Telenav Reports Second Quarter Fiscal 2017 Financial Results

SANTA CLARA, Calif., Jan. 31, 2017 (GLOBE NEWSWIRE) -- Telenav®, Inc. (NASDAQ:TNAV), a leader in connected car services, today announced its financial results for the second quarter that ended December 31, 2016.

"Telenav delivered strong top line results for the second quarter of fiscal 2017, with revenue growing 15% year-over-year to $52.0 million and billings growing 23% year-over-year to $59.7 million," said HP Jin, chairman and CEO of Telenav. "We continued to make solid progress towards the GM launch of our embedded and connected navigation solution which we expect to occur in the next couple of months. We also announced an additional award with Toyota. We are excited to see the relationship with Toyota continue to deepen and are pleased that Scout® GPS Link was chosen to be in select 2018 Toyota vehicles equipped with Entune™ 3.0. We believe our partnerships with global auto OEMs, ranging from brought-in solutions to embedded and connected solutions, is a testament to our broad capabilities and market leadership."

Financial Highlights for the second quarter ended December 31, 2016

• Total revenue was $52.0 million, compared with $45.3 million in the same prior year period.
• Billings were $59.7 million, compared with $48.4 million in the same prior year period.
• Automotive revenue was $38.7 million, compared with $31.8 million in the same prior year period.
• Advertising revenue was $8.2 million, compared with $6.7 million in the same prior year period.
• Deferred revenue as of December 31, 2016 was $36.1 million, compared with $28.4 million as of September 30, 2016.
• Gross margin was 45%, compared to 46% in the same prior year period.
• Non-GAAP gross margin on billings was 45%, compared to 46% in the same prior year period.
• Operating expenses were $34.9 million, compared with $27.6 million in the same prior year period.
• Net loss was ($11.4) million, or ($0.26) per basic and diluted share, compared with ($6.6) million, or ($0.16) per basic and diluted share, in the same prior year period.
• Adjusted EBITDA was a ($2.6) million loss, compared with a ($4.1) million loss in the same prior year period.
• Adjusted EBITDA on billings was $1.3 million, compared with a ($2.6) million loss in the same prior year period.
• As of December 31, 2016, ending cash, cash equivalents and short-term investments, excluding restricted cash, were $103.7 million. This represented cash and short-term >investments of $2.39 per share, based on 43.3 million shares of common stock outstanding. Telenav had no debt as of quarter end.
• Free cash flow was $2.7 million, compared with ($0.9) million in the same prior year period.

Recent Business Highlights

Settled a patent lawsuit with Vehicle IP, LLC resolving a patent infringement litigation brought against Telenav and Telenav's customer AT&T Mobility LLC, resulting in a one-time settlement and license payment of $8.0 million to be made by Telenav.Announced Scout GPS Link by Telenav was chosen for select 2018 Toyota vehicles equipped with Entune 3.0.

"We are pleased to announce that we expect to enter into an agreement with Ford to provide our MapCare solution in conjunction with our embedded navigation product for the European region, commencing in the March 2017 quarter. This will significantly increase our overall billings going forward and strengthens our overall business," said Michael Strambi, Telenav's CFO. "However, because MapCare is to be provided over time, the revenue related to this combined offering is required to be recognized over the contractual period. As a result, certain revenue related to royalties earned from embedded navigation with Ford in Europe, which Telenav has been recognizing upon product delivery, will now be recognized over time. Starting with the March 2017 quarter, this impact will cause our revenue to decline under current GAAP accounting measures."

Business Outlook

For the quarter ending March 31, 2017, Telenav offers the following guidance, which is predicated on management's judgments:

• Total revenue is expected to be $37 to $39 million.
• Billings are expected to be $60 to $63 million.
• Automotive revenue is expected to be 71% to 74% of total revenue.
• Advertising revenue is expected to be approximately 16% of total revenue.
• Gross margin is expected to be approximately 48%.
• Non-GAAP gross margin on billings is expected to be approximately 39%.
• Operating expenses are expected to be $30 to $31 million.
• Net loss is expected to be ($12) to ($13) million.
• Net loss per share is expected to be ($0.28) to ($0.30).
• Adjusted EBITDA is expected to be a ($9.0) to ($10.0) million loss.
• Adjusted EBITDA on billings is expected to be a ($3.5) to ($4.5) million loss.
• Weighted average shares outstanding are expected to be approximately 43.5 million.

The above information concerning guidance represents Telenav's outlook only as of the date hereof, and is subject to change as a result of amendments to material contracts and other changes in business conditions. Telenav undertakes no obligation to update or revise any financial forecast or other forward looking statements, as a result of new developments or otherwise.

Conference Call

The company will host an investor conference call and live webcast at 2:00 p.m. PT (5:00 p.m. ET) today. To access the conference call, dial 877-795-3648 (toll-free, domestic only) or 719-325-4755 (domestic and international toll) and enter pass code 5663996. The webcast will be accessible on Telenav's investor relations website at http://investor.telenav.com. A replay of the conference call will be available for two weeks beginning approximately two hours after its completion. To access the replay, dial 888-203-1112 (toll-free, domestic only) or 719-457-0820 (domestic and international toll) and enter pass code 5663996.

Use of Non-GAAP Financial Measures

Telenav prepares its financial statements in accordance with generally accepted accounting principles for the United States, or GAAP. The non-GAAP financial measures such as billings, non-GAAP gross profit on billings, non-GAAP gross margin on billings, change in deferred revenue, change in deferred costs, adjusted EBITDA, adjusted EBITDA on billings and free cash flow included in this press release are different from those otherwise presented under GAAP.

Telenav has provided these measures in addition to GAAP financial results because management believes these non-GAAP measures help provide a consistent basis for comparison between periods that are not influenced by certain items and therefore are helpful in understanding Telenav's underlying operating results. These non-GAAP measures are some of the primary measures Telenav's management uses for planning and forecasting. These measures are not in accordance with, or an alternative to, GAAP and these non-GAAP measures may not be comparable to information provided by other companies.

We have previously provided billings as a non-GAAP metric, and beginning with this quarter we are providing non-GAAP gross profit on billings, non-GAAP gross margin on billings and adjusted EBITDA on billings' metrics. We anticipate providing non-GAAP gross profit on billings, non-GAAP gross margin on billings and adjusted EBITDA on billings over the next two quarters due to the impact on reported GAAP revenue of certain value-added offerings, including Ford MapCare anticipated for SYNC 3 vehicles in the Europe region. The providing of MapCare in combination with our embedded navigation products results in revenue being deferred and recognized over time.

We anticipate early adopting the FASB's new accounting standard, ASC 606, Revenue from Contracts with Customers, effective July 1, 2017. We anticipate that with the adoption of ASC 606, our revenue recognition for certain value-added offerings will change and we will no longer recognize revenue associated with certain software-related elements over the life of our contractual obligations. Once we adopt ASC 606, we do not expect that we will continue to provide the metrics non-GAAP gross profit on billings, non-GAAP gross margin on billings and adjusted EBITDA on billings.

Billings measure GAAP revenue recognized plus the change in deferred revenue from the beginning to the end of the period. Non-GAAP gross profit on billings reflects GAAP gross profit plus change in deferred revenue less change in deferred costs. Non-GAAP gross margin on billings reflects non-GAAP gross profit on billings divided by billings. We have also provided a breakdown of the calculation of the change in deferred revenue by segment, which is added to revenue in calculating our non-GAAP metric of billings. In connection with our presentation of the change in deferred revenue, we have provided a similar presentation of the change in the related deferred costs. Such deferred costs primarily include costs associated with third party content and in connection with certain customized software solutions, the costs incurred to develop those solutions. As deferred revenue and deferred costs become larger components of our operating results, we believe these metrics are useful in evaluating cash flow.

We consider billings, non-GAAP gross profit on billings and non-GAAP gross margin on billings to be useful metrics for management and investors because billings drive deferred revenue, which is an important indicator of our business. We believe non-GAAP gross profit on billings and non-GAAP gross margin on billings are useful metrics because they reflect the impact of the gross profit to be earned over time for such billings, exclusive of the incremental costs incurred to deliver any related service obligations. There are a number of limitations related to the use of billings, non-GAAP gross profit on billings and non-GAAP gross margin on billings versus revenue, gross profit, and gross margin calculated in accordance with GAAP. First, billings, non-GAAP gross profit on billings, and non-GAAP gross margin on billings include amounts that have not yet been recognized as revenue or cost and may require additional services to be provided over contracted service periods. For example, billings related to certain connected solutions cannot be fully recognized as revenue in a given period due to requirements for ongoing provisioning of services such as hosting, monitoring and customer support. Accordingly, non-GAAP gross profit on billings and non-GAAP gross margin on billings do not include all costs associated with billings. Second, we may calculate billings, non-GAAP gross profit on billings, and non-GAAP gross margin on billings in a manner that is different from peer companies that report similar financial measures, making comparisons between companies more difficult. When we use these measures, we attempt to compensate for these limitations by providing specific information regarding billings, non-GAAP gross profit on billings and non-GAAP gross margin on billings and how they relate to revenue, gross profit, and gross margin calculated in accordance with GAAP.

Adjusted EBITDA measures our GAAP net loss excluding the impact of stock-based compensation expense, depreciation and amortization, other income (expense), provision (benefit) for income taxes, and other applicable items such as legal settlements and contingencies, restructuring accruals and reversals, and deferred rent reversals due to lease termination, net of tax. Stock-based compensation expense relates to equity incentive awards granted to our employees, directors, and consultants. Legal settlements and contingencies represent settlements and offers made to settle patent litigation cases in which we are defendants and royalty disputes. Deferred rent reversals represent the reversal of our deferred rent liability that is no longer required due to our facility lease termination in fiscal 2016. We believe adjusted EBITDA is a useful measure of profitability before the impact of certain non-cash expenses, interest income, income taxes, and certain other items that management believes affect the comparability of operating results.

Adjusted EBITDA on billings measures adjusted EBITDA plus the effect of changes in deferred revenue and deferred costs. We believe adjusted EBITDA on billings is a useful measure, especially in light of the impact we expect on reported GAAP revenue for certain value-added offerings we provide our customers, including Ford MapCare. Adjusted EBITDA and adjusted EBITDA on billings, while generally measures of profitability, can also represent losses.

Free cash flow is a non-GAAP financial measure we define as net cash provided by (used in) operating activities, less purchases of property and equipment. We consider free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash (used in) generated by our business after purchases of property and equipment.

We determined that it would be meaningful to investors to develop a breakout of the operating results of the advertising business beyond the current GAAP segment reporting of revenue, cost of revenue and gross margin, and we are including such presentation in our non-GAAP reporting results. This presentation reflects operating expenses that are directly attributable to the advertising business. We are unable to provide a similar breakout of operating results for the automotive and mobile navigation businesses beyond the current GAAP segment reporting of revenue, cost of revenue and gross margin because these segments share many of the same technologies and resources and as such, have operating expenses which cannot be fully attributable to one versus the other segment. In addition, the reported non-GAAP operating results for the advertising business only include an allocation of certain shared corporate general and administrative costs that directly benefit the business, such as accounting and human resource services.

To reconcile the historical GAAP results to non-GAAP financial metrics, please refer to the reconciliations in the financial statements included in this earnings release.

In this earnings release, Telenav has provided guidance for the third quarter of fiscal 2017 on a non-GAAP basis, for billings, non-GAAP gross margin on billings, adjusted EBITDA and adjusted EBITDA on billings. Telenav does not provide reconciliations of its forward-looking non-GAAP financial measures of billings, non-GAAP gross margin on billings, adjusted EBITDA and adjusted EBITDA on billings to the corresponding GAAP measures due to the high variability and difficulty in making accurate forecasts and projections with respect to deferred revenue, deferred costs, stock-based compensation and tax provision (benefit), which are components of these non-GAAP financial measures. In particular, stock-based compensation is impacted by future hiring and retention needs, as well as the future fair market value of Telenav's common stock, all of which is difficult to predict and subject to constant change. The actual amounts of these items will have a significant impact on Telenav's GAAP net loss per diluted share and GAAP tax provision (benefit). Accordingly, reconciliations of Telenav's forward-looking non-GAAP financial measures to the corresponding GAAP measures are not available without unreasonable effort.

Forward Looking Statements

This press release contains forward-looking statements that are based on Telenav management's beliefs and assumptions and on information currently available to our management. Actual events or results may differ materially from those described in this document due to a number of risks and uncertainties. These potential risks and uncertainties include, among others: Telenav's entry into an agreement with Ford to provide MapCare in Europe for SYNC 3 equipped vehicles; Telenav's ability to develop and implement products for Ford, GM and Toyota and to support Ford, GM and Toyota and their customers; adoption by vehicle purchasers of Scout for Cars; Telenav's dependence on a limited number of automotive manufacturers and original equipment manufacturers ("OEMs") for a substantial portion of its revenue; Ford's announcement that it believes that the market for automobiles generally will not grow at the pace that it has been growing; the impact of changes in the timing of revenue recognition for our sales of MapCare to Ford for vehicles with SYNC 3 in Europe; potential impacts of OEMs including competitive capabilities in their vehicles such as Apple Car-Play and Android Auto; Telenav's success in achieving additional design wins from OEM and automotive manufacturers and the delivery dates of automobiles including Telenav's products; Telenav's ability to grow and scale its advertising business; Telenav's ability to develop new advertising products and technology while also achieving cash flow break even and ultimately profitability in the advertising business; Telenav incurring losses; competition from other market participants who may provide comparable services to subscribers without charge; the timing of new product releases and vehicle production by Telenav's automotive customers, including inventory procurement and fulfillment; possible warranty claims, and the impact on consumer perception of its brand; Telenav's ability to develop and support products including Open Street Maps ("OSM"), as well as transition existing navigation products to OSM and any economic benefit anticipated from the use of OSM versus proprietary map products; the potential that we may not be able to realize our deferred tax assets and may have to take a reserve against them; and macroeconomic and political conditions in the U.S. and abroad, in particular China. We discuss these risks in greater detail in "Risk factors" and elsewhere in our Form 10-Q for the three months ended September 30, 2016 and other filings with the U.S. Securities and Exchange Commission (SEC), which are available at the SEC's website at www.sec.gov. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management's beliefs and assumptions only as of the date made. You should review our SEC filings carefully and with the understanding that our actual future results may be materially different from what we expect.