Ituran Location and Control Ltd.

Ladies and gentlemen, thank you for standing by. Welcome to the eToron first quarter 2020 results 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 eToron's investor relations team at GK Investor and Public Relations at 1-646-688-3559 or view it in the news section of the company's website, www.iteron.co.il. I will now hand the call over 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 ITERON's conference call to discuss the first quarter 2020 results. I would like to thank E2N's management for hosting this 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 E2N. 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 questions and answers session. I'd like to remind everyone that Safe Harbor and the press release also cover the contents of this conference call. And 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 family stay healthy during these unprecedented times, and I wish all those who have been impacted by the virus a speedy recovery. As you all know, 2019 ended a tough year for 8to1, where we overcome multiple challenges. 2020 was off to a good start. We had strong expectations before the global effect of the pandemic began to materialize in late February. I believe that once the major impact of the pandemic on the world is behind us, we will return to the positive trend that had already started at the beginning of this year. During this period, our top priority has been ensuring the health and safety of all of our employees as we continue to serve our customers around the globe and cut costs as a result of the sales decrease in this period. To achieve that, we eliminated all international travel by our employees and took steps to implement social distancing at all our facilities. For many employees, we provided the infrastructure and implemented work from home, limiting the office to only those workers whose physical presence was absolutely essential. Face-to-face meetings have been minimized and we are utilizing video conferencing where possible, including for business development and sales meetings. We continue to follow local authorities' directives as they develop and adjusting as needed. Despite the logistical working challenges in the COVID-19 pandemic as created for everyone, including us, I want to point out that our business is highly resilient. We have almost 1.8 million globally distributed subscribers, where by the majority of them are paying us on an ongoing basis a monthly fee. Our starting point each month is already on the back of this. As you can see, this enables us to remain profitable and cash flow positive during this unprecedented global crisis. Obviously, the lack of new car sales during this period impacts our ability to recruit new customers and grow our business in the OEM business as well as the aftermarket business. and this is why we have taken steps to reduce our expense footprint and conserve cash which I will discuss soon. I will spend the next few minutes diving into the details of both the corona impact on the aftermarket business as well as the OEM business. In the aftermarket business, we added 17,000 new subscribers in line with our typical range of 15,000 to 20,000 per quarter. The vast majority of these new subs joined in the first two months of the quarter, so you can see from the rate we would have been at least at the high end of our typical subscriber growth expectations. Drilling down to the performance in our main market, Israel and Brazil. The aftermarket business in Israel remained stable in the first quarter, until March when Corona started to shut down the country and brought new car sales to health. The year started well. In January and February, new car sales in Israel were about 7% ahead of those in the same period last year. However, March was down about 35% versus last year, and April was down 90%, essentially reflecting the timeline of the shutdown, which was from March. Even so, during April and part of May, our subscriber ads in Israel were minimal. I also want to point out that our churn rate also dropped substantially, as nobody was selling their old cars. This has led to the situation that we expect to see, a net subscriber loss in the second quarter, but this should be a minima. As the country starts opening up again, which as of now has begun to happen with shops and schools reopening, while implementing social distancing, I do expect the new car sales to slowly start recovering over the coming quarters. In the long term, I am optimistic that the aftermarket business in Israel will return to growth. Furthermore, it runs today as many other strategies for penetrating additional segments. As I discussed last quarter, one of our growth drivers in Israel is our UBI offering, usage-based insurance. and I expect this to become more significant to our subscriber growth in the future. These are insurance policies built around the e2run solution for taking into account a driver's accumulated mileage and behavior as it related to use and safety. This allows insurance premiums to be directly related to usage, which is fairer for the driver and better for the insurance company in terms of managing the risk. Many people in Israel have hardly used their cars for the past two months, yet are unfairly still paying full insurance. Thus, our service is gaining more interest in the new normal of today's world. As we spoke about in past quarters, we'd already signed on two insurance companies for our usage-based insurance service in Israel, Harel and Shlomo Insurance. And so good initial success, I am happy to say now that we have recently signed our usage-based services with additional three insurance companies in Israel, AIG, Achshara Insurance, and Bituach Yashir, which means direct insurance, and is the largest car insurance company in Israel. These are solid steps toward my goal of becoming the new gold standard in the insurance market. Now that we have proven the success in our home market of Israel, we recently signed a UBI agreement in Argentina, and we are negotiating potential UBI projects in Brazil now. This is the initial thoughts of our strategy to expand our UBI offering beyond Israel into the other geographies that we are now operating in. Looking at our aftermarket in Brazil, the market there has also been very weak since the start of the pandemic. Our results in Brazil have been Compounded by the significant weakness in the real currency versus the dollar, which has lost a third of its value in the past year. In Brazil, the new car sales in January and February already started the year slightly below those of last year, reflecting economic weakness in the country which existed even before the pandemic started. However, March new car sales were down 22% in Brazil, to a 14-year low and April sales are down 77%. While many of the car manufacturers have moved to online car sales, expectations are that new car sales will remain at these low levels over the next few months until the pandemic situation stabilizes there as well. In Mexico, we continue building our new Interal ConSiguro program using our long-term success in Brazil, and adjusting it for the Mexican market. This is an example of the synergies we are exploding from road track. We hope to launch and start selling the product toward the end of the year once the impact of a pandemic situation is over. And now to our OEM business in Brazil and Argentina. Because of the weak economic situation in Brazil and Argentina, already starting the last year, our major OEM customer reduced Subsidized Free Trial Period from 6 months to 3 months and then down to a month which impacted our OEM results significantly in the second half of the last year in addition to reducing significantly the hardware sales. Now, because of the impact of the coronavirus, the lack of new car sales is impacting our OEM customers and we had a net loss of 4,000 subscribers on the OEM site In the second quarter, we expect this effect to be even more significant. In light of the corona pandemic and its impact on it to run, we implemented changes to preserve our profitability. This includes a cross-the-board reduction in employee salaries of up to 30%, which includes a reduction in headcount while looking to take further measures to cut costs and improve efficiencies. We have done this with full cooperation of our employees around the world which have shown solidarity with our efforts and agreed to this reduction and for that I want to thank them now. Our quick actions to reduce costs has enabled us to maintain profitability during this period and we expect we'll continue preserve our profitability and positive cash flow in the coming quarters until the global situation improves and we can back to normal course of business. Furthermore, the Board decided to suspend our dividend payment for the time being in order to preserve and build our cash position faster. This will provide us a better cash in which to weather this period, while also providing us with capital to take advantage of any opportunities. In summary, while 2019 was a tough year for it to run, We felt that 2020 would be a year of continued sequential improvement throughout the year and we did start on the right foot. First quarter revenues were ahead of those of the fourth quarter and we are indeed pleased with our performance, especially given the corona background. As the impact of corona became clear, we have taken steps to ensure we maintain profitability and preserve cash. In the second quarter, We expect to see the most of the impact from Corona with EBITDA lower than that of the previous quarter by 10% to 20%. However, while making sure we are fully prepared to weather the storm, I am optimistic on the long-term potential for Itohan. Itohan is a company with a very resilient business model, whereby 1.8 million subscribers already provide us with a monthly and ongoing Significant revenue base. We proved that even during such unusual times and the most severe global crisis in 100 years, we are able to remain profitable and generate cash. Beyond that, many of the challenges we had last year forced us to make improvements and as we emerge from the corona pandemic, I believe we are well positioned to resume growth quickly. In addition, we continue to see Thank you Eyal.