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 organized principally by the type of product or service offered and by geography. During the quarter ended December 31, 2017, we changed the name of one of our reportable segments to Banking Solutions from Digital Banking, and that name change is reflected in the discussion that follows.

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

Cloud Solutions. Our Cloud 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 settlement network solutions (financial messaging and Paymode-X). Our settlement network solutions are highly scalable, secure and cost effective and facilitate cash payment and transaction settlement between businesses, their vendors and banks. Revenue within this segment is generally recognized on a subscription or transaction basis or ratably over the estimated life of the customer relationship.

Banking Solutions. Our Banking Solutions segment provides solutions that are specifically designed for banking and financial institution customers. Our Banking Solutions products are now sold predominantly on a subscription basis, which has the effect of contributing to recurring subscription and transaction revenue and the revenue predictability of future periods, but which also delays revenue recognition over a longer period.

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 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. However, if we license products on a subscription basis, revenue is typically recorded ratably over the subscription period or the expected life of the customer relationship.

Other. Our Other segment consists of our healthcare and cyber fraud and risk management operating segments. Our cyber fraud and risk management solutions non-invasively monitor, replay and analyze user behavior to flag and even stop suspicious activity in real time. Our healthcare solutions for patient registration, electronic signature, mobile document and payments allow healthcare organizations to improve business efficiencies, reduce costs and improve care quality. When licensed on a perpetual license basis, software revenue for our cyber fraud and risk management and healthcare products is typically recorded upon delivery, with software maintenance revenue recorded ratably over a twelve-month period. When licensed on a subscription basis, revenue is normally recorded ratably over the subscription period.

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 certain items as presented in our reconciliation of the measure of total segment profit to GAAP loss before income taxes that follows. 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 and nine months ended March 31, 2018 and 2017 according to the segment descriptions above, is as follows:


	Three Months Ended March 31,						Nine Months Ended March 31,
	2018			2017			2018			2017
	(in thousands)
Segment revenue:
Cloud Solutions ⁽¹⁾	$	46,486		$	39,248		$	133,448		$	112,837
Banking Solutions		22,900			18,294			65,175			55,944
Payments and Transactional Documents		27,124			24,107			75,516			73,768
Other		4,626			4,450			13,488			13,362

Total segment revenue	$	101,136		$	86,099		$	287,627		$	255,911

Segment measure of profit (loss):
Cloud Solutions	$	9,308		$	7,116		$	28,342		$	19,347
Banking Solutions		1,630			388			4,939			1,456
Payments and Transactional Documents		7,661			7,451			21,755			22,644
Other		(627	)		(570	)		(2,014	)		(1,928	)

Total measure of segment profit	$	17,972		$	14,385		$	53,022		$	41,519

⁽¹⁾

Revenues from our legal spend management solutions were $16.1 million and $14.9 million for the three months ended March 31, 2018 and 2017, respectively. Revenues from our settlement network solutions were $30.4 million and $24.3 million for the three months ended March 31, 2018 and 2017, respectively. Revenues from our legal spend management solutions were $47.6 million and $42.6 million for the nine months ended March 31, 2018 and 2017, respectively. Revenues from our settlement network solutions were $85.8 million and $70.2 million for the nine months ended March 31, 2018 and 2017, respectively.

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


	Three Months Ended March 31,						Nine Months Ended March 31,
	2018			2017			2018			2017
	(in thousands)
Total measure of segment profit	$	17,972		$	14,385		$	53,022		$	41,519
Less:
Amortization of acquisition-related intangible assets		(5,818	)		(6,006	)		(16,708	)		(18,381	)
Goodwill impairment charge		—			—			—			(7,529	)
Stock-based compensation expense		(8,592	)		(7,354	)		(25,132	)		(24,209	)
Acquisition and integration-related expenses		(224	)		(501	)		(1,596	)		(2,272	)
Restructuring expenses		(1,485	)		(561	)		(1,476	)		(561	)
Minimum pension liability adjustments		3			(264	)		(35	)		(805	)
Global ERP system implementation and other costs		(1,558	)		(2,076	)		(4,973	)		(6,673	)
Other expense, net		(1,293	)		(4,479	)		(9,288	)		(12,596	)

Loss before income taxes	$	(995	)	$	(6,856	)	$	(6,186	)	$	(31,507	)

The following depreciation and other amortization expense amounts are included in the measure of segment profit (loss):


	Three Months Ended March 31,				Nine Months Ended March 31,
	2018		2017		2018		2017
	(in thousands)
Depreciation and other amortization expense:
Cloud Solutions	$	2,671	$	2,274	$	7,649	$	5,974
Banking Solutions		1,605		1,498		4,634		4,304
Payments and Transactional Documents		722		803		2,066		2,357
Other		97		109		289		290

Total depreciation and other amortization expense	$	5,095	$	4,684	$	14,638	$	12,925

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 for which the point of sale was North America and customers located in Africa for which the point of sale was the Middle East.


	Three Months Ended March 31,				Nine Months Ended March 31,
	2018		2017		2018		2017
	(in thousands)
North America	$	61,400	$	54,073	$	178,006	$	160,785
United Kingdom		24,388		20,096		66,927		60,240
Continental Europe		11,607		9,475		32,138		28,009
Asia-Pacific and Middle East		3,741		2,455		10,556		6,877

Total revenues from unaffiliated customers	$	101,136	$	86,099	$	287,627	$	255,911

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


	At March 31,		At June 30,
	2018		2017
	(in thousands)
Long-lived assets:
North America	$	37,872	$	35,569
United Kingdom		5,738		5,188
Continental Europe		1,297		1,208
Asia-Pacific and Middle East		2,321		1,901

Total long-lived assets	$	47,228	$	43,866