Ladies and gentlemen, thank you for standing by. Welcome to the Ituran Second Quarter 2017 Results Conference Call. All participants are present in listen only mode. Following management's formal presentation, instructions will be given for the question and answer session. 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 and Public Relations at 1-six forty six-six eighty eight-three thousand five hundred and fifty nine 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 GK Investor Relations. Mr.
Helft, would you like to begin?
Thank you. Good day to all of you and welcome to the conference call to discuss the Q3 2017 results. I would like to present you to our managing for us this conference call. With me today on the call are Mr. Yasharwarsky, CEO Mr.
Eli Kamer, the CFO and Mr. Udi Mizrahi, VP, Finance. Pierre 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'd like to remind everyone that the Safe Harbor in this press release also covers the context of this conference call.
And now, Eyad, 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 our results of the Q2. We present our results which are at record levels. We are especially pleased with the return to strong growth in our subscriber growth as well as our record revenue and operating profit.
We reported record second quarter revenues of $58,500,000 up 19% versus last year. Out of that, dollars 42,000,000 was our subscription fees, which showed an increase of 18% over last year. This ongoing revenue increase is built on the back of our subscriber growth, which added 55,000 net subs in the 1st 6 months of 2017, mainly in Brazil and Israel. Looking at the gross margin on subscription revenues, these were 66.9%, a 4 percentage point higher than last year at 65.8%. This is due to the inherent operating leverage built into our business model, which translates our top line growth into much stronger growth in profit as incremental cost to our business of adding 1 new subscriber on the existing Ituran infrastructure is minimal.
We believe that as our subscriber base continues to grow over the coming years, our margin should be able to continue to trend upwards. The quarter subscriber growth was $30,000 We are pleased that this is at the highest level in over a year and beyond the high end of our typical expected range. I would like to spend a few moments talking about an important strategic development at Ituran during the quarter. We recently signed a joint venture agreement in India with a large automotive supplier called Lumax Auto Technologies. For it to run, this is the 1st joint venture with a large automotive supplier and the 1st operation center that we will open in the Asian region.
With a population of 1,300,000,000 people and over 200,000,000 registered cars in the country, the market potential for it to run is phenomenal. Additionally, the telematics industry in India is in its infancy. Working thorough with Lumax, we believe that we can establish ourselves as market leaders. As we have shown in Brazil, we can successfully enter into new markets, leveraging our technology and building a long term growth engine. I'd like to now cover the trends we are seeing in our In Israel, our business continued to perform well, and we are seeing subscriber growth mainly through our penetration of the lower segments of the market.
In Brazil, there have been scenes of economic improvements and the negative effects of this weak Brazilian economy of the past few years seem to be moving behind us. This trend support our business growth there as well as our IRT joint venture, which is performing ahead of our Q2. IRT has significant potential to bring us 100 of 1000 of additional sales using our services, positioning us as clear market leaders in Brazil. In summary, we are pleased with our performance in the Q2 of 2017. Looking ahead, as always, Ituran's core business remains well positioned and continues to benefit from an ongoing growth in subscribers.
As always, we are working hard to continue our success and most importantly, sharing this success with you over the long term, our shareholders with a stable and growing dividend. I will now hand the call over to Eli for the financial review. Eli?
Thanks, Eyal. Revenues for the Q2 of 2017 were $58,500,000 representing an increase of 19% from revenues of $49,300,000 in the Q2 of 2016. Revenue breakdown for the quarter was 41,700,000 dollars coming from subscription fees, a 18% year on year increase. Product revenues were $16,800,000 which were a 21% increase over the same quarter last year. The geographic breakdown of revenues in the Q2 was as follows: Israel 53%, Brazil 37%, Argentina 7% and United States 3%.
Gross margin in the quarter was 51.6% compared with a gross margin 51.7% in the Q2 of last year. As Eyad noted earlier, our gross margin on subscriber revenues increased compared with last year. The gross margin on the product revenue was lower this quarter compared with last year due to the mix of products sold. Operating profit for the Q2 of 2017 was $14,200,000 an increase of 19% compared with an operating profit of $12,000,000 in the Q2 of 2016. EBITDA for the quarter was $17,400,000 an increase of 17% compared with EBITDA of $14,800,000 in the Q2 of 2016.
During the quarter, share in affiliates net was an income of $500,000 versus a loss of 0 point $6,000,000 in the same quarter of last year. The increase was primarily due to the contribution from our JV in Brazil IRT. Net profit was $10,400,000 in the quarter of fully diluted EPS of $0.50 This is compared with a net profit of $7,600,000 of fully diluted EPS of $0.36 in the Q2 of 2016. Cash flow from operations during the quarter was $14,100,000 As of June 30, 2017, the company had net cash including multiple securities of $28,600,000 or $1.36 per share. This is compared with $31,500,000 or 1.5 dollars per share as of December 31, 2016.
For the 2nd quarter, in line with the company's dividend policy, a dividend of $5,000,000 was declared. The dividend record date is September 19, 2017, and the dividend will be paid on October 3, 2017, net of taxes and levies at a rate of 25%. And with that, I'd like to open the call for the question and answer session. Operator?
Thank There are no questions at this time. Before I ask Mr. Sharatzky to go ahead with his closing statement, one moment. We have a question from Louis Moser of Maybach Investors. Please go ahead.
Good morning. I just want to know if you have any basic indication of outlook for the rest of the year?
Actually, based on our policy, we are not providing guidelines or prediction.
What is the is the trend of business continuing as it has in the last quarter, just reported?
Yes. Actually, the business as we just reported and as you can look backwards and see the Q2 results is that the business is based in a good shape and based on our expectation and business mix.
Are there any seasonal effects to your business? I know the previous quarter was $0.62 and you're at $0.50 on this quarter. Does that have anything to do with seasonal effects versus the way the orders go?
Basically, in the Q1, we had a onetime capital gain of a company. You can see it in the equity line in the show affiliated and that's what this is why it went up.
What was that? Do you know what?
Approximately $2,500,000
Okay. Thank you.
There are no further questions at this time. Before I ask Mr. One moment, we have a question from Ram Senatore of Sverafund. Please go ahead.
Hi. Can you give us an update on the joint venture in Brazil in terms of some of the progression you're seeing, and maybe sort of installments, installations? And also maybe one word about the SARS in Brazil in terms of the overall number of vehicles sold versus last year? Sort of how is it trending going forward?
Hi, Ron. As you all know, we are not consolidating this joint venture. So actually, we are not providing pure numbers, but I can give you generally view. So actually, we are growing our joint venture, our OEM subscriber base as we are expecting. This is currently is the time when we are starting seeing more and more renewals, and the numbers are now expecting to be tens of 1,000 per month.
So most of our focus is increasing our capacity and capability in terms of operators, marketing peoples. So in order of providing those services, those quarters are having more we are adding more cost, I would say. So we are in kind of a flat profits, which we expect to start ramping up again in 1 or 2 quarters with a higher number of renewals and with an operating leverage on the cost that we just added. So just
to make sure that I understood correctly, the renewal revenue that's going to basically flow to the bottom line is all
it. But when we are talking about additional renewal costs, meaning that we will have more and more subscriber base in order to support this, I would say, incremental subscriber base. And since when you are making the renewals, you are changing some of your mode from working through the car manufacturer to working directly with the car owners. So it's required additional divisions, which we already integrated in our business. But of course, this is the time that it's we have to add more and support it.
But practically, you're right that the model will allow us to increase the revenues more than the cost, of course. And the profitability will grow, and the profit, which we are showing in our bottom line, should be much more material in the next quarters.
The next question is from Lena Rogovin of Chardan Capital Markets. Please go ahead.
Good afternoon. Congratulations on great results. My question is about the new Indian JV. Could you please provide a bit more details on the initiative? In particular, what exactly areas of telematics market you are planning to be in?
And what's the time line for basically launching services and revenue generation? And what's the estimated CapEx from your side?
As we see, together with our partner, which is a well, well established player in the automotive market in India nationwide, we realized that the entire telematics industry is very, very premature in India. But on the other hand, the potential is huge. So what we are focusing at the beginning is mainly all the fleet management application going through big fleets on an aftermarket mode. And when I'm talking about fleet management, I'm talking not only pure and simple fleet management, I'm talking also for hard diagnostic, driver diagnostic and fleet management at the first stage. Then during the next, I would say, quarters and maybe next few years, we also want to expand this aftermarket business to an OEM business together with our partners, which again are very, very integrating and are the main supplier in India for every local manufacturer or for Indians' brands such as Tata and Bajaj, but also for Suzuki Maruti and other international brands that their main plants are in India.
This is something which is a more challenge segment. And we understand from our experience that it's taking more time in order to create deals on an OEM basis, but this is why we're going step after step. But the most important issue is that we feel that like we came many years ago to Brazil and nobody really, I wouldn't say believe, but it was really at the same stage where it was a premature market. And we today, 20 years later, market leaders with legs in the aftermarket and in the OEM, when we talk about country, which is not 200,000,000 people and not 20,000,000 cars, but we are talking about 201,300,000,000 people. And we are starting with a very good point in terms of who is our partner and what is our technology and expertise to assume that in the next years, we will or at least we are aiming to be the market leaders at this huge market as well.
It's not something that you will see this year or maybe not even at the beginning of next year, but we will start provide deals after this, I hope, in the next years.
Thank you. And what about estimated CapEx?
I would say generally based on our short term business plan, we are talking about something which is not material. We are actually just, together with our partner, recruited the main management of this joint venture. By the way, it's already integrated, some portion of it in our P and L. I wouldn't say that it will be material at the beginning. We are not deploying infrastructure.
We are going to use the Ituran GPS based technology, which means there is no need for infrastructure. Most of the investments will be for operation, meaning people and space and mainly marketing. And marketing will be depend on progressing with the business plan. There is no hard CapEx involved with this business. Okay.
Thank you. This is very helpful.
Thank you.
There are no further questions at this time. Before I ask Mr. Shiratsky 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. Stratsky, would you like to make your concluding statement?
Yes. I would like to thank all our employees and my team for the strong performance in the Q2. Udim is Rahi, our VP Finance at Ituran. We'll be meeting investors in New York in September. If you wish to meet with him, please be in touch with our IR team.
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 look forward to speaking with you next quarter. Have a good day.
Thank you. This concludes the Turan's Q2 2017 results conference call. Thank you for your participation. You may go ahead and disconnect.