Ladies and gentlemen, thank you for standing by. Welcome to the Ituran fourth quarter and full year 2020 result 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. 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 at www.ituran.com. I will now hand over the call to Mr. Ehud Helft of GK Investor Relations. Mr. Helft, would you like to begin, please?
Thank you, operator. Good day to all of you and welcome to Ituran conference call to discuss the fourth quarter and full year 2020 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 open the call for the questions and answer session. I'd like to remind everyone the safe harbor in this press release also covers the content of this 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. I hope you and your families are continuing to stay healthy. We are very happy with the improvement in our results in the fourth quarter, which outperformed our expectations, in what concludes a very hard year for every one of us. Despite being a difficult year for everyone, we are pleased that we maintain our profitability and strengths, and in particular, we generate record operating cash flow of $60 million. This is a solid demonstration of the strength of our business, even in the toughest of times. For the fourth quarter of 2020, revenues were $63.6 million, growing by 3% year-over-year in local currency terms. Bear in mind that the year-ago fourth quarter was pre-corona.
Our aftermarket subscriber growth was 21,000 net in the quarter, which is a growth rate we are very happy with and at a level that we typically expect in normal times. I see this as a very positive sign for the coming quarters, and it shows that Ituran is well on the way to recovery and renewed growth. On the profitability side, as you know, we have managed the business very carefully to ensure we remain lean and profitable. For the quarter, we reported EBITDA of close to $17 million, demonstrating growth of 17% year-over-year in local currency terms when excluding last year's impairments. This shows that we continue to be successful in mitigating the impact of the pandemic on our improving profitability. It is a strong testament to the overall resilience and stability of our business model.
On the cash side, fourth quarter cash flow from operating activities of $16.5 million, bringing our cash and marketable securities position to just under $79 million. Because of the continued cash generation, strong results, and improvement in the general market environment, the board decided to restart the dividend payment policy to shareholders with a payment this quarter of $10 million for 2020 and a new policy of issuing at least $3 million on a quarterly basis. We are very pleased to renew the sharing of the rewards of Ituran's success with our shareholders. Again, the board is remaining conservative while the pandemic is still having its impact, and we review the policy as things develop. Our stability is built on our subscriber base, which remains strong and healthy. It is close to 1.8 million subscribers, whereby the majority of them are paying us on an ongoing basis a monthly fee.
Our revenue starting point each month is already on the back of this. During the quarter, as I said, our aftermarket business returned to its normal growth rate of 21,000 new net subs. The regions that were particularly strong were Israel and the U.S. I note that in January 2021, Israel had its highest level of new car sales in history, up 16% year-over-year, which compares with the January 2020, a pre-COVID month of car sales. While it is only one month, I know, and may be catching up from car sales which were not completed in the Q4 shutdown, it is another sign that 2021 is starting well. While many countries in South America are still highly impacted by the virus and economies remain weak there, we are seeing improving trends, especially in Brazil and in Mexico.
During the quarter, we saw a decline of 5,000 OEM subscribers. I remind you that in Q2, we lost 27,000, and in Q3, the loss declined to 12,000. Therefore, the decline in the OEM base over the past year has been dramatically curtailed in the fourth quarter, and we are clearly moving in the right direction. We don't see the OEM base as simply a subscriber growth story. We are working hard to harvest all the synergies across our entire business and in all our various geographies, cross-selling and replicating successful business models and sales from one region to another. We tap our large subscriber base of almost 1.8 million paying customers to bring them new and valuable telematic and related services by which we can organically grow our sales. We believe that as the world moves past of the pandemic, Ituran is very well-positioned for growth.
In summary, overall, we are very pleased with our fourth quarter financial results ending the hardest year in our history. Given our improvements and the strong cash generation, the board decided to renew our dividend payment while maintaining a level of conservatism as long as the pandemic impact continue globally. As you can see, we are sharing the ongoing fruits of our success with our shareholders. We've managed through the crisis well, maintained profitable business, and generated a strong level of cash flow, which represent the resilience of our business model. We also use the slower periods to make incremental improvements throughout our business to look for efficiency and harvest synergies. I believe we are now very well-positioned to resume growth and increased profitability through 2021. I will now hand the call over to Eli for the financial review. Eli?
Thanks, Eyal. I know that the results I present will all be on a GAAP basis, including Adjusted EBITDA, which excludes revenues and costs related to the purchase price allocation. We believe this will provide a better understanding of our ongoing performance. Revenue for the fourth quarter of 2020 were $ 63.6 million, a decrease of 3% compared with revenue of $65.5 million last year. In local currency terms, fourth quarter revenue increased by 3% year-over-year. Revenues from subscription fees were $45.8 million, a decrease of 8% year-over-year. In local currency terms, subscription fees were at the same level as that of last year. The subscriber base at year-end was 1,768,000, an increase of 16,000 net over that of the end of Q3 2020. During the quarter, there was an increase of 21,000 in the aftermarket subscriber base and a decline of 5,000 in the OEM subscriber base.
Product revenues were $17.9 million, an increase of 13% compared with that of the fourth quarter of 2019. The geographic breakdown of revenues in the fourth quarter was as follows: Israel 49%, Brazil 23%, rest of world 28%. Operating income for the quarter was $12.5 million, 19% of revenues, compared with an operating loss of $16.4 million in the fourth quarter of last year. I know that fourth quarter 2019 operating expenses included an impairment loss of $26.2 million related to the acquisition of Road Track Holding.
In local currency terms and excluding last year's fourth quarter impairment, the operating income would have grown by 33% year-over-year. EBITDA for the quarter was $16.6 million, 26.1% of revenues, compared with an EBITDA loss of $10.7 million in the fourth quarter of last year. In local currency terms and excluding the above-mentioned fourth quarter 2019 impairment, EBITDA would have increased by 17% year-over-year.
Financial expenses for the quarter was $2.2 million, compared with a financial income of $3.3 million in the fourth quarter of last year. The quarter, we were impacted by non-cash expenses, primarily due to the exchange rate expense on Ituran U.S. dollars cash holdings in Israel, as well as the change in market value of SaverOne. While the financial income last year was as a result of the change in obligation to purchase the non-controlling interest of Road Track in the fourth quarter of 2019. Net income for the fourth quarter 2020 was $6.8 million, 10.7% of revenue or earning per share of $ 0.33. This is compared to a net loss of $15.3 million and loss per share of $ 0.73 in the fourth quarter of 2019. Cash flow from operation for the fourth quarter of 2020 was $16.5 million.
In terms of our full year 2020 numbers, revenues for 2020 was $245.6 million, 12% below the $279.3 million reported in 2019. Revenues from subscription fees were $182.9 million, representing a decrease of 11% over last year. In local currency terms, subscription fees were at a similar level to those of 2019. Product revenues were $62.7 million, representing a decrease of 16% compared last year. Operating profits for 2020 was $27.8 million, 11.3% of revenue, an increase of 23% compared with operating profits of $22.7 million, 8.1% of revenue in 2019. Excluding the impairment in both 2019 and 2020, in the local currency terms, the operating income decreased by 7%. EBITDA for 2020 was $46.7 million, 19% of revenue, an increase of 3% compared to $45.5 million, 16.3% of revenue in 2019. Excluding the impairment in both 2019 and 2020, the EBITDA in local currency terms decreased by 7%.
Net income in 2020 was $16.1 million, 6.6% of revenue or fully diluted earning per share of $ 0.77, compared with net income of $6.9 million, 2.5% of revenue or fully diluted earning per share of $ 0.53 in 2019. Cash flow from operation for 2020 was a record $60.1 million. As of December 31st, 2020, the company had cash, including marketable securities, of $78.8 million and a debt of $54.5 million, amounting to a net cash position of $24.3 million.
This is compared with cash, including marketable securities of $54.3 million and a debt of $67.9 million, amounting to a net debt of $13.6 million as of December 31st, 2019. For the year 2020, a dividend of $10 million was declared. The board decided to restart dividend payment to shareholders and resume a new policy of issuing at least $ 3 million on a quarterly basis.
The dividend's record date is March 23rd, 2021, and the dividend will be paid on April 6th, 2021, net of taxes and levies at the rate of 25%. 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. 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 headset before pressing the numbers. Your questions will be polled in the order they are received. Please stand by while we poll for your questions. The first question is from Tavy Rosner of Barclays. Please go ahead.
Hi, this is Peter Zdebski on for Tavy. Thanks for taking my question, congratulations on the solid quarter. I was wondering if you could give us some more color on the gross margins in the quarter, and maybe, on the trajectory going into 2021, particularly on what seemed to have a big uptick in the product gross margin in the quarter. Also the follow-up, I was wondering if you could give us an update on the Road Track operations, and the current strategy there.
Okay. Regarding the gross margins and the, I would say the increasing in the hardware sales during Q4, I would say that this is not a typical and average quarter. The reason is that, if you remember, until around July, August, the plants, the production lines were closed in Mexico and in Brazil. As you remember, our OEM business is done with two car brands in those regions. Soon after the lockdowns finished and the market start operating again, there was, I would say, impact on their needs to increase their inventory, and they automatically made a very high purchase from us for the hardware and the parts that they are buying from us. I would say that Q4, it's not a typical quarter.
This, by the way, something that can explain that the growth in our gross margins, which reflect also to the growth on our operating profits from Q3. The sequenced situation is more than $ 1 million difference, which is not a typical gross quarter to quarter into one. In order to be more realistic and in order to be on the same page with the investors, I would say that we are not expecting this growth rate and growth numbers in the coming quarter. Saying that, I would like to, of course, to repeat my speech in the PR, is that we totally expect that we will continue the trend of growing.
We see a very positive trend. We see a positive request in the markets open, which will be in favor of our growth. The difference between Q4 and Q3 in this specific item, is because of the explanation that I just gave to you. Okay.
Thank you. That's great color. Maybe just a brief update on the Road Track operations.
Okay. The Road Track operation very depend, as I said, on two customers. Both of them are car producers. We have one in Mexico, and we have one, which is our customer in Ecuador, Colombia, Brazil, and Argentina. The one in Mexico, we find a very enthusiasm from its side to increase the relationship, to increase the installation, to cover more model of cars from the hardware point of view and also from the service point of view. We quite sure that based on the discussion that we had, that in 2021, we will install in Mexico a higher number and maybe the highest number of units ever. On the other hand, with the other car manufacturer in Brazil and Argentina, as we said two years ago, we are no longer a hardware provider. We are only a service provider.
We already showed a very sharp decline during 2019 and even in the beginning of 2020. We are not expecting additional decline, on the other end, I cannot say that we expect growth on these four geographies, we really will maintain the profitability, the profits, and on the same time, as I said in the past, we bring other assets to those geographies. In Brazil, we already have. We have the historical Ituran operation, which continue to grow. In Ecuador and Colombia, we are now more focusing in penetrating different segments, mainly fleet management and other car dealers or even car manufacturers, which I believe will overcome the un-growth business with the current car manufacturer.
That's perfect. Thanks for the question, and congratulations on the results.
The next question is from David Kelley of Jefferies. Please go ahead.
Hi. Thanks for taking my questions. Maybe just start with the solid rebound in aftermarket subscribers. Just curious as to your view on the sustainability of that growth or even if there's opportunity for upside. I believe you referenced the robust January SAR, but also could be some pent-up demand driving that as well. We're also having the vaccine ramp up. Just curious as to how you're thinking about the potential for this aftermarket subscriber growth rate going forward.
First of all, I must mention that, in the end of the day, there is a lot of influence from the pandemic, as we faced during mid-2020. Now I think, and it looks like, of course, because of the vaccine aspect, but also I think that countries, governments, and people understood that all of us have to find a way to live aside, to live with, and we cannot shut down for the rest of our life, all the business and all our life quality. I think that it looks like. By the way, in Latin America, for example, there is not yet vaccine, and they still decide not to go for a strategy of lockdowns three or four months ago, and the markets are open. Of course, there's some limitations, some obligations, some obey, some not obey.
From our perspective, from the business side, it looks like the business shall work. Of course, they are not the same car sales that it was in 2019, but it looks like the decline is lower than we were expected. It's not 20%, 25%, 30% less. It's going to be, we believe, 10%, 12% less than before the pandemic. We know as Ituran how to overcome it by gaining more market share, offering more solutions and more applications. Regarding Israel and regarding the aftermarket subscribers, I want to be conservative but still say that I believe that the numbers that we showed in Q4 when most of the markets were open in Israel and in Brazil and in the U.S., by the way, is giving us a sense of how the next quarters are going to look like.
Don't forget that we are now in a position to reap the fruits of our investments, mainly in UBI, in application for every customer that we charge for it. We see that we are not only sell fleet management or traditional fleet management and traditional SVR. We are selling UBI, we are selling application. We improve and expand our fleet management solutions. We provide diagnostic, which three, four years ago we didn't have it, et cetera. I believe that in the aftermarket, we will continue with this trend of being, of a number of this close to 20,000, maybe it's 17,000 or 22,000. Of course, much bigger and much higher growth than we show during 2020, during the pandemic.
Okay. Thank you. That's helpful. Maybe just, was looking for an update on some of your cost initiatives. There's some structural cost savings you're pulled out of the model. I believe compensation expense started to ramp back up last quarter, offsetting that a bit. Could you just walk us through the puts and takes of some of the cost initiatives that impacted Q4 and maybe how we should be thinking about the cost structure into 2021?
Okay. Regard compensation, during Q4, majority of our cost saving until Q4, we are back to the times before the pandemic. We change back all the compensation, or not all, but major portion of the compensation in the group. The additional will be in Q1 when we had the decision that the employees, except very few people like me, will back to the normal compensation. Of course, they deserve it. They've been with the company during almost a year. All of them were very effective. They work from remotely. They work when they've been needed in the offices all around the world. I'm happy that we are in a position that we took this decision, by the way, before we decide to pay dividend, because the employees are in the first stage of Ituran.
Regarding other expenses, we have to understand, it's not material, but I must mention it. For example, we have less flight. People not flight in Ituran, and we are a global company. It has some saving, but all the additional savings, I think, are in a number of few hundred thousand dollar a year, not more than this. The major portion of the saving was compensation. In Q4, major part of it already in the numbers that you see, meaning we are not expect a major growth in our expenses in Q4. It maybe will be very immaterial number, but there will be few tens of thousand dollars for Q1. That's all.
Okay. Got it. Thank you very much. I will pass it on.
The next question is from Asaf Barel Chandali of Oppenheimer. Please go ahead.
Hey, guys. Congrats on a really positive end to 2020, and it's encouraging to hear that the company will return to paying the dividend. On the topic of the dividend, we appreciate fully that we're not past COVID. The company likes being managed and run in a very conservative way. What would be the puts and takes as to how the board might be thinking about dividend levels when the macro outlook normalizes, and more broadly on capital allocation? I'll just add, how should we be interpreting the word minimum when we think about minimum $3 million? Thanks.
Okay. First of all, we have to keep even from a legal perspective, because those, all these policies, has legal meaning. We don't want to be in a position that there is zero flexibility. Also historically, when we decide on policy when it was $5 million, if you check back, you will see it always was $5 million, or always was a minimum of five. I would say that we should expect $3 million per quarter. I think that quarter, in the next couple of quarters, we will review again what is the situation with the pandemic, how things change in the world, how the company feel. There is no doubt that when everybody looks on our balance sheet, and you take a view on the current balance sheet for today without looking in future.
Even myself, why not paying more? When we take a decision, we cannot change it every month or every two. All of us know we're still in a shaky world. It's not something very stable. I'm optimistic. I see that we, as Ituran, should be, and we proved it, that even if things will be bad in the world, we know how to overcome it, still, we prefer, and this is part of the DNA of Ituran, to be conservative. We decide to go for the safe side. I would expect as an investor that it will be $3 million. Once we will decide to change it, we will change it. We will declare, we will report. It's not something that we will surprise people. Although it's a good surprise, we will not come.
The reason that we did the $10 million, which might look like a surprise, it still was on the table. When we had the last quarter's call, I've been asked the question, I said that I feel that the company, in the short future, will probably review again and take a decision again. Since we didn't pay dividend almost all the year, we decide, I would say, to compensate this past by paying something as a one-time that can compensate all 2020. This is the reason maybe that the $ 10 million might be a little bit surprised. When we talk about the policy, looking forward, what we said or what we report, this will be the number. It will be $3 million. If it will be more, we will change the policy, we will let people know it in advance.
Okay, great. That's very clear. I wanted to follow up on a previous question that you guys had on operating expenses, just to clarify it fully. There are maybe some minor management kind of salaries that may not be at the full levels. Otherwise, when I look at the Q4 operating expenses, I should be kind of thinking that Q1 and Q2 as somewhat plus/minus similar levels. I know that there's some foreign currency that could come and move the numbers. That would be adjusted also on the revenues, but just to clarify here.
Absolutely. I think that, again, when we don't want to talk about small change, Q4 expenses is very close to the actual expenses of Q1, of course, on a local currency. We always give a kind of translation in our numbers, how it would look like without the currency effect. In terms of expenses, the change in Q1 will be very minor, which will not be material for the results of the company.
Okay, great. Any updates you guys can give us on how the aftermarket plans in Mexico are going? Any changes in the timeline? Any acceleration in the timeline? Delays?
The aftermarket in Mexico, which is mainly something that we are doing is we are duplicating the ICI, Ituran com Seguro that we do in Brazil, meaning selling Ituran plus insurance when we have a backup of insurance companies, and we're kind of a digital agency, something that we are leading in the Brazilian market. We are almost the sole supplier of those solutions. What we did in Mexico, first of all, of course, we had a delay because of the COVID-19. We didn't want to start the first campaign and the launch campaign while everybody are in lockdown and the mood is low, and we, of course, took the advice of our marketing and advertising agencies. Now, really, beginning of 2021, we launch it.
What we did first, which is very important, and I'm very proud that we get to this point, we signed contract with the insurance companies that we needed in order to give us the insurance for the market. How it work, people are buying a solution, only theft solution, anti-theft solution with insurance from Ituran. Since Ituran cannot sell insurance, we cannot provide insurance, we have to have a backup. We have to have partners. This is something that we have many years in Brazil. Today it looks like ongoing, but to create it at the beginning, it's very difficult because the insurance companies, by the way, taking a risk of cannibalism for themselves. When I sell a specific insurance, people can decide to buy this insurance and not their full insurance, which they make more money.
We succeed to convince insurance companies in Mexico that the cannibalism will be very low, and they open a new segment through us. I'm really optimistic, but we have to understand, it's like creating a new business. It's not something that in 2021, in the end of the year, you will ask me how it goes, what is the contribution? It will be low contribution. Since it's also as an operating leverage business, and since Once you educate the market, which will take one year, 18 months to educate the market that there is a new solution for insurance. It's like, I would compare it, for example, to a digital insurance, when the first digital insurance company launched, I think they have some difficulties, but today probably they are the leaders. We always have difficulties when you have to educate market with a new product, new solution.
They have to trust you, et cetera, and it takes time. The first pilot, which is in a low flame and low numbers that we just did recently, really in the last week, few weeks, looks very, very good. It looks better than when we start 10 years ago in Brazil. If I want to compare the first months in Brazil 10 years ago and the first months in Mexico looks better. How long it's going to take? It will take time. Ituran, today, is a business of $250 million a year. It's very difficult to provide growth organically in few weeks or few months. I look more longer future, mid-future, 2023, 2024, I feel confidence, or I hope, that this is going to be a very important arm of our future growth.
Okay, great. With respect to UBI Israel, I assume it's part of the really kind of nice rebound that we're seeing in the aftermarket growth. Any change there with how you're thinking about going international with it? Any kind of update you can get on that timeline?
Absolutely right. This is part of our, I would say, success in growing our aftermarket subscribers. I must say that since the Israeli market and also the Brazilian market, back to sell cars in a very high numbers, we also succeed with our traditional SVR solution to grow our subscribers. During the pandemic, we thought that we will find ourselves selling or growing only in the UBI. Today, few months after the car sales renewed, I see that we have also SVR sales, also growing in our SVR subscribers. Of course, the UBI pushing it stronger and, looking forward, and I see how the UBI is growing. Again, I just want to remind you, we started again about 15 months ago, and exactly the words that I said, it will take time, it will not influence 2020.
Now in 2021, absolutely, the number will be with more major influence. Of course, again, we not count only on UBI, but UBI has a very strong influence on growing subscribers, and this is even before all the insurance companies that signed contracts with us already integrated and start selling. We still have additional insurance companies, and don't forget, again, it's also an educating. We educated the market less than a year ago, and we are talking about thousands of new subscribers a month, after a year. I'm very happy and proud that we are in this trend. Regarding copied to other markets. Our other markets are in Latin America. I think that Latin America is in a stage like Israel was three years ago, until three years ago, that insurance companies didn't understand what is our offering because they were very traditional orientation.
They didn't want to change the traditional insurance policy and insurance way of selling through brokers, et cetera. Then the digital insurance companies penetrate to Israel, the price went down, and in order to compete with those companies, they have to go out of the traditional way, and that was the door or the window that we get in. Today they can offer a cheaper policy and to compete among new digital insurance companies. In Latin America, specifically in Brazil and in Mexico, I think they are one or two legs behind Israel. We try because we have the solution, we have the technology, we have the relationship. I must say that the insurance companies are very polite in letting us know that they are not interested, not in Ituran solution, but in this solution.
15 years ago, nobody thought that we will have iPhones, and now everybody has an iPhone. When somebody threw us from the door, we come from the window, and if the window is closed, we come through the wall, and we will be there. We have a strong relationship with insurance companies in Brazil that trust us. I believe that, as long as we continue to sell ICI and to sell the insurance company solution for SVR, in one day, this door will open, and we will be the supplier like in Israel. I hope and believe that we will be leaders. This is in Latin America. Now, I don't see sales come from UBI out of Israel.
Okay, great. Last question from my end, a bit more of a technical question. CapEx was obviously lower this year relative to last year. Again, I know that there are probably some currency impacts here. How should we be thinking about spending in 2021? Is there anything that may have been delayed that might have to even raise the number a little bit higher? Any kind of guidance there would be helpful in modeling.
Basically, the majority of the CapEx relates to the MG units that we are selling as a comodato in Latin America, especially in Brazil and Argentina. Again, in this year, in 2020, due to the pandemic, of course, there were less sales, and that means, let's say, also less CapEx, less purchases of units.
Okay. Any kind of general number that we should be thinking about on the CapEx, and we should be looking at it as a proxy from the products revenues that are going to be coming in? I mean, how does that get timed relative to the quarter? Any kind of guidance there would be helpful.
It's really hard to say, especially with the pandemic now. I would say, if you want to take somewhere between 2020 and 2019, an average of those, I believe this is something that can be represented for 2021.
That's great. That's very helpful. Thank you guys for taking my questions.
Thank you.
The next question is from Ethan Etzioni of Etzioni Portfolio Management. Please go ahead. Ethan? 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 for 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 all participants that a replay of this call will be available tomorrow on Ituran's website at www.ituran.com. Mr. Sheratzky, would you like to make your concluding 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 and hope that we will all see better times by then. Have a good day.
Thank you. This concludes the Ituran fourth quarter and full year 2020 results conference call. Thank you for your participation. You may go ahead and disconnect.