TeleNav 2014 Annual Report Download - page 62

Table of Contents
The $10.1 million increase in our valuation allowance in fiscal 2014 included a $7.4 million valuation allowance against deferred tax assets in
the U.S.
We anticipate that a significant portion of our fiscal 2014 tax benefit of $(11.4) million, net of the $7.4 million valuation allowance against
deferred tax assets in the U.S., will be realized in the form of a refund during fiscal 2015.
On December 31, 2013, the research and development credit expired for federal tax purposes. The 2012 Taxpayer Relief Act extended the
research and development credit for two years until December 31, 2013. Although the research and development credit has been extended every
year since enactment, a tax benefit cannot be recorded for the expired period until the extenders bill has been passed and signed by the President.
If and when the extenders bill is passed and signed with retroactive effect, a retroactive tax benefit will be recorded in the period the extenders
bill is passed and signed. We have recorded a tax benefit for the federal research and development credit through December 31, 2013.
We file income tax returns with the Internal Revenue Service, or IRS, California, various states and foreign tax jurisdictions in which we
have subsidiaries. The statute of limitations remains open for fiscal 2011 through fiscal 2013 in the U.S., for fiscal 2010 through fiscal 2013 in
state jurisdictions, and for fiscal 2009 through fiscal 2013 in foreign jurisdictions. Fiscal years outside the normal statute of limitations remain
open to audit by tax authorities due to tax attributes generated in those early years which have been carried forward and may be audited in
subsequent years when utilized.
Comparison of the fiscal years ended June 30, 2013 and 2012
Revenue .
Product revenue . 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 software revenue received
from Ford.
Services revenue . 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 represented 61% and 86% 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 represented 2% and 1% 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.
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