Ituran Location and Control Ltd.

Ladies and gentlemen, thank you for standing by. Welcome to the Ituron Second Quarter 2020 Results Conference Call. All participants are at present in a listen-only mode. Following management's formal presentation, instructions will be given for the question and answer session. For operator's 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 Ituron'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 at www.iteran.co.il. I will now hand the call over to Mr. Ehud Helft of GK Investor Relations.

Thank you, Ehrud. Thank you. Good day to all of you and welcome to ITERAN's conference call to discuss the second quarter of 2020 results. I would like to thank you to our management for hosting this conference call. With me on the call today are Mr. Eyal Sheratzky, Co-CEO, Mr. Udi Mizrahi, Deputy CEO and VP Finance, and Mr. Eli Kamer, the CFO. 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 would like to remind everyone that the safe harbor in the press release also covers the contents of this conference call. And now, Eyal, would you like to begin, please? Thank you, Eyal.

I'd like to welcome all of you, and thank you for joining us today. I hope you and your family stay healthy during this unprecedented time, and I wish all those who have been infected by the virus a fast recovery. During this period, our top priority has been ensuring the health and safety of all of our employees, and we continue to follow local authorities' directives as they develop and adjusting as needed. Just as important, we continue to maintain business continuity and serve our customers around the globe. From a financial standpoint, even though our second quarter was particularly difficult, we are pleased with our achievement, especially given the unprecedented full economic shutdowns over a part of the quarter in Israel, Brazil, and other geographies we operate in. We reported an adjusted EBITDA of $13.9 million, which was about 9% below those of the first quarter 2020. and excluding currency impacts, the decline would have only been 2%. I remind you that we expected second quarter EBITDA to be between 10% and 20% below those of the first quarter. So our results showed we were successful in mitigating some of the impacts. I note that this excludes a non-cash impairment in road track, which is an accounting effect mainly due to the sharp increase in the macro risk factors of the various countries in which Roadtruck operates and not related to Roadtruck's long-term performance or outlook specifically. The increase in country risk caused an increase in the weighted average cost of capital calculation, which lowered the valuation of this business on our balance sheet. Excluding the non-cash and primary charges, ITUAN remains profitable and continues to be cash generating. In fact, with one of our strongest quarter of cash generation with a positive operating cash flow of $19.3 million. It runs stability during this unprecedented global crisis, demonstrate the overall resilience of our business model. You may remember that already in the first quarter, we took some early steps focusing on cash preservance and reducing our expenses, matching expenses with expected revenue levels. Our ability to remain profitable and cash flow positive during this global crisis demonstrates the overall resilience of our business model. Despite the logistical working challenges the COVID-19 pandemic has created for everyone, including us, it is clear that our business is highly resilient. I remain optimistic over the long term and am confident that Ituran will emerge this period a stronger and more efficient company. Once we can all put this pandemic behind us, we have the platform for long-term, sustainable and profitable growth. Our subscriber base remains strong, with close to 1.8 million subscribers, whereby 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. This enabled us to remain profitable and cash flow positive during this current unprecedented global crisis. However, new car sales drives growth in this subscriber base and the lack of new car sales, especially during April and May in many of our geographies, impacted our ability to recruit new customers and grow our business in the OEM business as well as in the aftermarket business. I will spend the next few minutes diving into the details of both the corona impact first on the OEM business and then on the aftermarket business. I will start with our OEM business in Brazil and Argentina. As you all know, this business suffered last year prior to the corona because of the weak economic situation in Brazil and Argentina as well as the change of model using their own hardware and also Reducing the OEM paid term of service down to one month only. In 2020, the corona pandemic has taken a further toll on their economies and ultimately on our OEM business debt. During the second quarter, we saw a net decline of 27,000 subscribers in the OEM segment as a whole. Because of the weak economic situation in Brazil and throughout Latin America during the second quarter, Counter risks in the region have increased in the second quarter. The higher counter risk has increased the discount rate, the WACC, used when calculating the value of road track on our balance sheet. This meant we had to reduce the value in which road track written on our balance sheet and therefore write an impairment on this business during the quarter. I stress that the impairment is a non-cash first and second doesn't reflect a specific worsening or lowering of long-term forecast for the road track business. The net amount was $13.5 million, of which $14.2 million was on the operating line and income of $0.7 million in financial income related to the liability to purchase the non-controlling interest. Despite the impact of the pandemic and the weak economy situation in Latin America on the business, More broadly, we do feel that Roadtrack has brought it to run strong synergies, giving it to run access to new markets, as well as an ability to cross-sell addition products and services into existing ones. Looking at the aftermarket business, we saw a net decline of 16,000 subscribers, the cause In Q2 2020 was the unprecedented complete economic shutdown primarily in Latin America for a large portion of the second quarter because of the pandemic. In Israel, the shutdown impacted April and May, while new car sales recovered in June to levels similar almost to those of June 2019. The subscriber base in Israel was more or less stable over the quarter. In Brazil, Our other large aftermarket geography, new car registration in June were up from the lows of April but still down 40% versus June last year. Our results in Brazil have been further compounded by the significant weakness in the real currency versus the dollar, which at the second quarter peak lost half of its values versus the dollar in only one year. Elsewhere, in Mexico, we continue planning and building out the infrastructure for our new E2E ComSiguro program, using our overall success in Brazil and adjusting it for the Mexican market. This is an example of the synergies we are exploding from Roadtruck. We hope to launch and start selling the product toward the end of this year. As our markets start to open up again, I do expect the new car sales to recover and we are confident that our aftermarket business will resume growth as well as eventually put the virus behind us. It runs today as other strategy for penetrating additional segments. Our UBI offering, whereby we can offer insurance companies a solution to build the customer per usage and driver behavior, continues to gain traction. We have now signed on five insurance companies in Israel. The subscriber numbers are growing quickly but are still small. We believe this will already have a positive impact on next year results. Now that we have proven the success in Israel, we recently signed a UBI agreement in Argentina and negotiating potential UBI projects in Brazil. I expect this business to become significant to our long-term subscriber growth in future. In summary, the second quarter of this year was unprecedented with complete economic shutdown in our markets, significantly impacting our business. However, we are pleased with the resilience of our business model built on a revenue base of 1.8 million subscribers. Furthermore, we prepared ourselves in advance to weather the storm, and we are constantly ensuring that our expense level is matched to our revenue level. Even during such unusual times and the most severe global crisis in 100 years, we are able to remain profitable and generate cash, and we expect that this will continue to be the case in the coming quarters while the pandemic is still with us. We have made improvements throughout our business to improve efficiency, and as we emerge from the corona pandemic, I believe we are well positioned to resume growth and increase profitability. I will now hand the call over to Eli for the financial review. Eli? Thanks, Eyal.