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spk03: Ladies and gentlemen, thank you for standing by. Good morning and welcome to the MICT third quarter 2021 financial results and corporate update conference call. At this time, all participants are in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Participants of this call are advised that the audio of this conference call is being broadcast live over the Internet and is also being recorded for playback purposes. A webcast replay of the call will be available approximately one hour after the end of the call through February 15, 2022. I would now like to turn the call over to Scott Gordon, president of CoreIR, the company's investor relations firm. Please go ahead, sir.
spk05: Thank you, Tom. Good morning, everyone, and thank you for joining us for the MICT Third Quarter 2021 Financial Results and Corporate Update Conference Call. Joining us today from MICT are Darren Mercer, Chief Executive Officer of MICT, and Moran Amran, Controller. During this call, management will be making forward-looking statements, including statements that address MICT's expectations for future performance or operational results. Forward-looking statements involve risks and other factors that may cause actual results to differ materially from those statements. For more information about these risks, please refer to the risk factors described in MICP's most recently filed annual reports on Form 10-K, quarterly report on Form 10-Q, Form 8-K filed with the FCC today, and MICP's press release that accompanies this call, particularly the cautionary statements in it. The content of this call contains time-sensitive information that is accurate only as of today, November 15, 2021. Except as required by law, MICT disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. It is now my pleasure to turn the call over to Darren Mercer, Chief Executive Officer. Darren, please go ahead.
spk02: Thank you, Scott, and thank you all for joining us on the call and the webcast today. We continue to deliver strong growth, with third quarter revenue up more than 50% over the second quarter of 2021. We're extremely pleased with the success of our insurance business, where our revenues for this third quarter were nearly equivalent to those of the entire first half of 2021. Our third quarter revenues equate to a run rate of $75 million per annum, which is primarily from our B2B insurance business. To put our growth into context, our insurance vertical has generated revenue of $18.5 million, representing growth of more than 50% over Q2, which in turn was more than 50% up on Q1. We are particularly excited by this performance as we are still in the very early stages of the insurance business's developments. There is a huge potential for continued strong growth, underpinned by the nationwide licence for China that we acquired in February. and enhanced by our recent acquisition of licenses for 130 major cities and provinces covering most of developed China. This valuable portfolio of licenses allows us to process insurance business on a nearly nationwide basis, and as such, we are well positioned to develop relationships into B2B2C partnerships, which will be followed by expansion into direct B2C sales channels. thus enabling us to cross-sell a wide range of products with the aim of driving growth and generating higher margins. In addition, we are in ongoing discussions with a number of nationwide organisations that, if successful, will enable us to launch several more speciality insurance products to be offered on a nationwide basis. Whilst we expect recent pressures on commission levels in the automotive insurance sector to impact on our short-term rates of growth, this should largely be offset by the strong underlying performance of our platform and our revenue growth from other insurance products. The combination of a rapidly expanding insuree database, which is currently estimated to be more than half a million, together with a strong portfolio of licenses with nationwide coverage, and a growing range of insurance products places us in an exceptionally strong position and allows us to benefit from the considerable strategic advantages that we have gained. This, as well as our migration towards higher margin products sold through significantly higher margin channels, gives the Board considerable confidence as we move towards year end and into 2022. Moving on to our stock trading platform. On September 15th, we successfully launched our mobile stock trading app on our proprietary Magpie securities platform, which was the culmination of nearly a year of intensive technological development. We have managed our rollout plan carefully, with an initial focus on a test and learn marketing strategy, allowing us to obtain valuable data and customer feedback so that we could make appropriate improvements and refinements. Notwithstanding the narrow scope of our initial marketing plan, the number of new client registrations and app downloads to date has been extremely promising. Furthermore, the technological performance and functionality of the Magpie app has been enhanced considerably since launch, as we work towards our aim of delivering a superior market-leading product. Having observed the mark's progress achieved to date, we believe it is now the right time for a significant marketing push as we look to gain a sizeable market share. In dealing with the market speculation surrounding the introduction of new regulation with regard to onboarding clients resident in mainland China, it is important to note that Magpie has always been fully compliant with all applicable rules and regulations, and as such, we believe these latest changes are not of concern. That said, our app's upcoming ability to onboard overseas clients with effects from end of November fits with our strategy to target Chinese diaspora initially in Southeast Asia and before then expanding into other territories. To that end, we have been exploring opportunities to acquire the necessary licenses to operate in relevant jurisdictions, and we will keep the market appraised as and when there are meaningful developments. With regards to our commodities platform, which, as we have previously disclosed, has been ready to launch since early September, we had signed a tripartite agreement to launch in partnership with one of China's leading commodity exchanges. As a result of the exceptional volatility in oil and gas prices since September, together with the Chinese government's introduction of a new regulation which is in progress, our partner, to whom we are reliant, wishes to seek clarification around this regulation. In this regard, both we and our partners are currently monitoring the situation awaiting the finalisation of the regulatory framework and improvements in market conditions prior to proceeding with the launch. It is important to note, however, that none of our published financial forecasts include revenue from our commodity business, and therefore any elongation of timelines does not adversely impact either the revenues or earnings figures contained in such projections. Moving on, I am pleased to say that we continue to have a strong balance sheet with around $105 million of cash as of the end of Q3, which provides the resources needed to grow our different verticals and execute on our business plan. Our strong balance sheet will also assist us in making strategic acquisitions as and when we identify suitable value accretive opportunities. And finally, we recently filed a preliminary proxy statement that included a proposal to amend our charter to expand our authorised share count from 250 million shares to 425 million shares. I would like to take this opportunity to urge our shareholders to approve this measure, as it is key and a key component to our growth strategy. While we have, as I mentioned, a very strong cash position, a strong share count is equally as essential to a company's growth to conduct acquisitions more easily, many of which necessarily include some components of the transaction and stock. Rather than viewing this increased share count as a potential dilution, I believe it best to be viewed as a mechanism by which we can better provide our current shareholders with increased value as it enables us to more easily grow as we seek new acquisition opportunities to strategically expand our FinTech offerings. It is for this reason that I recommend you approve this motion in the proxy, and I thank you for your ongoing support of our company's growth. I would now like to turn the call over to Maran Amran for a financial review of the quarter. Thank you.
spk00: Thank you, Darren. Revenue in the third quarter was $18.5 million versus $12.3 million in the period quarter, and zero during the quarter ended September 30, 2020. The quarter-on-quarter increase over the second quarter was primarily attributed to continued growth in B2B insurance sales, which grew by more than 50%. Gross profit in the third quarter 2021 was $2.7 million, up from $0.7 million in the period quarter. Gross margins improved significantly in the third quarter to 14.8% from 5.4% in the second quarter, as the company reduced its reliance on commission rebates and price incentives to attract new brokers and customers. R&D expenditure in the third quarter was $0.4 million compared to $0.39 million in the second quarter, as the company continued to invest in the development of its technology. Selling and marketing expense amounted to $1.5 million in the third quarter, up marginally from $1.4 million in the second quarter. General administrative expense fell significantly in the third quarter to $6.6 million from $14.9 million in the second quarter. The third quarter general administrative expense included more than $1.6 million of non-case costs. Net loss for the third quarter was $5.3 million, representing significant improvement over the net loss for the second quarter of $18.4 million. Finally, as of September 30, 2021, the cash position was approximately $105 million. Back to you, Darren.
spk02: Thank you, Moran. Thank you, Moran. We are very proud and excited by the progress we have made in Q3, where the foundations and key ingredients for our continued growth have been significantly strengthened. Both our insurance and stock trading business are in the nascent stage of development, but already achieving impressive growth in customer registrations and the company as a whole is generating substantial revenues. Whilst we will continue to maintain watch on market conditions for the launch of the commodity platform, Our drive to achieve material growth across all of our FinTech verticals, both organically and by making strategic acquisitions, gives us huge confidence that we are well positioned to deliver a considerable uplift in shareholder value over the coming quarters and beyond. Continued strength of our balance sheet with $105 million in cash will allow us to continue to execute on our growth strategy. That said, we strongly encourage our shareholders to vote in favour of the motion to expand our authorised share count from 250 to 425 million shares, thereby further strengthening our position in terms of making future acquisitions. I mentioned last quarter that we are just getting started. And now that our licenses are in place on the insurance business and the stock trading app is launched, I truly believe we will continue to see significant growth. And I hope you share my excitement regarding the future of MICT. We thank you for your continued support and we look forward to sharing news of our progress with you as it develops. Thank you. I will now turn the call over to the operator for our Q&A session.
spk03: We'll now begin the question and answer session. To ask a question, press star then one on a touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. And the first question comes from Brian Kinslinger with Alliance Global Partners. Please go ahead.
spk04: Again, great results and thanks for taking my questions. First, I want to focus on the insurance business with the expansion into 130 cities and provinces from just 25 last you reported. When do you expect to get to a million or even 2 million user profiles into that end? At what point do you see the push into B2C? Is that 2Q22 maybe take us through that timeline?
spk02: Yeah, of course, Brian, and thank you for your comments. Okay. we said at the end of q3 we had around half a million already underlying insuries on the platform what this increase in license portfolio enables us is to we have a nationwide license and let's start with that the nationwide license required in february is great but what you need to have to be able to process business locally is a local license and so the uh increase into 130 major town cities and provincial licenses across all developed China means we can now for the first time offer a truly nationwide offering online using our nationwide license. And that allows us for the first time to really move forward with the partners on our B2B2C channels that we've been in discussions with, because clearly they are nationwide organizations with very significant number bases and numbers of customers and the hundreds of millions. And it also allows us to really push forward on the B2C. In terms of registrations, which we said were half a million, the target internally is as close to a million as we can by year end. and we expect to see significant growth on that as well next year. In terms of reliance on B2C, The beauty we have in our structure, I don't want to give the secret of our source away, but with that significant database, with the significant databases we'll have access to as and when we sign the B2B2C relationships, now we start seeing very significant impacts on the margin that we get from selling that insurance product. So rather than giving the lion's share of this away to our B2B partner, we start keeping the majority of that. And that gives us lots of competitive pricing advantages, and it gives us lots of scope for significant growth. Great.
spk04: My second question, also in the insurance business, to date, is still most of your insurance revenue related to the auto insurance, where margins are a little bit lower? And then when do you expect... other lines of business will start to become more meaningful, and do you have to do anything strategically to make that happen by starting selling other lines?
spk02: That's a very fair question. The majority of the revenues at the moment are from the automotive sector, which is a sector which continues to have pricing pressures, which is why I'm even more delighted with our results. But the important strategy we have is that when somebody comes on buys their motor insurance policy with us and they're on our database we now have the option the ability to cross sell to that person and we can cross some much higher margin products be them in life be them in medical in property insurance additionally because you'll be as you know most of us in the world have more than one insurance policy we don't just have car insurance and they are significantly higher margin products Secondly, what we expect the impact of that, particularly towards the end of the year, but more in 2022, is you will see the dominance of automotive insurance, which is the majority at the moment, that will be diminished as a percentage.
spk04: I guess my question is, do you have the people, do you have the agents, do you have whatever it takes and you can already offer that, or do you have to... Do you want anything strategically to move into other lines?
spk02: No, we don't. In fact, the most strategic thing we did was get the 130, you know, to increase our license portfolios to 130. That means big insurers who struggle for nationwide reach, true nationwide concentrated reach, are talking to us about different products, are talking to us about offering us. And so we're taking new products into new areas of China and that they haven't had before, which is perhaps more competitive, which perhaps offer additional benefits. And so the strategic play in all of this was increasing our license portfolio, which we've now achieved.
spk04: Okay. I've got a couple related to the online trading platform. Where I'm guessing, given all the regulatory noise related to the two, especially the two market share leaders, that you probably – tempered market spending in late September, maybe even early October as you let it all play out. So I guess my question is, when do you start the marketing blitz? As I suspect some consumers in Hong Kong are evaluating their options on alternative trading platforms.
spk02: Yeah, I think we said in our statement we're about to have a big blitz at the end of November. As you've said, you know, there are lots of speculation and rumor in the marketplace, particularly with some of our competitors being mentioned in newspapers in China about any indiscretion they may or may not have made. The great thing from that perspective is that we're very confident we haven't made any indiscretion at all. In terms of the marketing and where we go, the app has improved significantly since launch in the middle of September. The functionality is much greater. The performance, the speed of it is infinitely better. And what we did during that period of uncertainty was, as you quite rightly pointed out, we tempered the marketing spend significantly. And we then tried a number of test and learn strategies to see which elements of marketing work better. We think we have a very good handle on that now. And now with the performance of the app being so much better, and now as we've seen this new regulatory framework sort of being introduced through mainland China, now is the time for us for that push. And by the end of this month, we will start seeing quite a bit of evidence to that effect.
spk04: From a standpoint of expenses on sales and marketing, can you give us a sense for what the impact of the P&L will be either on a monthly or quarterly basis?
spk02: The expenditure loss, I don't know. I've got to be careful what I say, as you understand. But the way to answer that question, I think, is to say that the spend on marketing has a correlation with the number of registered users we get and the anticipated spend that we expect those customers to make on our app. And so they are very closely linked.
spk04: Last question. It's just kind of a point of clarification. You've talked about being fully compliant. So I just want to make sure today that investors and myself understand today you're focused on the online trading app for consumers that have Hong Kong, either Hong Kong citizens, but they have a Hong Kong bank account. You're not focused on someone who's just in mainland China with a mainland China bank account.
spk02: Is that accurate? It is accurate, and that's what the regulation states. But what is also important for people to understand is 2 million people in Hong Kong trade on these kind of apps. So it's a very significant marketplace in its own right. Great.
spk04: Thanks for taking my questions.
spk02: Thank you very much.
spk04: Thank you very much.
spk03: Before continuing with questions from those dialed in over the phone, I'd like to turn the call back over to Scott Gordon.
spk05: Thank you, Tom. The company has received a number of inquiries by email, and we're going to pose those and then proceed with our Q&A. First question, Darren, you currently have around 121 million shares outstanding. Why did the company feel it necessary to increase the authorized share count? from 250 to 425, bearing in mind the current share price should, we'd be concerned about an imminent significant dilution.
spk02: Well, you know, when considering the increase in our charter, which is not an easy task, and I'll come on to that in a second, there are a couple of things that people need to understand. We have 250 million shares authorized to issue of around 121 are outstanding today. In this calculation, we have to include the number of warrants out there and options. So that takes us to circa 185 million shares with headroom of 65. This increase, given the complexity of going through this part of the process, it's something you don't want to have to repeat and repeat and repeat. And so we have taken the opportunity when we formulated this proposal to create sufficient headroom for the next number of years. And that then allows us to pursue our acquisition strategy to support the rest of the business. And I think the other thing we did say last week, I think in finishing the answer to this question off, is, you know, it's important to note the increase in authorized shares doesn't create any dilution at all because they haven't been issued. And shareholders, I want them to be assured that we will only ever consider the issue of new shares for a transaction that was significantly value accretive.
spk05: Thank you. Your non-GAAP loss has reduced significantly quarter on quarter. Is it realistic to expect a move into non-GAAP profitability in quarter four 2021?
spk02: Well, you know I can't answer that, so I don't know how to answer this, Scott.
spk05: The company's number of registered customers in its insurance business is impressive at a half a million. What is the approximate registrations between the three quarters of the year, and how do you expect registrations to grow in Q4 after 2022?
spk02: Yeah, that's a very fair question, but I think I've covered most of that in an answer to Brian's question earlier on the call. Okay.
spk05: You have mentioned that your recent acquisition of the regional licenses will enable you to launch – B2B2C sales channels, and then B2C. When do you expect each of these forms of sales channels to come online?
spk02: Well, again, I think I think I've covered much of that in in the question that Brian asked earlier. But, you know, all I want, you know, the important point, perhaps just to reiterate from the answer I gave to Brian, is the increased number of license we have now gives a true penetrative footprint to most of developed China. and now the opportunities for moving into B2B2C and B2C are somewhat closer because we can facilitate and support that business nationwide for the first time.
spk05: Great. In your upcoming B2B2C insurance business, can you give an idea of the types of organization you are partnering with Also, with your B2C business, will you be launching your own insurance comparison website and app?
spk02: Well, I'll do that in reverse order. B2C... We have developed our own app, which will be launched soon at the appropriate time, bearing in mind we have to consider where we are in our B2B2C relationships and what we expect those and what we commit the company to deliver in supporting insurance channels. We are talking to organisations throughout insurance, on specialist products. We are talking to other organizations about more target-specific type of products, and we are clearly talking to a number of channels about partnering them on their websites as their insurance partners. So quite a broad spectrum, really. Great.
spk05: Your margins in Q3 have increased sharply compared to Q2 margins. Do you expect such margins to be maintained in your B2B insurance business in Q4 and beyond? And what do you expect your gross margins to be from B2B to C business and B2C?
spk02: Well, I'm not going to answer that in specifics because I think it's a little sensitive. But just to give the question some respect and send a bit of an answer and some flavor, I think what we should understand is that, as I said to Brian in an answer earlier on today, is that the net margin to us from B2B to B2C is significantly higher. And direct to B2C is multiples higher. So it has a very... The sooner we can drive the B2B to C business and the B2C business, you'll see significant margin enhancement. Thank you.
spk05: Thank you. it felt like a major milestone seeing the launch of MagPi. According to certain people, there were a large number of glitches with the app at launch, and they complained it was slow, which I am pleased to say was in contrast with my own very positive experience, where I personally felt the app worked well and was faster than many of the other apps I have used. What are your own views on the performance and speed of MagPi app, both at launch and now?
spk02: Yeah, I think there's a couple of things to bear in mind here. You know, the service we have to support our app, a lot of people where we had a number of complaints on speed were really dialing in from a long way away, and our apps are based in and around Hong Kong, our service, I should say. That said, we have improved the speed of the app considerably, considerably. And I think, in my humble opinion, I believe it's at worst as good as fast as anybody's out there. Yeah, perhaps you may think it's a jaundiced opinion. I think it's certainly quicker than most people's out there, if not everybody's out there. And I think the performance that we have... the functionality on the app, dark mode came in over the weekend, which I think is a significant enhancement. We expect for those overseas clients who wanted to onboard, we will now have, that will start to go in place in the next week or so, week or two perhaps really. And as a result of all of that, we now feel now is the time. And again, as I said to Brian in an earlier question today, now is the time for the next blitz on the marketing push. Thank you.
spk05: Have the new user registrations on Magpie and the number of transacting customers met your expectations?
spk01: Yes.
spk02: Yes. As I said, it's been a very limited marketing scope for the reasons I, again, mentioned earlier. But we were extremely, extremely encouraged with the results of downloads and registrations as well. and what we do in the target marketing that we have done and the test and learn strategy we've had in a number of different ways. It gives us so much valuable data onto the things that work, you dial up, and those that don't, you dial down. And so when we go into the next blitz, hopefully you get a more effective dollar for marketing spend.
spk05: Thank you. The share prices of Fudu and Tiger have fallen significantly over the past few months due to concerns around whether they are compliant with the relevant rules and regulations from China, including rules relating to licenses and also the new client data regulations. Is MICT compliant with all the relevant rules, and does this give Magpie a competitive advantage over Fudu, Tiger, and others?
spk02: um i'll be very careful what i say here i think the important thing to get across to everybody is that in being as compliant as we have been and continue to be um it's it's certainly our opinion we haven't fallen foul of any regulations and we're very proud of the level of compliance uh and corporate governance and the team have done an exceptional job in hong kong an exceptional job and i take my hat off to them in that regard um how does it give us a competitive advantage I'm really not going to go there and talk about other companies. I think the important thing to get across is that we have built a world-class app that's improving and getting better all of the time. We have a much better target-specific marketing strategy going forward. And I'm sure that, well, I know because I get told all the time by all sorts of people about the efforts we have in our marketing. They'll see a lot of evidence in the next couple of weeks as we do our next blitz. and we're hopeful of the results and the outcome.
spk05: Thank you. It is disappointing that the launch of your commodity platform has been delayed. Can you elaborate on the reasons for the delay, and can the management of the vertical use this time to further improve its prospects?
spk02: Well, just as I said, we're very compliance-oriented. in the stock trading app as we are in our insurance business, we're equally as compliant in anything we do, and that includes in the commodities trading, where we are seeing changes in regulation right now. And we, as we have announced some time ago, partnered with a very significant organization. And the feeling of the partnership is that whilst we have the change in regulation, and particularly given the volatility we have seen in oil and gas prices is that I'd like to say unprecedented, but it's once in a blue moon sort of stuff that we can sit back, watch what goes on, and then we will make a call as and when things become more clear. But again, it hasn't been in any of the analysts' forecasts out there, and it's still not in there. So we're watching brief at the moment.
spk05: Thank you. Our final question, the company's share prices continue to perform poorly since the last results statement, and your market cap is barely above the value of the cash on your balance sheet. It would appear that the share price is under the control of shorters and market makers with high levels of off-market trading. Surely you cannot be happy with this. What is the company doing to tackle the shorters and achieve a higher share price?
spk02: Okay. Nobody's happy about the share prices, clearly. What can we do about it? I think the important thing that we have to do as a company is what we've been doing, and that is continue to execute and continue to deliver. We built a world-class licensed trading app, built from scratch an insurance business, which has now got a run rate of $75 million or so annually. We have nationwide license coverages on insurance business in 130 city, provincial, and city and town licenses. And you can see from the results today, which we are exceptionally proud of, we're well positioned there. We have a shareholding and Israeli listed company that has value, and we have $105 million on the bank. My focus is to keep delivering, keep delivering shareholder value. And the price... will sort itself out, I hope.
spk05: Excellent. That concludes the number of inquiry questions that we received. I'll pass the call back to Tom, our operator.
spk03: We still have time for questions from those dialed in on the phone. There's currently nobody in our question queue, but again, if you would like to ask a question, press star, then one to join the queue. We have a question from Will Robertson. Please go ahead.
spk01: Hi there. Just a point of clarification. At the moment, Magpie is focused on Hong Kong users. Will there be a point in time when Magpie expects to accept users from mainland China?
spk02: not until the regulation is clarified, no. We work within the remit of the licensing which we have in Hong Kong. And right now, you are not permitted to take mainland Chinese clients on, and so we will not do so. We will focus, as we have said in the report today, there are 2 million Hong Kong clients. people, Hong Kong residents, who trade on the stock trading app. That's a very significant marketplace for us. And if we can get a sizable portion of that, our company will do exceptionally well. Our focus thereafter is on the Chinese diaspora in other jurisdictions, be them in Southeast Asia or other parts of the world. And what the company is looking to do is increase its license portfolio so that we can market in those appropriate areas.
spk04: Thank you.
spk03: This concludes our question and answer session. I now wish to turn the conference back over to Darren Mercer for any closing remarks.
spk02: Thank you. I'd like to thank everybody for taking time today to join the call and for your ongoing support. And I look forward to updating you on our year-end results conference call and providing further progress updates. Thank you all very much.
spk03: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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