ITRA » Topics » Referral Arrangements for SubscribeNet Sales.

This excerpt taken from the ITRA 10-K filed Apr 22, 2005.
Referral Arrangements for SubscribeNet Sales. We also maintain various other referral arrangements under which we pay fees to companies that refer new SubscribeNet customers to us.

 

Sales and Marketing Services

 

We use an inside sales and marketing team to provide Sales and Marketing Services to Software Spectrum for resale and marketing of Sun and Websense software and related maintenance. Inside sales representatives typically have a territory that he or she covers using telephone, facsimile and email communications. We also have a marketing manager who conducts marketing programs for Sun and Websense software. The length of sales cycles for Sun and Websense software tends to correspond to the dollar values of those sales. Our Sales and Marketing Services business is somewhat seasonal, with sales tending to be stronger in the non-summer months than the summer months, and strongest at the end of the calendar year.

 

Under our agreement for our provision of Sales and Marketing Services to Software Spectrum, Software Spectrum is the reseller of record for Sun and Websense software and maintenance, and we assist Software Spectrum in selling and marketing that software and maintenance. We also provide our SubscribeNet service to Software Spectrum to enable it to deliver Sun software to its customers electronically. As part of this arrangement, Software Spectrum pays us a percentage of the gross profit derived from its sales of Sun and Websense software licenses and maintenance services, and reimburses us for our cost in maintaining a Sales and Marketing Services team dedicated to sales of Sun and Websense software licenses and maintenance. Software Spectrum also pays us a periodic SubscribeNet service fee based on software license and maintenance sales generated by Intraware through our Sales and Marketing Services for Software Spectrum. The term of this agreement will expire in June 2005 and is renewable for subsequent one-year terms. We expect but cannot guarantee that it will be renewed (see “Risk Factors” beginning on page 31 below).

 

Sales Outside the United States

 

Approximately $1.2 million of our total revenue for the year ended February 28, 2005, $0.7 million of our total revenue for the year ended February 29, 2004, and $0.4 million of our total revenue for the year ended February 28, 2003, was from sales to companies based outside the United States of America.  All of this revenue was categorized as Online services and technology revenue.  This accounted for approximately 11% of our total revenue and 15% of our Online services and technology revenue for the year ended February 28, 2005, 6% of our total revenue and 10% our Online services and technology revenue for the year ended February 29, 2004, and 3% of our total revenue and 6% Online services and technology revenue for the year ended February 28, 2003.

 

Total Annual Contract Value

 

We track a metric for our SubscribeNet service business, that we call “total annual contract value.”  We use this metric to approximate what the total ongoing annual SubscribeNet service fees would be under our existing contracts with our customers, assuming all those contracts renewed on their current terms and, in the case of variable-fee contracts, the customers maintained the same level of fee-generating activity as they had in the prior twelve months.  (We cannot guarantee that those assumptions will be true, as we describe further below.)  We define “total annual contract value” as, on any given date, the aggregate annual service fees paid or expected to be paid by our customers for services we have contracted to provide during the then-current annual periods of the customers’ respective contracts with us. To be included in total annual contract value, service fees must be either contractually required to be paid, or expected to be paid based on a minimum 12-month history of prior charges and payments that were not required by contractual minimums.  Total annual contract value includes amounts that have been recognized as revenue as well as amounts that may be recognized as revenue in the future.

 

As of March 31, 2005, the total annual contract value of our SubscribeNet service customer base was $7.9 million.

 

We caution that total annual contract value is not necessarily indicative of current revenues or of future revenues in any given fiscal period and should not be relied upon to assess our financial condition.  In addition to the “Risk Factors” beginning on page 31 below, factors that could cause differences between total annual contract value and revenues include unexpected contract terminations, reductions in customer activity, the application of our revenue recognition policies described under “Critical Accounting Policies and Estimates: Revenue Recognition” in Item 7 (“Management’s Discussion and Analysis of Financial Condition and Results of Operation”) and under “Revenue Recognition” in Note 1 of “Notes to Consolidated Financial Statements” in Item 8 below, and the arising of any contingencies that make deferral of revenue recognition appropriate under any given contract.  We also caution that total annual contract value is different from backlog.  Backlog typically excludes amounts already recognized as revenue, while total annual contract value may include amounts already recognized as revenue for portions of the current annual terms of our existing SubscribeNet contracts.  In addition, total annual contract value includes fees paid, payable or expected for the current annual terms of our existing SubscribeNet contracts, even if we expect to provide the related services after our current fiscal year.

 

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