Ituran Location and Control Ltd. (ITRN) Q3 2019 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Ituran's Third Quarter 2019 Results Conference Call. All participants are present in a listen-only mode. Following management's 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 and Public Relations at 1 (646) 688-3559 or view it in the News section of the company's website www.ituran.co.il.I would now like to hand the call over to Mr. Kenny Green of GK 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 third quarter 2019 results. I would like to thank Ituran's management for hosting this conference call. With me on the call today are Mr. Eyal Sheratzky, CEO; 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 would like to remind everyone that the Safe Harbor statements in today's press release also covers the contents of this conference call; and now Eyal, would you like to begin please.

Thank you, Kenny. I'd like to welcome all of you and thank you for joining us today. 2019 has indeed been a transition year for Ituran. This year, we have been -- we've seen more challenges and headwinds than we normally see. But we've been working to overcome them. I will spend the next few minutes diving into the details of both the aftermarket business as well as the OEM business, as our overall consolidated financial results cloud the actual details of what is actually happening. In addition, starting from our full year 2019results next quarter, we will aim to provide you with the financial breakdown of the two main segments of our business to give you more tools on which to analyze our performance.Starting with the aftermarket business. The aftermarket business in Israel has remained good in 2019 and we are pleased with our continued positive performance in this market. Our leading market share has remained stable now for many years. New car sales in the country are at similar levels, almost at similar levels to what they were in 2018 and while there are some shifting trends within, the market itself is stable.Our Ituran SVR products remain at attractive proposition and has been a key driver towards our net subscriber growth in the market for a number of years. We expect the aftermarket business in Israel to continue to grow subject to the new car sales trend in the country. But as always, we continue to consider strategy for penetrating additional segments. A few months ago, you may remember that we signed a new and innovative agreement with Harel Insurance, one of Israel's leading insurance company to become Harel's provider of location-based services for its usage-based insurance service. This insurance policy is built around Ituran's solution for taking into account, drivers accumulated mileage and behavior as it is related to safety.So, insurance premiums can be directly related to usage, which is favored for the driver and better for the insurance company in terms of managing risk. Since then, we've also signed another insurance company in Israel, Shlomo Insurance, which have been launching Prime Time TV campaigns selling our white-labeled products, and we should expect to start seeing a contribution from this growth engine in 2020. Beyond that, we see strong further interest throughout the market as others do not want to be left behind. We see this product as a real advance for the car insurance market, providing a more accurate risk assessment and personalization of insurance policies, lower cost, and providing an innovative and fully digital service for the customer.We see this as a potential strong growth engine. And in the coming year, we expect that other insurance companies in Israel will begin to offer UBI policies based on Ituran's solution. Longer-term, once we prove success in our home market of Israel, a synergy from the fact that we are now operating in a number of countries is that it will be much simple for us to leverage this solution into our other markets.Looking at Brazil, as we discussed over the past few quarters, the aftermarket business faced significant growth challenges starting from the second half of 2018. We met and sold those challenges and made changes to our Brazilian business model and system. As of mid-2019, as you can see from our net subscriber add returning back to 20,000 and over per quarter, and moving forward into 2020 we have successfully completed this transition. We should expect the improvements made to filter throughout into our financials throughout next year.I would like to spend a few moments talking about the aftermarket in Mexico, which is a new initiative for us. We are building our new ICS, which stands for Ituran Com Seguro program in Mexico taking the product which has been successful in Brazil, reproducing and tweaking it for the Mexican market. We are in discussions with the local insurance companies there. We are also planning and building and marketing campaign and preparing the infrastructure.We expect to launch, and start selling the product during the second half of 2020, which we expect, we will have an increasingly positive impact in 2021. Now I will talk about -- elaborate more on our OEM businesses. You may remember that our OEM business in Mexico was another challenge we had in this year which we discussed over the past two quarters. As you remember, it was announced that the 2G networks in that country are being discontinued. Our OEM customer in Mexico, which uses 2G telematics systems decided to deplete inventory of its existing systems before starting purchases of our upgraded 3G-based system. The good news is that as of October, the customers despite its existing inventory of 2G systems and has started using its inventory of our next generation 3G systems.Looking ahead, next year, we expect purchases to resume their normal level, which will improve our results next year. And now to our OEM business in Brazil and Argentina. As we have already discussed, because of the weak economic situation in Brazil and Argentina, this major OEM customer of ours has been looking for ways to reduce its costs and increase its margin. Earlier in the year, they cut their subsidized free trial period for new car buyers from six months down to three months, and this had an immediate impact on the number of subscribers in those countries. I should add that they continue to look to further reduce their costs, amongst other things are considering using the free trial even to only one month.We are in discussions with them on implementing the further changes. In light of the reduced revenue from this customer, we are also making changes to improve our margins in this segment. We are doing this by implementing our plans to extract synergies. In particular, we are looking to eliminate costs that can be shared with our existing operations in the country.In summary, while Ituran in the past was focused on the aftermarket business in two main geographies, Brazil and Israel, today as a results of the acquisition of Road Track, we have added a number of new geographies. In this new regions, we are looking to take our existing successful aftermarket business model and transfer them to the new geographies. Furthermore, we are working on extracting cost synergies to improve the margins within each of the various regions in which we are operating. Looking at the big picture, Ituran should see continued long-term and steady growth from our traditional retail aftermarket subscriber adds in both Israel and Brazil.Beyond this, we are exceeding a number of initiatives that will begin to propel us forward in 2020 and beyond, such as the synergistic opportunities I just mentioned, as well as our agreements with insurance companies in Israel and ultimately elsewhere to provide the telematics for their usage based insurance services.Finally, Ituran is the leading mobility technology investor in Israel, exceeding new business in the space that have potential to become leaders in the decades to come. My overall goal is that Ituran will always create value for Ituran by remaining at the forefront of technological advancement in an ever-changing consumer-oriented mobility market.I will now hand the call over to Eli for the financial review. Eli?

Thanks, Eyal. I note that the results I present will all be on a non-GAAP basis, including adjusted EBITDA, which excludes revenues and costs related to the purchase price allocation. 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 third quarter of 2019 were $70 million, representing an increase of 31% compared with revenue of $53.4 million in the third quarter of 2018. In local currency, third quarter revenue grew 33% year-over-year. Revenue breakdown was $51.2 million coming from subscription fees, a 31% year-on-year increase, in local currency terms, subscription fees grew 32% over the same period last year.Ituran added 20,000 net aftermarket subscriber during the quarter and there was no change to the number of OEM subscribers. Product revenues were $18.7 million, which were a 31% increase over the same quarter last year. In local currency terms, product revenues grew 31% over the same period last year. The geographic breakdown of revenues in the third quarter is as follows; Israel 40%, Brazil 34% and rest of world 26%.Non-GAAP operating profit for the third quarter of 2019 was $13.7 million, slightly below when compared with an operating profit of $14 million in the third quarter of 2018. In local currency terms, the non-GAAP operating profit was unchanged year-over-year. Adjusted EBITDA for the quarter was $18.7 million, an increase of 10% compared to an EBITDA of $17 million in the third quarter of 2018. In local currency terms, the increase was 18% year-over-year. Non-GAAP net profit was $7.8 million in the third quarter or fully diluted EPS of $0.37 compared with a net profit of $12.5 million or fully diluted EPS of $0.60 in the third quarter of 2018. Cash flow from operation during quarter was $11.5 million. As of September 30, 2019, the company had cash, including marketable securities of $56.5 million and debt of $74.5 million. This is a net debt position of $18 million or $0.86 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. I note that uses of cash in the quarter were $3.5 million for the buyback of 121,000 shares as by the end of the quarter and $5 million for the dividend announced in the second quarter.For the third quarter, a dividend of $5 million was declared. The dividend's record date is December 24, 2019 and the dividend will be paid on January 9, 2020 net of taxes and liabilities at the rate of 25%. And with that, I'd like to open the question-and-answer session. Operator?

Thank you. Ladies and gentlemen, at this time, we'll begin the question-and-answer session. [Operator Instructions] The first question is from Tavy Rosner of Barclays. Please go ahead.

Hi, good afternoon. Couple of questions here. First, if we could talk a little bit about the OEM in Brazil and generally speaking, so you mentioned that the net number was zero. Does that mean that the granularity of this number is a decrease at your large OEM in Brazil mitigated by increase somewhere else in terms of positive sales, so net-net it's a zero number?

The situation in Brazil as I said in my speech is that, our customer is -- I think he is in a declining situation. And we have discussions -- we assume that in terms of numbers of subscribers, we are not expecting strong decrease but the ARPU per subscriber probably will be dramatically down. We don't know yet to evaluate exactly how the new relationship will look like. But as I said, based on the ARPU and based on the number of subscribers, we are starting to create synergy and to cut most of the expenses in order to keep the margins high. But the number of subscribers, -- we are not expecting that it will grow, because if you remember, after the free trial, most of our subscriber base comes from renewals. So, the renewals depend on us, and in the renewal portion, we have a very successful rate which is more than 35%, but based on the -- let's say captive customer base comes from the free trial is something that declined as you saw last quarter and this probably will continue to decline in the future.

Yes. My second question was going to be about the successful retention rates. So, you touched on that. And do you guys disclose how many subscribers this OEM has?

Are you talking about the OEM...?

In Brazil.

Subscribers.

Yes.

The OEM subscribers -- so after the free trial, and this is the strategy and this is the way we are operating these segments in Brazil -- is that we are -- do push calls on the campaign in order to renew but don't forget that when the customer is renewing his subscriptions, which he got for free; after the free trial period he now has to pay. So, the retention is not 100%, and as I said is even above 35%, which compares to other companies in the industry is a very successful number.

The subscriber base is as the same as last quarter, meaning five -- almost approximately 500,000 subscribers, 508,000 [ph] for the OEM.

Got it. And then one last for me, if I may, just talking about the margins a little bit. So, in the press release, you talked about non-GAAP margins, 56% for subscription fees versus roughly 62% last year. So, you touched on the impact of the OEM, but you also talked about lower margins in Brazil and Argentina. So, I guess the second part, it's lower margins for your aftermarket customer.

I will say that, as we mentioned, Brazil had a slowdown last year, and of course as a subscriber-based model, which depends on the number of adding subscribers, if we are going down or decrease in the subscriber base, then of course, of course it relates -- affect also the margin is that we have a fixed cost and the additions are affecting the margins. So due to the slowdown that we had, this affects also the margin in the aftermarket, which as we mentioned due to the fact that since the second quarter of this year, we added -- we came back to the same level as before of approximately 20,000 net added subscribers. I believe this effect will be shown in next year meaning that the margins are supposed to improve.

I understand. Thank you. I'll go back to the queue.

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

Hi, good morning guys. The OEM customer, that -- has reduced the free trial period. Was that impact on Q3 ultimately in the $1 million range that you had previously expected?

Yes, absolutely. The main impact was the change between six months free trial to three months which happened in Q2 and we showed decreasing one -- almost one-time of 40,000 subscribers. But we said last quarter that we expect that it will appear in our financial at Q3, it was more than $1 million or we said around $1 million and it was more closer to $1.5 million but most of this declining is related to -- yes -- to Q2 change of the free trial period absolutely.

Okay, got it, thanks. And regarding your push into Mexico, you noted expectations of aftermarket volumes beginning in the second half of next year ramping into – it sounds like 2021. How quickly can that business grow for you, how would you size up the addressable market opportunity in the next couple of years?

Okay. So first of all, and it's very important to mention, this is the -- after few quarters, almost six quarters, we succeeded to show gross of more than 20,000 subscribers -- is the highest point of our expecting range in Q2 as well as in Q3. And this is very important I think to explain that we back to the numbers and back on track for the 2017 numbers, which in the end integrated to the financials of 2018. Now in 2019, we start ramping up again on the aftermarket in Brazil mainly, and also in Israel which will integrate even without Mexico to the numbers of 2020. This is the operating leverage model. When you are declining in subscribers, it appears almost a few quarters later, but it's the same which are growing in subscribers. So you see it a year late or a few quarters later this is why I'm very optimistic regarding the quarters that we should -- we will see in 2020.Now regard, Mexico. Mexico is now in a stage where we are putting all the marketing, all the contractual, all the IT, all the synergies that Ituran -- slightly to one -- aftermarket solution requiring. We do it very carefully, we do it very conservatively in order to launch the commercial stage, is a highest rate of success, with potentially success rate. Now we got the market we wouldn't do it, and by the way, we wouldn't, we would consider differently the acquisition of Road Truck.If we wouldn't find the Mexican market and as the beginning Mexico City, has not the same characteristic and the mentality and the insurance industry has the same characteristic as well, that we can copy it successfully. Once we will succeed, nobody know of course, that's what we believe based on our assumption, it's -- might be much bigger than the entire OEM business we acquired, but it will take time, because it's a market education, we will be the first to do it in Mexico like we did in Brazil. In Brazil, it took us something like three years to become dominant and Ituran Considura [ph] become a known name in Sao Paulo.I want to believe that since we already have experience, and since we know what was the mistakes on the -- that we did in Brazil at the beginning, we will overcome it faster in Mexico. So I believe that 2021, 2022 it should be much more faster growth, much more material, 2020 of course will be the first year of doing it. I wouldn't expect still something material on our numbers, but it's important also to look longer terms and I will really count that if this will copy Brazilian business. So we are talking about major business going to one.

Okay, got it, thanks. I have one quick follow-up and I'll pass it along. I guess -- how should we think about the cost to build out that infrastructure in Mexico next year?

So, as I said, and this is part of the [indiscernible] maybe others will do it in three months, and we do it in nine months to a year since we started it, but we do it as very conservative. I wouldn't consider the cost, that integrating to this build up. It's our material -- it will be integrated to the regular or the regular operational results of Ituran, that's the way we are doing it, it will be spread and it's already spread. Of course, it's part of the cost that we already see in our results. But it's not something that it's material by itself. So I wouldn't consider this, it's something material.

I got it. Appreciate it. Thank you.

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

Hi, I have a few questions. First one, just to clarify on the services gross margin, which declined about 110 basis points in the third quarter versus the second quarter, given that you had rising number of aftermarket subs and flat number of OEM subs, normally we would expect GM to rise because there is a positive mix effect. So, is it just the one-time impact from the second quarter which was lagging and hit the third quarter that caused this to decline?

Yes. As we mentioned, you know the decrease from GM Brazil from our OEM in Brazil of the $1.5 million is actually all of it is -- most of it is coming from the service and the service is affecting, of course, the margin. So this is the -- the main explanation between Q2 and Q3.

And any thoughts on Q4 with the gross margin now, provided that subscribers, the aftermarket certainly keep growing or the gross margin keep growing or there are more headwinds from the OEM that will hit the gross margin?

I would, -- I would say that if we are talking about and again we do not give at this moment the breakdown of the financials between the OEM and non-OEM and we are aiming to provide more financial information next quarter after advising with auditors. But in the end, in the aftermarket, the answer is yes. As long as we continue to increase our subscriber base in the aftermarket, there is no reason for the gross margin in the service segment not going up.

Thank you. That's very helpful. Another one, you mentioned that the ARPU in the Brazilian OEM division would vary significantly down. As I understand it, you currently -- when you -- when a customer is on a free trial, you do get paid something by your OEM partner, but it's not a huge amount and it's low margin and it seems like that's the part of your revenue which you should be losing. So it's a lower ARPU stuff, you should be losing. So I would have thought the mix would cause the ARPU to go up. Why is ARPU going down if you're losing the lower mix stuff?

No, I talked about the ARPU specifically for the OEM, when I mentioned it. I didn't talk about the overall ARPU. As Eli mentioned few minutes ago, once the aftermarket will continue this trend which we assume and believe that is going to be, so the main growth of subscribers which will come from the aftermarket will allow us not to decline the ARPU, but when you combine total location-based services with the OEM and the OEM is declining, so the OEM ARPU by itself, I just gave a light on the OEM situation when I talked about it. The overall ARPU is not expecting to droll [ph].

And can I just clarify, has your partner in Brazil renegotiated what your take rate is on -- or any OEM subs, is that part of the headwind or it was just the reduction in the free trial length?

No. It's mainly reduction of the free trial. Second, it's hardware sales, which looks for solutions with different type of services in order to decrease their cost of their hardware and as I said, they are looking for how they can continue with providing some tool to their customers in one end, was on the second end reduce their costs -- I just want to repeat what I said a few months ago, this specific common picture suffered from the economic situation, they fired thousands of employees, they get treated of [ph] buildings, they change the models of the cars that they are launching and as the suppliers of course -- we are -- we hurted by this situation as well. And I thought that -- important to mention the shareholders and to the investors to understand the clear picture about the OEM and the potential of the OEM for us, specifically in Brazil, and specifically with these customers.

Thank you. And last one from me and I'll step out. Could you give us an update on the prospects for new OEM wins, is this was part of the rationale for acquiring Road Track, is that now more difficult in lights of the problems you're seeing?

Okay. First of all, it's a good question because it's important for me, maybe to use this stage to provide some more clear information about the acquisition of Road Track. When we acquired Road Track, don't forget that our 50% of the group of the business in Brazil and Argentina, we already had it -- it was a joint venture. So practically the damages that happened is something that we already assumed an expected -- is a full partner, full part of the Board of Directors of this joint venture. So this wasn't the first reason that we decided to acquire Road Truck, this was part of the reasons of how we know that, this was part of the reason that we know their business and we felt more confidence. But the main reason was, because if it run and wanted and still want to expand our business to other geographies, and try to create more and more places when we use platforms in order to start from scratch, this was the right horse to ride. The main market and the main business is now to create synergy mainly in Mexico to leverage the Ecuadorian in the Colombian market and of course we saw the Brazilian, Argentina business, -- it's a solid enough to make this acquisition. But we knew that the Brazilian customer is in a very bad shape. This -- one of the reason that we acquired Road Track for price which integrate this risk.So economic wise, even result of Brazilian, Argentina at all, from economic point of view, as an investor, this is a very, very good economic acquisition. From a strategic point of view, it gave us two things. One thing is platform to new markets, mainly Mexico and second, of course having more OEM capabilities, even if we of course as we faced -- nowadays declining in Brazil and Argentina, and don't forget that we have a different customer in Mexico, which we had some problems, not because of the customer situation, because of something objective which is because of something objective, which is changing of communication technology to 3G, but now we're back again to the horse, and in Mexico we are expecting that this will be a very good relationship, very good business and a very good segment which we more count on expanding the business with the customer in Mexico, then the one in Brazil, this is different car companies but those in Brazil is in a bad shape, so what can we do except -- except of maintaining this situation, but in Mexico, we also have an OEM, I would say lag, and this lag is running and I expect that we even expand this relationship to a better contract in Mexico. So, I hope I made it more clear regarding acquisition?

That helps a lot. Thank you.

The next question is from Abba Horwitz of Old School Partners. Please go ahead.

Hi, good afternoon. I was wondering if you could talk a little bit about the Road Track acquisition and the pluses of the acquisition, do you still feel that it was the right acquisition to make because of the Mexican arm and the various other arms or was it something that it would be been better not to do. I'm trying to understand if the return on investment here on the acquisition, whether it was a positive or negative for the company, or is this too early to know?

I think that they just gave a very long speech about this acquisition. I can repeat it so...

You don't have to repeat it. I'm just trying -- today, if we were to calculate the return on investment on that, would we be able to even do that?

Okay. So, practically it's very difficult for you, because we are fully consolidate those numbers from Q4 last year and we are not providing specific data about Road Track as a subsidiary. So it's integrated in our consolidated numbers. We try to give more details about segments, we tried to give more segments in more details and breakthrough between OEM and non-OEM, but this is -- we will not give you a full and clear view about Road Track numbers. But based on the transaction that we reported, which was September 2018, you can see what was the payment, you can see what was the historical pro forma numbers. Although the numbers decline, still the return on the investment is I think from again from an economic wise, it's even amazing. I mean if I have to take now money and I'm an investor and nothing about anything which is strategy because in strategy and synergy sometimes you can buy a company which has a lot of losses and in few years you convert it based on the synergy. If something that I'm surely believe that this is happening, but we also want a profitable business. So we could know exactly only without any synergy and any new businesses that we integrate what will be our return and this return based in the economy today in the world is a very good investments. I don't know or I don't want to get into details, because I'm not allowed, but the yield here is dramatically good, but this is not the main reason we acquired Road Track. This is something that give us secure or give us confidence that even if we will not succeed with the synergy, even if the OEM business will not grow, even if it decline, still the common profitability of Road Track as a stand-alone is a good business and is a good return on our investments.

Okay, thank you. The -- I guess what I want to understand here is, this is the third quarter that the company has missed numbers and clearly, I mean a lot of it has nothing to do with management. It's not in their control. But I want to understand is on a certain level one could say that Road Track decreased the visibility of the business, as the OEM side, and I'm wondering at what point do you feel will be Q4 that your visibility to meet the numbers or that are out there will become easier for you. I'm trying to understand, at which point will be next year, when you start to lap easier quarters or will already be now in Q4 with a lot of the, let's say problems that you've had to deal with are behind you.

Okay, so I started my speech today with that 2019 been a transition year for Ituran. Transition I think include many things, first of all it's include consolidating Road Track, second it include a year of executing synergy plans, synergies also gross expenses that we can save. But when you're talking about thousands of people as taking time to create the synergy. So -- and third, we had or we have in a company that have more than seven geographies with a full operation and offices and people and every small change little bit hurt your visibility and I can just mention two of them. One is what we faced in Mexico and it's happened in one day in February, around February, if I remember clearly, that we get notice that they want only 3G. So when you sell thousands of units per month and you base your budget on it and this thing happen, only next quarter or even the analyst come to know it and we missed the numbers it's when we talk about missing numbers we're talking in money, million dollar, million dollar in this situation [indiscernible] smaller than $1 million in the quarter, and this is something that's happening in a day. So of course this situation of OEM a little bit hurt our visibility, but since we believe that we overcome or we know we overcome the Mexican situation. We know that regard to Brazilian situation and I said it, we are not optimistic I am pessimistic. I think that the numbers will decline, but I said that since we learned it already, few quarters ago we are now do the right steps to cut -- I would say cut the declining or keeping margins. So I think that this is a transition -- and the transition here, we have less visibility. I think that compared to the analyst numbers we missed them I believe that we also in a transition period learn how to create the new visibility, let's say and I believe that we can be more visible, more clear data regard the next quarters.I'd say in Q4, we still, because of the situation in Brazil with the OEM. So maybe the visibility is a little bit not 100% also creating synergy they said, For example if you decide to have 100 people less in a specific Control Center. Sometimes you believe it will take you three months and then you have to pay, you have to arrange, you have to do it and it take four months and you skip one quarter and you then won't meet -- but not meet the expectation of the market, but this is exactly how transition period looks like. I really believe that we are in the end of it. And I believe that in 2020 we and the market will be with a much higher visibility and I hope or at least we do the best not to miss those numbers.

I appreciate that. Thank you for the color. I wanted to also know, will you become more aggressive with the share buyback down here? I believe it's $25 million you allocated for share buyback.

We got approval of the Board for $25 million until the end of 2020. We are already executed portion of it, we will execute in the future. Of course we will subject to the market conditions, subject to the cash flow of the company and I just want to make it clear, I don't know if we get to the 25 or less always in some moment we will need approval of more, but these days we are executing I would say every day.

Okay. And one final question, could you update us on the investments in your private portfolio.

Yes, I think that the most advanced investment is with the company that we hold, we are the largest shareholders, which is Bringg, we hold something like today after round C, that already executed a year ago, we hold about 23%. We have to understand two things, Bringg last round, which was less than a year ago was in market cap of $200 million. Just to remind people, we invested four years ago for $4 million, we hold at the beginning 50% and we are very satisfied first of all with this number. We expect that this number will continue to grow as this tech market with [indiscernible] involvement would allow Bringg to continue to the next round with a much larger market cap, we still currently, as I said have 24% probably we will dilute in the next round. The shareholders or the investors, except the other investors are Salesforce and the venture capital of Siemens, which they are also became major shareholders, not as the size as we. The others are the founders and this company is growing, they are always growing, but of course we are not consolidated, but since this kind of company and the SaaS business required a lot of resources, if you look on our financial only this quarter, we added about more than a $1 million, our part in their losses. So when, for example, we grow to missing the expectation of the EPS. This is something that now is growing, but this is not know it's not, -- it's not a cash influence it is because we own 24%, but the company need it in order to become I hope one day $1 billion company and one day I believe that we will -- we will enjoy coming. The other investments that we did are in a more early stages companies, all of them are in a good shape and they are continuing to use the proceeds that they raised in the last round. But there are still smaller compared to Bringg, of course when we have more data to report or something more material will happen. So we will do it.

All right, thank you very much.

You have a follow-up question from Sasha Karim of IPI. Please go ahead.

Just one follow-up. We haven't had much on the connected car front for a few quarters, could you give us an update there, please?

Yes the connected car includes many applications. Some of the application are allowing the dealers, mainly in Israel to support diagnostic, support exceed notification in the real-time when they want to tow the car to their garages. This is something that part of the growth of subscriber [indiscernible] one of the nice thing that we did in Israel, I think, and in the future will integrated, also in the other markets, is the all application, which are not pure and only SVR, we learned the SVR potential growth is good, but it's very integrated with the car sales and since we are having a very large market share and very mature market, the only SVR wouldn't allow us to continue grow the subscriber base in Israel. So the connectivity of the car, allowing us to offer other services, and this is the main growth of subscriber. The net subscribers today in Israel. In the other markets, we are using it mainly for fleet management less for consumer markets, but the, -- since we are operating, mainly in emerging markets, I believe, that gradually those markets also will be more mature to integrate those kind of services, but currently, it's only in Israel and this is the main source of growing subscribers in Israel and its include UBI, roadside assistance, accident notifications and also some multimedia and the diagnostic forecast. It's very and it's includes various of our customers, whether it's dealers, whether it's leasing companies, whether it's insurance companies, whether it's fleets or whether it's governmental and this is our main source of grossing [indiscernible].

Got it. Thank you.

[Operator Instructions] There are no further questions at this time. Before I ask Mr. Sheratzky to go ahead with his closing statement, I would like 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 your concluding statement.

Thank you. 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 will be presenting at the Needham Conference in January 2020 and we hope to see some of you there. I look forward to speaking with you next quarter. Have a good day. Thank you.

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