Ladies and gentlemen, thank you for standing by. Welcome to Ituran’s Second Quarter 2023 Results Conference Call. [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 EK Global Investor Relations at 1-212-378-8040 or view it in the news section of the company’s website at www.ituran.co.il. I will now hand the call over to Mr. Kenny Green of EK Global Investor Relations. Mr. Green, would you like to begin?

Thank you, operator. Good day to all of you and welcome to Ituran’s conference call to discuss the second quarter 2023 results. I would like to thank Ituran’s management for hosting this conference call. With me on the line today are Mr. Eyal Sheratzky, CEO; Mr. Udi Mizrahi, Deputy CEO and VP 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 would like to remind everyone that the safe harbor statement in today’s press release also covers the contents of this conference call. And with that, Eyal, would you like to begin, please?

Thank you, Kenny. I’d like to welcome all of you to our second quarter 2023 call. And I would like to thank you for joining us today. We are clearly very pleased with our achievements in the second quarter 2023 as so far been an excellent year for Ituran. Ituran’s business is in strong growth sales with the subscriber base growing twice as fast as we grow in the past years. This jump in growth rate is now clearly benefiting our financial results. For the past few quarters, our subscription fees have been constantly at new record levels each quarter and our profits measured in added net income or EBITDA at 4-year highs. As you can imagine, we are very pleased with our results and the progress we’ve made. Given the way our business is structured with a core and stable subscriber base of well over 2 million paying a monthly retainer and the clear long-term visibility this provides, we are very reason to expect that the current positive trends will continue throughout 2023 and into 2024 and beyond. From a strategic perspective, we experienced strong growth in subscribers, adding a net total of 47,000 subscribers, of which 45,000 were from the aftermarket and 2,000 were from the OEM. As I mentioned, this strong subscriber growth is now being reflected in our record subscription revenue. This is even despite the currency headwind due to the dollar strength in 2023. Q2 subscription revenue grew at 13% year-over-year or 17% growth when calculated in local currencies, which naturalized the effects of the exchange rate on our growth. Over the past few years, we’ve entered into a few new verticals, such as a financing business, which are performing well and acting as growth engines. They are one of the main reasons that our…

Thanks, Eyal. I will provide a short summary of the financial results. You can find the more detailed results that we issued in the press release earlier today. Revenues for the second quarter of 2023 were $28.6 million, an 11% increase compared with revenues of $73.4 million last year. In local currency, the year-over-year growth was 15%. Second quarter revenues from subscription fees were $59.2 million, an increase of 13% over the second quarter of 2022 revenues. In local currency, the year-over-year growth was 17%. Prior base amounted to 2,162, 000 as of June 30, 2023. This represents an increase of 47,000 net over that of the end of the period quarter and an increase of 190,000 year-over-year. During the quarter, there was an increase of 45,000 in the aftermarket subscriber base and an increase of 2,000 in the OEM subscriber base. Second quarter product revenue were $22.5 million, an increase of 7% compared with that of the second quarter of 2022. The geographic breakdown of revenues in the second quarter was as follows: Israel, 48%; Brazil, 26%; rest of world, 26%. EBITDA for the quarter was $21.8 million or 26.7% of revenues, an increase of 12% compared with EBITDA of $19.4 million or 26.5% of revenue in the second quarter of last year. In local currencies, the year-over-year growth was 15%. Net income for the second quarter was $12.2 million or 15% of revenue or diluted earnings per share of $0.61, an increase of 40% compared to $8.7 million or 11.9% of revenues or diluted earnings per share of $0.43 in the second quarter of last year. In local currency, the year-over-year growth was 44%. Cash flow from operations for the second quarter of 2023 was $17.5 million. On the balance sheet, as of June 30, 2023, the company had cash, including marketable securities of $34.5 million and a debt of $4.5 million, amounting to a net cash of $30 million. This is compared with cash, including marketable securities, of $28.2 million and a debt of $12.2 million, amounting to a net cash of $16 million as of December 31, 2022. For the second quarter of 2023, a dividend of $3 million was declared. In the second quarter, under our share buyback program, is one purchased – 165,138 shares for a total of $3.5 million. Share repurchases were funded by available cash and repurchases of Ituran ordinary shares were made based on SEC Rule 10b-18. And with that, I’d like to open the call for a question-and-answer session. Operator?

Thank you. [Operator Instructions] The first question is from Chris Reimer of Barclays. Please go ahead.

Yes. Hi. Thanks for taking my question and congratulations on the strong results. You mentioned in the past operational leverage, and I was wondering how much expansion is possible under the current operational conditions you have right now?

Practically, when you look on the numbers today, so we actually increased from 20% to 20.4% in a very short period, and we expect that this trend will continue. This is actually what they we carrying revenue model allow us to do in the future.

Okay. And in your view, what is underpinning the consistent subscriber growth?

Can you repeat it regarding subscribers?

Chris, can you repeat your question, please?

Yes, I’m sorry. In your view, what is underpinning the consistent subscriber growth?

Actually, I think that generally, I said it. So first of all, the traditional segments, which are very, depend on cost of rate. It’s in the last quarters. And as we see, it’s in a growth mode which create a strong request from, I would say, insurance companies as well as the – even the car owner needs to secure the car more and more [indiscernible]. So this is from something that it depends on the economy as well as the financing market, which we penetrate just recently. And we see that after this penetration, other players in Brazil as well as in other countries in Latin America are interesting in this solution. And of course, there is always the regular growth drivers, such as our brand is the strongest one in the region, very high credibility from B2B and B2C customers. So we have a good feedback from the market plus new segments that we entered recently. We believe that this will demonstrate or will lead to continue the growth of the subscribers.

Got it. Thanks a lot. That’s really good color.

The next question is from [indiscernible]. Please go ahead.

Josh, we don’t hear you, but you can go ahead and ask a question.

Sorry, my bad. I was on mute. Good morning. Good to see this terrific quarter, guys. And thanks for taking my call. I wondered whether or not you could provide any color on what’s happening with Bringg? I mean I know it’s a passive private investment, but I was curious if you get any color that you want to provide on what’s going on with that investment?

Practically, Bringg is going quite well with its business plan, and let’s call it, internal and privately all projections. I think that we had – we did the right move when we did the last round about 1 year, 1.5 years ago, before the – let’s call it before the changes in the stock market and the financial markets and the company did the right adjustment to use those proceeds for more years than we thought at the beginning because we have to adjust the company to the – again, to the financial markets. But from the operational side of view, the company is really provide the results as it’s – well, of course, I want to remind all of you that it’s something that it’s only on our balance sheet, and it’s zero value in our balance sheet. So we don’t influence anything in our P&L. And I would say that it’s hiding assets, which we count that it’s in the future, of course, will provide profits.

Got it. Got it. Okay, thank you. Well, looking forward to seeing that thing getting monetized at some point in the future. The second question I had was couple of years back, you had levered up the balance sheet slightly, which was unlike you guys historically because you’ve been pretty conservative management team, in order to buy Road Track. And over the years, you’ve been paying back your debt. Your debt is – your gross debt is almost zero. Your net debt has been positive for some time. And I’m very thankful for the buybacks and the dividends. But I’m curious on how the plans may or may not change going forward, given the war chest of cash that you have? Is it going to be just more of the same and an occasional small early-stage VC investment in Israeli companies that relate to your business. So can you just give us a color on what your plans are over the next couple of years?

First of all, the investment in the small, as you said, we see our start-ups, which is linked to potential systems or for mobility market, it’s something that has nothing with the loan that we took because we do it. It’s – let’s say, on an arrogant way, it’s not a material cash that we use. The main cash needs that we did was to, as you said, to acquire Road Track. Now it’s the last payment of our loan after these 5 years, and simultanically of course, increase our cash flow position and cash flow generation. So actually, as we did in the past, we have not any intent to keep the money for nothing in the bank. So first of all, we will do our best to find – to use the money that we generate for growth, which means most of the time for acquisition, for partnerships and things like this. If we find it, this is the first priority. But this is not something easy. We are conservative. We don’t want just to spend money and say that we did. By the way, regard Road Track, today, we are very happy that we did it. The contribution of Road Track today it’s called it run. It’s fully emerged to the business and integrated and we create a synergy and everything now is as we sought to do. And since we did it on a conservative way, it succeeded. If we find something that will be good for our inorganic growth, we will do it first. Of course, if not, or meanwhile, as long as we generate cash, of course, we will let all our shareholders, of course, to benefit from this cash flow. As – by the way, we did simultanically with the debt because if you can, for example, take this quarter, you see that almost $7 million went back to the shareholders or buy dividend or buyback. And of course, if we will generate more cash and we will not need it for growth, we will or at least I will recommend our Board to increase this dividend or buyback, of course, depend on the situation. But we will not keep the money. We always think how to grow with this money.

Great. Okay, well, thank you very much. Good luck, guys.

Thank you very much.

[Operator Instructions] The next question is from Abba Horwitz from Old School Partners. Please go ahead.

Thank you. Hi and congratulations on a real milestone. This is quite an amazing quarter relative to the last couple of years. I wanted to really drill down on the motor cycle opportunity. And if I may ask, how are you selling anything to the motorcycle market? And where – how rapidly do you see this being implemented? And how meaningful can it be to the overall business?

Okay. So I will divide it for the two different markets. One is the Israeli market where we, for a few years already sell a product and service for motorcycles. But we have to understand that in Israel, which is different than in Latin America, the motorcycle trend is quite low, meaning most of the people buy cars than expensive motorcycle. So the market here in Israel, for us, is a niche. I mean, we do it with the insurance company sometimes or with some dealers. But what we realized after we cover the car environment in Latin America, and again, we looked for additional growth segments. We understood that, for example, in Brazil, cars and motorcycle ratio is very not similar, but almost similar. Millions of motorcycle being sell every year in – only in Brazil. The situation is that – and this is all around the world. It’s very difficult to ensure motorcycles. It’s more risky to the insurance companies and it’s the nature of motorcycle. So the prices of insurance are very high. But on the other hand, it’s a segment which insurance company don’t want to believe – don’t want to leave. And on the other hand, the motorcycle dealers and producers want to find a solution for their customers. So we start, of course, which of these market. And as we did with the finance, as we did with the fleet management in the past, we were the first to build or to develop internally a unit, which is very, very customized for a motorcycle driver and a motor cycle, which included application include SVR, includes other sensors, which will create benefit to the drivers. And we went with this to the market, and we see a lot of attraction. Now as every segment, when we start, if I’m not saying that tomorrow, it will be material because we have already 2.2 million subscribers. It takes time to show something which will be more material for, let’s say, to announce it and to see it in the results. But since we believe that this can be something material, something substance in the coming future, this is the reason why I decided to share it today to understand that we found in other segments, we do our best to penetrate and to lead this segment, specifically in Brazil and in Latin America. And really, I can’t now talk about numbers or who are the potential customers in terms of manufacturer or insurance companies. But we really feel that it will happen and with attraction. And this is I believe, will be more substance in the coming or in the future years.

Okay. Would this mean that using this product now an insurance company, do be more willing to provide a cheaper insurance alternative. And that’s what this product is doing? Or would it even would someone get this product without the insurance even?

Okay. So some of the – this segment I would divide it to two. In one hand, it’s insurance companies that, of course, with the right solution, they will be able to join, let’s call it, our ICS Ituran [indiscernible] process also for motorcycles. And also in Brazil, especially, it’s very, very common to rent motorcycles and rental companies and the manufacturers actually spread motorcycles around the country for renting, whether it’s hourly renting like right kind of ridesharing or rented for like leasing. So in that case, those dealers and manufacturers also interesting in a solution to, I would say, to secure their assets, their assets, they rent it. So they want a solution because a financial – a high financial damage is when those motorcycle being still.

Okay. And would it be safe to assume that you will be able to leverage the monitoring part of the business from the same infrastructure that you have currently?

Of course. Everything we do, by the way. At the end of the day, I would say that it run today it’s a black box first. This black box can get any frame where we want. So, when we find a segment, we take the same black box, give it to our R&D people, and then they develop the firmware [ph], which will allow this black box to be offered to other segments. So, it’s like modules. So, in terms of technology, we use always the same technology. That’s why we can leverage it. This is why we can create operating leverage for those technology. On the other hand, in the service side, when we talk about SVR, this is our specialty. But when we talk about other services, of course, that we do on the job train and we learn what is the needs of the market, but we are a service company, so for us, it’s something that we must be excellent. So, in the end of the day, of course we use and integrate always our current infrastructure.

Okay. And is it the same price as a car would be, or is it cheaper than a car?

It will be already a cheaper product. The installation, which is part of the cost, it’s also cheaper because the nature of the motorcycles for installation is easier than when you are cutting a car to install a unit. But in terms of the service side, it depends on what type of services. It’s the same as the car. If it’s only SVR, whether it includes application, whether you want, for example, as you know, Ituran is – or you don’t know, I will remind, 3 years ago, we acquired company in Brazil, which is a company that developed car sharing and riding, billing and managing solution. So, after that, we now offer it as a part of our black box. So, in that case, when we talk about renting motorcycles or renting cars, for example, with this technology, we charge more, depends what is the service that a customer needs.

Okay. Well, thank you very much, Eyal. Good luck. Thank you.

Thank you very much.

The next question is from Josh Traut of [indiscernible]. Please go ahead.

Hi. Thanks for taking my call. So, you talked in the past, I don’t know if you talked about it on this call about reestablishing associated research long-term, reaccelerating the business you are doing with OEMs in Brazil. And I wondered if there was any additional progress worth noting.

Actually, OEM and manufacturer is something that the cycle is usually much longer because all the validation that we have to do in every country, by the way, has to approve from HNA [ph] validation, but I just can say that we are working or we believe that we will succeed to exceed, to expand our relationship with the current car manufacturers to other geographies, of course, mainly at the near future in Latin America to other countries. I don’t know yet to say which country, what will be the specific contract and quantities. But I know to tell that we see a traction we see and discuss it. And I believe, or at least I want to believe that we will be able to expand it to other countries based on the OEM segment.

Okay. And what about the progress you are making with financial institutions in Brazil for the subprime customer? I am trying to get my hands around how material that opportunity is in the years ahead? And I know we are still in the early part of developing that market. But I am just trying to understand how big that end market really can be both in Brazil and elsewhere for trying to monitor the serve our customer for insurance companies and what have you?

So, currently or a month ago, we reported about, I think a very luxury contract that we did with one of the largest banks in the world, Santander in Brazil. Santander on an exclusive basis will finance cars, and we talk about very important customer base potential through Santander and this is regard the Brazilian market currently. Of course, as we know, Santander has offices all around Latin America. So, I believe I want to use this contract to leverage out of Brazil. But for the time now, only this contract is very much mutual – very material for us. And of course, when – what we see, when I say attraction, when other banks or other finance companies see or learn about the contract that we did with Santander, we see that they, of course want to find a way to copy it. Regard the Brazilian market, the contract with a commercial bank is under exclusivity from both sides. So, we will have – or we will regard Brazil in the coming years, we will have to, of course find other kind of finance companies, but not a commercial bank. Just to mention that Santander in Brazil is the largest of this segment. Anyway, this is why we decide to go on a commercial basis. And of course, it’s open – I think it’s opened segments for other banks and other places in the world. Josh, is that.

No, I am sorry. I had almost all of this. Great. Thank you very much. I appreciate it.

Thanks.

The next question is from Fred Foulkes of Boston University. Please go ahead.

Good morning. Congratulations on an outstanding quarter and very informative call. I just was curious, given all of the challenges and troubles in your country right now, is that having any impact on worker productivity recruiting, retention, etcetera?

Actually no, I think that the situation here in Israel is mainly from the political side. I would say the – it’s not influenced directly yet. And as I have said, Ituran also historically, when the economy is in a bad shape, so unfortunately, the violence in the concentrate increasing. And in this situation, the request for our solutions is increasing and the needs become much more strong. So, I am not – currently, it’s not influenced, but I am not expecting that it will influence. But if you come to Tel-Aviv, we feel that nothing happened by the way. But the press is different than the life. But yes, we have a challenge now here.

Thank you and congratulations on your leadership.

Thank you very much.

The next question is from Charles Elliott of IBI. Please go ahead.

Hi. I would like to ask about a deal that you announced in July. With 99 Rideshare company acquired by DD [indiscernible], where you will provide SVR on their BYD models. And it sounds like a small deal in itself, but I wondered if it could be pretty significant because this would be Ituran’s first step into being a platform for car sharing.

Just from a carriers point, what did you mean where did we report it?

It was in the Brazilian newspaper, I think it was on our 28th of July.

Okay. We didn’t – of course, we didn’t report it from for the Nasdaq and SEC aspects because it’s not a material deal currently. But you are right, BYD launched their brand in Brazil, together with us. And what they did, it was a kind of a mutual, I would say, mutual marketing way. As I have said, BYD spread cars around Sao Paulo in order to rent it on an hourly or daily rent, and they needs our units in order to control it, to bill it and of course, to secure it. So, we are their partners for Brazil. But at this stage, it was I would say, BYD marketing or BYD penetration program. So, it’s not yet something that can – we can say that it will lead, for example, to an OEM deal in Brazil, but we have been choosing as their partners for this specific campaign. For the future, let’s see. Of course, it’s very luxury, again. Very luxury transaction, a very luxury relationship because we know that BYD is now in a very strong penetration also to Latin America, but it’s just started. And as I said, OEM deals is something which has long cycles. But we also think for the long way and for the marathon and for the long future. So, we started with this. We have nothing to announce now. But for the future, we will see what happen.

Great. Thank you.

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.co.il. Mr. Sheratzky, would you like to make your concluding statement?

Yes. 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. We ought to be speaking with some of you over the coming quarter. And if you are interested in meeting or speaking with us, please feel free to reach out to our Investor Relations team. And with that, we end our call. Thank you and have a good day.

Okay. Thank you. This concludes Ituran’s second quarter 2023 results conference call. Thank you for your participation. You may now go ahead and disconnect.