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Table of Contents TELENAV, INC.
Notes to Consolidated Financial Statements—(Continued)
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. 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, geocodes, 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, ad trafficking, 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 income in stockholders’ equity.
Foreign currency transaction gains and losses are included in our net income for each year. All assets and liabilities denominated in a foreign
currency are translated into U.S. dollars at the exchange rate on the balance sheet date. Revenue and expenses are translated at the average
monthly exchange rates during the year. Equity transactions are translated using historical exchange rates. Foreign currency transaction gains
(losses) were $ (203,000) , $(251,000) and $51,000 in fiscal 2014 , 2013 and 2012 , respectively.
F-9