TeleNav 2013 Annual Report Download - page 45

Download and view the complete annual report

Please find page 45 of the 2013 TeleNav annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 146

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146

Table of Contents
number of subscribers (up to specified thresholds) receiving our services as part of bundles with other voice and data services, (3) a monthly or
annual subscription fee per end user, or (4) based on usage.
We generate revenue from advertising network services through the delivery of search and display advertising impressions based on the specific
terms of the advertising contract.
Recent Developments
Our agreement with wireless carrier Sprint provided that Sprint will cease to compensate us for services we provide to its customers through
bundled offerings. In April 2013, we entered into an agreement to extend the period by which Sprint would provide us with limited compensation by
90 days to September 30, 2013. Because of the manner in which we recognize revenue for bundled services to Sprint, the extension of the agreement
with Sprint by 90 days requires us to recognize some revenue that otherwise would have been recognized in the fourth quarter of fiscal 2013 in the
first quarter of fiscal 2014. Commencing on October 1, 2013, we expect that Sprint will no longer provide us material compensation for our services
on a fixed fee basis and the revenue we will receive from Sprint will consist primarily of revenue from monthly recurring fees paid by end users for
premium services or shared advertising revenue.
During fiscal 2013, we also saw declines in the number of paid monthly recurring fee end users at other large wireless carrier customers, AT&T
and T-Mobile, and we expect this trend to continue. As a result, we expect that our revenue from wireless carrier partners will continue to decline
substantially and that the composition of the remaining wireless carrier revenue will change over the near term. We expect our total revenue in fiscal
2014 will decline substantially from previous years as we do not foresee revenue from automotive navigation or advertising growing sufficiently to
offset the loss of wireless carrier revenue in fiscal 2014.
We do not expect to be able to reduce our cost of services revenue at the same rate as services revenue, if at all. We will continue to incur
significant costs, especially third party content and data center operations costs, associated with providing our navigation services at reduced revenue
rates or free under our freemium distribution model. We also anticipate that because of our efforts to grow automotive, mobile advertising and other
strategic revenue sources, our operating expenses are not expected to decline in fiscal 2014 at the same rate as our revenue. As a result, we believe
that we will incur substantial net losses in fiscal 2014. If we are unable or elect not to reduce our expenses, we may not be able to achieve
profitability in fiscal 2015 and possibly beyond.
In fiscal 2014, as has been the case to a lesser extent in fiscal 2013, we expect that subscription revenue from our partnerships with wireless
carriers for navigation will decline substantially as our agreement with Sprint transitions to a predominantly freemium model and AT&T and T-
Mobile continue to experience declines in subscribers paying monthly recurring charges for navigation applications. We expect that over time,
certain other wireless carrier partners will shift to models in which we are not compensated on a fixed basis for our services but instead share revenue
received with them, whether that revenue is generated directly from monthly recurring charges for navigation services or from advertising in our
navigation services.
In an effort to focus more and strengthen our strategic consumer, advertising and automotive business, on April 16, 2013 we closed the sale of
our enterprise business to FleetCor Technologies Operating Company, LLC, or FleetCor, for approximately $10.0 million in cash and the assumption
by FleetCor of certain liabilities relating to our enterprise business. Our enterprise business enabled companies to better manage operations by using
our navigation services platform to track status and the location of mobile workers, vehicles and assets deployed in the field. In connection with the
completion of the transaction, 50 of our employees became employees of FleetCor. We are providing certain services to FleetCor to facilitate the
transition of the business and we expect to continue to provide those services in fiscal 2014. We entered into a three year noncompetition agreement
with FleetCor in which we agreed not to re-enter the enterprise business for a period of three years after the closing. The results of operations of our
enterprise business have been classified as discontinued operations in our statement of income for all periods presented.
All information in the following management's discussion and analysis of financial condition and results of operations includes only results
from continuing operations (excluding our enterprise business) for all periods presented, unless otherwise noted.
Key components of our results of operations
Sources of revenue
39