Note 6—Operations by Segments and Geographic Areas

Segment Information

Operating segments are the components of our business for which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Our chief operating decision maker is our chief executive officer. Our operating segments are generally organized by the type of product or service offered and by geography.

In recent years, we changed the internal reporting classification of certain operating lines and the allocation of expenses between those operating lines. To ensure a consistent presentation, these changes are reflected for all periods presented.

Similar operating segments have been aggregated into three reportable segments as follows:

Payments and Transactional Documents. Our Payments and Transactional Documents segment is a supplier of software products that provide a range of financial business process management solutions including making and collecting payments, sending and receiving invoices, and generating and storing business documents. This segment also incorporates our healthcare products and our payments automation software for direct debit and receivables management and provides a range of standard professional services and equipment and supplies that complement and enhance our core software products. Revenue associated with the aforementioned products and services is typically recorded upon delivery. This segment also incorporates our check printing solutions in Europe as well as certain other solutions that are licensed on a subscription basis, revenue for which is typically recorded on a subscription or transaction basis or ratably over the expected life of the customer relationship.

Hosted Solutions. Our Hosted Solutions segment provides customers predominately with SaaS technology offerings that facilitate electronic payment, electronic invoicing, and spend management. Our legal spend management solutions, which enable customers to create more efficient processes for managing invoices generated by outside law firms while offering insight into important legal spend factors such as expense monitoring and outside counsel performance, are included within this segment. This segment also incorporates our global financial messaging and Paymode-X solutions. Revenue within this segment is generally recognized on a subscription or transaction basis or ratably over the estimated life of the customer relationship.

Digital Banking. Our Digital Banking segment provides solutions that are specifically designed for banking and financial institution customers. Our cloud-based commercial banking products, including our online account opening solutions that we acquired in fiscal year 2014 through our acquisition of Andera, are focused predominantly on medium-sized and small banks and financial institutions, and revenue for these products is typically recognized on a subscription or transaction basis or ratably over the estimated life of the customer relationship. Our customized banking solutions typically involve longer implementation periods and a significant level of professional services. Due to the customized nature of these products, revenue is generally recognized over the period of project performance on a percentage of completion basis. Periodically, we license these solutions on a subscription basis which has the effect of contributing to recurring revenue and the revenue predictability of future periods, but which also delays revenue recognition over a period that is longer than the period of project performance.

Periodically a sales person in one operating segment will sell products and services that are typically sold within a different operating segment. In such cases, the transaction is generally recorded by the operating segment to which the sales person is assigned. Accordingly, segment results can include the results of transactions that have been allocated to a specific segment based on the contributing sales resources, rather than the nature of the product or service. Conversely, a transaction can be recorded by the operating segment primarily responsible for delivery to the customer, even if the sales person is assigned to a different operating segment.

Our chief operating decision maker assesses segment performance based on a variety of factors that normally include segment revenue and a segment measure of profit or loss. Each segment’s measure of profit or loss is on a pre-tax basis and excludes stock compensation expense, acquisition and integration related expenses (including acquisition related contingent consideration), amortization of intangible assets, impairment losses on equity investments, restructuring related charges, non-cash pension expenses and certain non-cash items related to our convertible notes. There are no inter-segment sales; accordingly, the measure of segment revenue and profit or loss reflects only revenues from external customers. The costs of certain corporate level expenses, primarily general and administrative expenses, are allocated to our operating segments based on a percentage of the segment’s revenues.

We do not track or assign our assets by operating segment.

Segment information for the three months ended September 30, 2014 and 2013 according to the segment descriptions above, is as follows:


	Three Months Ended September 30,
	2014		2013
	(in thousands)
Segment revenue:
Payments and Transactional Documents	$	32,554	$	30,543
Hosted Solutions		30,796		20,334
Digital Banking		17,993		16,372

Total segment revenue	$	81,343	$	67,249


Segment measure of profit:
Payments and Transactional Documents	$	10,106	$	9,662
Hosted Solutions		3,840		1,130
Digital Banking		965		820

Total measure of segment profit	$	14,911	$	11,612

A reconciliation of the measure of segment profit to GAAP loss before income taxes is as follows:


	Three Months Ended September 30,
	2014			2013
	(in thousands)

Total measure of segment profit	$	14,911		$	11,612
Less:
Amortization of intangible assets		(7,184	)		(5,705	)
Stock-based compensation expense		(6,331	)		(5,032	)
Acquisition and integration related expenses		(427	)		(1,866	)
Restructuring expense		(286	)		(55	)
Non-cash pension expense		3			—
Other expense, net		(3,647	)		(4,040	)

Loss before income taxes	$	(2,961	)	$	(5,086	)

The following depreciation expense amounts are included in the segment measure of profit:


	Three Months Ended September 30,
	2014		2013
	(in thousands)
Depreciation expense:
Payments and Transactional Documents	$	636	$	619
Hosted Solutions		1,228		719
Digital Banking		645		494

Total depreciation expense	$	2,509	$	1,832

Geographic Information

We have presented geographic information about our revenues below. This presentation allocates revenue based on the point of sale, not the location of the customer. Accordingly, we derive revenues from geographic locations based on the location of the customer that would vary from the geographic areas listed here; particularly in respect of financial institution customers located in Australia and Canada for which the point of sale was the United States.


	Three Months Ended September 30,
	2014		2013
	(in thousands)

Revenues from unaffiliated customers:
United States	$	45,919	$	41,780
United Kingdom		24,979		22,342
Continental Europe		9,246		2,407
Asia-Pacific		1,199		720

Total revenues from unaffiliated customers	$	81,343	$	67,249

Long-lived assets, excluding deferred tax assets and intangible assets, which are based on geographical location, were as follows:


	As of September 30,		As of June 30,
	2014		2014
	(in thousands)
Long-lived assets
United States	$	37,866	$	36,856
United Kingdom		6,969		6,611
Continental Europe		2,853		3,224
Asia-Pacific		209		157

Total long-lived assets	$	47,897	$	46,848