. The American or the U.S. market is a very competitive. The price issue is based on this competitive landscape is creating low margins. This is why when you see our annual results and we are providing some data, the U.S. market profitability is low compared to the number of subscribers that we have there. This was always like this. This is the mentality and the DNA of the U.S. competitive markets. We are there. We are going. We're gaining market share. In the end of the day, we are increasing our profits. We grow our sales. If this trend will continue, which we do our best that it will happen, I believe that it will be more material year-over-year.
Okay, got it. Thank you. That's helpful. Maybe just to clarify on that last point. It sounds like you're expecting to continue to be selective in your U.S. businesses while still trying to grow market share where it makes sense from a profitability standpoint. Just making sure that we understand the approach there.
Can you repeat? I didn't understand. Maybe I didn't understand clearly your issue.
Yeah. Just maybe another way of putting it, do you expect to remain selective with your approach to the U.S. and kind of focus on the profitability? You noted it's a region with an historically lower profit margin. Should we expect your approach to the market to remain as you've always approached it historically, meaning you're not willing to sacrifice margins for growth?
Okay. I would say our strategy is to keep profits, keep profitability, even giving up some growth. Because when we are analyzing the market for more than 15 years, we saw that most, if not all of our competitors, which are bigger than us, always lost money. Most of them bankrupt and change ownership during the years. We are always made money. Now, fortunately, we succeed, I think, to show that we have some advantages, and we succeed to increase our growth or maybe to create new growth without sacrificing our profitability.
Still, compared to other regions that Ituran operates, like Israel and Latin America, the U.S. business of Ituran has lower margins, but still we always keep everything for profits because to start giving, for example, units for free or going and advertising for $50 million and then sell hundreds of thousands a year. It's very nice, but no one proved that even in the long term, it's turned to profits. A business, at the end of the day, is to serve shareholders by creating profits. We will not sacrifice our profits. We always try to balance between growing and profitability. Now, we are in a trend, I think, which we start reaping the fruits, also growth, but without giving up for our profits.
Of course, for a short term, when I'm saying that we increase some marketing resources, of course, maybe we'll not grow our profits in the next one or two quarters in the U.S. We do it very consciously, and we always know that this will lead to increased profits. This is our holy thing, profits, and profits.
Okay. That's helpful. Thank you. Last one from me, and I'll pass it along. I'm just curious to get your views on the setup in Brazil. I believe you noted stabilization in the aftermarket segment there in the first quarter. Can you talk a bit about what you're seeing in Brazil Q2 today?
When we compare the situation today to the situation during 2020, we are in a much better solution, because during 2020 until about October, the sales was very low. Not zero, but very low. On the same time, the churn is something that's not dependent on the market. There is a churn. We lost, or we had the minus and the negative growth in our subscriber base, which typically it's the opposite of what we are aiming. The pandemic hit and change a little bit, shake the situation. Since October or up until today, and we show it also in the Q4, we succeed to overcome the situation. We're back to at the beginning, the decline start shrinking, we see now that the trend will lead us very shortly to change to a growth of net subscribers.
Looking back is not the idea, but when we look forward, we are very optimistic. We see the graph growing. We are now close to the full recovery. When we look so on the market, we have to understand that there is less car sales, which is influenced that people have less money. Some people with a second car decided to sell it and not buy a new one because most of the people are in quarantine for a longer period of time. We see and we learn it from Israel, and we see it now in Europe, in the U.S., and we know that it's now turned to be the situation also in Brazil.
The Brazil vaccination start late, but they are now in a very strong trend with a very impressive goals of vaccinating the population, which for us is very important, the situation in São Paulo, also for them, because it's the main commercial area for Brazil. I believe that once it will be more free from the pandemic and people will be back to work, et cetera, it will allow us to grow, because even today, when Brazil is still in a pandemic, we see that we are in a very good trend of recovery. When it's turned to a free market at all from the pandemic, I'm totally sure that we will be back to the best times. In terms of our market share, we have to understand that our position is very strong in Brazil. We are the strongest player.
During the pandemic, we didn't see, or we even saw that we are gaining more and more market share. Our competitors were also, from the economic point of view, is a worse situation. Overall, looking forward, I'm very optimistic that Brazil contribution will continue to be more and more on the positive results.
Great. That is helpful. Thanks so much.
The next question is from Asaf Barel of Oppenheimer. Please go ahead.
Hey, guys. Thanks for taking my questions. Eyal, you are off to a very strong quarter. Maybe we can just kind of revisit the product segment because that is what really stood out to us in terms of surprise versus estimates. Obviously, I think that is part of what drove the kind of sequentially higher EBITDA generation. How should we be thinking about a normalized products revenue run rate? Should we go back to thinking about this as a $50 million kind of quarterly business, or should we be kind of adjusting that number up, given maybe some newfound strength in the auto market globally and, of course, in the specific countries you operate, like Brazil, Mexico, and Israel, obviously. Any color there would be helpful.
Asaf, as I said before, there is a specific issue, which is the situation of the OEM during Q1. In Israel, based on the high growth of our new car sales. Of course, when we look backwards to 2020, it wasn't a regular year, meaning when we, I would say, talk with you guys, with the investors and shareholders three months ago or six months ago, don't forget that we've been in the middle of a pandemic, even in Israel, it was only the beginning of the vaccination. Based on conservative reasons and based on the last year data, which we had to count on, we couldn't, of course, forecast this change on this trend so fast. First of all, when we compare it to a year ago, of course, it's a different time. Israel is free for everything.
I would say it very clearly, no corona at all in Israel, we know it. When we go to the U.S. and when we go to Latin America, even the pandemic is there, people get used to living like this, and they also get out of it now. Q1 was strong in terms of the car industry compared to the same time a year ago or beginning of Q2 and of end of Q1, which was dramatically low last year, which of course affected us. Looking forward, as I said, I don't think that we will be back to the lowest numbers of sales, but if we've been last year in about $17 million per quarter, I believe that we will be somewhere between the sales that we've been last year to the sales in Q1. We will not drop dramatically now, that's not what I mean.
Q1 was strong. Again, don't forget that the difference of about $2 million of sales, which $2 million in revenue, it's a high number. When you go to the margins of our hardware, it's less than 20%, which means low. I'm less sensitive to change in sales of hardware. The nice thing of selling hardware in the end, it turns to subscribers. Few months later, it will turn to subscribers, and this is what's important in sales hardware, not the sales of the hardware by itself. This is good, but in the end, it's not major portion of our profits. When you talk about those numbers turn to subscribers going with us six, seven, eight years, then you talk about high numbers, and this is what is optimistic in the sales of hardware during Q1.
I'm expecting that we will show always a growth in sales, but there is some volatility between the quarters. That's all what I want to say.
Okay. Very clear, very helpful. You mentioned earlier about obviously the subscribers being strong above the 16K-20K run rate that you had prior. When you talk about operating leverage, can you walk us through how that plays out between the services growth margin, which has stabilized at that 54.5% for the last couple of quarters, and then maybe just walk us through the operating expenses? I think we're all asking what does a normalized operating expense run rate look like post-COVID? G&A is pretty modest at these levels. We've seen R&D come up. I know that there's some currency effects maybe playing in here. What does a normalized spend rate look like in terms of opex? Any color you can give us on the services growth margin over time.
Last year, I mention it every call, we did a lot of decreasing in our cost for the period of the pandemic because we want to be conservative, and I was happy that all our employees and managers were shoulder to shoulder with the interest of the company. After we show that we overcome the pandemic, after we show that the company is still alive and kicking, until Q1 and during Q1, we're back to the cost before the pandemic. Meaning, the cost that we show in Q1 across the board, including operating, including our margins and everything, I think that this is a normalized cost of the quarter in Q1 now. Of course, if we will grow our profit, our sales, we need to sell more. Of course, from time to time, we add some costs.
Again, the operating leverage allow us to add cost less than the profits that we generate from our sales. Looking for the short term, I don't see growth in our, I would call it budget, our cost. We are now back to almost the highest cost in every division, every region. This, I would say that Q1 is very close to a normalized cost situation of the group.
Okay. Very clear. Can we get an update on maybe the outlook for the Mexico aftermarket business and how that's going to play out maybe over the next year? Because I think we all expect for it to maybe more meaningfully impact numbers in 2022, but really start to take shape this year. Any color there would be helpful.
Again, this is something that I discussed last shareholders meeting, shareholder conference call. As we said, we delayed a little bit our launch of the ICS, the Ituran con Seguro, the Ituran insurance plan in Mexico. We started only in the end of 2020 when we felt, together with our marketing advisors, that this is the right time to launch. To launch it when everything was in quarantine and lockdowns and people were in a very bad mood, it's not the right time to launch a new product and to do it. We did it in the end of 2020, and we see the graph growing.
We sell every day more and more. We have to understand when you have 1.8 million subscribers, adding few hundreds for the first month and then even thousand for the next month, et cetera, in percentage and in the planning, it's even better than our plan. It has no meaning in terms of showing now results in our quarterly financials. I'm not expecting that it will affect in the coming quarters. I think that as it was in Brazil when we started, it's looking that we entered the right market. We put our legs in the right door and now we are again adding more and more direct cost. I mean, more insurance companies and more sales discussions, et cetera. I don't think that it will be material in 2021.
In 2022, I hope that somewhere in middle of the year, we can be in a position to start talking about thousands of new subscribers per month from the ICS. Add to this, that in Mexico, we also do what we call a regular aftermarket, which is not the Ituran insurance solution. We're selling now to more insurance companies. We're selling to leasing companies. We now in a pilot with a large company of Pay Your Buyer, which they try to copy this, I would call it as kind of a startup, they are a very large company today. Try to compare finance and dealership in the U.S. to Mexico. We are their tool also to monitoring their subprime customers. I must say that this pilot going very well. They are very satisfied with what they see.
Of course, again, it will take time to educate market. Overall, I'm very satisfied with our penetration to the aftermarket segment in Mexico, but it will take time to be a more major driver for us, no doubt.
Okay, great. Yeah, thanks. Thank you for the color. We noticed that, you can just miss this if it's not relevant, but in case it gives any insights into any other kind of subsidiary. Net income attributable to non-controlling interests looks quite strong this quarter around, I think, $700,000. Anything you can comment there? I mean, if anything, it looks quite positive. You can correct me if I'm misreading it.
As af, like you mentioned, we have the minority rights, which of course, contributed to the consolidated Ituran profit this quarter. Of course, some quarters they contribute more, some quarters they contribute less. As of today, I think it's very important for us to keep this minority, as this minority is also acting as an active position in the company, and it's very relevant. I think as of now, as we see it's a good position for us.
Okay, great. I'll just finish up with a technical question here. Can you give an update on what the effective tax rate should look like? It hasn't been around 30% for a while. I know it fluctuates from quarter to quarter, and there's a very big difference between marginal and effective. Given maybe some of the shifts in revenues and profits, can you give an update there on how you should think about effective tax rate longer term? Or even for just the next few quarters?
Yeah, I think that more or less approximately 27% as a tax rate may make sense for us.
Okay, great. Thank you for taking all my questions and again, congrats on a great quarter and hope to speak again soon.
Thank you, Asaf.
Thank you. You're welcome.
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.com. Mr. Sheratzky, would you like to make your closing statement?
Thank you. 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. Have a good day. Bye.
Thank you. This concludes the Ituran first quarter 2021 results conference call. Thank you for your participation. You may go ahead and disconnect.