TeleNav 2010 Annual Report Download - page 51

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result of this amendment to our agreement with Sprint, we believe that future ARPU and average monthly paying
end users may not be comparable to earlier periods or be a meaningful indicator of our financial performance.
In September 2010, we also amended our agreement with Tele Atlas to change the fee structure for map and
POI data we provide as part of our navigation services in Sprint’s bundled offerings. The material impact of the
amendment is to align the manner in which we pay fees to Tele Atlas with the manner in which we receive
revenue from Sprint. Pursuant to the amended agreement, we will pay Tele Atlas a percentage of fees we collect
from Sprint for basic navigation services and our gross advertising and mobile commerce revenue, as well as a
flat monthly fee per subscriber for premium navigation services. We also agreed to certain guaranteed minimum
payments to Tele Atlas for such services. These amendments did not affect our results of operations for fiscal
2008, 2009 or 2010 but will affect our results of operations beginning in the first quarter of fiscal 2011. Although
we have taken action to increase the predictability of certain of our third party map and POI data costs for
services that we provide for an annual fixed fee that is not dependent on the number of subscribers, we may not
have adequately aligned our fee structure for map and POI data with revenue from Sprint’s bundled offerings,
and may not be successful in minimizing the impact of the recent Sprint amendment on our gross margin.
Our total revenue grew from $48.1 million in fiscal 2008 to $110.9 million in fiscal 2009 and to $171.2
million in fiscal 2010. Our net income also increased from $4.6 million in fiscal 2008 to $29.6 million in fiscal
2009 and to $41.4 million in fiscal 2010.
Key components of our results of operations
Sources of revenue
We primarily derive our revenue from our wireless carrier partners for their customers’ subscriptions to our
LBS, as well as from activation fees for certain of our services. We receive revenue from our wireless carrier
partners in three ways: (1) a monthly subscription fee per end user, (2) commencing in fiscal 2011, a fixed annual
fee for any number of subscribers (up to specified thresholds) receiving our services as part of bundles with other
voice and data services or (3) a revenue sharing arrangement that may include a minimum fee per end user.
Certain of our contracts provide our wireless carrier partners with discounts based on the number of end users
paying for our services in a given month. In general, our wireless carrier partners pay us a lower monthly fee per
end user if an end user subscribes to our LBS as part of a bundle of mobile data or voice services than if an end
user subscribes to our LBS on a stand alone basis. In the future, we may have other revenue models, including
fees for certain automotive navigation applications or advertising supported arrangements.
Our wireless carrier partners are responsible for billing and collecting the fees they charge their subscribers
for the right to use our LBS. When we are paid on a revenue sharing basis with our wireless carrier partners, the
amount we receive varies depending on several factors including the revenue share rate negotiated with the
wireless carrier partner, the price charged to the subscriber by the wireless carrier partner, the specific sales
channel of the wireless carrier partner in which the service is offered and the features and capability of the
service. As a result, the amount we receive for any subscriber may vary considerably, and is subject to change
over time.
In addition, the amount we are paid per end user may also vary depending upon the metric used to determine
the amount of the payment, including the number of end users at any time during a month, the average monthly
paying end users, the number and timing of end user billing cycles and end user activity. Although our wireless
carrier partners generally have sole discretion about how to price our LBS to their subscribers, our revenue
sharing arrangements generally include monthly minimum fees per end user. To a much lesser extent, we also
sell our services directly to consumers through our website and through application stores.
Subscription fees from our wireless carrier partners represented substantially all of our revenue for fiscal
2010. In fiscal 2010, Sprint and AT&T represented 55% and 34% of our revenue, respectively. Subscription fees
from our GPS Navigator service represented 92% and 94% of our revenue in fiscal 2009 and 2010, respectively.
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