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Edited Transcript of TNAV earnings conference call or presentation 8-Aug-19 9:30pm GMT

Q4 2019 Telenav Inc Earnings Call

SUNNYVALE Aug 15, 2019 (Thomson StreetEvents) -- Edited Transcript of Telenav Inc earnings conference call or presentation Thursday, August 8, 2019 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Fuad Ahmad

Telenav, Inc. - Former Interim CFO & 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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* Michael Joshua Nichols

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

* Steven Lee Dyer

Craig-Hallum Capital Group LLC, Research Division - Co-President & Senior Research Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the Telenav Fourth Quarter Fiscal Year 2019 Financial Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mike Bishop, with the company's Investor Relations. Please go ahead, sir.

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

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Thank you, Melissa, and good afternoon, everyone. Welcome to Telenav's conference call to discuss the financial results of the fourth quarter and full year fiscal 2019. Joining me today are HP Jin, President and CEO; Hassan Wahla, Co-President Automotive; and Fuad Ahmad, former CFO. Our new CFO, Adeel Manzoor, who joined the company last month is traveling internationally and is unable to speak on the call.

After the market closed today, Telenav issued a press release and published a letter to stockholders 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 first 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 may differ materially.

We refer you to documents we filed with the Securities and Exchange Commission, including our annual report on Form 10-K for the fiscal year ended June 30, 2018, 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 will use -- 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 relating 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. As a reminder, the comparative financial results being reported have been prepared in accordance with ASC 606, revenue from contracts with customers and have not yet been audited.

I will now open the call up for questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question will come from Josh Nichols from 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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A few things to kind of hit on with all the news releases. Today, I just want to ask a little bit, could you provide some detail about the genesis of this deal with Grab for it looks like $12 million, half of that is going to come in, in revenue, and other significant opportunities to do similar deals with other customers you think over the coming year or 2?

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

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The numbers, Fuad, you can mention.

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Fuad Ahmad, Telenav, Inc. - Former Interim CFO & Principal Accounting Officer [4]

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Sure. So as you correctly pointed out, the deal with Grab calls -- it includes a perpetual license of our OpenTerra platform, which is 12 -- over $12 million as well as certain services agreements on top of that. We will recognize one half of that $12.5 million approximately this quarter and the remaining in coming quarters. So that is the upfront cash payment. There is also included in it an equity component where we transfer the IP for our OpenTerra platform to them as well as certain headcount associated with our development of the OpenTerra. So we're not able to go into the details of the equity, but supposed to say the value the equity as calculated today is greater than the cash payment.

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H. P. Jin, Telenav, Inc. - Co-Founder, Chairman, President & CEO [5]

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And related to the future opportunities -- go ahead, Josh.

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

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No, that was exactly what I was going to ask if you could continue.

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H. P. Jin, Telenav, Inc. - Co-Founder, Chairman, President & CEO [7]

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Yes, so Hassan, you want to talk about the future opportunities of similar type of technologies?

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Hassan Wahla, Telenav, Inc. - Co-President of Automotive Business Unit [8]

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Yes, certainly. So I think just right now, Grab is one of the most exciting companies in Southeast Asia and not only focused on ride hailing, but food delivery and payment solutions. And the reason why Grab has selected to work with Telenav is that right now they have millions of drivers and they have probe data that comes from all of them, and they don't have an efficient mechanism for processing all of that probe data to increase road intelligence. And road intelligence being our third domain that we're focused on, this is a great proof point for us.

So by having Grab use our platform, it really shows our auto OEMs as well as other potential OEMs or potential ride-hailing companies that the investments that we have made in our OpenTerra platform, including AI and machine learning, has been proven in the market. And we are now in a position where we can take this to our automotive OEMs and use this to create truly the world's largest ecosystem of connected cars by being able to even share road intelligence across OEMs. And there is also the new opportunity for us to market this to other ride-hailing companies. So overall, this is a very exciting deal for us.

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Michael Joshua Nichols, B. Riley FBR, Inc., Research Division - Senior Analyst of Discovery Group [9]

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And then you touched on the company's 3 kind of platforms that you're looking at. And in that vein, if we could talk a little bit about, one, just a little bit of more detail on the $70 million agreement with the Toyota supplier? And then you did also mention in the shareholder letter that you're working with Toyota across all 3 of those domains and there is potential to expand. If you could provide some additional color about the opportunities? And what you're doing on that front that would be great?

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H. P. Jin, Telenav, Inc. - Co-Founder, Chairman, President & CEO [10]

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Hassan?

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Hassan Wahla, Telenav, Inc. - Co-President of Automotive Business Unit [11]

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Yes, certainly. So we have a long relationship with Toyota, both directly and through its tier 1 supplier, Xevo. And right now, we provide 2 different services to Toyota. One is where they project our Scout application on to the head unit similar to CarPlay and Android Auto. And the other is where we power cloud search for their embedded navigation platform. So we continue to work closely with Toyota to explore means to improve both of these services, improve and enhance by adding additional feature sets as well as in the other domains looking at opportunities around commerce and advertising.

And certainly when it comes to road intelligence, now that we have this proof point in the market with Grab, we will continue our discussions with Toyota and other OEMs on how they can leverage our OpenTerra platform. I think another unique aspect of the Grab partnership is that we are setting up our entire OpenTerra platform in their environment, so they can operate it and run it themselves. So this is added flexibility that we could offer to all of our OEM partners as they are looking at road intelligence solutions, especially as they want to compete with companies like Waze, which have a lot of user-generated content, but if we look at the number of vehicles that our OEMs have, especially when they are combined across OEMs, the data that's generated is -- can easily dwarf the user input that a company like Waze is getting right now from its customer base.

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

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And then going through some of the release info. Good to see -- I noted that you're targeting being EBITDA profitable this year, but with a little bit different metrics. Could you, one, talk about the trajectory of that? Because I'd just like a little bit more clarity since you're kind of already guiding to being EBITDA breakeven in the first quarter.

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Fuad Ahmad, Telenav, Inc. - Former Interim CFO & Principal Accounting Officer [13]

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Well, we don't provide guidance past just one quarter. Obviously, Q1, we are breakeven to one. I think beyond that, I don't -- at this point provide guidance. But for the full year, as we said in our press release, we expect to be adjusted EBITDA positive. That was -- that is our goal.

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Michael Bishop, Telenav, Inc. - IR Officer [14]

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And in contrast of last year, our (inaudible) in negative $17 million, right? Last year?

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Fuad Ahmad, Telenav, Inc. - Former Interim CFO & Principal Accounting Officer [15]

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Yes, I mean, if you look at our numbers, the adjusted EBITDA number for fiscal '19 was $18 million negative. So we expect to make significant strides.

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

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And then last question from me kind of as a follow-up to that because I know the company is historically obviously -- moving from EBITDA to cash flow is really based primarily on the deferred revenue and deferred cost, right? So this is not much interest taxes or CapEx in the business model. So could you provide a little bit of color on what you're expecting for the trajectory at least as far as more billings or at least like deferred revenue growth as you continue to expand within primarily GM?

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Fuad Ahmad, Telenav, Inc. - Former Interim CFO & Principal Accounting Officer [17]

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I think the trajectory of the revenue, deferred revenue growth will be consistent. I think we have entire year of 606, accounting under 606, under our belt. So I think you should expect a similar trajectory. The makeup of the billings and the makeup of the deferred revenue and what's recognized immediately into revenue, what goes in the balance sheet isn't expected to change. So we expect that to remain more or less consistent with what we experienced in fiscal '19 and same with the deferred cost as well. Except that with 606, more of the revenue -- more of the billings is recognized into revenue, so you'll see our deferred revenue playing a smaller role in how we define profitability. Hence, the reason why we have opted to go to adjusted EBITDA to be more consistent with GAAP, more consistent with what the market and the buy side as well as the sell side is used to seeing companies when they look at their profitability so that we have opted to go to a more traditional GAAP-like measure.

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Operator [18]

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(Operator Instructions) Our next question will come from Steve Dyer with Craig-Hallum.

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Steven Lee Dyer, Craig-Hallum Capital Group LLC, Research Division - Co-President & Senior Research Analyst [19]

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Just want to make sure I understand the contribution from Grab to both revenue and billings here in the first quarter. So I mean, is it this simple as the $70 million to $72 million in billings? Absent that deal would be something like $58 million to $60 million? Am I thinking about that right?

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Fuad Ahmad, Telenav, Inc. - Former Interim CFO & Principal Accounting Officer [20]

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In terms of billing, that is correct.

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Steven Lee Dyer, Craig-Hallum Capital Group LLC, Research Division - Co-President & Senior Research Analyst [21]

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So I guess, and looking at that, I mean, that's essentially flat year-over-year. And so I guess, I'm just trying to figure out maybe where some of the headwind is coming from. If it's just kind of global auto demand? If GM is just ramping perhaps a little bit slower than anticipated? Or why you wouldn't see sort of more growth as you have over the last few quarters in the billings line?

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Fuad Ahmad, Telenav, Inc. - Former Interim CFO & Principal Accounting Officer [22]

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So year-over-year, Q1 of '19 was $59 million, but just be mindful of the fact that, that included almost $6 million of advertising revenue. So you have to subtract that because as you've seen in our earnings and as you've seen in our guide, we are no longer providing guidance in the ad business given the transaction that we consummated with inMarket. So you have to subtract that from the equation, and you also have to account for the fact that the mobile map business has been in a historical decline and the mobile map business was approximately $2.8 million in Q1 of '19 and is down to less than $2 million in Q4. So you have to account for the headwinds from those 2, but if you look at it just on the auto side, we are showing a fairly, year-over-year, a substantial increase in billings for the auto, which is our primary focus.

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Steven Lee Dyer, Craig-Hallum Capital Group LLC, Research Division - Co-President & Senior Research Analyst [23]

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Got it. Yes, yes, that's very helpful. I hadn't considered those 2 things. I appreciate that. And then, I guess, just assuming sort of GM is one of the sort of primary drivers throughout this year, any help sort of -- I know you don't give guidance for the year, but the cadence as to when we could expect that to roll on. If it's at a particular model year launch? Or if it's fairly ratably? Or front-end loaded? Back-end loaded? Any help there would be good.

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H. P. Jin, Telenav, Inc. - Co-Founder, Chairman, President & CEO [24]

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Hassan? Hassan, you want to talk about it?

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Hassan Wahla, Telenav, Inc. - Co-President of Automotive Business Unit [25]

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Yes, certainly. So while we are on many GM models now across all its brands, we haven't had the full year effect this past year. So that will be one thing that will help us in this fiscal year, and there are still several key vehicles in the GM lineup that are on their older platform, that haven't migrated yet. These include some of their premium SUVs across Chevy, GMC as well as the Cadillac brands. So as even though these are not the highest-volume cars, they are premium vehicles. So once these vehicles come online with the new platform that we are powering, that'll also have a significant increase to our overall GM revenue.

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Steven Lee Dyer, Craig-Hallum Capital Group LLC, Research Division - Co-President & Senior Research Analyst [26]

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And is it safe to say then, I guess, would it be by maybe halfway through fiscal '20 that sort of everything that's coming on from GM will be on? Or not necessarily?

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Hassan Wahla, Telenav, Inc. - Co-President of Automotive Business Unit [27]

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Not necessarily. Keep in mind now most OEMs, not just GM, do have new model launches throughout the year. It used to be that everything was launched around August time frame, but that has changed. So we are expecting with GM that at different times of this coming fiscal year and even beyond, they will continue to launch us on new models.

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Operator [28]

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(Operator Instructions) That does conclude our question-and-answer session at this time. I'd like to turn the conference back to Mike Bishop for closing remarks.

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Michael Bishop, Telenav, Inc. - IR Officer [29]

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Thank you, everyone, and thank you for your support. We look forward to updating you on Telenav's progress on the first quarter conference call. And with that, that concludes today's conference. Thanks again.

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Operator [30]

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Once again, that does conclude our conference for today. Thank you for your participation.