TeleNav 2012 Annual Report Download - page 47

Table of Contents
turn by turn navigation. We recognize revenue from our off-board connected solutions monthly based on annual subscriptions, which are subject to a
maximum annual fee with Ford. We anticipate that we will continue to depend on Ford for a material portion of our revenue for the foreseeable
future .
AT&T represented 28% , 35% and 37% of our revenue in fiscal 2013 , 2012 and 2011 , respectively. In March 2013, our agreement with
AT&T was automatically renewed, under its existing terms through March 2014, and provides that we will continue to be the exclusive provider of
white label GPS navigation services to AT&T. AT&T is not required to offer our navigation services. We anticipate that we will continue to depend
on AT&T for a material portion of our revenue for the foreseeable future; however, we have recently seen substantial declines in the number of
paying subscribers for our services through AT&T .
Sprint represented 16% , 36% and 41% of our revenue in fiscal 2013 , 2012 and 2011 , respectively. We operate under an agreement with
Sprint, which we most recently amended in April 2013. Under this amended agreement, we and Sprint have agreed to continue the fixed fee
arrangement related to the Sprint bundle through September 30, 2013, and to partner to generate revenue from premium navigation and mobile
advertising programs through December 31, 2015. Sprint is not obligated to continue to bundle our navigation services after September 30, 2013, and
even if Sprint does continue to bundle we may not receive meaningful compensation for such distribution of our services. We also anticipate that a
majority of the Sprint subscribers who are currently receiving our services through bundles will not convert to our paid navigation services.
Subscription fees from our wireless carrier customers represented the majority of our revenue in fiscal 2013 , 2012 and 2011 . Subscription fee
revenue from our mobile navigation service, excluding premium navigation services, represented 57% , 84% and 93% of our revenue in fiscal 2013 ,
2012 and 2011 , respectively. Subscription fee revenue from our mobile navigation service declined from fiscal 2011 to fiscal 2013 , primarily due to
the transition to an extension of the fixed fee with Sprint at a lower rate and a decrease in the number of paying subscribers for navigation services
provided through AT&T and T-Mobile. Revenue from our automotive navigation solutions represented 37% , 13% and 6% of our revenue in fiscal
2013 , 2012 and 2011 , respectively. Revenue from our mobile advertising and premium navigation services represented 6% , 3% and 1% of our
revenue in fiscal 2013 , 2012 and 2011 , respectively.
In fiscal 2013 , 2012 and 2011
, we generated 92%, 94% and 96% of our revenue, respectively, in the United States. With respect to revenue we
receive from automobile manufacturers and OEMs for sales of vehicles in other countries, we classify that revenue as being generated in the United
States, because we provide deliverables to and receive compensation from the manufacturer's or OEM's United States' entity. In absolute dollars,
revenue from our international operations increased in fiscal 2013 .
We expect that the percentage of our revenue represented by wireless carrier customers will decline substantially in fiscal 2014 as Sprint ceases
to bundle our services for a fixed fee and more end users use our free or operating system-affiliated navigation services. We anticipate that we will
not be successful in the short term at fully replacing lost wireless carrier revenue with revenue from automotive and advertising, resulting in a
substantial decline in our total revenue in fiscal 2014 relative to prior years. For fiscal 2014, we expect automotive and advertising revenue to
represent the most rapidly growing components of our revenue but our expectations may not be realized. Although we are working to replace
historical wireless carrier revenue, we believe that the growth of alternative sources of revenue, while material, will be insufficient to offset the
declines in wireless carrier revenue in the short-term. As a result, we expect to incur net losses in fiscal 2014 and possibly future periods.
Cost of revenue
Our cost of revenue consists primarily of the cost of the third party content, such as map, POI, traffic, gas price and weather data and voice
recognition technology that we use in providing our navigation services. Our cost of revenue also includes the cost of third party exchange display ad
inventoryas well as expenses associated with data center operations, customer support, the amortization of capitalized software, recognition of
deferred development costs on specific projects, stock-based compensation and amortization of developed technology. The largest component of our
cost of revenue is the fee we pay to providers of map and POI data, TomTom and HERE. We have long term agreements with TomTom and HERE
pursuant to which we pay royalties according to a variety of different fee schedules, including on a per use basis, on a per end user per month basis
and on a fixed fee basis. With respect to both TomTom and HERE, we are required to pay certain minimum fees for access to their content by our
mobile navigation customers. For our on-board navigation solutions provided to Ford, we pay royalties on a per unit produced basis. We classify our
cost of revenue as either cost of product revenue or cost of services revenue. Cost of product revenue consists primarily of the cost of third party
content we incur in providing our on-board automotive navigation solutions and recognition of deferred development costs. Cost of services revenue
consists primarily of the costs associated with third party content, data center operations, customer support, amortization of capitalized
41