market our solutions through a worldwide network comprised of a direct sales organization, value-added resellers (VARs), systems integrators, distributors, and original equipment manufacturers (OEMs). More than 7,000 organizations in numerous industry sectors around the world utilize our products and services, including AT&T, Brinker International, The Gap, The Home Depot, MasterCard International, The State of New York, TD Bank Financial Group, and Vodafone.
Industry Background
In today's competitive business environment, businesses are under constant pressure to acquire and retain customers, reduce costs and improve operating efficiencies. For example, retailers look for ways to enhance profitability by optimizing store deployments and marketing the right products to customers with the appropriate demographic profile. Insurance companies seek better methods to manage risk by analyzing geographic concentrations of potential claims. Also, telecommunications services companies are focused on providing superior network quality and coverage by better identifying coverage gaps and locating network performance issues.
Government agencies face their own set of challenges, such as financial constraints and public safety, and must find ways to better manage resources and serve their citizens. For example, police departments explore methods to better protect the public by more effectively and efficiently analyzing crime patterns within specific geographies. Likewise, government authorities look to improve security by assessing threats across their geographies and departments and planning appropriate emergency responses.
A key element in addressing these challenges lies in having access to data, which can help solve these complex problems. Some of that data, such as addresses, area codes and postal codes, already exists inside organizational databases. However, to solve more complicated problems, organizations need access to more sophisticated data sets designed to be used in location-based analyses, such as road networks and street addresses, demographic trends and patterns, or industry data such as natural hazard occurrences or telecommunications infrastructure.
Organizations also need a location intelligence solution with strong analytical functionality that can extract value from this information. By using location as a key variable in their business analysis activities, organizations are able to more effectively identify and analyze patterns, relationships and trends, and thus make more informed decisions. Conventional analysis and reporting methods do not possess the broad range of capabilities needed to fully harness the power of location-based information, and as a result, organizations are increasingly turning towards location intelligence solutions to unlock the value of this data.
Key attributes of the MapInfo ® location intelligence solution that differentiate us include:
- a broad portfolio of software, data and services;
- the ability to address complex, industry-specific problems;
- sophisticated analytical capabilities;
- fast and simple deployment and configuration; and
- an open architecture allowing for rapid customization and application development.
Our Solution
We offer a broad portfolio of software, data sets and services designed to help our customers in business and government meet a diverse set of needs, including site selection, risk management, market analysis, network planning and asset management. Our solutions allow our customers to solve complicated problems by enabling them to visualize, develop, analyze, and share location intelligence critical to their business processes and decision-making.
Key advantages of our solution include:
Comprehensive Software, Data Sets, and Services Offering. We offer organizations a single source location intelligence solution through our broad portfolio of software, data sets and services offerings. Businesses and government agencies use our core products, data and vertical market solutions to incorporate location-based data into their decision-making processes to drive more effective results. Our value-added data sets integrate with our customers' existing data for use in our solutions in order to generate more valuable intelligence. As a complement to these offerings, we offer a broad range of professional services, such as application development and systems integration, which help our customers quickly implement and customize our solutions.
Focused Vertical Market Solutions. Our solutions are primarily focused around vertical markets in which location is critical to helping organizations achieve their strategic objectives. These targeted vertical markets include telecommunications, retail, the public sector, and financial services, which includes insurance and retail banking. In developing our vertical market solutions, we have established teams that bring together sales and marketing, professional services and product management in order to meet existing and emerging customer needs. By focusing on particular vertical markets, we are able to help businesses and government agencies solve complex problems that require industry-specific knowledge.
Strong Predictive Analytics Capabilities. Our solutions incorporate strong predictive analytics capabilities that deliver customer and location driven analytical models that help our customers make more effective and insightful decisions. In delivering predictive analytics solutions, we take data sets provided by our customers, augment them with our own data, and then apply our analytical tools and methodologies to this data in order to extract enhanced intelligence. By doing so, we help businesses better understand the behavior of their customers and identify customer prospects, which helps them to select new store sites and develop targeted marketing campaigns.
Ease of Deployment and Use. Our solutions are built on an open architecture, integrate with our customers' current IT environments and are deployable in combination with most major database technologies, including those of IBM, Oracle and Microsoft.
Ease of Application Development. Our core application development tools allow developers to quickly integrate the functionality of our products into client-side applications using industry standard protocols such as .NET and Java Ò and Web Services. Our solutions support industry standard programming capabilities to customize server, web and desktop commands. They support ODBC, JDBC and ADO.NET and allow the use of SQL to query and update data.
Growth Strategy
Our objective is to be the leading provider of location intelligence solutions that help organizations make more insightful decisions and improve the efficiency of their business processes.
Two key elements of our strategy are as follows:
Accelerate Our Penetration into Target Vertical Markets . A key element of our growth strategy involves deepening our presence in our targeted vertical markets - telecommunications, the public sector, retail, and financial services, which includes insurance and retail banking. The foundation of these efforts is strengthening our vertical market expertise through broadening our understanding of the priorities, issues, challenges and opportunities facing these markets. From this understanding, we are able to package our portfolio of location intelligence capabilities to solve specific problems facing organizations in each of these targeted markets. As an example, we intend to leverage our existing predictive analytics capabilities both to expand current value propositions in each of our vertical markets
and to increase the breadth of predictive analytics value propositions that we provide. By doing so, we intend to further penetrate our existing customer base and expand into new areas within each market.
Broaden the Use of Our Solutions Across the Enterprise. Through a combination of software, data, predictive analytics services and custom development services, MapInfo provides a powerful portfolio of location intelligence capabilities that we utilize to help our customers solve key business problems. With our Envinsa enterprise location intelligence platform, we intend to facilitate the increased use of location-based solutions across entire organizations through easy-to-deploy web services, integrated functionality and industry standard technology design. Our developer tools and our data sets are designed to interoperate to enable organizations as well as our services teams to quickly develop applications scalable across the enterprise.
We expect to execute these two elements of the growth strategy through a combination of investment in internal initiatives and in targeted acquisitions. Internal initiatives will focus typically on expanding capacity and enhancing technology and services capabilities. Through acquisition efforts, we intend to enhance our organization with businesses and technologies that will deepen our vertical market penetration, increase our geographical presence, expand and add functionality to our product offerings, augment our distribution channels, expand our market opportunity and broaden our customer base.
Products and Services
Our offering includes our core location-based products, enterprise location intelligence platform, vertical market solutions, and professional services. The following table shows our products and services revenues for the last three fiscal years:
Net revenues:
Products
$122,100
$115,504
$97,695
Services
43,395
33,920
26,978
Total net revenues
$165,495
$149,424
$124,673
For revenue information related to our geographic segments, see Note 16 "Segment Information", in the Notes to Consolidated Financial Statements.
Core Products
Our core products include our application development tools, location-based applications, and value-added data set offerings. These products may be used independently or as a component of our vertical market solutions.
Application Development Tools. We offer a range of development tools that help users incorporate mapping, geocoding and routing functionality into their location-based applications.
Mapping Tools. Our mapping tools give users the ability to visualize data, perform location-based comparisons and analyses, and distribute and present information in the form of interactive maps. MapXtreme is a mapping engine that enables companies to create applications to analyze and distribute critical location-based information to multiple departments as well as to partners and customers via the Internet or corporate intranets. MapXtreme is available for Microsoft Ò Windows Ò , .NET and COM-based, and Java Ò technology platforms. Deployed in a client-server mode, MapXtreme allows software developers to quickly and easily add mapping functionality to many software applications.
Geocoding Tools. Our geocoding tools allow our customers to make data location-relevant and provide a geographical backdrop in the form of a query of those locations. Our MapMarker geocoding and address matching engine turns ordinary address records into geographic objects that can be displayed on a map quickly and accurately. MapMarker may be deployed in a desktop or server environment. We also offer MapMarker DataBase Extenders , which allow MapMarker® technology to be deployed from within a variety of popular databases, including Oracle Ò and Microsoft Ò SQL Server.
Routing Tools . Our routing tools allow organizations to create customized applications for routing people, products and resources. Our Routing J Server™ technology is a customizable Java-based direction and routing engine for improving drive time and routing efficiency. It can be used to generate point-to-point driving directions, calculating either the shortest or fastest route. Routing J Server is used in conjunction with MapXtreme and MapMarker J Server to display locations and routes on maps, as well as provide text-based driving directions.
Location Intelligence Applications. We offer a range of location intelligence applications that provide users with powerful location-based analysis capabilities.
MapInfo Professional ® . Our MapInfo Professional desktop location-intelligence software solution enables users to visualize, manage, enhance, report, and publish information with a location aspect. With MapInfo Professional , organizations can improve enterprise efficiency with true database connectivity and improve the quality of information used in decision-making. MapInfo Professional integrates with other MapInfo solutions to allow sharing of data and analysis, via the Internet, intranet, or wireless device, with customers, partners, and co-workers.
TargetPro ® . Our TargetPro solution enables organizations to link location analysis to customer data. By combining clients' proprietary customer data and our demographic, segmentation and clustering data with our powerful location intelligence capabilities, TargetPro allows organizations to gain a comprehensive view of their customers for more targeted customer outreach and enhanced market analysis. It helps customers be significantly more exact in targeting their marketing efforts and defining their market potential. TargetPro also provides insight into the demographic and purchasing behavior characteristics of geographic areas in the United Kingdom, Canada, and the United States.
Exponare ™ . Our Exponare platform offers a series of pre-built, easy-to-use applications that make location-based information an everyday resource across an entire organization. Exponare can be centrally deployed and managed, allows for data integration and can be configured by non-programmers quickly and easily. Exponare, which is targeted to the public sector market, consists of two modules: Enquiry and Public. Enquiry, an internal client application, allows users to perform queries, view and print maps, and generate reports. Public, a Web-browser application, offers remote access for employees and a way for citizens to easily access information.
Data Sets. In alliance with various data suppliers around the world, we offer a range of value-added data sets, including streets and boundaries data, demographic data and industry-specific data. We source value-added data sets from various suppliers and add significant value by applying our internally developed data development methodologies and related software code. As a result, our data sets are easy to deploy and utilize within various software applications and analytical scenarios.
Streets and Boundaries Data. Our regularly updated street and boundary data are available for key markets around the world. This data is designed for use in our applications for routing, drive-time studies, background information analysis, and visualization. Boundary data maps are available for postal, political, and industry-specific areas.
Demographic Data. We offer demographic data products containing information on such topics as population, age, income, employment, occupation, race, expenditure potential, retail activity, consumer and lifestyle trends, business summary and geo-demographic segmentation data. For example, PSYTE ® Advantage is a comprehensive neighborhood profiling solution based on location-enhanced demographics, lifestyle, and consumer attributes. Through its accurate, scientific and systematic clustering technology, companies are able to make more precise consumer buying and lifestyle behavior predictions, as well as make more insightful decisions regarding store placement, customer acquisition and target marketing. We also provide our annual demographic data set, Estimates and Projections , which consists of updated projections for core census-type metrics. Our demographic data solutions allow organizations in many industries to better understand their markets, customers, and location-specific attributes and make more informed business decisions.
Industry-Specific Data. We also offer industry-specific data sets. For example, for the telecommunications industry, we provide the ExchangeInfo™ Plus product, which includes comprehensive key communications infrastructure data that enable service providers to obtain complex, robust analyses of the U.S. local telephone exchange system. We also provide the PSAP Pro ® product that enables providers to plan for accurate and efficient routing of 911 calls to the appropriate U.S. Public Safety Answering Point. In addition, we offer the RiskDataInfo™ product, a comprehensive data set of weather and natural hazards for the insurance industry. RiskDataInfo allows insurance carriers and reinsurers to consider comprehensive historical data on hail storms, hurricanes, earthquakes, tornados and wind storms in order to make more informed decisions on risk exposure, allowing reduced costs and enhanced profitability.
Enterprise Location Intelligence Platform
Our Envinsa platform is a unified location intelligence platform that captures the functionality of our developer products, including mapping, geocoding and routing. Envinsa provides a single, consistent location infrastructure that enables fast integration of location capabilities across an organization. Envinsa also includes an enterprise-class management console, which is used to deploy, monitor, manage, and maintain Envinsa , its server components and the applications that utilize the platform.
Using Java 2 Platform, Enterprise Edition, or J2EE ® , and Web Services, Envinsa delivers its capabilities in a robust, highly scalable platform and is designed to be integrated into and managed inside a standard IT environment. Envinsa includes a software developer kit that allows developers to build applications using XML, .NET or Java APIs.
Envinsa is designed to be open and interoperable and has been built to conform to critical Java community, Open GeoSpatial Consortium, W3C, ISO and OMA standards. Envinsa supports multiple application deployments, including web, wireless handset, PDA, voice and other deployment architectures.
Envinsa On-Line Services (EOLS)
In addition to offering our Envinsa platform for placement in customers' locations, MapInfo provides hosted solutions to help customers that do not wish to manage the infrastructure themselves. EOLS delivers 'hosted applications' to customers without the need to bring MapInfo software or data in-house. The data and applications can be accessed via the Internet, providing organizations with the benefits of location enabling their enterprise, with minimal internal resources and without the need for capital investment.
Vertical Market Solutions
Our vertical market solutions integrate our core software products, data sets and services in order to provide offerings that focus on solving specific customer problems and draw on our technical core competencies. These solutions are targeted at vertical markets where location is critical in helping customers achieve their strategic objectives. We intend to increasingly use our Envinsa enterprise location platform in developing our vertical market solutions.
We have created offerings that enhance and support network management decisions, asset management, economic development and site optimization for effective planning and informed decision-making.
MarketNetPlanner ™ . Our MarketNetPlanner solution is a comprehensive web-based network planning and demographic analysis solution for the telecommunications industry. MarketNetPlanner enables telecommunications carriers to make more informed decisions about network planning, market driven build-out and product and service strategies for wireless and fixed networks. By analyzing critical network information in a single view, telecommunications carriers can make better decisions for radio frequency propagation modeling, network build-out, fixed wireless deployment, cable overbuild, signal analysis and cell site selection.
Confirm ™ . Our Confirm solution is a proven and scalable modular infrastructure management solution that enables the management of roads, bridges and structures, parks and open spaces, streetlights and signs, trees and property. By tracking, modifying and analyzing data about a customer's portfolio of assets, better decisions can be made about future investments in that network (maintenance, refurbishment, acquisitions and disposals) and day-to-day operation and management is made more effective.
MarketSuite ® . Based on MapInfo's proven expertise in government and retail, MarketSuite for Economic Development helps municipalities attract, retain and support local businesses and national chains, create jobs, identify development opportunities for available real estate and provide communities with the goods and services they need. MarketSuite provides local government, economic development organizations and commercial real estate developers insight into an area's demographics, economic trends and even future retail development opportunities to enable them to identify and attract the businesses that would most likely be interested in expanding into the community.
Smart Site Solutions ® . Our Smart Site Solutions technology provides critical analysis for real estate executives in the retail, restaurant, banking and retail telecommunications industries. It helps analysts to determine the best markets and the optimal number of sites within those markets to maximize their network, whether that means building new stores, consolidating branches or filling in gaps that exhibit high potential.
We have also created offerings that incorporate site selection and target marketing solutions, accurate and reliable demographic data and state-of-the-art modeling services in order to meet the needs of organizations who serve consumers and constituents.
AnySite ® . Our AnySite software enables retail and financial services clients to enhance their network build-out decisions. The easy-to-use mapping and reporting capabilities allow companies to connect to, retrieve and report both our data and proprietary customer databases in order to analyze trade area data more easily and accurately. AnySite includes predictive analytic
modules, which help companies to determine the best markets and the optimal number of sites within those markets to maximize their networks.
AnySite Online . The AnySite Online service offers affordable, mission critical analysis of demographic information via the Internet or intranet for site analysis accessed through an unlimited monthly or annual subscription. It allows for easy creation of advanced demographic reports and presentation quality maps for both the United States and Canada.
AnySite Financial. Introduced in 2006, AnySite Financial is a comprehensive solution that allows users to analyze the best financial demand and demographic data available while visualizing market dynamics in an easy-to-use mapping and display analytics platform. AnySite Financial provides a simple and accurate solution for performance assessment, site and market analysis and target marketing.
MapInfo focuses its financial services expertise and experience into the following decision support models and services for distribution network optimization and branch sales diagnostics and enhancements.
WinSITE ™ . WinSITE is an integrated software application that blends leading-edge analytics with robust location intelligence. The software is designed as an optimization model that enables banks to determine the relative potential and investment worthiness of physical delivery channels.
Perform™. Perform offers a series of modules developed to meet the specific needs of each bank customer. By benchmarking performance across thousands of branches, modules are available to diagnose potential, set appropriate resource levels and goals, rank performance on key metrics and empower sales staff with market information.
Services
A fundamental element of our business strategy includes offering professional services that complement our product offerings. We offer a range of professional services including the following:
Analytical Services. Our analytical services are designed to help our customers develop and refine predictive models. In providing these services, we apply our analytical tools and methodologies to customer data sets that we have enhanced with our own data, in order to drive more insightful decisions. This output can in turn be used to better select, attract and retain customers.
Business Consulting Services. Our business consulting services are an extension of our analytical services. In addition to helping our customers generate more valuable data, we also analyze their current and contemplated strategies, such as those including customer marketing, asset management and site selection.
In addition, our consulting services organization provides solutions to users of business intelligence software to allow them to combine state-of-the-art geographic visualization and analysis tools and data with technology from the leading providers of business intelligence software. Known as the MapInfo Location Integration Component , the technology works with multiple business intelligence providers and allows MapInfo licensees to easily distribute sophisticated reports with highly functional, bi-directional geographic querying and visualization tools across their enterprise.
We use our analysis to provide them with specific recommendations on how to best pursue these strategies.
Systems Integration and Custom Application Development. Our systems integration and custom development services include a range of technical and consulting services such as needs assessment, system design, application code review, custom application development and installation.
Training and Technical Support. Our training and technical support services include extensive post-sales support for our software and data products such as classroom training, accredited training centers and telephone technical support services.
Customers
More than 7,000 organizations in numerous industry sectors around the world use our location intelligence technology and expertise to better manage their assets, risks, customers, competitors and citizens. Our products are translated into 20 languages and sold in 60 countries throughout the world. For the fiscal year ended September 30, 2006, revenues from the Americas, EMEA (Europe, Middle East and Africa) and the Asia-Pacific region were 49 percent, 35 percent and 16 percent, respectively.
The following is a list of some of our largest customers in the telecommunications, public sector, retail (which includes retailers of consumer goods, restaurants and real estate businesses), and financial services (which includes insurance and retail banking) vertical markets:
Telecommunications
Public Sector
Retail
Financial Services
AT&T
Cingular
Sprint Nextel
Verizon
Vodafone
City of Gothenburg,
Sweden
Federal Emergency Management Agency
Goldcoast City Council, Australia
The State of New York Department of Criminal Justice Services
U.S. Department of Defense
Brinker International
The Gap
The Home Depot
IKEA
JoANN Stores, Inc.
Barclays Bank
Citibank
MasterCard International TD Bank Financial Group
Gen Re Corporation
Greater New York Insurance
Safeco
Strategic Relationships
An important element of our strategy is to establish relationships with third parties who assist us in developing, marketing, selling and implementing our products. By doing so, we enhance our ability to expand our product offerings and customer base and to enter new markets, as well as increase the number of qualified personnel available to implement and support our products. We have established the following categories of strategic relationships:
Alliances. We seek to enter into relationships with leading application and technology providers and systems integrators who incorporate our solutions with theirs. These vendors focus on areas including customer relationship management, business intelligence and enterprise resource planning. These alliances are based on various types of agreements that in some cases require us to attain a level of certification validating the ability of our technology to integrate with the other party's target application. We have alliances with IBM, Business Objects, Oracle and MicroStrategy.
VARs. Our VARs are usually local or regional firms that bring domain expertise and typically resell our technology and data to their own customers. In some cases, these VARs collaborate with us to service a customer. Our VARs typically sell to small and mid-sized businesses.
Distributors. In geographies where we do not have a direct sales force or where local market expertise such as language or business practices is required, we utilize distributors. Markets where we have these relationships include France, China, Taiwan, South Korea, South East Asia, Japan, New Zealand, Scandinavia, Eastern Europe, the Middle East, and Africa.
OEMs. Our OEMs incorporate parts of our technology into their offerings for sale to their customers. We believe these OEMs enable us to expand our presence in markets we do not cover and to deepen our penetration within specific vertical markets. Our OEMs include Agilent, Cognos, JDA Software Group, Ericsson, Platts, a division of McGraw Hill, Risk Management Solutions and Oracle.
Technology
Our offerings are designed to be integrated and used in conjunction with data and enterprise applications held by our customers, whether that be their customer information, asset information or other relevant data, in order to solve critical location-related problems and bring insight into specific areas of an organizational process. We are committed to building our products using both geospatial standards (e.g. Open GeoSpatial Consortium) and general information technology standards in order to develop offerings that are interoperable and compatible with other enterprise applications. In addition, our products are built to allow for rapid deployment and ease of use by professionals across the enterprise.
Key Technologies
We deliver products using two key technology platforms: Java Ò and Windows Ò . Our Java products are compliant with Java and J2EE. The Java products provide server- and client-side components that provide compatibility across a wide range of computing environments and have powerful processing capabilities. We are also providing support for Microsoft's .NET technology within parts of our client-side and server-based products. Web Services is the common technology between the two platforms and is the foundation of our Envinsa enterprise location platform.
Sales and Marketing
Sales. We have established multiple distribution channels to reach an array of industries while simultaneously addressing specific vertical markets. Our distribution channels include a direct sales force as well as an indirect channel of VARs, distributors and OEMs. Our direct sales force markets our products worldwide through sales offices in the United States, Canada, the United Kingdom, Germany, Australia, Italy, Spain, Sweden, and The Netherlands. Our VARs, systems integrators, OEMs and distributors purchase licenses for our products at a discount for resale to end-users. These VARs may provide training, consulting services, application development, customization and data products to end-users. In France, Japan, and certain other countries outside the United States, we have appointed master distributors. These master distributors generally build their own value-added reseller network in addition to directly selling data products and consulting services.
Marketing. To build corporate brand and identity and generate demand in support of the sales effort, we conduct various marketing programs, which include advertising, public relations, trade shows, direct mail, web-based promotions, online seminars and ongoing communications to customers about new products and services. We also offer cooperative advertising and other marketing support to our reseller channel. We sponsor annual reseller and user conferences in the United States, Canada, Europe and the Asia-Pacific region.
Research and Development
The software industry is characterized by extremely rapid changes in technology, which require continuous expenditure on product research and development to enhance existing products and create new products. We believe timely development of new products and ongoing enhancements to existing products is essential to maintain our competitive position in the marketplace. We are committed to an open system, standards-based product architecture to provide software products that can be integrated into existing mainstream business environments and be adaptable as environments change.
Our software products are primarily developed internally. Internal development allows us to maintain close technical control over product enhancement and modification based on customer need and to create a family of products that provides natural migration paths for customers as their business information needs change. We incurred research and development expenses of $26.1 million for the fiscal year ended September 30, 2006.
We also license products, mostly data, from third parties, where we typically add value and re-license them as part of a comprehensive solution. Most of these products are licensed to us in exchange for royalties paid on our net revenues from such products. This product licensing program is an important element of our strategy to deliver complete solutions to customers.
Competition
We encounter competition in the United States and foreign markets from various companies in different aspects of our business. Some markets in which we compete are maturing and are characterized by vigorous competition or consolidation of companies with complementary offerings. Other markets bring new competitors with innovative market offerings or business models.
Our technology competitors include Environmental Systems Research Institute (ESRI), the GIS division of AutoDesk, deCarta and others. In recent years, we have expanded our business into new areas such as the wireless/mobile and predictive analytics markets. Competitors in the wireless/mobile market include Autodesk, Microsoft and others. Competitors in the predictive analytics market include Bancography, Buxton, Claritas, ESRI Business Information Systems, Experian, GeoVue and others. This past year has seen the growth of new mass-market offerings from Google, Microsoft and Yahoo!, which may contribute to increased pricing pressures and customer expectations for location intelligence offerings.
We believe that we compete principally on the basis of vertical expertise, breadth of offering, product features and functionality (including cross-platform availability, interoperability, integration and extensibility), technological expertise, reliability, ease of use and supportability, complementary spatial data products and technical services. In addition, we believe we are differentiated from many competitors through the intellectual capital of our analytical and business consulting services and the development of industry-focused solutions that incorporate relevant data with our software and services to create unique market offerings.
INTELLECTUAL PROPERTY
We regard the technology within our products and the methods and processes behind our services as proprietary. We attempt to protect this intellectual property with a combination of copyright, patent and trade secret protections, employee and third-party non-disclosure agreements, and other methods of protection. We currently have three issued United States patents, seven United States patent applications pending and sixteen foreign patent applications pending which relate to three of the United States patent applications. We believe our patents have significant value. Their validity has not been tested, however, and if we attempt to enforce any of these patents against infringers in the future we cannot be certain that the patents would survive a challenge to their validity.
We attempt to protect our name recognition and goodwill among customers and prospects by registering our trademarks in the United States and other key countries and by regulating the use of our trademarks through contracts and monitoring of third-party use.
We supply our software products primarily under shrink-wrap licenses. Shrinkwrap licenses are not negotiated with or signed by individual licensees and take effect when the licensees open the product package. Certain provisions of these licenses, including provisions protecting against unauthorized use, copying, transfer and disclosure of the license program, may be unenforceable under the laws of certain jurisdictions. In addition, the laws of some foreign countries do not protect our proprietary rights to the same extent as do the laws of the United States. In some regions of the world, we protect our products against unauthorized copying by the use of software copy protection and other engineered methods.
Some of the technology included in our products is licensed from third parties. If these licenses terminate for any reason, we would be required to seek alternative licenses or modify our product offerings, which could adversely affect our business.
EMPLOYEES
We had 903 full-time employees on September 30, 2006, of which 471 were employed in the United States and 432 were employed at our international operations. Of the 903 employees, 221 were in research and development, 542 were in sales, marketing, and service activities (analytical, training, technical support and consulting) and 140 were in general and administrative positions. Our employees are not represented by any collective bargaining organization, and we have never experienced a work stoppage. We believe that our relations with our employees are good.
ADDITIONAL INFORMATION
Our corporate headquarters are in Troy, New York, and we are incorporated in the state of Delaware. Our Internet address is http://www.mapinfo.com . The contents of this web site are not part of this Annual Report on Form 10-K, and our Internet address is included in this document as an inactive textual reference only. We are subject to the informational requirements of the Securities Exchange Act of 1934 and file annual, quarterly, and current reports, proxy statements, and other documents with the Securities and Exchange Commission ("SEC"). We make available, free of charge on our web site, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and each amendment to these reports as soon as reasonably practicable after we file such material with, or furnish it to, the SEC. Each such report is posted on our web site or available via a direct link to our filings on the SEC's EDGAR system.
ITEM 1A. RISK FACTORS
In addition to the other information in this Annual Report on Form 10-K, the following factors and risks, among others, could affect our future performance and should be considered in evaluating our outlook.
We may be unable to successfully execute on our strategic plan to increasingly focus on vertical markets. Over the last three fiscal years, we have implemented a vertical market approach to our business, focusing on the following target markets: telecommunications, retail, the public sector, and financial services, which includes insurance and retail banking. The success of this vertical market strategy is integral to our overall strategic plan. However, opportunities in these markets are difficult to predict and our success and strategy depend on our ability to continue to develop domain expertise in these vertical markets, either internally or through acquisition. If customer demand does not grow as anticipated or our products and services are not accepted in these markets, or if we are unable to attract and retain key employees with domain expertise in these vertical markets, our business and results of operations could be materially adversely affected.
We may be unable to execute our long-term growth strategy because of the need to achieve short-term financial goals. Our long-term success and growth requires significant investment in research and development activities and other initiatives that may not produce any revenues for several years, if at all. In contrast, we must continue to increase our revenues and contain our costs in order to meet our quarterly financial objectives. As a result, our ability to make long-term investments may be limited from quarter to quarter, which may have a material adverse impact on our ability to sustain long-term growth.
Our quarterly results have fluctuated significantly in the past and may continue to fluctuate significantly in the future. Our quarterly operating results can vary significantly from quarter to quarter, depending upon factors such as the ones described in this Annual Report. Because a high percentage of our expenses are relatively fixed in the near term, minor variations in the timing of orders and shipments can cause significant variations in quarterly operating results. A significant portion of our revenues in each quarter results from software and data licenses issued in that quarter, particularly from orders we receive in the last month of the quarter. Accordingly, our ability to accurately forecast future revenues and income for any period is necessarily limited.
We may fail to successfully achieve the widespread adoption of our server-based enterprise solutions. A key element of our growth strategy is for our customers to adopt our location intelligence solutions across the enterprise. This involves the use of server-based enterprise solutions built on our Envinsa platform and MapXtreme 2006 developer tools. It also requires strategic relationships that enable integration of our solutions with other enterprise systems such as business intelligence. While we execute this strategy, we must also support and continue to develop our successful desktop solutions, including MapInfo Professional. Maintaining our focus on both the enterprise and the desktop could be difficult and we could lack the development resources needed to do so. In addition, if we fail to maintain the strategic relationships and internal expertise required for expanding our enterprise presence, the widespread adoption of our server-based enterprise solutions may not occur.
The market for our products and services is highly competitive and we may encounter increased competition from large enterprise technology providers. While we encounter significant competition in the market for business mapping systems worldwide from our traditional competitors, which include Environmental System Research Institute, the GIS division of Autodesk, Claritas and Buxton, we may face increased competition from large enterprise technology providers such as Microsoft, Oracle, IBM, SAP, Yahoo! and Google. These large enterprise technology providers have significant name recognition, and substantially greater capital resources, marketing experience, research and
development staffs and production facilities than we do. Increased competition from these companies may lead to pricing pressures that could reduce our gross margins.
Consolidation within our industry could materially reduce our competitive position. We believe our ability to provide complete location intelligence solutions, with access to data on a global basis and domain expertise in our target vertical markets, is a distinct competitive advantage. Increased consolidation within the location intelligence industry, including data providers, that resulted in one or more companies with similar attributes, could materially weaken our competitive position.
We may lack the resources to continue development of our broad array of products. The number of products we offer has grown considerably in the past few years, due largely to our acquisition of companies with proven solutions in certain vertical markets. Maintaining and improving these products in response to customer demand produces an increased demand on our engineering and development resources. If we are unable to maximize our resources to meet these development demands, customer acceptance of our products could be affected negatively and our financial performance could suffer.
We may be unable to keep pace with the rapid technological changes in our industry or to timely introduce new or enhanced products that achieve market acceptance. Our industry is characterized by extremely rapid technological change, evolving industry standards and changing customer demands. These conditions require continuous expenditures on product research and development to enhance existing products, create new products and avoid product obsolescence. For example, the introduction of Microsoft's .NET framework has required substantial development on our part to produce new versions of our products that are compatible with this new technology. We believe that the timely development of new products and continuing enhancements to existing products is essential to maintain our competitive position in the marketplace. During recent years, we introduced a number of new or substantially updated products, including Envinsa ™ , Exponare ™ , and MapInfo ® Professional . Our future success depends in part upon customer and market acceptance of these new products and initiatives, which is uncertain. Any failure to achieve increased acceptance of these and other new product offerings could have a material adverse effect on our business and results of operations.
Consolidations and economic volatility in our targeted vertical markets may adversely affect our business. Because the success of our commercial strategy depends upon our sales performance within our targeted vertical markets, developments within those markets could limit our success. For example, the telecommunications industry has recently experienced significant consolidation and this trend is expected to continue. These consolidations in any vertical market could result in delays in purchasing decisions by the merged companies and could reduce the number of potential customers. Because our revenues from the affected vertical market could become dependent on a smaller number of companies, the loss of a significant customer could negatively impact our operating results and financial condition. Economic difficulties within any of our targeted vertical markets could also negatively affect our ability to achieve our sales targets.
The loss of access to third party data would harm our business. We rely in part on independent developers of specialized data products that are used with our software. In some cases, we rely on sole source suppliers for data. Failure by these independent developers to continue to provide such data products, or changes in the contractual arrangements with these independent developers, could have a material adverse effect on our business and results of operations. If we lose access to any of these sources of data, especially the sole source suppliers, we may experience delays in finding and securing alternative suppliers and our results could be materially adversely affected.
Unfavorable economic conditions may affect the level of technology spending by our customers and the demand for our products and services. The revenue growth and profitability of our
business depend on the overall demand for software products and related services, particularly within our target vertical markets. Because we sell our products and services primarily to customers in the public sector, retail, telecommunications, and financial services (including insurance) markets, our business depends on the overall economy and the economic and business conditions within these vertical markets. Any future stock market decline or broad economic slowdown will affect the demand for our software products and related services and decrease technology spending of many of our customers and potential customers. These events could have a material effect on us in the future, including, without limitation, on our future revenue and earnings.
We may never realize the anticipated benefits of our acquisitions. A key part of our growth strategy is to acquire other companies and we continue to review potential acquisition and investment opportunities. We cannot assure you that acquisition candidates will continue to be available on terms and conditions acceptable to us, or that the acquisitions we do make will be successful. Acquisitions involve numerous risks, including, but not limited to:
- possible decreases in capital resources or dilution to existing stockholders;
- difficulties and expenses incurred in connection with an acquisition and the subsequent assimilation of the operations and the services or products of an acquired company;
- the difficulties of operating a new business;
- potential inherited liability for the past actions of an acquired company;
- the diversion of management's attention from other business concerns;
- a limited ability to predict future operating results of an acquired business; and
- the potential loss of key employees and customers of an acquired company.
In the event that the operations of an acquired business do not meet expectations, we may be required to restructure the acquired business or write off the value of some or all of the assets of the acquired business, including goodwill. We cannot assure you that any acquisition will be successfully integrated into our operations or will have the intended financial or strategic results.
An impairment of the value of our investments or acquired intangible assets could significantly reduce our earnings. We periodically review several items on our balance sheet for impairment and record an impairment charge if we determine that the value of our assets has been impaired. As of September 30, 2006, we had approximately $52.1 million in goodwill, $9.4 million in other intangible assets and $1.1 million in investments. We periodically review these assets for impairment. If we determine that the carrying value of these assets is not recoverable, we would record an impairment charge against our results of operations. Such an impairment charge may be significant, and we are unable to predict the amount, if any, of potential future impairments. In addition, if we engage in additional acquisitions, we may incur additional goodwill and intangible assets.
We may not be able to fully use our net operating loss carryforwards to reduce our future taxable income, if any. As of September 30, 2006, we had approximately $21.2 million in net operating loss carryforwards. These net operating loss carryforwards could reduce our taxable income in future years. However, they are scheduled to expire at various dates beginning in 2021, and we may not be able to fully use these net operating carryforwards to offset any future taxable income we may earn.
We may be unable to attract and retain key employees. Our continued success will depend in large part on our ability to attract and retain highly qualified technical, managerial, sales and
marketing, executive and other personnel. Competition for such personnel is intense. With our adoption of FAS 123R, the expensing of stock-based compensation, our ability to issue stock options as an incentive to employees may be limited in the future, which could negatively affect our ability to retain existing employees and to attract qualified candidates. We cannot assure you that we will be able to continue to attract or retain such personnel. Loss of key personnel or changes in management could have an adverse impact on our financial condition and results of operations.
Our business is exposed to the risks inherent in our international operations. Revenues outside the United States represented approximately 58% of our revenues in fiscal year 2006. The international portion of our business is subject to a number of inherent risks, including:
- difficulties in building and managing international operations;
- reliance on financial commitments from certain international distributors;
- difficulties in localizing products and translating documentation into foreign languages;
- fluctuations in import/export duties and quotas;
- potentially adverse tax consequences; and
- regulatory, economic, or political changes in international markets.
In addition, we have historically experienced increased credit risk in some of our international markets. Our operating results are also affected by changes in exchange rates and limitations on the repatriation of funds. Approximately 45% of our revenues in fiscal year 2006 were denominated in foreign currencies. Therefore, changes in international business conditions could have a material adverse effect on our business and results of operations.
Our software products may contain defects or errors, which could decrease sales, injure our reputation or delay shipments of our products. The software products that we develop are complex and must meet the stringent technical requirements of our customers. In addition, to keep pace with the rapid technological change in our industry and to avoid the obsolescence of our software products, we must quickly develop new products and enhancements to existing products. Because of this complexity and rapid development cycle, we cannot assure you that our software products are free of undetected errors, especially in newly released software products and new versions of existing software products. If our software is not free of errors, this could result in litigation, fewer sales, increased product returns, damage to our reputation and an increase in service and warranty costs, which would adversely affect our business.
Our financial performance will suffer if we are unable to contain our cost of revenues. The cost of our revenues varies with the mix of technology development and licensing fees, product revenues, services revenue and services utilization rates, as well as with the distribution channel mix and the success of our cost reduction measures. Changes in our revenue mix, including an increasing percentage of sales attributable to services (which have lower margins associated with them), as well as changes in our distribution model, may increase the cost of revenues as a percentage of net revenues in the future.
We may be unable to adequately secure and protect our patent, trademark and other proprietary rights. Our success depends in part on our ability to protect our proprietary rights in our technology in the United States and foreign countries. We attempt to protect our proprietary information through a combination of copyright, patent and trade secret protections, as well as through employee and third-party non-disclosure agreements. Despite these precautions, it may be possible for unauthorized
third parties to copy or reverse engineer our products, or otherwise obtain and use information that we regard as proprietary. Further, third parties could challenge the scope or enforceability of our patent rights or our patents may be issued with claims that are narrower in scope than those we had sought. In certain foreign countries, the laws may not protect our proprietary rights to the same extent as the laws of the United States. Any misappropriation of our intellectual property could have a material adverse effect on our business and results of operations, and we cannot assure you that the measures we take to protect our proprietary rights are adequate.
Claims that we infringe the proprietary rights of third parties could result in significant expenses or restrictions on our ability to sell our products and services. Third parties may claim that our products or services infringe their proprietary rights. Any infringement claim, with or without merit, would be time-consuming and expensive to litigate or settle and could divert our management's attention from our core business. For example, one of our former resellers has made copyright infringement and other claims against us. See Part I, Item 3 "Legal Proceedings" for a description of this proceeding. In the event of a successful infringement claim against us, we may have to pay significant damages, incur substantial legal fees, develop costly non-infringing technology, or enter into license agreements that require us to pay substantial royalties and that may not be available on terms acceptable to us, if at all.
In addition, some of our customer agreements, including our shrink-wrap end-user licenses, obligate us to indemnify customers for any expenses or liabilities resulting from claims that our products infringe the proprietary rights of others. We may incur substantial indemnification obligations under these agreements if third parties make an infringement claim against our customers.
From time to time, we are or may be subject to litigation that could result in significant costs to us. From time to time, we have been, and may continue to be, subject to litigation in the ordinary course of our business. Litigation against us may include claims of infringement of intellectual property rights by us, claims for damages related to errors and defects in our products and services and other claims. As a result, we could incur significant expenses to defend against these claims or we could have to pay substantial damages, which could materially harm our business and divert our management's attention from our core business.
We are currently involved in litigation with one of our former resellers. That reseller has alleged claims based on, among other things, breach of contract and copyright infringement. Although we are vigorously defending against the claims of this reseller, we cannot assure you that we will prevail. See Part I, Item 3 "Legal Proceedings" for a further description of this proceeding.
Market volatility may affect our stock price, and the value of our common stock may experience sudden decreases. There has been, and will likely continue to be, significant volatility in the market price of securities of technology companies, including ours. These fluctuations can be unrelated to the operating performance of these companies. Factors such as the following could cause the market price of our common stock to fluctuate substantially:
- announcements of new products by us or our competitors;
- litigation involving us;
- quarterly fluctuations in our financial results or other software companies' financial results;
- shortfalls in our actual financial results compared to our guidance or results previously forecasted by stock market analysts;
- acquisitions or strategic alliances by us or our competitors;
- our stock repurchase program;
- the gain or loss of a significant customer; and
- general conditions in the software industry and conditions in the financial markets.
A decline in the market price of our common stock may adversely impact our ability to attract and retain employees, and acquire other companies or businesses. In addition, stockholders may initiate securities class action lawsuits if the market price of our stock drops significantly, which may cause us to incur substantial costs and could divert the time and attention of our management.
Provisions of our charter documents and Delaware General Corporation Law may deter a change of our control, which may affect our stockholders. Certain provisions of our charter documents could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. These provisions include:
- granting our board of directors the authority to issue "blank check" preferred stock without stockholder approval;
- limitations on our stockholders' ability to call special meetings; and
- advance notice requirements for nominations for election to our board of directors and for proposing matters to be acted on by stockholders at stockholder meetings.
In addition, Section 203 of the Delaware General Corporation Law generally prohibits us from engaging in any business combination with certain persons who own 15% or more of our outstanding voting stock or any of our associates or affiliates who at any time in the past three years have owned 15% or more of our outstanding voting stock. These provisions could adversely affect the price that investors are willing to pay for shares of our common stock and prevent stockholders from realizing a premium that they may receive in connection with a corporate takeover.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable
