Ladies and gentlemen, thank you for standing by. Welcome to the Ituran's Fourth Quarter and Full-year 2018 Results Conference Call. All participants are present in a listen-only mode. Following the 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. Kenny Green of GK Investor Relations. Mr.

Green, would you like to begin?.

Yes, thank you operator. Good day to all of you and welcome to Ituran's conference call to discuss the fourth quarter and full year 2018 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 short 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 the Safe Harbor statements in today’s press release, also covers the contents of this conference call.

And now, Eyal, would you please like to begin?.

Thank you, Kenny. I would like to welcome all of you and thank you for joining us today. 2018 has been a good year for Ituran from both a strategic and financial perspective. We are very pleased with our overall performance and following the Road Track acquisition we ended the year as a much larger scale company with broad capabilities.

We now have a significant footprint across Latin America with many growth opportunities ahead of us.

From the financial perspective, as has been the case throughout 2018, the weakness in the Brazilian real in particular in the earlier half of the year, as well as Argentina and Brazil had a very significant impact on the translation from local currencies in which we operate to U.S. dollars which is our reporting currency.

Despite the currency impact, we are pleased with our performance with revenues of over a quarter of a billion dollars growing 20% in local currencies, adjusted EBITDA of $79 million and net income of $65 million. A contributing factor this year to our net profit was our share in affiliates.

This was primarily due to the capital gain from our investment in Bringg. It represents the yearly fruit of success from our investment in companies which are building tomorrow's disruptive [ph] mobility technologies and solutions.

To date, we have invested several very promising early stage mobility technology companies of which Bringg is at the most advanced stage. Each of them has a strong potential to become a future industry leader. My role is that Ituran will be at the forefront of technological advancement in an ever changing and fast developing mobility market.

The fourth quarter is the first full quarter in which we consolidated the result of our recent acquisition Road Track.

We now have close to 1.8 million subscribers, while our subscribers last year were predominantly in Israel and Brazil with a small portion in Argentina and the U.S., we now also have subscribers throughout Latin America including Ecuador, Mexico, and Colombia.

While our business growth traditionally was driven by the net increase in the subscriber base in the aftermarket, today there are two legs driving our growth.

One remains the traditional aftermarket subscriber adds in Israel and Brazil, this is now the other leg which is working with our existing OEM partners and adding additional OEMs in the aftermarket in both new as well as existing geographies.

We now have a much stronger platform to penetrate additional car manufacturer OEMs beyond the two that we are already working with. Furthermore, there are strong synergies that will enable us to grow our business by cross selling our capabilities through growth of contact and vice versa. We have a foothold to penetrate service into new countries.

We are already looking to launch additional services in our new geographies. In summary, we are pleased with our performance in 2018 and with integration of Road Track and we look forward to harvesting the foundation we laid out into continued growth in 2019 and beyond. I will now hand the call over to Eli Kamer for the financial review.

Eli?.

Thanks Eyal. I note that [indiscernible] 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. Revenues for the fourth quarter of 2018 were $79.2 million, representing an increase of 31% compared with revenues of $60.6 million in the fourth quarter of 2017.

In local currency terms, fourth quarter revenues grew 39% year-over-year. Revenue breakdown for the quarter was $55 million coming from subscription fees a 24% year-over-year increase. In local currency terms, subscription fees grew 53% over the same period last year.

Product revenues were $24.1 million which were a 50% increase over the same quarter last year. The geographic breakdown of revenues in the fourth quarter was as follows; Israel 32%, Brazil 36%, and rest of the world 30%.

Non-GAAP operating profit for the fourth quarter of 2018 was $18.9 million an increase of 29% compared with an operating profit of $14.7 million in the fourth quarter of 2017. In local currency terms this grew 41% year-over-year.

Adjusted EBITDA for the quarter was $25.2 million an increase of 38% compared to an EBITDA of $18.2 million in the fourth quarter of 2017. In local currency terms the increase was 50% year-over-year. Share in affiliates mix during the quarter was an income of $4.2 million versus an income of $3 million in the same quarter of last year.

In each respected quarter, the majority of this income was due to a capital gain. Non-GAAP net profit was $15.8 million in the quarter or fully diluted EPS of $0.74 a growth of 61% year-over-year compared with a net profit of $9.8 million or fully diluted EPS of $0.47 in the fourth quarter of 2017.

In local currency terms the year-over-year increase was 73%. Cash flow from operations during the quarter was $18.5 million. In terms of our full year 2018 numbers revenues for 2018 were $253.3 an increase of 8% compared with revenue of $234.6 million in 2017. In local currency terms, revenue increased by 20% year-over-year.

Revenue breakdown for the year was $181.4 million coming from subscription fees up 7% year-over-year. In local currency terms subscription revenues increased by 23% over those of last year. Product revenues were $72 million up 11% year-over-year.

Non-GAAP operating profit for 2018 was $63.3 million up 12% compared with an operating profit of $56.5 million in 2017. In local currency terms this grew 21% year-over-year. Adjusted EBITDA for the year was $79.2 million an increase of 13% compared to an EBITDA of $70.1 million in 2017. In local currency terms the increase was 23% year-over-year.

Share in affiliates net was an income of $8.1 million in 2018 compared with an income of $8.5 million last year. Non-GAAP net income in 2018 was $51.6 million or fully diluted earnings per share of $2.45. This is an increase of 18% compared with a net income in 2017 of 43.8 million or fully diluted earnings per share of $2.09.

In local currency terms, the net income grew 26%. Cash flow from operations for 2018 was $53.2 million. As of December 31, 2018 the company had cash including marketable securities of $53.3 million or $2.60 per share. Following the acquisition of Road Track, as of December 31, 2018 the company had debt of $73.2 million or $3.43 per share.

This is compared with cash including marketable securities of $40.4 million or $1.93 per share and zero debt as of December 31, 2017. For the fourth quarter, a dividend of $5 million was declared.

For the full year of 2018, the total dividend declared including debt of the fourth quarter of 2018 was $20 million representing 31% of the full year net income. The dividends record date is March 26, 2019 and the dividends will be paid on April 10, 2019 net of taxes and levies at the rate of 25%.

And with that, I'd like to open the call for the question-and-answer session.

Operator?.

Thank you. [Operator Instructions] The first question is from Sasha Karim of IPI. Please go ahead..

This business....

Please go ahead..

Hi guys, I think you didn’t catch my question. I’ll try and repeat.

How much of this services revenue in the fourth quarter came from Road Track versus Ituran’s existing services business?.

That breakdown since we are fully consolidated, the details now are not something that we are going to establish. We are actually providing the geographies breakdown for the numbers..

Okay, fine. Okay I'll ask you a different question later, but perhaps you can also just look at the services gross margin, it dipped in the fourth quarter even in non-GAAP terms following the consolidation of Road Track's services revenue.

Could you just explain why Road Track services business seems to be having a negative impact on the gross margin there?.

Basically, to date Ituran has two different segments. One segment is the aftermarket and second is the OEMs segments. This OEMs segments is carrying lower margins compared to the aftermarket.

So once we start to consolidate both segments, it has, I would say a one-time let's say drop of the margins and this is, should be the margins that we will probably will continue to show..

Got it and should I take it that there is actually a revenue share paid out to partners like General Motors there in your cost of goods sold or was there another reason for the gross margin to lower?.

No, because the price for – the prices and the cost for OEMs are different than for the aftermarket. It’s a different segment, which carry different prices and different costs..

Okay and also on the product gross margin in the fourth quarter, it was quite high, I’m guessing is probably mix is driving the volatility there, can you tell us which products are the highest and lowest gross margins and how we should think about mix going forward?.

We are not yet providing a disclosure of the gross margin between the mixture of products, but as you mentioned, you are right. The mixture of the products especially on the two segments brought us to a higher gross margin.

I want to remind you that comparing to the previous quarter that was the gross margin was quite low, we said that it’s supposed to be in the future a little bit higher..

And was Road Track having an impact there in the fourth quarter or was it – is it really just the mix that’s causing that spike in the third and fourth quarters?.

It’s mainly the mixture..

And can you give us a rough range to expect going forward, I imagine it will probably be quite a wide range?.

I believe that going forward that gross margin there of approximately 20% is something that makes sense to me..

Thank you..

The next question is from David Kelly of Jeffries. Please go ahead..

Good morning, thanks for taking my question.

I guess just the first one, could you talk about maybe some of the drivers of the subscriber base growth and obviously the Road Track being a primary contributor, but just any way to think about either a regional breakdown or some of the different metrics of, you know, how we should think about core Ituran versus Road Track contribution of the subscriber base?.

The OEM subscriber base is much more depends on the car market, the car industry I would say. The correlation which was a little bit lower when we talked or when we are talking on aftermarket Ituran has more a way to affect the market by using our tools by using more different marketing approaching different segments.

Sometimes it's work more, but sometimes less but still a lot of it's something that depends between us and the market. When we are talking about OEM we totally depend on the sales of cars from the specific car manufacturers that's working with us. So our visibility as well as our dependency is very, very high.

And since we know that the markets which we operate as OEM services which include Argentina, Brazil, and Mexico, less stable markets of course there will be some volatility which we less get used to in the aftermarket..

Okay great. Thanks. And as we think about 2019 opportunity, you mentioned the volatility in the OEM market and I think you know South America maybe as a region looks better than some of the other regional production outlooks this year.

Any way to think about potential contribution there? Do you think it will be a more or less volatile year in 2019, as we think about again that the OEM subscriber base?.

As I said we don't have full visibility. What we are assuming is that we will on the aftermarket we should expect the average numbers that we shown in the last years, in the OEM it's something that we believe or we hope that it will be stable.

But again, this is something that are more changing among the quarters along every year since we know these segments..

Okay, great. Thank you. And then last one from me is just that the jump in the share and affiliates contribution I believe that was from the capital gain from Bringg.

Could you just talk about the maybe opportunity or some of your investments what you see in 2019 as we think about share and affiliates should that continue to be a pretty significant jump year-over-year?.

Bringg as we said is in the most advanced stage and this led to very high valuation and very high amount of money we had to raise during their fund, the last fundraising round. The investors as we said are very major names in the software industry such as a Salesforce and Siemens venture capital.

And the other companies that we invested are indeed still in an earlier stage than Bringg. So we see how they are moving forward, but I'm assuming that during 2019, assuming because of course I don't know, that even if they will going to the next round it still will not be significant to Ituran results..

In addition just to remind that 2018 includes until the acquisition of Road Track the, in the share of affiliated the contribution of the JVs that we had in there that we have in Brazil and Argentina that in 2019 will be consolidated with the number..

Yes, sure great. I appreciate it. That's super helpful. Thanks for taking my questions..

Thank you..

The next question is from Ethan Etzioni of Etzioni Portfolio Management. Please go ahead..

Yes, thank you for taking my question. I wanted to ask, it appears that organically there is a significant drop when we take the numbers from Road Track and subtract them and compare them to the previous quarters.

Can you explain where that drop is coming from please?.

As you are right in U.S. dollars again it seems that the revenues are going down if you exclude with some assumptions, but the main effect, the main decrease relates to the FX. Without the FX in local currencies organically of course comparing to last year the revenues went up..

Okay.

On the previous call you said that year end '18 you're at a run rate of $400 million revenue, is there – is that still the approximate number or do you have an update for that figure?.

It wasn't the last call, it was during the PR of the acquisition of Road Track which was beginning of 2018 and everything that we'd publish was based on the numbers that we knew which was 2017 and based on the currency exchange rate that was in 2017, and of course when you are computing the differences with the currency exchange rate everything is the same place..

Okay.

So looking at the fourth quarter excluding of course the gain in the affiliates, it's pretty much represents a quarter of the current business with the current exchange rates, is that's fair to assume that that's what we should be looking for going forward?.

Absolutely yes. With the current as you mentioned and it's very important since our operation is based only on local currencies which are none of them is dollar, almost none of them is dollar, so assuming that this is the currency exchange rate that we will continue to live with, so it's absolutely right what you said..

Okay, thank you very much..

Thank you..

We have a followup question from Sasha Karim of IPI. Please go ahead..

Hi, just one followup. You weren't giving us the breakout I guess between Road Track and it's around existing services business. So, we're having to make some assumptions, but it seems to me like the Brazilian services business that you had prior to the acquisition is probably still declining slightly in constant currency organic terms.

And you've obviously been making some changes to that business, expecting a return to growth I think in 2019, can you give us an update on how those changes are going down and when you would expect decent growth to return to that business?.

We actually, most of what you described is right because of course we said it in the last two quarters because we changed the model working with our ICS Ituran [ph] Google which is needed to run let's say Ituran Insurance Program. Of course we changed the model. Since we changed the model it’s started to ramp up.

We are in a very, I would say a good rhythm of coming back to the numbers that we've shown in the past. It will take us a few more quarters to be in probably or hopefully in the highest numbers, but we are now in a positive trend of losing less subscribers and growing more..

Thank you..

[Operator Instructions] The next question is from [indiscernible] Ramanan [ph] a Private investor. Please go ahead..

Thank you. Yes, it's interesting to now see in fully transparent way the effects of Road Track and congratulations on that. My question is that I feel that the valuation is much slightly low compared to the kind of the transformational step that you have taken forward.

So have you considered maybe bringing this new Ituran to the investor knowledge in a better way and maybe for example regarding the capital which you are providing back to shareholders, so you have been doing only dividends. Have you made any quotes maybe starting doing some share repurchases in the future? Thank you..

From time-to-time the Board is considering issues regarding the equity of the business which is discussions regarding dividends, share purchasing program, the debt that we are using, et cetera, currently the situation stayed as continued with the dividend policy and continued to serve the net debt of the company..

Accepted, maybe an add-on. So I understand, but that you have incurred to purchase Road Track, but still you are now generating very healthy cash flow.

So what do you see that increasing the dividend in the future, I guess that might come into play during this year?.

Well, the company to do or discuss what is Ituran policy regards all these matters. We always need working capital. We always had our policy regard how the balance sheet is looks like. And I think that we tried to mix between the needs of the company and in the way to share the profits with the shareholders through dividends.

It's always a mixture between chances, risks, and needs and that's how we are operating and how our Board taking the decision. Of course we did from time-to-time every quarter..

Exactly, and maybe then a couple of operational questions.

You mentioned in the press release that you will see a lot of promising [indiscernible] for the revenue side of finances [ph], could you maybe provide us with any number like ballpark figure say 10% additional sales in two years or something like that? And then also how then on the cost side, I think the business is very scalable, but you are now combining two different businesses and they have been operating slightly in different geographies, so do you see a lot of [indiscernible] sales on the plus side?.

I don't know what is the meaning of a lot, but of course we are doing our best to leverage this acquisition by creating synergy and creating efficiency and we already started to do it and we find that we can contribute to the profitability of the group today.

From a cross-selling of course again some of the regions we're especially focused on aftermarket and we will try or we are trying to do our best to entering OEM or other OEMs in those geographies. On the other end geographies that was very focused on OEMs has a platform to offer services and solutions also to the aftermarket.

This is something that we will try to create, but it's not something that happened from day 1 to 2. It will take time and we believe that the move and the things that we will do will contribute in the future to this solution or to these results of the cross-selling. We started with this, but it will take time of course..

Exactly. And maybe one further question then. I understand that the management time has been well spent on the South America, but in the past you have also mentioned that you have been doing some progress in India.

So, maybe if you can provide any update on that?.

You're right, we are counting on India for the longer terms. I will repeat and will mention that we have a joint venture as we started in the past with Brazil and Argentina and now we have a joint venture 50-50% with Lumax a local big and respective OEM integrator.

We are now in a phase of building the infrastructure and creating the business and answering bids which will lead to opening new market and new segments in the markets, which is a very premature in the telematics industry.

We actually have to create market education and we spent many hours and we spent resources which are not significant now, but I believe that as long as we will move on with sales or with deals we will increase this platform, this business and we see very positive reaction.

We believe that we have a good reason to be optimistic, but again this is a longer term market. When we entered the Brazilian market in the late '90s we started reaping the profit fruits only after five or six years.

I hope that it will be here earlier, but we are talking about market which is significantly larger than the Brazilian and now it's in a phase, India is in the phase of becoming from emerging markets to more industrial market.

More people are transferring from rural areas to the municipal areas and it gives us the confidence that in the future we should do our best to be the dominant of the telematics market in India..

Exactly, let's hope that it goes faster. Maybe one question which I think that hasn’t been discussed in any calls if I may.

So the electric cars are really growing fast from a low base, but growing fast and for example as far as we all know and kind of that's for example it's a bit different Tesla [ph] for example is a bit different kind of car compared to what's the older gasoline and so hybrid.

So who do you see that transformation into electric vehicles and what kind of opportunities does it present for Ituran? Is it for example, could it be easier to install your software in electric vehicles and also do you see anything like is the role for new entrants or so on due to easier access maybe in electric cars?.

The way the engine is working has no influence on the services and even the hardware that Ituran is providing whether it's electric car or whether it’s a car based on regular engine with fuel. So we don't see any threats.

On the other end we can think and that's what we do about having more things or more sensors that we can be involved with telematics and this is an upside and not a downside by for example managing energy for cars whether we're talking in fleets, whether we're talking about groups of cars, et cetera.

But generally speaking there is no difference for telematics services whether it's in the fuel engine or is it's electric..

Yes it's exactly looking after that kind of [indiscernible] they are in a way smart car compared to what maybe a gasoline care have been, so there's lot of more monitoring and different sensors and so on as we mentioned. So I'm glad to hear that you also looking at it. I guess I'll let others ask questions also. Thank you..

Thank you..

[Operator Instructions] The next question is from Daniel Topaz of Alfa LTI. Please go ahead..

Hi, thanks for taking the question. One simple question about future margins, obviously the Road Track acquisition brought operational net margins down.

Would you expect future margins to improve as you bring Road Track closer to Ituran's older margins or current margin levels will be the steady-state margin from your perspective?.

I would consider our fourth quarter results as the right margins to consider. Yes, current margins should be the representing margins that we should show..

Okay, thanks..

Welcome..

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

Yes, I would like to thank all Ituran’s employees including our new employees for their hard work and effort in 2018. 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. I look forward to speaking with you next quarter. Have a good day..

Thank you and this concludes the Ituran’s Fourth Quarter 2018 Results Conference Call. Thank you for your participation. You may go ahead and disconnect..