Note 2—Recent Accounting Pronouncements

Recently Adopted Pronouncements

Revenue Recognition: In May 2014, the Financial Accounting Standard Board (FASB) issued an accounting standard update for new revenue recognition guidance, superseding nearly all prior revenue recognition guidance. The new revenue standard outlines a single comprehensive model for accounting for revenue from contracts with customers and requires more detailed revenue disclosures. The core principle of the new standard is that revenue is to be recognized in a manner that depicts the transfer of promised goods or services to customers at amounts that reflect the consideration which the entity expects to be entitled under the arrangement.

We adopted the new revenue standard on July 1, 2018 using the modified retrospective method of adoption applied to open contracts at that date and upon adoption recorded a $26.3 million decrease to our accumulated deficit balance. The adjustments we recorded at transition were composed of:


	(in thousands)
Decrease to accounts receivable	$	(1,914	)
Increase to contract assets		5,118
Decrease to deferred revenue		9,839
Increase to capitalized fulfillment costs		11,648
Increase to capitalized sales commissions		4,952
Tax effects		(3,380	)

Total decrease to accumulated deficit	$	26,263

The adjustment to accounts receivable relates primarily to unbilled receivables reclassified as contract assets. The increase to contract assets relates to revenue recognized in excess of the amount billed to the customer and the right to payment contingent on conditions other than simply the passage of time, such as the completion of a related performance obligation. Adjustments to deferred revenue relate primarily to the acceleration of revenue under the new standard as compared to the previous revenue recognition standard. This largely relates to transactions where, under legacy GAAP, revenue was deferred due to a lack of vendor specific objective evidence of fair value, transactions accounted for under a combined services arrangement which resulted in revenue recognition over time, transactions that had contractually stipulated price increases that were accounted for as the increases occurred and certain contingent revenue arrangements. Adjustments to capitalized fulfillment costs and capitalized sales commissions reflect the requirement to capitalize these costs under the new standard; prior to adoption, we expensed these costs as incurred. Capitalized costs are recorded as components of our prepaid expenses and other current assets and other assets in our consolidated balance sheet.

Please refer to Note 3 Revenue Recognition for discussion of the adoption of this new standard.

Financial Instruments - Classification and Measurement: In January 2016, the FASB issued an accounting standard update which requires that entities measure equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) at fair value, with changes in fair value recognized in earnings. Entities will no longer be able to recognize unrealized holding gains and losses on equity securities classified as available for sale as a component of other comprehensive income (OCI). Subject to certain exceptions, entities will be able to elect to record equity investments without readily determinable fair values at cost, less impairment, plus or minus adjustments for observable price changes, with all such changes recognized in earnings. This standard does not change the guidance for classifying and measuring investments in debt securities and loans. We adopted this standard effective July 1, 2018 and it did not have an impact on our financial statements, but could impact our financial statements in the future if observable price changes occur for investments we hold that do not have readily determinable fair values.

Statement of Cash Flows: In August and November of 2016, the FASB issued updated accounting standards which address the classification and presentation of certain cash receipts, cash payments and restricted cash in the statement of cash flows. We adopted these standards retrospectively on July 1, 2018. Our consolidated balance sheets include cash held for customers and a liability for the same amount. Cash held for customers and the related customer account liabilities arise from certain payment transactions we process on behalf of customers where we collect and hold customer funds for a short transient period before disbursing the cash and settling the liability. Cash we hold on behalf of customers is segregated from our other corporate cash accounts, is not available for use by us and is considered restricted cash. Prior to the adoption of this standard the change in cash held for customers and the corresponding liability were presented on a net basis in our consolidated statement of cash flows. As a result of adoption, the operating section of our consolidated statement of cash flows now reflects the impact on our total cash position, including the impact of changes in customer account liabilities.

During the six months ended December 31, 2017, the retrospective adoption of this standard resulted in an increase in operating cash flows of approximately $4.6 million.

Defined Benefit Plan Expenses: In March 2017, the FASB issued an accounting standard update that changes the income statement presentation of defined benefit plan expense by requiring separation between operating expense (the service cost component) and non-operating expense (all other components of net periodic defined benefit cost). Under the revised standard, the service cost component is classified consistently with other compensation costs, while all other components are reported in other expense, net. We adopted this standard retrospectively on July 1, 2018 and reclassified approximately $0.2 million and $0.4 million from income from operations to other expense, net for the three and six months ended December 31, 2017, respectively, in our consolidated statement of comprehensive loss.

Accounting Pronouncements to be Adopted

Leases: In February 2016, the FASB issued an accounting standard update which requires balance sheet recognition of a lease liability and a corresponding right-of-use asset for all leases with terms longer than twelve months. The pattern of recognition of lease related revenue and expenses will be dependent on its classification. The updated standard requires additional financial statement disclosures. We will adopt this standard on July 1, 2019 and anticipate that the standard will have a material impact to our consolidated balance sheet due to the recognition of right of use assets and lease liabilities and additional disclosures. We expect to adopt the standard using a modified retrospective method as of the date of adoption (July 1, 2019).

Financial Instruments - Credit Losses: In June 2016, the FASB issued an accounting standard update that introduces a new forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments including trade receivables. The estimate of expected credit losses will require entities to incorporate historical information, current information and reasonable and supportable forecasts. This standard also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models and methods for estimating expected credit losses. This standard is effective for us on July 1, 2020, with early application permitted. We are currently evaluating the anticipated impact of this standard on our financial statements as well as timing of adoption.

Goodwill Impairment: In January 2017, the FASB issued an accounting standard update to simplify the test for goodwill impairment which removes step 2 from the goodwill impairment test. Under the revised standard, an entity will perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The loss should not exceed the total amount of goodwill allocated to the reporting unit. The standard is effective for us on July 1, 2020 on a prospective basis, with early adoption permitted. We do not currently expect the adoption of this standard to have a material impact on our financial statements.

Derivatives and Hedging: In August 2017, the FASB issued an accounting standard update that more closely aligns the results of cash flow and fair value hedge accounting with risk management activities through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results in the financial statements. The guidance expands hedge accounting for both nonfinancial and financial risk components and refines the measurement of hedge results to better reflect an entity’s hedging strategies. In October 2018, the FASB issued an accounting standard update to expand the list of United States benchmark interest rates permitted in the application of hedge accounting. The revised standard allows the use of the Overnight Index Swap rate based on the Secured Overnight Financing Rate as a U.S. benchmark interest rate for hedge accounting purposes. These standard updates are required to be adopted concurrently and are effective for us on July 1, 2019. We are currently evaluating the anticipated impact of these standards on our financial statements.

Share-Based Compensation - Nonemployee Share-Based Payment Accounting: In June 2018, the FASB issued an accounting standard update to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees. Under the revised standard, measurement of nonemployee awards will be fixed at the grant date by estimating the fair value of the equity instruments to be issued. Additionally, during the vesting period, nonemployee awards that contain a performance condition that affects the quantity or other terms of the award will be measured based on the probable outcome. Upon adoption, entities must recognize a cumulative-effect adjustment to retained earnings as of the beginning of the annual period of adoption for equity-classified nonemployee awards for which a measurement date has not been established and liability-classified nonemployee awards that have not been settled. This standard is effective for us on July 1, 2019. We do not currently expect the adoption of this standard to have a material impact on our financial statements.