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AutoNavi Holdings (NASDAQ:AMAP)

Q4 2013 Earnings Conference Call

February 28, 2014 08:00 AM ET

Executives

Helen Zhu - Director of IR

Congwu Cheng - CEO

Ji Ma - CFO

Analysts

Jake Lynch - Macquarie

Operator

Good evening and thank you for standing by for AutoNavi's Holding Limited’s Fourth Quarter and Full year 2013 Earnings Conference Call. At this time all participants in a listen-only mode. After management’s prepared remarks there will be a Q&A session. Today’s conference call is being recorded, if you have any objections, you may disconnect at this time.

I would now like to turn the meeting over to your host for today’s conference, Ms. Helen Zhu, AutoNavi’s Director of Investor Relations.

Helen Zhu

Hello everyone and thank you for joining us today. The company’s fourth quarter 2013 earnings result was released earlier and available on the company’s IR website at ir.autonavi.com, as well as on Newswire Services.

Today, you will hear from our Chief Executive Officer, Mr. Congwu Cheng, who will speak about our company’s strategy, business operations, recent development and some key operating metrics and Mr. Ji Ma, our Chief Financial Officer who will walk you through our financial results. After their prepared remarks, Mr. Cheng and Mr. Ma will be available to answer your questions.

Please note that today’s discussion will contain forward-looking statements made under the Safe Harbor provisions of Section 21E of the Securities Exchange Act of 1934 as amended. Forward-looking statements are subject to risk and uncertainty that may cause actual results to differ materially from our current expectations. Potential risk and uncertainty includes but not limited to those outlined in our company’s filings with the SEC.

You are encouraged to review the forward-looking statement sections of our annual report on Form 20-F filed with SEC for additional information concerning factors that could cause those differences. AutoNavi does not assume any obligation to update any forward-looking statements, except as required under applicable law.

Our earnings release on this call include discussions of unaudited non-GAAP financial measures as explained in more details in our earnings release. The non-GAAP measures include share-based compensation expenses. Our earnings release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures.

As a reminder, this conference is being recorded. In addition, a webcast of this conference call is available on AutoNavi’s Investor Relations website at ir.autonavi.com. I will now turn the call over to our CEO, Mr. Cheng, who will speak in Mandarin and I will provide a translation. Please go ahead, Mr. Cheng.

Congwu Cheng

Hello, everyone and thank you for joining the call. In the fourth quarter, we saw sequential improvement across AutoNavi’s various operating metrics as follows; the numbers of user of AutoNavi’s mobile map application grew to over 200 million while the numbers of user of AutoNavi’s mobile navigation app grew to over 98 million. At the same time, the numbers of monthly active users of AutoNavi’s map application increased 20% quarter-over-quarter to 92 million. The numbers of monthly active users of AutoNavi’s mobile navigation application increased 30% quarter-over-quarter to 11 million. According to iMedia Research, AMAP leads a mobile map application market for the last three quarter as the number one ranked mobile map application.

In the fourth quarter we made significant progress in developing business models to monetize our growing mobile traffic. We also continue to advocate users on using our mobile map and navigation products to search for and purchase local services, further pivoting our position at the mobile gateway.

Here I would like to emphasize two highlights. First, we extended the scale of our mobile marketplace by incorporating a large numbers of online to offline services onto our mobile map platform. It includes more than 500,000 group buying deals and coupons, more than 100,000 hotels and over 200,000 restaurants and more than 400 movie theatres available for making reservations and more than 35,000 real estate properties available for renting and purchasing. In addition user can also use our mobile app to call taxis and book housekeeping and [indiscernible] driving services.

Expansion; the expansions of our local offering across a broad range of service patch grid indicates the powers of our map platforms to serve as a mobile gateway.

Second, a proportion of search queries through our map app related to local services increased to 65% while the number of local services orders through our mobile map app increased 200% in the fourth quarter.

In the fourth quarter we provided more than 30 updates of our mobile map and mobile navigation application which reflect not only the speed of our technical change but also our ability to recognize opportunities for product enhancement and response to user feedback. We focus on improvement to our user interface, and highlight it’s the online to offline functionality of our map app.

For example the group buying, or map applications provides users with location-based functionality. When they look for dining options, entertainment, accommodations and more to such well known food buying services like [indiscernible] location based enquires can also be filtered popularity, price, proximity, and offer timeframe, as soon as the group buy deals are made, they can be ordered through our map app directly.

More importantly our map provides full integration of group running and navigation services with an increasing numbers of online to offline shopping options. Our cooperation with Alibaba in the online to offline area continued in the fourth quarter. For example how Dianping, our mobile restaurant booking platform under [indiscernible] is now integrated into the AMAP apps.

We are also working with Alimama, which is Alibaba’s online advertising exchange platform to manage more than a 100,000 brand advertisements with Tmall shops, including GAP, South, Northwest, Seven Wolf, Talbots [ph] and Ozone, across the point of interest pages of our map apps. Users will see those apps on the point of interest pages of the respective local merchants. User can also create an app and/or app will direct them to the brand's online store on Tmall. This Alibaba resource is offered exclusively through our mobile map platform.

During the fourth quarter, we focus on products operations and joint promotion with our strategic partners. In December, we introduced a numbers of activities designed on top of our map apps local services to attract users to use or app for location based local services.

For example, our hotel reservation service offers telephone rate based to every user who booked a room view or map apps during the service's promotional period. This resulted in the numbers of bookings on the business days represented 55% growth compared to before the promotion. After the promotion they continue to see an increase in daily hotel bookings with the previous day reaching 73% growth compared to the average daily hotel bookings through our map app before the promotion.

In the fourth quarter, we were delighted to welcome Ms. Lynn [indiscernible] a Taiwanese model and artist as a products spokesperson. We also launched a Lynn [indiscernible] voice guided navigation option for our mobile products. User feedbacks regarding our navigation services has been very positive and we will continue with our branding efforts.

Additionally, our LBS services platform is now connected with the SINA app engine, which makes our LBS services available to SINA developers. At the end of December, the numbers of apps that has adopt our LBS services has gone 90% quarter over quarter and included such categories as SNS, group buying, mobile search, online travel, taxi calling, real estate services. Daily search -- daily service queries of our LBS services increased 50% quarter over quarter to 1.5 billion in the fourth quarter.

Looking back to 2013 we made significant improvement in our product offerings business model development, marketing, talent recruitment and retention and corporate cultures, for example 50% of new senior level [indiscernible] were from China’s Q1 Internet companies.

Looking ahead we will continue to invest heavily in the mobile space, classify our mobile offering further enhance our user experience and brand awareness, while ultimately increasing our user base after the usage and market shares. Although a large capital investment will result in short term losses, our performance in 2013 has already resulted in a shift in mobile user behavior in the way consumer search and order low cost services on our mobile platform while also underscoring the liabilities or strategy of making our mobile map an important gateway to the mobile internet.

Now I will turn the call over to our CFO Ji, who will provide a review for financial performance for the quarter.

Ji Ma

Thank you Mr. Cheng and hello everyone. Before talking about financial details I would like to reaffirm the way the management reads the financial results. We view our current revenues as cash cost and considering our cost and expenses as necessary investment for maintaining our growing momentum in the mobile space and establishing our foundation for our future success.

For the fourth quarter AutoNavi’s total net revenue was $32 million, representing a 28% year-over-year decrease and 16% quarter-over-quarter decrease. For the full year our total net revenue were $142 million, down 11% year-over-year. The declines in our total net revenues were within management’s expectations. As the company continues to direct its resources and efforts towards its mobile internet business.

So moving to our current revenue mix, revenue from our AutoNavi and navigation business decreased to 14% year-over-year and flat quarter-over-quarter to $19 million in the quarter. For the full year revenues from our AutoNavi navigation business dropped 20% to $73 million. The decrease were mainly attributable to the changes in our work with BMW as previously noted.

Revenues from our mobile and internet location based solutions business equates to approximately 40% year-over-year and quarter-over-quarter to $9 million in this quarter; the decrease was primarily due to the Company’s making its premium navigation app freely available to users. For the full year revenues from this sector increased 10% year-over-year to $52 million.

Revenues from our public sector and enterprise applications business decreased 46% year-over-year and 10% in quarter-over-quarter to $3 million in the quarter.

For the full year revenues from our public sector and enterprise applications business decreased 15% to $15 million, the decrease were mainly due to the decline in the company’s [indiscernible] business.

Moving now to our cost and expenses, which reflects company’s continuing investment in company product offerings and promotions to support its adventure in mobile internet space.

First, non-GAAP cost of revenues increased 11% year-over-year and 16% quarter-over-quarter to $14 million in the quarter. For the full year, non-GAAP cost of revenues increased 13% to $48 million, the increase in Company’s cost of revenue reflects our [indiscernible] efforts in reaching the location based content in our data base to power our mobile offerings.

Second, non-GAAP R&D expenses increased 89% year-over-year and 13% quarter-over-quarter to $18 million in the quarter. For the full year non-GAAP R&D expenses increased 72% to $55 million. The increase were mainly because the company continued to attract and retain R&D [talent] in order to continuously improve the user experience of our mobile products.

Third, non-GAAP sales and marketing expenses increased 165% year-over-year and 15% quarter-over-quarter to $17 million in the quarter. For the full year non-GAAP sales and marketing expenses increased 116% to $44 million. The increases were primarily attributable to the Company’s continued promotion of our mobile offerings particularly advocating users to search for and other O2O services through our mobile apps.

AutoNavi booked a non-GAAP operating loss of $26 million in the quarter and $28 million for the full year. As Mr. Cheng advertised in his remarks, we will continue our heavy investment in the mobile space this year which will further effect our near-term bottom-line. However, the progress we have consistently made over the past quarters, especially the dramatic growth in O2O orders through our apps and of course the potential for monetizing our growing mobile traffic.

Before we open the call to questions, as you know from our public filings on February 10, 2014, Alibaba made a non-binding proposal to our Board of Directors to take the company private at a price of $21 per ADS. Our Board of Directors have formed an independent committee to evaluate the proposal. The independent committee’s work is ongoing and we are not able to comment on these matters during the call today. So, we will now open the call to questions. So operator go ahead.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) The first question comes from the line of Jake Lynch from Macquarie. Please ask your question.

Jake Lynch - Macquarie

Yes, good evening management. Thank you very much for taking the call. On the offer from Alibaba, the independent financial advisors is the part of the review where the board have to do call around to other industry players to gage interest in making a counter offer to Alibaba’s bid?

Unidentified Company Representative

As I just mentioned we are not able to comment anything regarding review so far on this call. Thank you.

Operator

(Operator Instructions). Thank you. There are no further questions at this time. We are now approaching the end of the conference call. I will now turn the call over to AutoNavi’s Director of Investor Relations, Ms. Helen Zhu for her closing remarks.

Helen Zhu

Thank you all for joining us today. If you have any questions, please do not hesitate to contact us. Thank you very much. Bye.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Good day

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