TeleNav 2014 Annual Report Download - page 55

Table of Contents
that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on historical
experience and various other assumptions that we believe are reasonable under the circumstances. In many instances, we could reasonably use
different accounting estimates, and in some instances changes in the accounting estimates are reasonably likely to occur from period to period.
Accordingly, actual results could differ significantly from the estimates made by our management. To the extent that there are differences
between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will
be affected. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these
policies relate to the more significant areas involving our judgments and estimates.
Revenue recognition . We generate revenue primarily from service subscriptions, customized engineering fees and software licenses. We
also generate revenue from the delivery of search and display advertising impressions.
We recognize revenue when persuasive evidence of an arrangement exists, delivery of the service or product has occurred, the fee is fixed
or determinable and collectability is reasonably assured. We derive our revenue primarily 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 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.
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. For example, certain of our wireless carrier customers do
not provide us with sufficient monthly individual subscriber billing period details to allow us to compute the allocation of monthly service fees
to the individual end user’s service period, and in such cases we make estimates of any required service period revenue cutoff. In addition, if we
fail to receive an accurate revenue report from a wireless carrier customer for the month, we will need to estimate the amount of revenue that
should be recorded for that month. These estimates may require judgment, and we consider certain factors and information in making these
estimates such as:
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subscriber data supplied by our wireless carrier customers;
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customer specific historical subscription and revenue reporting trends;
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end user subscription data from our internal systems; and