38
software development cost amortization in 2012 over 2011 mainly reflects amortization of acquired capitalized software development
costs recorded as part of the purchase accounting for the mid-2012 microDATA acquisition.
Our commercial systems gross profit decreased $5.3 million, or 62% in 2013 from 2012 reflecting the lower revenue due to
deployment delays on Next Generation 9-1-1 systems and the impact on gross profit of non-variable costs necessary to perform those
deployments. Our commercial systems gross profit increased $5.3 million, or 166% in 2012 over 2011 due to higher revenue from
Next Generation 9-1-1 public safety system deployments and net proceeds from intellectual property monetization.
Operating Expenses
Research and Development Expense:
2013 vs. 2012
2012 vs. 2011
($ in millions)
2013
2012
$
%
2011
$
%
Research and development expense.......................... $ 34.3 $ 36.6 $ (2.3) (6)% $ 37.1 $ (0.5) (1)%
Percent of revenue
9%
8%
9%
Our research and development (“R&D”) expense consists of compensation, benefits, and a proportionate share of facilities and
corporate overhead. The costs of developing software products are expensed prior to establishing technological feasibility.
Technological feasibility is established for our software products when a detailed program design is completed. We incur R&D costs
to enhance existing packaged software products as well as to create new software products including software hosted in network
operations centers. These costs primarily include compensation and benefits as well as costs associated with using third-party
laboratory and testing resources. We expense such costs as they are incurred until technological feasibility has been reached and we
believe that capitalized costs will be recoverable, upon which we capitalize and amortize them over the product’s expected life.
We incur R&D expense for software mainly used by commercial and government network operators. Throughout the reporting
periods we continued to invest in 9-1-1 applications, secure communications technology, and infrastructure and applications for
network operators, the telematics supply chain, wireless device customers and new vertical markets. We continually assess our
spending on R&D to ensure our resources are focused on technology that is expected to achieve the highest level of success.
In addition to company deliverables, our research and development expenditures and acquisitions have yielded a portfolio of
349 patents as of December 31, 2013, and almost 400 patent applications pending, primarily for wireless location-based technology.
During 2012 we began a program of monetizing this portfolio through patent and license sales and other arrangements with partners
and licensees.
R&D expense was $2.3 million, or 6% lower in 2013 than in 2012 mainly due to a shift of resources to custom development
efforts (reported as cost of revenue) and spending adjustments to reduce labor, contractor, and other vendor costs on mature products.
R&D expense decreased $0.5 million, or 1% in 2012 from 2011 as a result of some developers working on custom development
efforts (reported as cost of revenue) as well as some reduction in headcount.
Sales and Marketing Expense:
2013 vs. 2012
2012 vs. 2011
($ in millions)
2013
2012
$
%
2011
$
%
Sales and marketing expense ....................................... $ 28.5 $ 30.8 $ (2.3) (7%)
$
29.4
$ 1.4 5
%
Percent of revenue .......................................................
8%
6%
7%
Our sales and marketing expenses include fixed and variable compensation and benefits, trade show expenses, travel costs,
advertising and public relations costs as well as a proportionate share of facility-related costs which are expensed as incurred. Our
marketing efforts also include speaking engagements and attending and sponsoring industry conferences including our annual
SwiftLink Users Forum. We sell our solutions through our direct sales force and through indirect channels. We work with major
wireline network operators as channel partners and original equipment manufacturers sell our solutions. We sell our products and
services to agencies and departments of the U.S. government primarily through direct sales professionals under prime and sub-
contracts. Sales and marketing expense was $2.3 million or 7% lower in 2013 than 2012 due to lower variable compensation due to
decreases in personnel and travel. Sales and marketing expense increased $1.4 million, or 5% in 2012 compared to 2011 due to
additions of direct sales and marketing personnel, expanded participation in key trade events.
