TeleNav 2010 Annual Report Download - page 63

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lower customer support costs per end user resulting from an increased portion of customer support provided by
our wireless carrier partners and our greater use of outsourcing, partially offset by the decrease in ARPU. The
increase in cost of revenue in absolute dollars was primarily driven by the increase in our number of end users.
The majority of the increase in cost of revenue in absolute dollars was due to a 121% increase in third party
content costs and, to a lesser extent, a 28% increase in customer support costs. The decline in cost of revenue as a
percentage of revenue was primarily due to the increase in revenue from end users who receive our services as
part of a bundle of services and who, to date, have had lower average usage rates than other subscribers, as well
as from the use of lower cost content for our LBS.
Gross profit. Our gross profit increased 147% from $36.7 million in fiscal 2008 to $90.6 million in fiscal
2009 primarily due to the increase in our number of end users. Our gross margin also increased from 76% in
fiscal 2008 to 82% in fiscal 2009.
Research and development. Our research and development expenses increased 72% from $13.7 million in
fiscal 2008 to $23.5 million in fiscal 2009. The increase was primarily due to additional research and
development employees to enhance the functionality of our services and develop new offerings. The total number
of research and development personnel increased 94% from 270 at June 30, 2008 to 524 at June 30, 2009. We
have China based development locations in Shanghai and Beijing, China. During fiscal 2009, we also opened a
research and development facility in Xi’an, China. As a percentage of revenue, research and development
expenses fell from 28% in fiscal 2008 to 21% in fiscal 2009 due to the significant increase in revenue and
expansion of our research and development headcount in lower cost Chinese development centers.
Sales and marketing. Our sales and marketing expenses increased 25% from $13.2 million in fiscal 2008 to
$16.5 million in fiscal 2009. The increase was primarily due to growth in the size and compensation of our sales
and marketing team. The total number of sales and marketing personnel increased 8% from 97 at June 30, 2008
to 105 at June 30, 2009. As a percentage of revenue, sales and marketing expenses decreased from 28% in fiscal
2008 to 15% in fiscal 2009 as a result of leveraging our investment in sales and marketing across a higher
revenue base.
General and administrative. Our general and administrative expenses increased 66% from $5.0 million in
fiscal 2008 to $8.3 million in fiscal 2009. The increase was primarily due to added personnel, consultants and
legal expenses and investment in our management information and internal control systems. The total number of
general and administrative personnel increased 50% from 28 at June 30, 2008 to 42 at June 30, 2009. As a
percentage of revenue, general and administrative expenses decreased from 10% in fiscal 2008 to 8% in fiscal
2009.
Other income (expense), net. Our other income (expense), net was $10,000 in fiscal 2008 and $(776,000) in
fiscal 2009. The change was primarily due to increases in the expense related to the increase in the fair value of
our Series E preferred stock warrants and reductions in the interest paid on our cash balances.
Provision for income taxes. Our provision for income taxes increased from $184,000 in fiscal 2008 to $11.9
million in fiscal 2009. Our effective tax rate increased from 4% in fiscal 2008 to 29% in fiscal 2009. Our total tax
liability and effective tax rate increased in fiscal 2009 due to our higher taxable income, offset somewhat by
utilization of research and development tax credits and U.S. federal loss carryforwards, to the extent not limited
by Section 382 of the Internal Revenue Code. In addition, we had established a valuation allowance in an amount
equal to the deferred tax assets at June 30, 2008. During fiscal 2009, we determined that it was more likely than
not that $2.5 million of our deferred tax assets would be realizable, based on our earnings history and projected
future taxable income. As a result, we recognized an income tax benefit of $2.5 million in fiscal 2009 through the
release of a portion of our valuation allowance.
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