Ladies and gentlemen, thank you for standing by. Welcome to the Ituran's First Quarter 2019 Results Conference Call. All participants are currently in a listen-only mode. Following managements 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 1-646-688-3559 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. Gabriel Frowein of GK Investor Relations. Mr. Frowein, would you like to begin?

Thank you. Good day to you all and welcome to Ituran's conference call to discuss the first quarter 2019 results. I would like to thank Ituran's management for hosting this conference call. With me today on the call are Mr. Eyal Sheratzky, CEO and Mr. Udi Mizrahi, Deputy CEO, and VP Finance; and Mr. Eli Kamer, CFO. 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 in the press release also covers the contents of this conference call. And now, Eyal, would you please like to begin?

Thank you Gabriel. I'd like to welcome all of you and thank you for joining us today. 2019 has started with Ituran being a company on a much larger scale with more potential for growth. Ituran now is a significant footprint and is a major telematics provider in Latin America and we now see many solid growth opportunities ahead of us. We provide our services to almost 1.8 million subscribers. While our subscribers last year were mainly in Israel and Brazil we now also have subscribers throughout Latin America including Ecuador, Mexico, and Colombia. Looking ahead the growth in our business now come from a number of different places. While in the past our growth traditionally was driven simply by the net increase in the subscriber base in the aftermarket today there are additional legs driving our growth. One, it remains a traditional retail after market subscriber in Israel and Brazil. The other leg is working with our existing OEM partners and adding additional OEMs in other markets in both new as well as existing geographies. We now have a much stronger platform to penetrate and we are in the early discussions with additional car manufacturer OEMs beyond the two that we are already working with. I would like to spend a few minutes discussing our business in Brazil. As you know the economic situation in Brazil has been weak in recent years which led to an increase in frauds and losses to insurance companies. While our pricing was a flat rate in Brazil, insurance companies in the region have been increasingly raising their premiums and implementing more customer filters. The effect on us in the past year was a slowdown in subscriber recruitment in the region. This is the main reason for the decline in the growth rate in…

Thanks Eyal. I know that the results I present will be on a non-GAAP basis including adjusted EBITDA which excludes revenues and cost related to the purchase price of location. We believe this will provide a better understanding of our ongoing performance. For further details with regards to the reconciliation between the non-GAAP and the GAAP results please see the table published with the press release. Non-GAAP revenues for the first quarter of 2019 were at $74.6 million representing an increase of 18% compared with revenues of $63.1 million in the first quarter of 2018. In local currency terms first quarter revenue grew 32% year-over-year. Revenue breakdown for the quarter was $54.2 million coming from subscription fees and 19% year-on-year increase. In local currency terms subscription fee grew 36% over the same period last year. Product revenues were at $20.4 million which were an 18% increase over the same quarter last year. In local currency terms product revenues grew 21% over the same period last year. The geographic breakdown of revenues in the first quarter was as follows Israel 38%, Brazil 37%, and rest of the world 25%. Non-GAAP operating profit for the first quarter of 2019 was $16.2 million an increase of 4% compared with an operating profit of $15.5 million in the first quarter of 2018. In local currency terms this grew 24% year-over-year. Adjusted EBITDA for the quarter was $20.9 million, an increase of 9% compared to an EBITDA of $19.2 million in the first quarter of 2019. In local currency terms the increase was 29% year-over-year. Net profit was $10.7 million in the quarter or fully diluted EPS of $0.50, a decline of 5% year-over-year compared with a net profit all $11.3 million or fully diluted EPS of $0.54 in the first quarter of 2018. In local currency terms the year-over-year increase was 14%. Cash flow from operation during the quarter was $14.9 million. As of March 31, 2019 the company had cash including marketable securities of $54.5 million and debt of $73.6 million, this is a net debt position of $19.1 million or $0.89 per share. This is compared with cash including marketable securities of $53.3 million and debt of $73.2 million which is a net debt position of $19.9 million or $0.93 per share. As of December 31, 2018 for the first quarter a dividend of $5 million was declared. The dividend trickle date is June 20, 2019 and the dividend will be paid on July 3, 2019 net of taxes and liabilities at the rate of 25% and with that I'd like to open the call for the question-and-answer session. Operator.

[Operator Instructions]. The first question is from Tavy Rosner of Barclays. Please go ahead.

Good morning. This is Peter Zdebski on for Tavy. Thanks for taking my question. I was just looking at the revenue per subscriber trends and obviously there has been some compression in the fourth quarter and then again going into the first quarter. And I understand that the OEM segment is a bit lower margin than the legacy aftermarket segment but all things being equal on the currency side could you give us a sense of the trajectory of the revenue per subscriber from here?

Hello, can you just repeat the last part of the question, couldn’t hear the last part.

Oh yes, yes. I was just asking about if all things are equal on the currency side is this about a good run rate for revenue per subscriber getting us at the road track and the bigger OEM contribution?

As you mentioned there was two reasons. First reason is the mixture between the OEMs that we just start to publish from Q4 and of course now. So the OEM subscribers have a lower margin and a lower ARPU so the mixture changed or decreased a little bit. And the next very important aspect is the currency exchange rates. So regard the future as long as the currency exchange rate is the main markets which is Israel, Brazil, and Mexico would be as if now so this is the run rate output that you should consider of course but it is something that it's not dependent or it's not in our hands.

And approximately how much lower is the OEM ARPU than the aftermarket?

It's not very -- the differences are not very high. On the other hand the margins are lower because the service cost for the OEMs required let's call it kind of an automotive grade which required a higher cost. And it's not -- the announced differences in the ARPU will not give the right number or the specific number but just to give you a rough information or general information is lower but not materially.

That makes sense. And then a quick one on the operational side, it looks like R&D picked up a bit also in the quarter, was that related to the 3G conversion in Mexico?

First of all even I would say little bit historically we didn't touch it in our last conference call so even historically we increased and we put more power and strength in our R&D divisions in order to be able for example to be the first and the dominant player of UBI in the market that we will operate and we now start to show it in Israel. Second is the OEM leg which is a part of our role truck. When we acquire it we acquire it with R&D facilities and R&D expenses in order also to support the OEM needs. So overall the R&D expenses in the group is increased. And looking forward I believe that the number that we show now which is a much higher than a year ago it will be stable and we are now fully loaded with the power and the resources that we need to support our growth.

Thank you.

The next question is from David Kelley of Jefferies. Please go ahead.

Good morning. Thanks for taking my questions. You referenced the ICS changing pricing model impact on subscriptions in Brazil. And just to clarify, are you expecting an immediate return to normalized subscription growth in Q2 now that we're post the test phase or is that still more of a second half tailwind for your Brazil market growth?

Regarding numbers of subscribers as I said in my speech we are absolutely see and believe or expecting that the numbers of subscribers will come back to where I would say historical trend in Brazil already in Q2. But of course we have to always remember that the influence on the financial numbers will take one or two more quarters because the nice thing in operating leverage helps us when we had declining in the gross but when we move back to a growth in subscribers in one two or three quarters it will be much more material, the influence on our revenues from the customer base. So in terms of subscribers it will be immediately, we believe it will be immediately. The financial influence, the revenue and the profitability of course should be more materially more to the second half of the year and of course hopefully for the next coming years. Yes.

Okay, perfect. And then maybe switching gears to the usage based insurance agreements that you announced last week. Appreciate the color on that. Can you just talk about maybe kind of the magnitude of size of that contract and maybe your view on the UBI opportunity over the next one to two years. And then I think you referenced an opportunity to take that to other markets beyond Israel. Where do you see some sort of natural fit going forward, is it your legacy markets in places like Brazil but would love to just get some more color on UBI?

Okay. I will start by saying that we identified and realized the new opportunity in UBI about more than two years ago and we started to develop the software as the technology and all the make ups to integrate it into insurance company's needs. We had the first contract a few years ago with AIG in Israel but AIG those days were a very small insurance company for the vehicles and second, their model was based on putting the cost of all this program on the insurers. So it took off but the numbers were not enough but it was a good pilot for the market and for us. Since then of course we move forward much better, much more the technology is better. And we see now -- we saw during 2018 that the Israeli insurance market as well as other markets in the world are changing towards more digital insurance, more application. The insurance companies are more open to change their historical models and we used our dominancy in the Israeli market and the relationship that we have. And of course we start talk with all of them and by the way they checked not only Harel but all -- many others insurance companies that are now on their way to being in this program. They didn't check only our solution because it's a very strategic decision for insurance company to change the model of selling car insurance. In Israel it's totally new and Harel is one of the largest if not the largest. And it means that they checked not 100% and 100 pilots but 1000% that we are the right horse to gamble on. And it was like a tender process and many other companies from the rest of the world as well as other Israelis…

Okay, thanks. And just quickly that you mentioned the lower ARPU but higher the margin accretive opportunity, it sounds like that's -- is that based on the contract signed or you see the longer-term market potential even beyond Israel?

No, it's much easier in the contract side. Again the SVR will depend on how it sells to the insurers because it was a pure B2C. Now we are talking about a pure B2B. Our client is the insurance companies, we have -- in the contract we have the pricing, we have the process, everything is to B2B between us and Harel and in the future will be probably between us and the other additional insurance companies. Of course the contract can be different from each other but on average it will be very close to each other. So we are talking about a situation that we get -- let's call it we get a check every month based on the new insurers that both the UBI premium from Harel and in the future from the others. So the pricing are a part of the contract. As I said I don't want and I cannot disclose the prices, it is a B2B deal. But as I said it is lower than the SVR but it will be more profitable.

Great, thank you. I appreciate all the color, really helpful.

The next question is from Sasha Karim of IPI. Please go ahead.

Good afternoon and thank you also very much for the extra color you gave on this call. My first question would be on the 15,000 to 20,000 typical subscriber net additions per quarter, that number seems a bit low to me because you've acquired Road Track and in the past you have done between 20 and 30 in some quarters. Can you just comment on why the new normal is only 15,000 to 20,000, is there some maturity perhaps in your markets now?

First of all as I said and maybe it wasn't clear, when we gave a forecast or the expectation for 15,000 to 20,000 per quarter after for example this quarter we did only the 8,000 and I mean it's only for the retail aftermarket segments which historically that's the number that we had an experience and then we had the declining that I explained came from Brazil situation. Now we are on track again and it will be only for the aftermarket retail segments. And I said that regard the OEM this is part of the acquisition that we did with Road Track. We have less visibility and we are not providing number for forecast. But I want to add something, we acquired Road Track with an OEM subscriber base. The OEM subscriber base that we acquired has no potential to grow by itself because it's very solid, very depend on the size of those customers. It's about three customers in our four regions that are buying what they sell. The reason or their advantage that we see or the upside in acquiring Road Track is first of all to use it as a platform to duplicate our retail aftermarket segments in those geographies based on this platform. Second, to use our additional services and not their experience to grow and expand the OEM contracts. And third, to try to create more renewals but regard the customer base that we bought we didn't expect that this will grow as it is. And by the way don't forget that there is also a matter of the price that we paid. We paid multiples and we made the transactions which is fitting a company reach its potential by itself, to grow is lower. You can see our reports regard what we paid for what we get and you will see that it was a very, very attractive price that was based on seller understanding that we are not buying a company that result that can grow.

Thanks, it's very clear. Thank you. And can you -- are you seeing a change in the behavior from your existing OEM partners, the lack of transparency I understand but are you also perhaps suggesting that some of these partners maybe not pushing the products as hard as they would have done in the past and there is a risk of decline in the subscriber base or is it just generally low transparency?

IT'S something that we don't have control. We get -- usually we get a kind of planning inventory and planning sales for three to six months. But I must admit that this is kind of our forecast and it's not always something that it's clear and this is something that I don't want to take a risk and share the audience or the shareholders with it because many times it's volatile from the historical expectation. And we learn that they by themselves not always have the right forecast. Second, we have confidentiality because no one of those customer want to be exposed with what they saw during the quarter. So by giving specific numbers we also expose it and we are not allowed to do it. And the third issue to your question, yes, yes theoretically or practically we can find ourselves in some quarters with declining in OEM customer base and this is something that can be reality. A quiet confidence that we are -- can be in a situation that for example and this is what we start to date, to show our OEM subscribers base and the retail subscriber base. The retail subscriber base contribution is much more material to the profitability and to the ARPU than the OEMs. So just to illustrate the situation that we will grow 20,000 in our retail and we will decline in 40,000 in the OEM in the same quarter. Still we will show growth in revenues and in profitability because the weighted average of declining in OEM but growing in the retail is still positive and this is important to understand. We have less control on the OEM. We have less growth in the OEM currently mainly because of the economic situation. You know that the car industry usually is the first to be hurt by recessions and we found it and we have experience with this and this is a situation in Brazil, recently in Mexico so I believe that still even if we will find some quarter to be declining in OEM customer base we will continue to show or we start to show again growth in the retail and the weighted average will be positive. So overall I am looking forward starting second half of this year and hopefully the next couple of years the result should be with a positive influence compared to Q1 as we saw now.

Got it. Thank you and then my last one would just be you briefly touched upon some early stage engagements with new OEM potential partners. Can you give us a feeling for maybe the time frame there, I know you can't promise but would you sort of hope to announce something more concrete by the end of this year?

First of all we have to divide into two type of I would say of discussions. One discussion is with totally new brands which share our historical experience of negotiating, discussions, and bylaws etc. We know that it is a very long cycle. This is not new. We already started but we don't know exactly what will be the results of these discussions and how long it will take. But once it take off it can be material for this brand. Second, is to extend the current relationship to other geographies and this is something that should take lower time, lower -- faster cycle but still those are I would say in brackets it was kind of an elephant in decision taking and in their strategic decisions. So it will take more time, it's not something for the next one or two quarters. But I hope that by mid-term we can be in a position that we will be or with another brand or in another one or two geographies which the current brings. But this is only I wouldn't say that we are in a close period to do it or something but we have discussions and we see or we have the confidence that our position now we will support it.

Thank you.

There are no further questions at this time. Before I ask Mr. Sheratzky to go ahead with his closing statements, 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 concluding statements.

Yes, 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 look forward to speaking with you next quarter. Have a good day. Bye.

Thank you. This concludes the Ituran first quarter 2019 results conference call. Thank you for your participation. You may go ahead and disconnect.