TeleNav 2013 Annual Report Download - page 54

Table of Contents
Comparison of the fiscal years ended June 30, 2013 and 2012
Revenue .
Product revenue . Product revenue consists primarily of revenue we receive from the delivery of customized software and royalties from the
distribution of this customized software in certain automotive navigation applications. Product revenue increased 186% to $69.2 million in fiscal
2013 from $24.2 million in fiscal 2012 . The increase was due primarily to increased revenue from automotive navigation solutions we provide for
Ford vehicles, including the launch of our solutions in additional Ford and Lincoln models. In addition, product revenue in fiscal 2013 included $9.2
million of customized engineering revenue received from Ford.
Services revenue . Services revenue consists primarily of revenue we derive from our mobile navigation services and mobile advertising.
Services revenue decreased 32% to $122.6 million in fiscal 2013 from $181.3 million in fiscal 2012 . The decrease was due primarily to lower
revenue from Sprint resulting from our July 2012 Sprint amendment, which resulted in a significant reduction in our fixed fee revenue from Sprint
for bundled users beginning July 1, 2012, and lower subscription fees resulting from decreases in the number of paying subscribers for mobile
navigation services provided through AT&T and T-Mobile. These decreases were partially offset by growth in revenue from monetization of
freemium offerings through wireless carriers and application stores and growth in mobile navigation revenue internationally. Accordingly, in fiscal
2013 , services revenue from Sprint, AT&T and T-Mobile decreased by $65.3 million , and the decrease was partially offset by an increase in
services revenue of $5.4 million driven by growth in monetization of freemium offerings and international.
Revenue concentrations . In fiscal 2013 and 2012 , Ford represented 36% and 13% of our total revenue, respectively. In fiscal 2013 and 2012 ,
revenue from AT&T represented 28% and 35% of our total revenue, respectively, and revenue from Sprint represented 16% and 36% of our total
revenue, respectively.
Subscription fees from our mobile navigation service, excluding premium, represented 57% and 84% of our total revenue in fiscal 2013 and
2012 , respectively. Revenue from our automotive navigation solutions represented 37% and 13% of our total revenue in fiscal 2013 and 2012 ,
respectively. Revenue from our mobile advertising and premium navigation services represented 6% , and 3% of our total revenue in fiscal 2013 and
2012, respectively.
We primarily sell our services in the United States. In fiscal 2013 and 2012 , revenue derived from U.S. sources represented 92% and 94% of
our total revenue, respectively. 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 .
Cost of revenue .
Cost of product revenue . Our cost of product revenue increased 180% to $38.2 million in fiscal 2013 from $13.6 million in fiscal 2012 , which
was lower than the 186% increase in product revenue. Our cost of product revenue increased due primarily to an increase in third party content costs
of $20.0 million, commensurate with the growth in our product revenue. However, cost of product revenue increased at a lower rate than product
revenue due primarily to the $9.2 million of customized engineering revenue from Ford, which had substantially lower associated costs as a
percentage of revenue than our on-board navigation revenue earned from Ford for the sale of vehicles with our navigation products.
Cost of services revenue . Our cost of services revenue was comparable at $30.9 million in fiscal 2013 and $30.8 million in fiscal 2012
. Cost of
services revenue did not decline commensurate with the 32% decrease in services revenue during fiscal 2013. Cost of services revenue in fiscal 2013
was impacted by increased network operations and customer support costs of $1.2 million and increased amortization expense of $1.4 million,
primarily related to the developed technology acquired from ThinkNear, that were offset by a decrease in third party content costs of $2.5 million.
Gross profit . Our gross profit decreased to $122.7 million in fiscal 2013 from $161.1 million in fiscal 2012 . Our gross margin decreased to
64% in fiscal 2013 from 78% in fiscal 2012 . The decrease in gross margin was due to lower services revenue from Sprint and the increased
proportion of product revenue contributed from our on-board automotive navigation solutions provided to Ford, which generally have higher
associated content costs and resulting in lower gross margins than our mobile navigation services provided through our wireless carrier customers.
However, the higher content costs of product revenue in fiscal 2013 were partially offset by the higher gross margin we earned on the $9.2 million of
customized engineering revenue from Ford. We expect our gross margin to continue to decline as the percentage of our revenue from automotive
navigation offerings increases, and as a result of increased competition on our offering of mobile navigation services, especially from other freemium
offerings. In addition, our gross margin will be negatively impacted in the future by the amortization of developed technology acquired as part of our
acquisition of ThinkNear.
48