MICT, Inc. (MICT) on Q2 2021 Results - Earnings Call Transcript
Operator: Ladies and gentlemen, thank you for standing by. Good morning and welcome to the MICT Second Quarter 2021 Financial Results and Corporate Update Conference Call. Participants of this call are advised that the audio of this conference is being broadcast live over the Internet and 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 November 16, 2021. I’d now like to turn the call over to Mr. Scott Gordon, President of CoreIR, the Company’s Investor Relations firm. Please go ahead, sir.
Scott Gordon: Thank you, operator. Good morning everyone and thank you for joining us for the MICT second 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 for MICT. 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 MICT’s most recently filed annual reports on Form 10-K and quarterly report on Form 10-Q and Form 8-K filed with the SEC today and MICT’s press release that accompanies this call, particularly precautionary statements in it. The content of this call contains time-sensitive information that is accurate only as of today August 16, 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 to ahead.
Darren Mercer: Thank you, Scott and thank you all for joining us on the call and the webcast today. Good morning to everybody. If I can now turn your attention to Slide 3. We are very pleased to report that for the second consecutive quarter we have achieved record revenues for the company with second quarter revenue up 38% over the first quarter of 2021. This is due to the success of our insurance business in which we achieved a 50% increase quarter-over-quarter with Q2 revenues of $12.3 million compared to $8.2 million in Q1 of 2021. This increase was driven by our strong growth in the B2B insurance product market. In February, we completed the acquisition of Magpie Securities, providing us with the required licenses and permits to operate an online platform, which enables us to offer stock trading on major stock exchanges in Hong Kong and the United States and China. This represents a large opportunity in a sector which is experiencing very rapid growth. We are in our final stages of testing our stock trading platform through the soft launch, as we now prepare for its official launch, which is currently scheduled for mid-September. In the first quarter, we also entered into an exclusive partnership with Shanghai Petroleum and Natural Gas Trading Center, which enables us to offer oil and gas trading with clients of our partners, representing approximately 20% of China’s oil and gas trade. We are currently building out this trading platform and expect to launch by the end of September. Additionally in the second quarter, as a result of an offering by Micronet, our stake in Micronet was reduced to approximately 37%, so Micronet’s financial statements will no longer be consolidated within MICT. Importantly, on May 27 MICT was added to the MSCI USA Micro Cap Index. We believe this addition will enhance liquidity of our stock as well as increase its visibility. Finally, we have very strong balance sheet with $114 million in cash as of June 30, 2021. This will provide us with the ability to execute our plan and support both our organic and inorganic growth. Next slide please, Slide 4. We have made significant progress during the past quarter. We grew our insurance brokerage business by 50% over Q1, as a result of the acquisition of the nationwide insurance license throughout China. We’re particularly excited about this accomplishment, which is we believe it is maybe the beginning of the successful operation of our insurance business. This revenue ramp up has been as a result as strictly B2B sale in working with affiliate brokers to offer packages to professionals. As we’ll discuss shortly, we are now preparing to ramp up that business into more B2B2C products that we aim to distribute through a number of online channels followed by direct B2C products. Many of which are both custom designed and of significantly higher margin compared to our current B2B offering. The groundwork we’re laying by attracting large multiples of underlying insurees provides a strong and considerable platform for what we anticipate to be both repeat insurance business and new insurance instrument sales at much higher margins as we start to migrate from B2B to B2C focus. In addition, we have made significant progress in preparing and testing Magpie, our stock trading app in preparation for its upcoming anticipated launch in the middle of September, followed by the launch of a commodities trading platform expected to launch by the end of September. The initial focus for this segment will be the oil and gas markets. As we just mentioned, our Micronet stake was reduced to approximately 37% resulting in the elimination of this entity from being consolidated into our P&L. With Micronet removed from our consolidated income statement, we will now be able to provide investors a clear view of our core segments, enabling them to more clearly monitor our progress. Finally, and perhaps most significantly, we have, following several offerings, amassed significant cash resulting in $114 million on our balance sheet as of June 30. This strong cash position has multiple advantages throughout our business segments, including the build-out of our new businesses, while also providing significant runway to support the earlier discussed growth of both of our trading segments. If I can now turn your attention to Slide 5. As we previously discussed, we launched our insurance business in late December of last year, achieving revenue even in the short weeks, following that initial launch. In our first full quarter of operations in Q1 we generated $8.2 million in this segment and then in Q2, we grew revenue in this segment by 50% sequentially to $12.3 million. The nationwide license that we acquired enabled us to serve a full range of insurance products throughout China, providing a massive opportunity for us to grow this segment. For the penetration rate of only 4.4% in the China insurance market, the market is still in its very early stages, providing us with a significant opportunity to build this business. Now we are in the process of being able to expand on that progress even further by obtaining the local licenses necessary to significantly expand our network of brokers on our system, allowing more localized and specialized insurance products by region and supported by being able to offer more insurance company products and by growing that business onto a wider opportunity for our higher margin B2B2C business, and eventually moving to an even higher margin B2C products offerings. We believe our business will not only grow from a rapidly growing market, which is growing at a CAG of over 40%, but also from our ability to cross sell our products through our B2B relationships. The 50% growth that we had over the first quarter is just the very beginning of a long tail of growth that we expect to generate in the second. We are also currently exploring relationship with additional online platform, with the intention to significantly expand our user base, providing additional access to direct customers, ultimately facilitating the emergence of the B2C platform that would then allow us to access networks of customers directly. We believe this will be a significant driver towards the selling of these bespoke and higher margin B2C offerings. I look forward to providing updates on progress in this area. If I can now turn your attention to Slide 6, please. The second quarter has also been very productive with regards to our stock trading business, specifically our Magpie trading app, which is in the final stages of testing, having commenced a soft launch of the product in early Q3, and now has a scheduled full launch in late September. We are particularly excited about our upcoming launch. I believe that our offering will be amongst the best in the marketplace. Our license from the Hong Kong SFC one of the premier exchanges in the world will drive the confidence and trust between the provider and customer driving strong customer acquisition. In addition, we believe Magpie to be very competitive with current offerings and will often improve features in a number of areas compared to the current offerings in the marketplace. Our strong balance sheet with approximately $114 million in cash provides the ability to offer significant margin finance capability, which carries extremely high margins. Finally, we have access to a large and growing database that will provide the ability to target a wide customer base. I can now turn your attention to Slide 7, please. Our commodity trading business, which rounds out our fintech offerings in China and Southeast Asia provides a significant opportunity. Through our relationship with Shanghai Petroleum and Natural Gas Trading Center, we have direct access to that customers, it will account for approximately 20% China’s oil and gas trading. Our offering in this segment will provide trade execution, margin financing, and trade clearing capabilities. Our large cash balance will enable us to provide highly profitable margin financing with these customers. We are prudently working on fine tuning the team and expect our initial launch by the end of September, I may expect to see continued growth of this division throughout Q4, as we regularly onboard new clients to use the platform throughout 2021 and into next year. I’d like now to take a moment to discuss the Micronet business and the changes in how we report it since the last year. So if you could please turn to Slide 8. Given our new focus on the FinTech market, Micronet has become a non-core business. In the second quarter, as a result of the Micronet offering, our ownership was reduced from approximately 50.3% in Q1, so approximately 37% in Q2. As a result of this change, this business is no longer consolidates into our P&L, but it counts for as a one-off below the line gain or loss attributable to non-controlling interest. With Micronet, no longer being consolidated within our P&L, our investors will be able to clearly see the performance of our FinTech segments, increasing transparency within that financial. As of Q2 and beyond, Micronet will be accounted for using the equity method of a long-term investment. The value addition as of June 30 was $965,000. If I can now turn your attention to Slide 9 please, you can see the first half of 2020 walls has been extremely busy and successful, and we have achieved record revenues quarter-over-quarter. And while we have made significant progress since the beginning of 2021, much of the work is just the beginning of laying the foundation for success, while still weeping in benefits along the way. We have put our Chinese national licenses in place particularly for our insurances and stock trading businesses, develop these trading platforms and solidified multiple partnerships that’s are now poised to drive dramatic growth in the coming years. Now that many of these resources are firmly in place, we are extremely excited for the potential successes we anticipate in the second half of the year. For example, having launched our insurance business and secured our Chinese national licensing to set up a strong B2B product offering. We have secured significantly more localized Chinese licensing during the Q3, and developed partnerships and alliances to allow for more penetration into the higher margin B2B2C marketplace. Ultimately, we expect great relationships with additional online platforms to more directly reach the B2C market, offering the highest margin insurance offerings, including the potential offering of health insurance products. Similarly, we created the infrastructure for our Magpie offering during the first half of the year, including securing all the required Chinese regulatory approvals needed to offer security trading on all the major exchanges in Hong Kong, U.S. and China. With those licenses in hand, we have been working nonstop on the development of the Magpie trading app, which upon its anticipated full launch in mid-September, we’ll make a significant contribution to revenues in the second half. Finally, from the commodity trading perspective, all of the necessary pieces to create a successful enterprise are in place, including partnering with Shanghai Petroleum and Natural Gas, these clients accounts for 20% of China’s oil and gas trade, which now has direct connectivity to the Shandong Commodities trading platform. All over in our diligence assets, building this platform we are expecting to launch by the end of September, shortly, following the Magpie launch and securely placing MICT at the forefront of the financial technology offerings in the Asian marketplace. I continue to be both enthusiastic and optimistic about our business. Our quarter-over-quarter during 2021, we have seen exponential growth even as we are just getting started. Given that we are merely in the beginning of each of these offerings and the feedback we’ve already received has been tremendous. I believe there is reason for optimism that perhaps towards the end of 2021 celebration. I would now like to turn the call over to Moran Amran for financial review of the quarter. Moran?
Moran Amran: Thank you, Darren. Revenue in the second quarter was $12.3 million versus $8.9 million in the third quarter, an increase of 38%, adjusted for $726,000 in the first quarter, which was from consolidated Micronet. Growth was 50% firmly from ramp in the insurance division, which was launched in late December. Gross profit in the second quarter was $0.7 million versus $1.9 million in the first quarter, the declining was profit from the prior quarter was a result of an increase in incentive use to address critical mass of new insurance brokerage and our customers, as well as seasonal reduction in insurance company rates. Margins are expected to cover in the third quarter and beyond. R&D expense in the second quarter was $388,000 versus $231,000 in the prior quarter. Selling and marketing expense in the second quarter was $1.3 million versus $1 million in the first quarter. General and administrative expense in the second quarter was $14.9 million versus $4.6 million in the first quarter, the increase in G&A versus the prior quarter was driving by non-cash issuance cost of shares and option to Director, Officer and Employees of approximately $8.8 million. The operating loss in the second quarter was $16.6 million versus a loss of $4.8 million in the first quarter. Excluding the $8.8 million of stocks and option based compensation, adjusted operating loss was only $7.8 million. Net loss attributed to MICT in the second quarter was $18.4 million versus $4.5 million in the first quarter. The increase in the operating loss and the net loss was the result of high operating expense associated with the company launched into the China FinTech market. Slide 11, please. We have made significant improvement to our balance sheet in 2021, after executing a couple of capital raising, as a result, our cash balance increased $140 million, up from $29 million at the year end. Back to you, Darren.
Darren Mercer: Thank you, Moran. As I hope you can clearly see, we have already made exceptional progress during the first half of 2021. And then MICT is now well positioned to see significant impact from the emerging Chinese FinTech market. Our insurance business already a significant revenue is poised for expansion beyond our original B2B services, and then to emerging B2B2C and B2C offering that includes both tailored products based on market, but also health insurance and other high margin in demand product. We anticipate the launch of a well-planned innovative stock trading platform driven by a targeted marketing strategy and our already significant investments in our software development, acquisition of Magpie and our highly experienced management team. We also expect to launch our commodities and futures trading platform shortly thereafter, which is supported for our unique relationship with a major player in the Chinese oil and gas industry. We have an extremely strong balance sheet with $114 million in cash, which will enable us to execute on our growth strategy, providing both the insurance division and stock trading division, significant resources, to support their current respective growth plan and support margin trading that will result in larger profit opportunities. We are just getting started and we could not be more excited about the future of MICT. We thank you for your continued support and we look forward to sharing our progress with you as it develops. I will now turn the call over to Scott Gordon for our Q&A session.
A - Scott Gordon: Thank you, Darren. The company received many questions from investors for today’s call and we thank them for their interest, feedback and continued support of shareholders. Many of these questions were repetitive. And so on today’s call, we will be addressing the most frequently asked questions. Additionally, the company has received a number of questions that are seeking information about things not disclosed by the company or our forward-looking as well as a number of questions regarding share price fluctuations and the trading activity of its shares. As a matter of policy and regulatory compliance, the company does not offer interim operational or financial update, forward-looking guidance or capital market strategies or comments on the performance of its shares in the market. With that, the first question is, one of your valuable assets is the cash on your balance sheet. What is the latest position on cash burn and why did you apply for such a large shelf registration in May?
Darren Mercer: Okay. Well, I think as you can see from the movements in our cash position, actually in 31 of March of this year and the 30 of June. Bearing in mind that we’ve funded considerable development costs across all three of our FinTech verticals, especially as we near the launch of both the Magpie stock trading app and our commodity trading platform, our operation cash burn is pretty small. As you’ve seen from the presentation and from the announcements today, we still have $114 million in cash on the balance sheet. With regards to the shelf registration statement, this is denominated in monetary terms and in line with best practice, we felt it was important to ensure that we have sufficient as we moving forward.
Scott Gordon: Thank you. Our next question, your growth in insurance revenues has been impressive again in Q2. Do you have an approximate split of the revenue between the main categories of insurance product and is all the Q2 revenue from B2B sales?
Darren Mercer: Yes. Good question. I should expect, we offer a full range of the most popular forms of insurance policy car, health, life, property, and so on. As far as the split of that for these numbers, I’m not sure I feel it’s appropriate to go into that today. What I can say though, is that our strategy has been ultimately to get access to as many underlying insuree through brokers as possible, with two particular aims in mind. The first is to ultimately migrate those insurees from the B2B to the B2C model which will have a significant positive impact on our margins. And secondly, to offer more profitable insurance products, higher margin products, in China right now, there’s a huge search currently ongoing in, towards medical and life insurance, both of which are for exception in our profit margins. And we clearly want to be a very major operator in this particular area of insurance. What I can also tell you is that we are seeing a significant rise in the number of underlying insurees on our platform, and we believe this will continue well into the second half, but that we do have one eye on executing stage two, and we’re confident we’ll evidence some shifts in the second half of this year.
Scott Gordon: Thank you. I know from the results that gross margins were lower in Q2 2021 compared to Q1 2021, what is the reason for this? And will it be a continuing trend?
Darren Mercer: Yes, as you can see our gross margin was down in Q2 and there are a couple of very good reasons for that. The first is very much in line with my explanation of our overall strategy, which involves assigning as many new underlying insure through the brokers onto our platform in a short space of time as possible. And we have done that by offering certain incentives, which is we had considerable impact on the margin in Q2. And secondly, added to that, there is seasonality in the marketplace. And this particular time of year, the rates of number of insurance providers are reduced and that some of this reduction we’ve had to also to ourselves. But what I can say, and I’m pleased to say is, we expect the margins in Q3 and Q4 to have maximum.
Scott Gordon: Thank you. What other areas of insurance do you intend to launch over the next 12 months?
Darren Mercer: I think as I said in a couple of answers ago, I think I pretty much covered them. But it is worth emphasizing however, the larger we grow our customer base insurees that the better position we are to expand our product base and also to move into more specialized niche, higher margin insurance products, which is a key part of our growth strategy. And it’s something that we believe we are executing against rather well.
Scott Gordon: Thank you. When do you expect to launch B2B2C and B2B sales in your insurance business? And do you expect this to have a material impact on acceleration and growth?
Darren Mercer: Yes, as I said in the presentation a few minutes ago, this really is a key focus for us and we hope to be able to move this forward in the B2B2C arena in the very near future. We all being very target specific as to which online channels we want to work with who will keep shareholders clearly fully up to speed with our progress in that particular arena. Additionally, it should be noted there that we support both the B2B and the B2B2C channels. You do need a very broad licensing base to help explain that a bit more. On the one hand, it’s great that we have the nationwide brokerage internet license, which enables it to sell online anywhere in the country, which is usually important, but we also need to be able to process that particular business that we went in the province where it originates. And so that end, I can say, we’ve made a very significant progress already in Q3 in extending those provincial licenses considerably.
Scott Gordon: Your Magpie launch appears to be slightly behind schedule. What is the reason for this? And when is the launch now scheduled for?
Darren Mercer: Okay. Yes, I suppose you could – I think it is fair, I suppose to say it’s taken us a little longer to get the points of a full range then that we could hope for, but by much of a very small number of weeks, but what will the shareholders I think to understand amortize critically important, is important this particular part of the business, this particular vertical is to show the value. And so we went into software and surely in Q3, we said we would. As a result of which we have undergone very extensive testing and what that’s enabled us to do is to improve the functionality of the app is able to add a number of enhances, which we think will add to the user experience. It’s very definitely ensured that we will have a very robust product launch. And I think overall the feeling from the taxes, it went out for providing a very favorable customer user experience particularly, when compared with other apps that are out there. But if we want the shareholders to understand that all from our in-house development, we do run a number of data feeds from companies outside of our control. And so to some extent, we all be holding upon that timetable in turning around any bug fixes or changes on feeds and that can have an overall knock on effect to the development timeframe. But again, I must reiterate too, such as the importance of this app to the company that I would never want to take any risks in terms of launching before we’re completely ready. We are happy that all the necessary testing has been completed.
Scott Gordon: Thank you. Would you say that the testing of Magpie has been a success and what has the feedback been like have any of the trial users compared Magpie to FUTU, UP Fintech, WeBull and even Robinhood?
Darren Mercer: Okay. For the benefits to those who don’t know UP Fintech is called – it’s actually Tiger just to note that. Two parts to my answer really, first I have already dealt with in previous answer, the previous question around importance of testing, and secondly, yes, it is correct that the majority of not all of the testers that we have been using have always used or have used, certainly at least one, if not more of the other apps that were mentioned in the question. We are now increasingly confident of launching a very good app in the middle of September and the plans for further technical development and improvements only at later this year and into next year, are also providing a very exciting movement.
Scott Gordon: Thank you. How do you intend to acquire new users into market Magpie, so that you can penetrate the market quickly and effectively?
Darren Mercer: As you would expect, we have a very targeted marketing plan with all the required data analytical tools which are necessary for successful customer acquisition in this market place, we have brought on leading data analysts, both in-house and through external partnership and we believe that are marketing plan is very exciting, and clearly we will keep shareholders updated on progress as we continue. I’m not really prepared to go into too much granularity about what those particular plans are, because throughout our competitors found out what we were doing once we’d launched, problem is ahead of that I think it makes complete sense.
Scott Gordon: Thank you. What is the latest update on the commodity trading and futures business, and what is the current position on a launch date?
Darren Mercer: Yes, we’re very much on track to launch our platform for the end of September. And it anticipate this will be shortly after the launch of the Magpie App. I hope people understand from the presentation, the Shanghai Oil and Gas Trade Center is responsible for at least 20% of all oil and gas trades in China. Their association has an excessive 2,500 members, including companies, super huge oil and gas companies through to city and provincial government departments – oil and gas requirements through to a host of medium sized corporations involved in the industry. We are hoping to act as a broker for a few hundred of those members. How do we monetize that the Shanghai Trade Centers connected with the Shandong Commodity Exchange and we’re converting business from what has historically been more of a sales and purchase platform onto an exchange that offers the potential for multiple transactions around the same tray benefits the underlying customer and the market are obviously examples, facilitating hedging protections against ForEx risk and better management of market volatility. Our plan is to start, as I said, at the end of September, and we will increase off the numbers of customers that we bring onto the platform on a monthly basis throughout Q4 and into 2022. And it’s something we’re particularly excited about.
Scott Gordon: Thank you. There is a lot of talk in the press and on financial websites at the moment about the Chinese Government clamping down on certain business sectors, including on technology. It is my understanding that both the insurance sector and the financial services sector are already highly regulated in China. Do you feel that this significantly reduces the risk of government intervention in the future? Would you say that the recent and expected future actions of the Chinese Government will ultimately help MICT or do you see it as a major risk?
Darren Mercer: It’s a good question and it’s a very fair question, I think given a lot of the press country we’ve seen around this last small number of weeks, look, there are many opinions on this, some more qualified than others. I’m not sure where it would rank amongst those but I’ll give it a bash. I think in my humble opinion, a number of Western journalists and commentators, perhaps to overwrite the zealousness of the Chinese government and the introduction of regulation in a number of industries in recent headlines. So I’m going to be captain most to listen to political statements. But what I think I would say, sure, is if you look at China as an economy, it’s a brand new economy, civil code isn’t 40 years old yet. And so it has a lot of catching up to do and at this catching up and as these businesses, particularly in the online mobile space or growing at a rate of knots that that ever seen until recent time. Clearly, the one area that they have liked in mind is regulating those particular industries. And I think what we’re witnessing now, a lot of that is putting a regulatory framework, protect the underlying customers and ensure fairness of operation and fairness play, around those new verticals and then candidly speaking, a lot of the regulations they’re putting in place all no different than what we see in the United States and in Europe. So yes, let’s do that. Let’s move on to the question of how it really impacts us. Magpie is currently licensed by the Hong Kong SFC without doubt a premiere international stock exchange decades of good standing, a robust regulatory framework that matches any exchange anywhere in the world. Insurance, first we were very observant, all the requirements in China. Secondly, we have to answer this is already a very heavily regulated financial services sector. And what is trading again? You work within the framework adhering what to do with permits and there are strong regulations around that. So I can never guarantee that there will be no changes that would adversely impact any of them or the divisions in which we operate because that’s something well above my pay grade. But I do take comfort in that the three areas in which we are operating have a long standing history of strong regulation and a robust regulatory framework in which to operate.
Scott Gordon: Thank you. Do you expect to make any further acquisitions across to any of the fintech verticals or perhaps in a new complimentary fintech vertical in the foreseeable future?
Darren Mercer: Well, I’m not sure how that question showed up, something I wouldn’t be allowed to answer. And I’m not really going to answer it except to say that if there was never ever an opportunity brought to us that would enhance shareholder value and clearly we’d have to give it full consideration. And I think that’s all I could possibly say to that question.
Scott Gordon: You clearly have a very valuable financial services and securities license in Hong Kong. Do you intend to apply for licenses in any other jurisdictions?
Darren Mercer: Yes, I think in line with the people we see as our key competitors, we too are looking at other areas of the world, where we can introduce our app and rollout to our offering. And we all looking at the required licensing regimes in each of those jurisdictions. And there are certain areas already in the consideration. And the most important thing for us though right now is to ensure we complete the full launch of the app by the middle of September and start that business rolling.
Scott Gordon: Bearing in mind how much development and testing you have undertaken on Magpie, which appears to have taken a little longer to complete than you originally expected. Do you still believe you made the right decision to build your own platform and technology rather than white labeling a third-party solution?
Darren Mercer: Unquestionably, unquestionably I believe is the right thing to do to build our own. It benefits the shareholders and shareholder value, it significantly out ways the old services. It provides us flexibility on the product we want to offer, and I hope our shareholders will realize the distinction between our app and another of our competitors when they see it in action in a small number of weeks. And secondly, not having to share significant parts of our margin with a white label provider, clearly beneficial. Thirdly, providing our own margin finance will be setting the whole with that margin without having to share again, increases the profitability of the app by building it ourselves. And also, I think there’s one was always overlooked. I think I mentioned this last time, only all of the data relating to all the customers on that app 100% is very important. And that’s something clearly when you share with others, then someone who owns it or not. I think the value of owning our own proprietary platform is considerable and significantly outweighs the costs of additional time involved in getting this to our own state by the middle of September.
Scott Gordon: Thank you. With your stake in Micronet reduced to 37% and you no longer having to consolidate its numbers into MICT. What is your strategy for your investment in Micronet and why did you choose not to keep majority control?
Darren Mercer: That’s a fair question. Let me deal with the second part of your question first. We were given the opportunity to invest into Micronet’s recent fundraising, which our Board respectfully declined. Given the operations of Micronet really, I no longer call to the direction the rest of the group’s businesses are going. I think the Board felt it was more appropriate to ensure that the considerable resources we have on the balance sheet, most notably the cash were best invested in the core businesses in the fintech arena, which we are concentrating on rather than it’s a Micronet itself. Nevertheless, we still remain a very large shareholder with 35% or better passive shareholder these days in Micronet. And as I said, it was no reflection or decision not to invest, there is not a reflection on Micronet and its management team, maybe a decision of allocation of results within the group. I really wish Micronet all the success in the feature and hope that as 37% shareholder they can achieve the goals that they’ve set out themselves.
Scott Gordon: Last question, the company’s share price performance has been disappointing since your first post merger placing in November. There’s concern that this placing and the subsequent to have seriously damaged shareholder value. Are you able to address this concern?
Darren Mercer: Yes. It seems I to have to address this point at every meeting. Look, less than what we’ve done as a management team since November, we created and launched new insurance platform that generated significant revenues this strong quarter-on-quarter growth. We secured a nationwide instant license, which enables us now sell product B2B2C and a B2C basis. We’re supporting that with a broad range of local provincial licenses and ensure we can process that business. We’ve built a proprietary software platform for both the B2B market and the B2B2C and the B2C that requires investment and requires really quite working capital to support the business. We needed the fundraising just to support that business. Magpie itself, we acquired the Hong Kong SFC license in February of this year. We built our own proprietary software, which you’ll see, I hope in the middle of September, competes with everybody else. And we provided a platform that enables us now to make the same offerings on products with margin finance and IPO finance, but without the fundraising, we couldn’t have done. Commodities platform, we have won that contract, if we could not demonstrate it? So a very important Chinese partners that we had a balance sheet or we’re to get the balance sheet that could deliver and support the products, which is a very exciting opportunity for us. I think on the country, I would argue that the fundraising that we have done about it significantly with the results impact of insurance business, the business we’re about to launch in the middle of September in Magpie, and the commodity trading platform at the end of September. I think the opposite the reality. Thank you.
Scott Gordon: Thank you, Darren. We’re now going to turn the call back over to the operator for our live Q&A. Please go ahead.
Operator: First question comes from Brian Kinstlinger, Alliance Global Partners. Please go ahead.
Brian Kinstlinger: Hi, Darren. Thanks for taking my questions. You talked about starting obviously B2B2C business soon and then eventually the B2C launch. Are there any events that MICT needs to accomplish in order to get started in the B2C business?
Darren Mercer: No and I think it’s a very good question, Brian. The important thing for us really, as you can get enough or as large number of brokers and other underlying insurees onto our platform, which is very small margin business as you know, and that provides a platform ultimately for us to convert those same insurees to our own B2C clients in the future. That platform is now ready and will launch very soon. What I’d also add to that is, it was also the importance of getting the nationwide insurance brokerage license as well, which enables – it enables us to be able to sell that online. And equally, and the other step that I don’t know if you picked up from a previous question that I answered five minutes ago, which was it’s all right getting the nationwide insurance license so you can sell the product, but you have to process it. China’s a large country and you require a lot of different provincial licenses. In Q3, we have added considerably to the license portfolio we have, which now enables us to process and move a lot more business. And so the launch of our B2C product is timed around the ability to be able to facilitate the underlying business as well. And you will see evidence of that in the second half of this year.
Brian Kinstlinger: Great. And then I couldn’t necessarily understand your comments. Have you made strategic partnerships in either the insurance or trading platform side of your business? Or are you in various stages of negotiations? Maybe just update us on the progress of each side of those businesses?
Darren Mercer: Yes. From the insurance perspective, as I said, that we have been very target specific with which platforms we wanted to partner from a B2B2C perspective. And we all clearly in discussions with a number of partners and have made – I’d be careful of what I say here. A lot of progress has been made. And we will keep shareholders up to speed as in when we are able to sign those. But we do expect, as I said to have contribution as early as the end of this quarter and certainly in Q4. And on the – I didn’t understand your question about strategic partnerships with the stock trading.
Brian Kinstlinger: Yes. I’m curious, while it hasn’t gone with the full launch, do you have strategic partners lined up that are going to help with the customer acquisition process when you launch or – just maybe take me to on the trading side, the plans there.
Darren Mercer: Okay. Well, as I said in a previous question, I don’t want to give our marketing plan away. But needless to say our initial focus, we know what our core objectives are, which don’t require in the initial stages, a strategic partnership. But we do have a very detailed plan and we’re very hopeful to be successful, to attract a large number of users onto the platform this year and well into next as well. We expect to see considerable growth.
Brian Kinstlinger: Yes. Last question, specifically on the insurance business, can you talk about what that recovery might look like on the margin in the second half of the year. But more importantly, 18 to 24 months out when B2C has become a bigger piece of your business? I think it might be helpful to communicate, not exactly, but some kind of range of what the margin profile might look like of the insurance business.
Darren Mercer: Okay. Without giving specifics, that’s a very good question. I think first let’s deal with the recovery in Q3 and Q4 at the margin. In Q2, typically there is insurance rates all that bit lower. We decided to absorb those and not passed them on to our brokers and underlying insurees because we want to grow that part of the business, particularly because of the long-term benefits it gives shareholders. The movement from B2B to B2C is a multiplication of the margin of a normal B2B margin, not this quarter, but the margin we received last quarter. The move from B2B to B2C is even higher multiplications and very, very, very significant impact. Particularly as we move to more of a B2C model, particularly next year, when we think we will have a very significant number of insurees on the platform, we think we will have long or more, very significant B2B2C contracts and relationships in place. You will see that – as I said, the multiplication of that margin and what that enables us to do is to also change how we can price the products because the margin is so much greater. It allows us to offer discounts to the underlying insuree and still have a multiplication of that margin. I don’t want to give specifics away for obvious reasons, but the focus has been get as many insurees on the platform you possibly can and once they’re converted into B2C and with the additional support of what we will bring on through B2B2C relationship with websites that have considerable customer – considerable number of active users will be transformative.
Brian Kinstlinger: Great. Thanks, Darren.
Darren Mercer: Thank you, Brian.
Operator: This concludes our question-and-answer session. I’d like to turn the conference back over to Mr. Darren Mercer for closing remarks. Please go ahead.
Darren Mercer: Okay. Thank you very much. So please, I’d like finally just to like to thank everyone for taking the time today to join the call and also for your ongoing support. And I look forward to updating you on the third quarter results conference call on providing further progress updates. Thank you all. And have a good day.
Operator: The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.
