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Edited Transcript of TNAV earnings conference call or presentation 7-Nov-19 10:30pm GMT

Q1 2020 Telenav Inc Earnings Call

SUNNYVALE Nov 26, 2019 (Thomson StreetEvents) -- Edited Transcript of Telenav Inc earnings conference call or presentation Thursday, November 7, 2019 at 10:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Adeel Manzoor

Telenav, Inc. - CFO, Treasurer, Assistant Secretary & Principal Accounting Officer

* H. P. Jin

Telenav, Inc. - Co-Founder, Chairman, President & CEO

* Hassan Wahla

Telenav, Inc. - Co-President of Automotive Business Unit

* Michael Bishop

Telenav, Inc. - IR Officer

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Conference Call Participants

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* Matthew David Wegner

Craig-Hallum Capital Group LLC, Research Division - Research Analyst

* Michael Joshua Nichols

B. Riley FBR, Inc., Research Division - Senior Analyst of Discovery Group

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Presentation

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Operator [1]

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Good day, and welcome to the Telenav First Quarter Fiscal Year 2020 Financial Results Conference Call. Today's conference is being recorded.

At this time, I'd like to turn the call over to Mr. Mike Bishop. Please go ahead, sir.

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Michael Bishop, Telenav, Inc. - IR Officer [2]

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Good afternoon. I'm Mike Bishop, and I lead Investor Relations for Telenav. I would like to welcome you to our fiscal 2020 first quarter earnings conference call to discuss the financial results and the overall business performance during the quarter.

Joining me today are HP Jin, President and CEO; Adeel Manzoor, Chief Financial Officer; and Hassan Wahla, Co-President, Automotive.

The format of today's call will be opening remarks from HP and Adeel, followed by opening the call up to your question.

After the market closed today, Telenav issued a press release and published supplemental earnings materials on the Investor Relations section of its website. During the course of today's presentation, our executives will make forward-looking statements, including statements regarding, among others, the company's expected financial performance for the second quarter of fiscal 2020, anticipated sources and mixes of revenue, expected profitability, product and business strategies and strategic relationships.

We wish to caution you that such statements are just predictions based on management's current expectations or beliefs, and that actual events and results could differ materially. We refer you to documents we file with the Securities and Exchange Commission, including our annual report on Form 10-K for the fiscal year ended June 30, 2019, and other periodic filings.

These documents identify important risk factors that could cause our actual results to differ materially from those contained in our forward-looking statements. We assume no duty to confirm, update or revise the financial forecast for the quarter or any other forward-looking information on this call as a result of new developments or otherwise.

Today, we will be discussing our results on a GAAP as well as non-GAAP basis. We use these additional non-GAAP measures as we believe they provide useful operating information in addition to the GAAP results. There are a number of limitations related to the use of billings versus revenue calculated in accordance with GAAP. We compensate for these limitations by providing specific information regarding GAAP revenue and evaluating billings together with revenue calculated in accordance with GAAP as well as considering whether we are likely to satisfy the criteria required to recognize revenue to convert deferred revenue into revenue and the cost that we will incur over time to provide the services related to that deferred revenue. A reconciliation of GAAP to non-GAAP financial statements is available in our press release and on our Investor Relations web page.

And with that, I will now turn the call over to HP.

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H. P. Jin, Telenav, Inc. - Co-Founder, Chairman, President & CEO [3]

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Thanks, Mike, and welcome, everyone, to the call. Looking at Telenav, currently, we see encouraging near-term momentum, some uncertainty in the midterm and a strong long-term prospects. Our solid Q1 financial performance demonstrates the strength of execution. We achieved 39% growth in revenue and 44% increase in billings compared with Q1 of last year, higher than our guidance. We increased our cash balance to nearly $122 million compared with $99 million in the fourth quarter of 2019.

As you are likely aware, GM announced their plan to use Google Automotive Services starting in model year 2022. As we discussed earlier, we don't anticipate any near-term financial impact as a result of the GM-Google announcement. We continue to believe that we will ramp with GM through model year 2021 and derive revenue under our contract through model year 2025. While the mid to long term presents some uncertainty, it also presents several opportunities for our business. For example, the Google GAS solution only supports Android with high-end hardware, not QNX, Linux, AGL, which represents the vast majority of the market. Plus, the auto OEMs and the industry are looking forward to having alternative solutions. We believe the potential market is large enough for multiple players to succeed and serve well the needs of OEMs and end customers. The software and data product and service market alone in the connected car market is expected to reach over $500 billion. But it is still very new, fast-evolving and is presenting great opportunities for innovative companies like Telenav.

In order to capture this large market opportunity, we have been executing on the three-pillar Connected Car Platform strategy to drive sustainable growth in the long term. And I would like to share some of the progresses we have made thus far.

Our first pillar is in-car software and services, where we are expanding our product portfolio beyond navigation. We continue to make progress with VIVID, which is our software platform that has a navigation, digital assistance and entertainment. To strengthen our product experience, we are collaborating with industry-leading companies such as Amazon and Microsoft to build out a complete ecosystem for our customers, again, to offer our strong alternative for our OEMs and end users. And with much more aligned long-term interest, the goal for this pillar is to grow our market share of the fourth screen in connected cars.

Our second pillar is In-Car Commerce and Communications. The goal for this pillar is to monetize the fourth screen and the big data generated by cars and drivers. High operating cost is a big pain point today for OEMs to offer connected services to end users. It is essential that we find ways to solve that pain for OEMs first, and even better, to generate additional upside revenue. Our strategy for this pillar is to bring the latest innovations to our customers through strategic partnership and investment in innovative companies. We have made good progress on this front.

We are pleased with our equity investment in inMarket Media, which continues to scale at an annual growth rate of more than 30%. We also invested in Motion Auto, an innovative location-based insurance company with a business model with pricing based on driving behavior, usage and automobile-generated data.

Our future goal is to introduce arrival advertisements from inMarket and insurance offering for Motion Auto via our VIVID platform.

Our third pillar is Road Intelligence. The goal for this pillar is to leverage AI technology to derive useful insights from car-centered data and serve customers across multiple industries beyond just auto OEMs.

As we previously announced, we are on track to complete the strategic transaction with Grab, South East Asia's leading ride-hailing platform. We capture the first phase of this transaction in our billings and revenue in the quarter, and we are now supporting Grab as it is invest in and expand our OpenTerra platform.

We are also invested in Moove.ai, an early-stage start-up using AI and machine learning technology to provide low-risk safety data, which can be used in the insurance, automotive industries and other vertical industries.

In summary, our strategy leverages both organic and inorganic investment to enhance our Connected Car Platform for long-term sustainable growth, while keeping our OpEx under control and maximizing the return of our investment. It is important to note that we currently continue to work with the many OEMs, replying to RFPs and demonstrating our latest technology to continue the revenue ramp Telenav built over the past few years in the automotive sector. We have a comprehensive, Connected Car Platform that is aligned with our customers' long-term interest. And we are able to offer our product in every geography, including the largest auto market, China, which is a 26 million unit per year opportunity.

I will now turn the call over to Adeel for a quick overview of the financial results. Thank you.

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Adeel Manzoor, Telenav, Inc. - CFO, Treasurer, Assistant Secretary & Principal Accounting Officer [4]

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Thank you very much, HP. Although I'll be making brief comments about the numbers, please refer to our earnings deck and press release for the detailed financial statements. I'll be referencing to the slides from our earnings presentation to better highlight our performance in the past quarter.

A quick note, starting in Q1, our financial reporting is on a single-segment basis, consistent with the transfer of the Thinknear business, inMarket Media.

Starting with Slide #4. I would like to talk about key highlights for the quarter. The main points are: first, we delivered another solid quarter and remain focused on creating value for our shareholders over the longer term.

In Q1 '20, we had a record revenue and the first adjusted EBITDA positive quarter in over 5 years. Delivered solid financial results, we grew revenue by 39% while expanding our GAAP gross margin by 2.4 points year-over-year.

Second, we exited the quarter with record-high cash position, under $22 million in cash, cash equivalents and short-term investments. Our current cash balance represents over half of our market cap.

Third, we continue to execute on our Connected Car Platform strategy that we believe will build momentum for sustainable future growth as HP touched on the progress we have made thus far within each pillar in his opening remarks.

Looking at Slide #6. In Q1, our revenue increased 39% year-over-year to $64.5 million from $46.3 million a year ago, primarily driven by strength in the core businesses and the Grab transaction.

As HP mentioned in his opening remarks, we are making progress with the Grab transaction, and we have recognized $4 million of license revenue from the Grab deal in the first quarter of 2020.

Total non-GAAP billings in the first quarter of fiscal 2020 were $76.6 million, a 44% increase year-over-year compared with $53.1 million in the first quarter of fiscal 2019 driven primarily by $12.5 million of license billings associated with our contract with Grab and by a continued ramp in GM, followed by uptick in Ford and Toyota billings year-over-year.

GAAP gross margin for the quarter of fiscal 2020 was 42.8%, a 2.4 points increase year-over-year compared with 40.5% in the first quarter of fiscal 2019.

Gross profit increased to $27.6 million in the first quarter of fiscal 2020, a 47.5% increase compared with $18.7 million in the first quarter of fiscal 2019. Improvement in gross margin was primarily driven by the Grab revenue and favorable cost within the past quarter.

Moving on to operating expenses. Total GAAP operating expenses in the first quarter of fiscal 2020 were $29.9 million compared with $25.6 million in the first quarter of fiscal 2019, down 9 points year-over-year as a percent of revenue, but up 17% year-over-year in absolute dollar terms.

Loss from continuing operations for the first quarter of fiscal 2020 was $2.1 million compared with $6.1 million in the first quarter of fiscal 2019. A year-over-year decrease in loss from continuing operations was primarily due to higher revenue and associated gross profits in the past quarter.

Net loss for the first quarter of fiscal 2020 was $6.1 million compared with $7.6 million for the first quarter of fiscal 2019. A year-over-year improvement was primarily due to increased revenue and gross profits in the first quarter, partially offset by the restructuring charges associated with the Thinknear transaction.

We achieved positive adjusted EBITDA, a non-GAAP measure, of $400,000 for the first quarter of fiscal 2020 compared with a loss of $3.9 million for the first quarter of fiscal 2019. Adjusted EBITDA in the first quarter benefited from Grab transaction.

Cash remain an area of focus for us. In the quarter, we generated non-GAAP free cash flow of $21.7 million. Overall, our cash and investment position improved significantly in the quarter to $122 million as of September 30, 2019, an increase of $22.4 million from $99 million on June 30, 2019.

We received cash from large billings in Q4 '19 in addition to cash from various transactions in the past quarter. We plan to maintain a healthy cash balance over the next several quarters, while also investing strategically in various opportunities to continue to drive revenue growth in the longer-term and increase shareholder value as HP explained in the opening remarks.

We continue to expand our footprint of connected cars. Our total connected cars installed base increased to 16 million, up 10% year-over-year, and we shipped 1.4 million connected cars within the quarter. In the last quarter, our overall installed base reached to 26 million cars, up 29% year-over-year.

Now looking at Slide #7. We saw encouraging momentum in both products and services revenue in the first quarter, up 38% and 47%, respectively, year-over-year.

Services business represented 14.4% of our total revenue mix versus 13.7% in the prior year and 13.8% in the prior quarter. Mix of services revenue grew 70 basis points year-over-year.

Now moving on to Slide #10 and looking at the second quarter. There are some micro industry dynamics that will impact demand environment in Q2 '20. The strike at GM ended after long 6 weeks. In our current forecast, we assume that we will see some uptick and recovery in the rest of the Q2 '20 as far as demand from GM is concerned due to overtime and production catch-ups.

For Q2 '20, we expect total revenue to be $55 million to $57 million, assuming approximately $9 million in license revenue in the quarter from the OpenTerra transaction we previously announced with Grab.

Billings, a non-GAAP measure, are expected to be between $60 million to $62 million. GAAP gross margin is expected to be within 43% to 45%. GAAP operating expenses are expected to be between $29 million to $31 million. GAAP net loss is expected to be between $4.5 million to $6.5 million. Adjusted EBITDA, a non-GAAP measure, is expected to be within negative $1.5 million to negative $3.5 million.

With that, I will open up the call to your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll take our first question from Josh Nichols at B. Riley FBR.

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Michael Joshua Nichols, B. Riley FBR, Inc., Research Division - Senior Analyst of Discovery Group [2]

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I did want to ask -- good to see the company achieving positive EBITDA this quarter. I know previously the company has mentioned that they expected to achieve positive EBITDA for this full fiscal year. Is that still part of guidance? And if so, has something changed?

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Adeel Manzoor, Telenav, Inc. - CFO, Treasurer, Assistant Secretary & Principal Accounting Officer [3]

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So this is Adeel. Maybe I'll take that. So good question. All I would say is overall value creation for the shareholders remain our primary focus and is our #1 goal. And internally, the management is primarily focused on driving EBITDA, that is a focus for the management. But we are not giving guidance beyond one quarter at a time. So we are guiding for Q2, which as already just mentioned, the guidance for Q2 which will be negative $1.5 million to $3.5 million.

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Michael Joshua Nichols, B. Riley FBR, Inc., Research Division - Senior Analyst of Discovery Group [4]

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And then could you dive into it a little bit, a big billing speed for the quarter, but it looks like -- what's really driving that, really? There's not a lot of detail provided there. But it does look like deferred costs might have actually decreased quarter-over-quarter. Like, what's the breakdown of the components of that billing speed?

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Adeel Manzoor, Telenav, Inc. - CFO, Treasurer, Assistant Secretary & Principal Accounting Officer [5]

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Billings year-over-year is primarily due to Grab which we talked about. There's about $12.5 million worth of Grab billings that we had in Q1 plus there's a GM ramp. So GM continues to ramp, that's also a part of it. So it's mainly the combination of Grab and GM ramp.

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Michael Joshua Nichols, B. Riley FBR, Inc., Research Division - Senior Analyst of Discovery Group [6]

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Okay. But I mean the Grab was already factored in, right, to the guidance. So there's a lot of that GM ramp, is what you're saying? Because your guidance was $70 million to 72 million, right? And you came in at $77 million. So...

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Adeel Manzoor, Telenav, Inc. - CFO, Treasurer, Assistant Secretary & Principal Accounting Officer [7]

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Yes. Yes, GM to GM ramp is the main driver. You're thinking about it the right way.

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Michael Joshua Nichols, B. Riley FBR, Inc., Research Division - Senior Analyst of Discovery Group [8]

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Okay. Got it, perfect. And then I did just want to ask so I'm a little bit clear on this, like you said that you're expecting GM to pick up in Q2 now that the strike has been resolved, correct?

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Adeel Manzoor, Telenav, Inc. - CFO, Treasurer, Assistant Secretary & Principal Accounting Officer [9]

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So what we're saying is with GM, we are resuming some recovery post the strike. But we're not saying that it's going to pick up sequentially or it's basically a drag to our Q2 if you compare it to Q1.

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Michael Joshua Nichols, B. Riley FBR, Inc., Research Division - Senior Analyst of Discovery Group [10]

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And then, is that $9 million that you're getting from OpenTerra that's assumed in like the revenue and billings number for Q2, is that going to be recurring? Or is that a onetime item? How should we be thinking about that from a forward-modeling perspective?

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Adeel Manzoor, Telenav, Inc. - CFO, Treasurer, Assistant Secretary & Principal Accounting Officer [11]

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Yes. Just to be clear on the billings piece. So the billing was recognized in Q1, and we recognized some revenue in Q1, which we said $4 million and the rest is getting recognized in Q2. And then it's basically -- the right way to think about it is we think of it as not an ongoing and run rate kind of a business.

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Michael Joshua Nichols, B. Riley FBR, Inc., Research Division - Senior Analyst of Discovery Group [12]

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I'm just trying to kind of frame a little bit and wrap my head around what's causing what looks like to be like a decrease right in the -- in run rate that you guys are going to be achieving for billings once you back out the Grab coming in.

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Adeel Manzoor, Telenav, Inc. - CFO, Treasurer, Assistant Secretary & Principal Accounting Officer [13]

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Which quarter are you looking at, Q1 or Q2?

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Michael Joshua Nichols, B. Riley FBR, Inc., Research Division - Senior Analyst of Discovery Group [14]

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I'm looking at like Q2 and then thinking about Q3 and the trend, right? As it looks like, the billings growth is decelerating once you back out the Grab revenue, once that goes away particularly in -- after Q2, I would think.

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Adeel Manzoor, Telenav, Inc. - CFO, Treasurer, Assistant Secretary & Principal Accounting Officer [15]

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You're right. Billings will go down sequentially when the -- once Grab goes away. But that -- you're thinking about it the right way.

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Michael Joshua Nichols, B. Riley FBR, Inc., Research Division - Senior Analyst of Discovery Group [16]

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Yes. I mean what's causing that, though? GM is accelerating, right? They're still ramping, like what's really causing sequential declines in billings, if you're increasing with GM? I'm not really clear on that.

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Adeel Manzoor, Telenav, Inc. - CFO, Treasurer, Assistant Secretary & Principal Accounting Officer [17]

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So there are a couple of things. Let's just start from Q1, right? So in Q1, you have Grab billings. Then in Q1, you also have map updates, right? That -- those are 2 favorables in Q1. And if you think about Q2, you have the benefit of Grab billings from Q1, but you don't have new billings from Grab in Q2. Similarly, the map updates that we did in Q1, you don't have them in Q2. But certainly, you have the benefit of some Ford ramp up and the GM ramp up but that's Q2. Then if you think about Q3 going forward, then you will see GM ramp continues, but then you don't have the benefit of Grab or map updates in Q3.

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Operator [18]

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(Operator Instructions) And we'll take our next question from Steve Dyer with Craig-Hallum.

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Matthew David Wegner, Craig-Hallum Capital Group LLC, Research Division - Research Analyst [19]

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This is Matt on for Steve. Just a quick follow-up on the one Josh just mentioned. How much were the map updates in revenue in Q1?

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Adeel Manzoor, Telenav, Inc. - CFO, Treasurer, Assistant Secretary & Principal Accounting Officer [20]

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You don't really break it out. But in the first half, we do -- it's map updates are typically in the first half of the year, and they are -- at times are lumpy. But the map updates did help with the Q1 performance.

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Matthew David Wegner, Craig-Hallum Capital Group LLC, Research Division - Research Analyst [21]

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Got it. Okay. And then, obviously, I didn't see a breakout on GM and Ford revenue or billings. Are you guys able to provide that in the quarter? And obviously, maybe it's impacted by the strike, but just kind of trying to get a sense for the ramp there.

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Adeel Manzoor, Telenav, Inc. - CFO, Treasurer, Assistant Secretary & Principal Accounting Officer [22]

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Yes. We can give you a directional color on a percentage basis. I think we have especially disclosed the dollar amount or the value of the -- of at an account level. But directionally, the mix is still the same that has been in the past. So I can give you overall fiscal '19, the mix was roughly 20% was GM and 65% was Ford. And then we believe the mix is pretty much the same, plus/minus couple of points, up or down.

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Matthew David Wegner, Craig-Hallum Capital Group LLC, Research Division - Research Analyst [23]

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Okay, sounds good. And then kind of going forward, obviously, the strike is going to impact Q2, maybe that mix dips. But do you expect that to -- where do you think that percentage can go to in the next 3 or 4 quarters as GM ramps? And then kind of tangentially to that, I noticed that there were no GM awards, and I haven't seen a few -- or haven't seen any, maybe a few quarters. Just -- is there no awards due to model-year changeovers? Or kind of what's the -- any color on that?

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Adeel Manzoor, Telenav, Inc. - CFO, Treasurer, Assistant Secretary & Principal Accounting Officer [24]

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I think it may be a good segue. HP, if you want to give a good color on the overall GM, how should we think about GM?

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H. P. Jin, Telenav, Inc. - Co-Founder, Chairman, President & CEO [25]

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You are referring to GM model, the vehicles to be launched with our solutions?

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Matthew David Wegner, Craig-Hallum Capital Group LLC, Research Division - Research Analyst [26]

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Correct. Yes.

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H. P. Jin, Telenav, Inc. - Co-Founder, Chairman, President & CEO [27]

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There are still -- Hassan, you want to comment on this one?

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Hassan Wahla, Telenav, Inc. - Co-President of Automotive Business Unit [28]

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Yes, certainly. As we have stated in the past, we do have still vehicles left that we have not launched on. Right now, the large SUVs like the Chevy Tahoe and the GMC Yukon as well as the Cadillac Escalades, these are some of the main vehicles that our solution is not available on right now.

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Matthew David Wegner, Craig-Hallum Capital Group LLC, Research Division - Research Analyst [29]

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But do you have a -- do you have visibility into when those kind of get launched? Or are you just saying that, that right now is kind of indetermined?

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Hassan Wahla, Telenav, Inc. - Co-President of Automotive Business Unit [30]

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No. We have visibility into when these launches are targeted for.

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Matthew David Wegner, Craig-Hallum Capital Group LLC, Research Division - Research Analyst [31]

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Okay. Great. Kind of switching gears a little bit just over to the Microsoft announcement. Can you just kind of, I guess, maybe briefly elaborate on what your expectations are for that? Is it kind of a lead into additional navigation opportunities with OEMs? Or do you kind of see that as more other products outside of other solutions outside of navigation.

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H. P. Jin, Telenav, Inc. - Co-Founder, Chairman, President & CEO [32]

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Hassan, you want me to take it on this one?

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Hassan Wahla, Telenav, Inc. - Co-President of Automotive Business Unit [33]

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Yes. Certainly, HP. You can start, and I can fill in.

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H. P. Jin, Telenav, Inc. - Co-Founder, Chairman, President & CEO [34]

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So basically, this is a more broader potential collaboration. They have a platform for their connected car platform and with the different offerings, and we try to be 1 or 2 or many of their total offerings through OEMs. So there's a potential to help in terms of leveraging both companies, the sales team to promote joint products.

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Matthew David Wegner, Craig-Hallum Capital Group LLC, Research Division - Research Analyst [35]

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Okay. Yes, I saw that kind of the Microsoft platform already had a few OEMs on it. And I was just trying to get a sense of maybe where Telenav kind of fits into those OEMs' navigation and other solution. Yes.

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Hassan Wahla, Telenav, Inc. - Co-President of Automotive Business Unit [36]

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Sure. So this Hassan, I can comment further. So the Microsoft Connected Vehicle Platform, it is mostly a cloud-based platform, which helps OEM analyze the analytics data coming from the vehicles. So by Telenav integrating into the platform, it does make it easier for the OEMs that already work with Microsoft MCVP to work with us. And of course, there are other OEMs that are looking at Microsoft cloud services as well. So really, the integration here for us for our connected navigation makes it easier for us both to target the existing OEMs that are working with Microsoft as well as jointly sell into new customers.

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Adeel Manzoor, Telenav, Inc. - CFO, Treasurer, Assistant Secretary & Principal Accounting Officer [37]

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So just to -- I know you asked about the mix by account. So for Q1 '20, just to be clear. So I gave you the stats for fiscal '19, run rate starts or average mix. But for Q1 '20, which is the past quarter, forward mix as the percent of our revenue -- total revenue was about 56%, and GM was about 26%.

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Operator [38]

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(Operator Instructions) And I show no further questions. Gentlemen, I'll turn it back over to Mr. Mike Bishop for closing comments.

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Michael Bishop, Telenav, Inc. - IR Officer [39]

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Thank you. I would like to thank everyone for participating in Telenav's First Quarter 2020 Financial Results Conference Call. We appreciate your continued support. You may now disconnect.