TeleNav 2013 Annual Report Download - page 81

Table of Contents
TELENAV, INC.
Notes to Consolidated Financial Statements—(Continued)
subscribers (up to specified thresholds) receiving our services as part of bundles with other voice and data services, (3) a monthly or annual
subscription fee per end user, or (4) based on usage. Our end users who subscribe to our services through application stores pay us a monthly or
annual subscription fee.
We recognize monthly fees related to our mobile navigation services in the month we provide the services. We defer amounts received in
advance of the service being provided and recognize the deferred amounts when the monthly service has been provided. We recognize revenue for
fixed fees for any number of subscribers receiving our services as part of bundles monthly on a straight-
line basis over the term of the agreement. Our
agreements do not contain general rights of refund once the service has been provided. We also establish allowances for estimated credits
subsequently issued to end users by our wireless carrier customers.
We recognize as services revenue the amount our wireless carrier customers report to us as we provide our services, which are net of any
revenue sharing or other fees earned and deducted by our wireless carrier customers. We are not the principal provider when selling access to our
mobile navigation services through our wireless carrier customers as the subscribers directly contract with our wireless carrier customers. In addition,
we may earn a fixed fee or fixed percentage of fees charged by our wireless carrier customers and our wireless carrier customers have the sole ability
to set the price charged to their subscribers for our service. Our wireless carrier customers have direct responsibility for billing and collecting those
fees from their subscribers and we and our wireless carrier customers may offer subscribers a 30 -day free trial for our service. For end users who
purchase our mobile navigation services through application stores, we utilize the application store billing process. We provide tiered pricing to
certain of our wireless carrier customers based on the number of paying end users in a given month, which may result in a discounted fee per end user
depending on the number of end users. Revenue recognized is based on the discounted fees earned for a given period.
We also derive services revenue from the delivery of search and display advertising impressions. We recognize revenue when the related
advertising services are delivered based on the specific terms of the advertising contract, which are commonly based on the number of ad impressions
delivered, or clicks, drives or actions by users on mobile advertisements.
We derive product revenue from the delivery of customized software and royalties earned from the distribution of this customized software in
certain automotive navigation applications. We generally recognize customized software revenue using the completed contract method of contract
accounting under which revenue is recognized upon delivery to, and acceptance by, the automobile manufacturer of our on-board navigation
solutions. We generally recognize royalty revenue as the software is reproduced for installation in vehicles, assuming all other conditions for revenue
recognition have been met.
In certain instances, due to the nature and timing of monthly revenue and reporting from our customers, we may be required to make estimates
of the amount of revenue to recognize from a customer for the current period. Estimates for revenue include our consideration of certain factors and
information, including subscriber data, historical subscription and revenue reporting trends, end user subscription data from our internal systems, and
data from comparable distribution channels of our other customers. We record any differences between estimated revenue and actual revenue in the
reporting period when we determine the actual amounts. To date, actual amounts have not differed materially from our estimates.
Cost of revenue
Our cost of revenue consists primarily of the cost of third party royalty based data, such as map, points of interest, traffic, gas price and weather
data, and voice recognition technology that we use in providing our personalized navigation services. Our cost of revenue also includes the cost of
third party exchange display ad inventory. In addition, our cost of revenue includes 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.
In connection with our usage of licensed third party content, our contracts with certain licensors include minimum guaranteed royalty
payments, which are payable regardless of the ultimate volume of revenue derived from the number of paying end users. These contracts contain
obligations for the licensor to provide ongoing services and, accordingly, we record any minimum guaranteed royalty payments as an asset when paid
and amortize the amount to cost of revenue over the applicable period. Any additional royalties due based on actual usage are expensed monthly as
incurred.
Foreign currency translation
The functional currency of our foreign subsidiaries is the local currency. Adjustments resulting from translating foreign functional currency
financial statements into U.S. dollars are recorded as part of a separate component of comprehensive
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