TeleNav 2010 Annual Report Download - page 82

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TELENAV, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
We recognize monthly fees related to our 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. 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
partners. We defer activation fees received upon the initiation of certain services and recognize the deferred
amounts over the estimated average length of subscription to the service, historically 16 months.
We recognize as revenue the amount our wireless carrier partners 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 partners. We are
not the principal provider when selling access to our LBS through our wireless carrier partners as the subscribers
directly contract with our wireless carrier partners. In addition, we earn a fixed fee or fixed percentage of fees
charged by our wireless carrier partners and our wireless carrier partners have the sole ability to set the price
charged to their subscribers for our service. Our wireless carrier partners have direct responsibility for billing and
collecting those fees from their subscribers and we and our wireless carrier partners may offer subscribers a
30-day free trial for our service. We provide tiered pricing to certain of our wireless carrier partners 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 subscriber reporting from our
wireless carrier partners, we may be required to make estimates of the amount of LBS revenue to recognize from
a wireless carrier partner 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 wireless
carrier partners.
We may be required to make estimates of revenue for a given month if wireless carrier partners do not
provide us with an LBS revenue report in a timely manner. 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.
In addition to our LBS, we offer mobile phone accessories and other related hardware products through our
website. We recognize revenue related to these products upon delivery, assuming all other revenue recognition
criteria have been met. Revenue from mobile phone accessories and other related hardware products represented
less than 2% of our revenue for fiscal 2010, 2009 and 2008.
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 LBS.
Our cost of revenue also includes expenses associated with data center operations, customer support, the
amortization of capitalized software development costs and stock-based compensation.
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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