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Executives

Cynthia Hiponia – Investor Relations

HP Jin – Co-Founder, President and Chief Executive Officer

Michael Strambi – Chief Financial Officer

Analysts

Ron Shuttleworth – M Partners

Gregory Burns – Sidoti & Company

James Faucette – Pacific Crest Securities

Telenav, Inc. (TNAV) F3Q13 Earnings Call April 25, 2013 5:00 PM ET

Operator

Good day and welcome to the Telenav’s Third Quarter 2013 Fiscal Earnings Conference Call. Today’s conference is being recorded and at this time, I’d like to turn the call over to Ms. Cynthia Hiponia. Please go ahead ma’am.

Cynthia Hiponia

Thank you, Tom, this is Cynthia Hiponia, Telenav Investor Relations and I’m pleased to welcome you to Telenav’s conference call to discuss its third quarter fiscal year 2013 earnings results.

After the market close today, Telenav issued a press release through Globe Newswire. The release is also available on the Telenav website at telenav.com. 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 fourth quarter of fiscal 2013, fiscal 2013 and fiscal 2014.

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 then actual events or 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 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 year or any forward-looking information in this call as a result of new developments or otherwise.

As announced earlier this month, Telenav closed its sale of the enterprise business during the fourth fiscal quarter. The results of operations of our enterprise business have been classified as discontinued operations in our income statement for all periods discussed unless otherwise stated.

Today, we will also be discussing our results on a GAAP as well as non-GAAP basis. These non-GAAP results including adjusting EBITDA also sometimes called pro forma results exclude stock-based compensation expense and assume that our preferred stock was converted for common stock on the state of issuance for calculations of earnings per share. We may use these additional non-GAAP measures as they believe they give useful operating information in addition to the GAAP results. A reconciliation of GAAP to non-GAAP financial statements is available in our press release and on our Investor Relations web page.

Let me now turn the call over to HP Jin, Telenav’s President and CEO.

HP Jin

Thank you. Thank you for joining Telenav’s third fiscal, third quarter fiscal 2013 earnings call. With me on the call today is our Chief Financial Officer, Mike Strambi. First I will discuss the highlights of our fiscal third quarter and provide an update on our progress in several strategic growth areas. Then I would turn the call over to Mike to discuss our financial results in more detail and provide our outlook.

As Cynthia noted, we’ll discuss results in terms of continuing operations, which include our Enterprise business, which was sold in the April quarter. We achieved solid results in the third fiscal quarter with revenue from continuing operations of $55 million. For comparative purpose, including Enterprise revenue was $57.8 million. We are happy to report that, both results were above the guidance, we provided on our last call.

Strategic growth and international revenue from continuing operations in the third quarter was over $32 million, up 46% quarter-over-quarter and up 115% year-over-year. This represented 58% of the total revenue as compared to 46% of total revenue in the prior quarter and 27% of total revenue in the prior year.

As expected, our traditional carrier paid mobile business continues to decline as a percentage of revenue, while paid bundling arrangement with Sprint, which was set to expire at the end of June 2013, has been extended by an additional quarter for $3.6 million.

It is important to note that we are not forecasting any incremental revenue from Sprint related to bundling post to the September 2013 quarter. As we have discussed on prior calls, the termination of the paid bundles, we expected to have significant short-term negative financial impact to revenue, margins and profitability.

However, our strategic partnership with Sprint remains effective until the end of calendar 2015. This partnership includes pre-load and joint marketing of our Scout branded product to be monetized through revenue share of advertising and premium up-sell opportunities.

Our diversification from our traditional tariff paid mobile business is led by our automotive business with revenue in the third quarter reaching $25.3 million, representing 46% of the total revenue and the growth of 61% quarter-over-quarter and the 273% year-over-year. Telenav now is imbedded in 15 of 24 models in North America.

In the March quarter, Ford began shipping cars to China showroom floors, which include Telenav navigation solution. Telenav recognized in excess of $1 million in revenue for these shipments. We are very pleased with the results of our first quarter in China with Ford.

We remained on track to extend with Ford in Europe, Australia and the New Zealand during calendar 2014. Previously, we estimated that the revenue from our automotive business should double year-over-year to over $15 million in fiscal 2013. We are pleased that we achieved this goal early and now expect revenue from automotive to exceed $65 million in fiscal 2013 or approximately 35% of total revenue. However, as we complete our lower with Ford in North America, we start to see there year-over-year growth rates in automotive begin to moderate in fiscal 2013.

In April, we announced our New Scout for Cars Built in Navigation Product. We have integrated in-dash navigation with mobile and cloud services for real-time, personalized information. Automakers now have the ability to offer in-car navigation with always up-to-date content and the services. The consumer can experience the Scout navigation service inside or away from the car in a seamless way.

During the third quarter, Telenav launched a new features on Scout for iPhone that make it easy for users to plan with friends by sharing locations and turn by turn navigation. The app store ratings for Scout or for iPhone was consistently rated 4.5 stars in the third quarter of fiscal 2013.

Our mission is to help to make people’s lives less stressful, more productive, and more fun when they are on the go. To fulfill this mission, we continue to invest in creating features to differentiate Scout and add value to our users. For example, we recently announced the major upcoming updates to our free Scout for phones application. This includes 3D buildings and landmarks and improvement to the application, applicant is Traffic content and user interface.

We are adding our ability to easily report have the instant information, which Scout were then integrated into its traffic and congestion database. We are also expanding the overall traffic coverage by five times, by adding information for arterial roadways. Our user interface will feature improvements that will update drivers on upcoming traffic and alternate routes.

In mobile advertising, we’re seeing significant progress in our Scout advertising platform. We experienced a significant increase in bookings with the local advertisers, and strong advertiser three months renewal rate of over 50%. While the numbers remain relatively small, we are encouraged by the momentum, we are seeing all with respect to customer engagements and our ongoing targeting enhancement to our platforms. We recently released data remain across our search and navigation infrastructure, about located and driving behavior in 15 cities across the U.S. to understand the distance, consumers drive to get to various types of businesses.

The entire data is available on our website, however as a example the data shows how far someone in Seattle may go for copy versus someone in Boston, that differences in preference and behavior and our ability to mind the massive amount of data available to us from various sources, present us with a unique capability to refine our advertising targeting, for instance the proper for copy advertiser in Seattle would be different than in Boston. As we continue to update our data, we anticipate being able to offer our advertisers better performing campaigns with much more precisions.

In summary, during the third quarter, we focused our business objectives and invested in strategic areas while are prudently managing our costs. As we continue to align our resources and optimize our business towards the higher growth market of automotive, mobile advertising and the premium services. We do not anticipate net reduction in our cost structure in the near-term.

We recognize that this means in fiscal year 2014, we would expect to incur operating losses. We will continue to make strategic investment for long-term growth. The reason we were able to achieve 115% year-over-year growth in strategic growth and international in the third quarter is due to investments we made several years ago.

Based on our past investment success in automotive and businesses, we are confident that continuing investment now even in the phase of short-term revenue pressures will result in the greatest return to own investment for shareholders, based on the significant market opportunities, which we’re pursuing.

Let me now turn the call over to Mike Strambi, our CFO. Mike?

Michael Strambi

Thank you, HP. As HP mentioned, we closed the sale of our enterprise business earlier this month as part of our strategy to strengthen and focus more on our strategic growth areas. The sales closed on April 16, 2013. However, the effected date in terms of financial reporting is April 1. The net operating results of our enterprise business are reported as income from discontinued operations at net of tax for all periods presented. And the remainder of our business is reported as income from continuing operations net of tax.

Let me now discuss results of the third quarter in more detail. These discussions unless otherwise indicated are for our continuing operations. Revenue in the third fiscal quarter was $55 million which includes approximately $2.8 million of revenue from the discontinued operations of our Enterprise business. This compares with $47.2 million of revenue from continuing operations in the prior sequential quarter and $54.5 million in the third quarter of fiscal 2012.

The increase in revenue was primarily driven by a $7.7 million in revenue related to customize engineering services provided to our automotive customers. In addition to this growth, we saw a positive impact for revenue from the recognition of $4 million for map content upgrades with Ford.

Revenue from our product business which primarily consists of the delivery of customized software and royalties earned from our navigation solution with Ford was $24.8 million in the third quarter up from $14.5 million in the prior quarter and $9.8 million in the year ago quarter.

This represents 71% growth sequentially and a 154% growth year-over-year. Revenue from our services business was $30.2 million down from $32.7 million in the prior quarter and $44.8 million in the year ago quarter reflecting the effect of the Sprint agreement revised in July 2012 in which the quarterly revenue under the Sprint bundle was reduced.

And the continuing pressure on our other carrier business including AT&T. Strategic growth in international revenue excluding revenue from our Enterprise business in the third quarter was $32.1 million, up 46% from $21.9 million from the prior quarter and up 115% from $14.9 million in the third quarter of last year. Strategic growth in international revenue represented 58% of total revenue in the quarter.

To provide you a little more granularity, automotive revenue consisting of revenue from Ford was $25.3 million, up from $15.1 million sequentially and $10.3 million year-over-year. Advertising and premium revenue was $2.8 million, up from $2.7 million in the prior quarter. We were disappointed with these results. However, we do not believe they reflect the longer term trend as we achieved healthy advertising bookings during the quarter.

International revenue was $3.9 million, down from $4.1 million sequentially and up from $3.2 million year-over-year primarily due to a change in our relationship with China Mobile. And as a remainder, any revenue on automotive navigation shipments outside the U.S. is not currently classified as international revenue as our major automotive customers are U.S. based.

For the March quarter, AT&T comprised 23% of revenue compared to 33% in the year-ago quarter. The decrease was the result of a continuing pressure on our carrier business as I mentioned earlier. Sprint comprised 15% of revenue, compared to 34% than the year ago quarter. Gross margin for the quarter was 61%, down from 63% in the prior quarter and 74% than the same quarter last year.

The sequential decrease in gross margin was in part a result of a one-time charge taken, related to contractual commitments, which we incurred as a result of improved engineering processes. The decrease in gross margin year-over-year was consistent with our expectations based on our revenue mix shift towards automotive. We continue to expect our overall gross margins to be declining based on the mix shift toward automotive revenue.

Non-GAAP gross margin for the quarter was 63%, down from 72% than the prior quarter and 75% in the same quarter last year. Research and development expenses in the quarter were $16.1 million, up from $14.3 million in the December quarter and down from $17.3 million in the March quarter of last year. The sequential increase in R&D was partially a result of a $1 million reimbursement in the prior quarter related to cost incurred in connection with the cost recovery contract with a third-party.

Sales and marketing expenses were $7.9 million, up from $7.6 million in the December quarter and $7.3 million in the same quarter last year. General and administrative expenses were $5.3 million, which compares with $7.4 million in the prior quarter and $5.5 million in the third quarter of fiscal 2012. The sequential decrease was primarily a result of charges we incurred in the December quarter for a legal settlement with Navtec related to a previously disclosed royalty dispute.

Stock-based compensation expense for the March quarter was $2.6 million. On a GAAP basis, net income from continuing operations for the third quarter of fiscal 2013 was $3.8 million or $0.09 per diluted share compared to net income from continuing operations of $400,000 or $0.01 per diluted share in the second quarter of fiscal 2013 and net income from continuing operations of $7.1 million or $0.16 per diluted share for the third quarter of fiscal 2012.

For the sequential increase in net income from continuing operations for the third quarter was primarily a result of higher performance of our automotive business. The year-over-year decrease of net income from continuing operations was primarily a result of lower gross margin for the reasons I mentioned earlier. For the third quarter non-GAAP net income was $6.9 million or $0.17 per diluted share which compares to a $4.2 million or $0.10 per diluted share in the second quarter of fiscal 2013, and $8.7 million or $0.20 per diluted share in the third quarter of fiscal 2012.

We generated adjusted EBITDA of $8.8 million in the quarter. Turning to the balance sheet, we continue to be debt free and ended the March quarter with approximately $188 million in cash, cash equivalents and short-term investments. This is a decrease from the $208 million in the prior quarter, as a result of approximately $12 million in stock repurchases and the effect of significant prepayments and prior quarters from certain customers on our operating cash flow.

We ended the quarter with 833 full-time employees, a decrease from 874 at December 2012 quarter end. The effect of the Enterprise business will result in a revised headcount of 760. Now on to our financial outlook for the June quarter and full fiscal year ending June 30, 2013.

Our guidance will be for continuing business operations unless otherwise stated. Our business outlook for the June quarter is as follows. In April 2013, Telenav and Sprint agreed to extend their bundle agreement through September 30, 2013 because of the manner which Telenav recognizes revenue for bundled services to Sprint, the extension of the agreement with Sprint by 90 days requires Telenav to recognize some revenue that otherwise would have been recognized in the fourth quarter of fiscal 2013 in the first quarter of fiscal 2014.

As a result, Sprint bundle revenue for the fiscal fourth quarter 2013, and fiscal first quarter 2014 will be approximately $5.5 million for each quarter. Telenav‘s guidance is provided for continuing operations unless otherwise stated. Total revenue from continuing operations is expected to be $41 million to $43 million. Revenue from continuing operations from strategic growth areas and international is expected to be 55% to 60% of total revenue.

GAAP gross margin from continuing operations is expected to be 63% to 64%. Non-GAAP gross margin from continuing operations is expected to be 65% to 66%, and excludes adjustments, which include the amortization of capitalized software and developed technology of approximately $1 million. GAAP operating expenses from continuing operations are expected to be $30 million to $31 million. Non-GAAP operating expenses from continuing operations are expected to be $27 million to $28 million.

GAAP net loss from continuing operations is expected to be minus $1 million to minus $2 million, excluding net income from discontinued operations on the gain on the sale of the Enterprise business of approximately $6 million net of tax or per diluted share of range of minus $0.02 to $0.05 per share.

Non-GAAP net income is expected to be $2 million to $3 million, and excludes a tax effected impact of approximately $3 million of stock-based compensation expense, approximately $1 million of capitalized software and developed technology amortization expenses, and approximately $9.5 million of income from discontinued operations or per diluted share of range of $0.05 to $0.07.

Adjusted EBITDA, earnings before interest, taxes, depreciation, amortization, stock-based compensation expense, and income from discontinued operations is expected to be $1.5 million to $2.5 million, and excludes the impact of approximately $3 million in stock-based compensation expenses, approximately $2.5 million for depreciation and amortization expenses, and approximately $9.5 million of income from discontinued operations. Weighted average diluted shares outstanding are expected to be approximately $41 million.

For the fiscal year ending June 30, 2013, our business outlook is as follows. Total revenue from continuing operations is expected to be $186 million to $188 million, reflecting the exclusion of $9.6 million in revenue earned and the nine months ended March 31, 2013 on the discontinued operations from the sale of the enterprise business in April 2013.

Revenue from continuing operation from strategic growth areas in international is expected to be approximately 50% of total revenue from continuing operations for the fiscal year and reflects the exclusion of $9.6 million in revenue earned in a nine months ended March 31, 2013 on the discontinued operations from the sale of the enterprise business in April.

GAAP gross margin from continuing operations is expected to be approximately 65%. GAAP net income from continuing operations is expected to be $4 million to $5 million, excluding net income from discounted operations of approximately $7 million or per diluted share a range of $0.10 to $0.12. Non-GAAP net income is expected to be $17 million to $18 million, and excludes the tax effected impact of approximately $9.5 million of stock-based compensation expense, approximately $4 million of capitalized software and developed technology amortization expenses, approximately $1.3 million of legal settlement, and approximately $11 million of income from discontinued operations or per diluted share a range of $0.40 to $0.43.

Adjusted EBITDA, earnings before interest, taxes, depreciation, amortization, stock-based compensation expense, legal settlements and gain and income from discontinued operations is expected to be $23 million to $24 million, and excludes the impact of approximately $9.5 million in stock-based compensation expenses, approximately $9 million of depreciation and amortization expenses, and approximately $11 million of income from discontinued operations.

Weighted average diluted shares outstanding are expected to be approximately $42 million. Given that we have provided guidance in the fourth quarter of an operating loss from continuing operations, we believe it is prudent to provide some directional guidance for fiscal 2014 regarding operating cost. As such Telenav does not anticipate operating cost reductions in fiscal 2014 and expects to incur losses in fiscal 2014.

With that H. P and I are available to take your questions. Operator, if you could please open the line for questions.

Question-and-Answer Session

Operator

(Operator Instructions) We’ll take our first question from Ron Shuttleworth with M Partners.

Ron Shuttleworth – M Partners

Hi, good afternoon folks.

HP Jin

Hi, Ron, how are you?

Ron Shuttleworth – M Partners

I’m good, thanks. The 2014 outlook of since we incurring losses has a lot of implications and I am just – can you just give a little bit of clarity around that please?

HP Jin

It’s not – we’re not giving like a specific guideline to our fiscal 2014, but since we are guiding Q4 to our operating loss, so we feel a time is a kind of a to give direction of guidance on fiscal 2014. And also we’ve made a comment about the cost side. So the cost side given the strong momentum we’re building in this strategic growth areas. We like to invest and so that actually require us to have a net more or less flat cost. So that gives us some kind of a comfort in guiding the direction of guidance for fiscal 2014. And it’s hard to give anything beyond that. We will give more details at the next quarter.

Ron Shuttleworth – M Partners

Okay. Basically what you’re saying is that, you expect a more erosion of top line revenue in 2014?

HP Jin

Mainly due to the Sprint, right Sprint and we have the major reason for the loss of revenue. And then there is some revenue ups and revenue downs. So it’s hard to give a clear guidance at this point.

Ron Shuttleworth – M Partners

Okay. And because the losing we all know here, you’re losing the Sprint revenue and you’ve also know it for quite a while. And so you’re telling in the market that you’re telling us that there is no additional growth in revenue from any of your other businesses to help offset that, is that what you’re basically saying?

Michael Strambi

It’s another reason is also margin our shift right. So the additional business we had the higher margin with automotive business of that margin is lower. So with that change of the mix also reduce the profitability. So there will be some compose definitely in the growth areas will continue to grow. It will decline to the contingent decline, but in terms of exact the rate of each is quite dynamic. So it’s a good to wait another quarter to give full-year guidance.

Ron Shuttleworth – M Partners

So the next around gross margins is, now you’ve had some experience over two years experience with Ford and you can’t know we are going with your automotive space, where do you see your gross margins settling in that as you have recast your company as more of an automotive network type of company, where did you see gross margins finally settling…?

Michael Strambi

So again Ron, we’re not giving formal guidance into 2014, but as HP alluded to the increasing mix of automotive, there is a – the largest impact on that – to that – previously spoken that our automotive gross margins were generally going to be a closer to the 50%, and we’ve previously also have indicated as we expand our geographic footprint our experiences is that the math costs are higher proportionately in their rational regions, so we think there will be continued downward pressure across our overall gross margin as a result of that.

Ron Shuttleworth – M Partners

Okay. And are you launching the Chinese automotive company in calendar year – in this calendar year?

Michael Strambi

We are pleased to announce that we have singed an arrangement through Delphi with the large China auto manufacturer I think that’s why

Ron Shuttleworth – M Partners

That’s correct.

Michael Strambi

What you are alluding to and we anticipate that would be sometime in calendar 2014?

Ron Shuttleworth – M Partners

Okay. All right, so that will be...

Michael Strambi

And as we indicated on the

Ron Shuttleworth – M Partners

Go ahead.

Michael Strambi

As we indicated on the call, of course we’ve launched in the China geography this past quarter through Ford.

Ron Shuttleworth – M Partners

Right, got it. So the Delphi Chinese manufacturers you are looking at probably fiscal 2015 before you start recognize?

Michael Strambi

Yes, I think it’s closer to that. That’s correct.

Ron Shuttleworth – M Partners

Okay, I assume we structured similarly to Delphi deal you have done with the GM?

Michael Strambi

Yeah, very similar.

Ron Shuttleworth – M Partners

Okay. All right, can you have other ones in the pipeline that have near-term potential of course…?

Michael Strambi

Yeah, we’re working on some deals potentially for mid-term, not the really near-term within a year. It’s hard to take anything done within a year. But at the (inaudible) there is potential to have impacting the second year. But we’re not expecting higher volume in second year. But there are possibilities. Okay, all right. Thanks for your time. I’ll go back into the queue.

Ron Shuttleworth – M Partners

Thank you.

Operator

(Operator Instructions) We’ll go next to Greg Burns with Sidoti & Company.

Gregory Burns – Sidoti & Company

Good afternoon. I was just wondering…

HP Jin

Good afternoon.

Gregory Burns – Sidoti & Company

I was just wondering if you could give us a little more insight into the change in the relationship with China Mobile, what that means and kind of also what that means to the growth rate of your international business revenue?

HP Jin

Now for China Mobile, we have been working with China Mobile long time, but hasn’t been for generating result as a way expect it and also recently the business when doing the negotiation with them, the busy model got even changed to a more or like software development for the model. So we don’t feel that is in line with our long-term strategy in China, so we decided to not to renewal rather than focus on our own branded products in China and also focusing on auto business in China. In terms of overall revenue for international right now, we’re not really giving guidance for the next year but we’re not looking into set high growth or maybe some decline in that business, in mobile side, it is combined with auto then we’ll see growth.

Gregory Burns – Sidoti & Company

Okay. So going forward, when you report international, it will become a blend of auto and mobile?

HP Jin

So we haven’t really decided on that one yet right. So we will, I guess to investigate that one. Mike, you comment on that…?

Michael Strambi

Sure. So as we indicated in our prepared remarks, we’ve been quite literal with regard to what we classify as international. And so our in-customer today is Ford U.S., even though we’re distributing geographically into Mexico, into China, into South America, and our indicator will be in Europe, Australia and New Zealand.

And so we’ll be giving thought that in addition to that categorization that we made and consider identifying our revenue into the actual regions of which the end consumer have product through vehicles are sold into. But right now it’s based on our in-customer and for today that is Ford U.S. and starting in the June quarter, it will also encompass Delphi U.S.

Gregory Burns – Sidoti & Company

Okay. And so just want to dig a little into the fiscal 2014 guidance, if I understand correctly, OpEx isn’t going down. But is it going to go up or we looking up or flat?

HP Jin

We will be trying to control that to be at flat as possible. But they might be going up or down but it’s hard to predict at this point. But we’re not trying to look at very short-term commence our business, but it’s more in a long-term return.

Michael Strambi

And what I just might add to that is we previously discussed, we’re trying to be very thoughtful in investing into our strategic growth area. So we are actually going to be adding head count into advertising, into automotive. For example in advertising, we’re working to build our sales team.

In conjunction with those activities, we’re trying to be as efficient as possible with regard to a lot of our back-end costs, lot of our engineering efforts and so there is an alignment with regard to all of that headcount. So we’re generally trying to keep headcount relatively flat and the implication that with cost of living is that we could actually say our cost increased a bit.

Gregory Burns – Sidoti & Company

Okay and from a cash flow perspective in 2014, do you – I mean in the past you’ve said around breakeven, is that still the case?

HP Jin

So again, we’re not giving any further formal guidance than the fact that we expect to have some operating losses into 2014 and we’re engaged in developing our full financial operating strategy for 2014. So, we’re not ready to comment on cash burn into 2014 yet.

Gregory Burns – Sidoti & Company

But you didn’t, you never comment on that one right for 2014 cash burn are not burn?

HP Jin

No I’ve already guidance on 2014 on operating costs but when we give guidance we generally give adjusted EBITDA, which is a fair proxy for operating cash flow.

Gregory Burns – Sidoti & Company

Okay and just one last one of the auto market, I know Ron and Jin have talked about opening up their platforms to developers and do you perceive this kind of increasing competition and bringing in more competing solutions or even maybe some free-offerings like we’ve seen in the mobile market.

HP Jin

So it’s just like the Ford, we launch our Scout for apps and now Scout for Cars with Ford on the developer platform as their first one and maybe the only one. Of course the revenue are really from the embedded solution – embedded connector solutions.

So I think they will be continue to have both solutions, one is a really premium solution, a high reliability and always there kind of solutions. Then there will be phone-based brought in solutions. And those solutions can be premium for us right now. But they are potentially can be free operating there as well. But it’s because of the strict regulation for cars is going to be more challenging to develop customized in car solution, which is also in compliance with other regular loss regulatory rules.

Gregory Burns – Sidoti & Company

Okay, thank you.

HP Jin

Thank you.

Operator

We’ll take our next question from James Faucette with Pacific Crest.

James Faucette – Pacific Crest Securities

Thank you very much. I wanted to touch on two things, first, staying on the automotive team. Can you give us a general outline of where you see opportunities remaining, I guess in the Automotive segment? I mean and I guess we’re working out lot of the OEMs have allocated awards and have their navigation systems and I’ve even been updating on recently. So I’m just trying to get a sense for the magnitude of opportunities you see, they continue to invest against?

And then my second question has to do with advertising. You mentioned that in your prepared remarks that the advertising was a little bit disappointing in the March quarter, but you still had some good bookings. Can you give us a little inside as to why it was disappointing and how are you expect that to catchup and develop going forward? Thank you.

HP Jin

Let me share some our understanding, our insight about auto industry. Auto is still very dynamic right now. So the static, the onboard navigation is pretty clear. I ever note about onboard navigation. You charge right now $2,000 and $1,000, $7 to consumers and that is still growing. And that’s where the majority of revenue come in.

Then moving forward that model will continue to exist, but there is another connected solution will come in. So the no good connect solution yet in the market and then that will be – connectivity will be done by phone or by imbedded modem that also is different OEM there, but different strategy there. And this model for that will be very likely maybe a licensing fees, plus recurring revenue and to consumer maybe same thing, one-time fee or monthly payment.

And the third category is more broadly in solution purely based on phone, then you may have a local software to support the data from the phone, right and do navigation inside the car. So there are three or four type of models keep evolving there is a lot of strategic discussion within OEM.

So – but Telenav is really well prepared to handle all those scenarios given our strength in the imbedded solutions with Ford, out to our mobile solutions. So we are naturally in building technology to really build a bridge between cars and phone and provide seamless spreads. So that kind of I don’t – there is a lot of opportunities there, because every one of them are looking for the right solution for the future, right. So we are very excited about the potential opportunity in the auto industry. The second one is about advertising. And so Mike you want to comment about why revenue was the way it is and then I can comment about the booking?

Michael Strambi

Yes, James. This was really the first full quarter that we acquired ThinkNear. So we’ve frankly been quite focused on integrating product suites and integrating the team. And so to that, we did have some very nice success with regard to bookings. The nature of those efforts manifesting and but we referred to as an healthy increase that we’re still talking relatively small numbers is they don’t want really generate into the revenue until next quarter or the following quarter. Some of these bookings are actually for 12 month launch.

Periods, other might be for a specific three month period or in some cases as little as a week. So the manifestation of all of these efforts, we think bodes well for us over the course of the next six to 12 months. And we’ve generally been flat for probably three quarters in a row with some slight increase. But this was the first time with our improvement in bookings that we really see some of the fruits of these efforts that we made particularly with regard to the acquisition of ThinkNear.

HP Jin

Another key point, I think relate to advertising is our renewal rates also has been growing and to the point is way above 50% of renewal rate of advertisers. That was very encouraging, that show the advertising is effective and then the very strong confidence in increasing their budgets. So our booking has been on significant growth for this quarter.

James Faucette – Pacific Crest Securities

That’s great, thank you.

Operator

(Operator Instructions) We have a follow-up question from Ron Shuttleworth with M Partners.

Ron Shuttleworth – M Partners

Hey guys, I’m just still having some difficulty with the guidance for the entire fiscal year 2014 towards. We don’t know, we know our expenses are probably going to be, but we don’t know what our revenue forecast going to be? We’re still looking to step up, but we’re still going to lose money. I just don’t understand that statement that was made at the end of the press release. Can you lighten us to how you got to the point, where we’re going to have this money in fiscal 2014? We don’t have the capability of managing beyond that.

Michael Strambi

I’ll just take a couple of comments. We clearly are going to change our cadence where we give guidance for any forthcoming fiscal year until we get into our fourth quarter. But what I will just reiterate is what we’ve already communicated into the public markets is the fact that we had Sprint going away at the end of September, but that’s going to – that would have contributed $28 million in fiscal 2013, of which we are holding at about $5.5 million of that going into fiscal 2014.

And so that combined with the continuing decline that we see in our traditional mobile navigation, offset by what we think will be nice improvement in advertising and some of the continued growth that we see in automotive, which drives lower gross margins. That combined with our operating costs increasing really led us to or making sure that that message was very clear in the marketplace that we think we’ll be going into fiscal 2014 with operating losses. So hopefully that provides a little more clarity for you.

Ron Shuttleworth – M Partners

I guess, okay. Thank you.

Michael Strambi

Yes.

Operator

And there are no further questions at this time. Ms. Hiponi, I’d like to turn the call over to you for any closing comments.

Cynthia Hiponia

Thank you everyone for joining us on our call and we look forward to speaking with you next quarter.

HP Jin

Thank you.

Michael Strambi

Thank you.

Operator

Ladies and gentlemen that does conclude today’s conference. We appreciate your participation.

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