Ladies and gentlemen, thank you for standing by. Welcome to the Ituran First Quarter 2022 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. [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 GK Investor & Public 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 GK Investor Relations. Mr. Green, would you like to begin?

Thank you. Good day to all of you and welcome to Ituran's conference call to discuss the first quarter 2022 results. I'd like to thank Ituran's management for hosting this conference call. With me today on the line are Mr. Eyal Sheratzky, CEO; Mr. Udi Mizrahi, Deputy CEO and 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'd 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 would you like to begin please?

Thank you, Kenny. I'd like to welcome all of you and thank you for joining us today. We are very pleased with our financial results, kicking off 2022 with very strong subscriber growth in the first quarter, which is the clearest indication of our success. This is also reflected in the current quarter subscription revenues, which surpassed $50 million growing at 10% year-over-year. We grow our overall subscriber base at 43,000 net adds, bringing the total to over 1.9 million subscribers. The aftermarket segment added a record of 59,000 subscribers during this quarter. This increase in subscribers, came from both, the growth in our traditional aftermarket business, but was also boosted by the various growth engine that we have exceeded over the past few quarters. It's included a increased traction from our usage-based insurance, UBI business in Israel, working with car financing companies in Brazil and Mexico, new activities with rental companies in South America, as well as continued growth performance from our U.S. business. As I discussed last quarter, we expect this type of subscriber growths to continue throughout this year with expectation of between 140,000 to 160,000 net subscriber adds. In the first quarter, sub adds is clearly indicating that we are on the right trend. As you can see, Ituran is a very strong, healthy and growing business. And I’m very proud of our recent achievements. And this is despite the background of what are many macro challenges. The most notable macro issue which impact us are the supply chain constraint. First, as you know, this is an issue that has already impacted us for much of the past year because of the shortage of parts. We have seen significant price increases on scarce components that we need and we had to buy some components on the…

Thanks Eyal. I will provide [Technical Difficulty] results. You can find the more detailed results as we issue in the press release earlier today. Revenues for the first quarter 2022 were $72.1 million and an increase of 7% compared with revenues of $67.4 million in the first quarter of 2021. Revenues from subscription fees were $50.2 million, an increase of 10% over first quarter 2021 revenue. The subscriber base amounted to 1,924,000 as of March 31, 2022. This represents an increase of 43,000 net over that of the end of the period quarter and an increase of 136,000 year-over-year. During the quarter, there was an increase of 59,000 in the aftermarket subscriber base and a decrease of 16,000 in the OEM subscriber base. The decrease in the OEM subscriber base was primarily due to a lower cost sales at OEMs, primarily as a result of the global supply chain issue and parts shortage. Product revenues were $21.8 million an increase of 0.5% compared with that of the first quarter of 2021. The geographic breakdown of revenues in the first quarter was as follow: Israel, 53%, Brazil 21%, rest of world 26%. The gross margin in the quarter on subscription revenues was 55.9% compared with 55.1% in the first quarter of 2021. The gross margin on product was 23.7% in the quarter compared with 25.4% in the first quarter of 2021 and the product margin was somewhat impacted due to the product sales mix, as well as significantly increased spot prices of components due to the global shortage. EBITDA for the quarter was $19.3 million or 26.7% of revenues, an increase of 13% compared with EBITDA of $17.1 million or 25.4% of revenues in the first quarter of last year. I would like to address the financial expenses. Financial expenses for…

Thank you. [Operator Instructions] The first question is from David Kelly of Jefferies. Please go ahead.

David Kelly, thanks for taking my questions. It looks like OEM subs saw the biggest quarterly decline since the COVID-related downturn in early 2020. You touched on it briefly in the prepared remarks, but can you provide more details on what drove the sub losses here? And is it fair to assume that the clients continue at this level or should we expect improvement in the back of the year as global auto production improves?

As you know, the OEM sale is the only thing which influenced our OEM installations. And since the shortage influenced more dramatically the car industry we see that in the markets that we operate, but also on the rest of the world by you understand and see the market. There is decline of approximately 20% in sales of new cars. When we finish the free trial that the OEMs buying from us, we are always working to renew on the base of the customer that we have that starts paying directly and this usually happen after about a year. So if we see that today, the sales are 20% less than year ago, assuming that the conversion rates of the renewals are in the same levels, but the new car sales is lower. It automatically creates a net decline in our subscriber base. And that’s what we report now. Looking forward, nobody expect this segment to change in the next couple of quarters or a year because the shortage is not something that everybody can assure will change in this period of time. So we assume that these numbers is something that we will continue to see during 2022. But in the end of the day, we know that the demand is higher. So like we faced in the end of the corona in the market that we saw one-time of very high sales of cars, once the shortage of components will finish. We believe that the sales will grow dramatically higher at the first quarters after it. And then we will succeed to overcome this decline in customer base. I just want to add something which is very important. The profitability for Ituran on the OEM, each subscriber in the OEM, it’s much, much lower than our profitability in the aftermarket subscribers. So when you see today that we grow the aftermarket in more than 50,000, even closer to 60,000. And on the other hand, we lost 16,000 on the OEM, it’s much better than the opposite. Of course, the best is to grow in all segments. But as long as we know that the situation is not dependent on us, it’s not dependent on market needs. It’s depend on something which today, I think is the – let’s say the pandemic of the all industries, which is the component. I think that this is the best case scenario on this – with these problems. I’m not expecting that we will grow our net subscribers in the OEM looking ahead in the coming quarters. But again, I'm much more happy and satisfied that we succeed to do our numbers in the aftermarket, which are dramatically higher and multiplied by more than two or three than we did in the last years, every year.

Great. And then just as a follow up. The press release mentioned that product margins were negatively impacted by mix as well as increased spot prices components. Can you just quantify the impact of the shortages and increased spot buys have had on your gross profit? And should we assume that second quarter gross margins will be at a similar level before improving the back half of the year? Or do you expect gradual improvement in margins starting next quarter?

First of all, I think that you can analyze it from the gross margin that we have on product compared to last year. It's about 2% less, which is almost 10% lower profitability on product. This has happened only because of the cost of our inventory, but what you see today is an inventory that we purchased six or nine months ago. This was the beginning or the first time that we faced the shortage and all the wall, let's say was in kind of hysteric situation. And we first bought on a spot prices with a very high prices first to secure our supply chain. Now, today when we are eight, nine months after it, I'm happy to say that we are no longer buying at those prices, meaning we succeed after understanding what will be our need and what our customer need, and what is the level of sales of hardware. We made the orders for more than 18 months in advance, and we didn't have to pay again the spot prices that we paid a year ago. Today, what we see in our P&L is what we paid for the inventory, but now it's appearing in the P&L and it's of course, creating declining in our gross margin on hardware. Just rough number for this quarter is, was more than $1 million. This is something that we will live with, in the next quarter or two, but looking forward we expect – again, we expect nobody really can assure for longer term, but for the mid-term and for 2023, that we are in a very good shape of inventory. By the way, if you look on our cash share position, this cash flow this quarter, you will see that it's looked dramatically low, but part of it is because we already acquired high inventory in the lower prices and this of course today sits in the balance sheet, but once we will sell it in three, six months from now, because this is the main time of our inventory. We will see increasing in our profitability on the hardware, because those inventory already were acquired by us in a much lower price than those that you see today in the P&L. So we will have to leave one or one and a half quarter more with this let's call it damage of about $1 million, but looking more mid and longer term, we are more optimistic that we will turn the profitability to become higher again.

Great. Thanks for taking my questions.

The next question is from Tavy Rosner of Barclays. Please go ahead.

Hi, thanks for the presentation. Most of my questions have been asked. I wanted just to ask about UBI. It sounds like a real differentiator and I'm wondering, what's your go to market? Are you going, I mean – I knew you were very present in Israel, but outside of Israel, are you marketing these solutions to kind of new logos and what do you see as the potential there down the road?

It run by definition is today, I would say we are providing kind of a black box with tens of modules in our black box. And it depend on the market needs, depend on the customer needs and those things are changing between geographies. Israel today were educated, and I think that the insurance industry in Israel changed to be much more customized and this fit the Israeli market. Of course, for us, it's more than a commercial wise solution and a revenue generator. Of course, it's also providing us with a kind of a local pilot let's say for the rest of the world. But we realize other segments, for example, in Latin America, as I mentioned the finance market that they want to secure the collaterals. And when we talk with the same customers, which can be insurance companies or finance companies about UBI or customize – the customers, some of them now start to understand what we are talking about. Those are very heavy companies, insurance, it's a very traditional industry, and it'll take more time. We do some pilots in Brazil. We do some pilots in Argentina, but I wouldn't count that this will contribute to sell UBI out of Israel in 2022 and for the first half of 2023. But a year from now based on the movements of the markets I hope, and I want to believe that what we will achieve in Israel will support our exporting this solution also to other geographies. And this is by the way, always was related to one. When we started with our main traditional segment, which is Stolen Vehicle Recovery in Israel, no one in the world did it. And we came to Brazil, we came to Argentina, it took us about three to five years to convince insurance companies that this is a solution. And today Ituran in São Paulo in Stolen Vehicle Recovery in Brazil, it's a generic solution. So I'm totally believe that in a year from now or little bit more than this, we will lead the UBI markets also in Latin America, but it'll take more time.

Thanks. I appreciate the call really helpful.

[Operator Instructions] There are no further questions at this time, before I ask Mr. Sheratzky to go ahead with this 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?

On behalf of the management of Ituran, I would like to thank you our shareholders for your continued interest and long-term support of our business. And I do look forward to speaking with you on the next quarter. Thank you very much and have a good day.

Thank you. This concludes the Ituran first quarter 2022 results conference call. Thank you for your participation. You may go ahead and disconnect.