TeleNav 2015 Annual Report Download - page 92

Table of Contents TELENAV, INC.
Notes to Consolidated Financial Statements—(Continued)
services revenue from our brought-
in connected automotive navigation solutions monthly based on monthly subscriptions, which are subject to a
maximum annual fee. This revenue represented less than 5% of overall automotive navigation solutions revenue. In January 2015 General
Motors Corporation, or GM, launched the new version of its OnStar RemoteLink® mobile application powered by our location-based services
platform. We earn a one-time royalty for each new vehicle owner who downloads the RemoteLink®
application. We record the royalty earned as
deferred revenue and recognize this service revenue over the estimated service period.
We 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 also derive services revenue from subscriptions to access our mobile navigation services, which are generally provided through our
wireless carrier customers that offer our services to their subscribers or through application stores. Our wireless carrier customers pay us based
on several different revenue models, including (1) a revenue sharing arrangement that may include a minimum fee per end user, (2) a monthly or
annual subscription fee per end user, or (3) 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 or
billed 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 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.
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, or POI, 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 ad inventory as well as expenses associated with third party hosting services, 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.
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