Note 3—Revenue Recognition

Significant Accounting Policy

Effective July 1, 2018, we adopted a new accounting standard related to revenue recognition on a modified retrospective basis to all open contracts. Other than changes in our accounting policies for revenue recognition and deferred contract costs due to the adoption of this standard, there have been no significant changes to our accounting policies as described in our Annual Report on Form 10-K for the fiscal year ended June 30, 2018.

Revenue Recognition

We generate revenue from the sale of SaaS or cloud-based services inclusive of both fixed and usage-based fees, perpetual and term software licenses, professional services such as consulting and implementation services, software support and maintenance and, to a lesser extent, through the sale of hardware and supplies. We recognize revenue as we transfer goods and services to customers, at amounts we expect to receive as consideration under enforceable contractual arrangements. Revenue is recognized as we satisfy contractual performance obligations, which can occur either at a point in time or over time. For perpetual and term software licenses that do not involve significant customization and for equipment and supplies sales, we normally record revenue at a point in time. For professional services, support and maintenance, stand-ready performance obligations with respect to our hosted or SaaS solutions and for software licenses that are dependent on significant customization by us we normally record revenue over time.

We recognize revenue according to a five step model that involves:

•

Identifying the contract (or contracts) with a customer;

•

Identifying the performance obligations in the contract(s);

•

Determining the transaction price;

•

Allocating the transaction price to the contractual performance obligations, and

•

Recognizing revenue as we satisfy the performance obligations.

We consider a contract to exist when we have legally enforceable rights and obligations with a customer. Our contracts can take a variety of forms but are normally in writing and include all major commercial terms such as the goods or services we will be obligated to transfer under the arrangement, the amount the customer is obligated to pay us upon fulfillment of our obligations and the payment terms.

Performance obligations in a contract are accounted for separately if they are determined to be distinct. We consider a performance obligation to be distinct if that good or service is separately identified from other items in the contract and if the customer can benefit from that performance obligation on its own or together with resources that are readily available to the customer. In assessing whether a customer can benefit from a performance obligation on its own, we consider factors such as the interdependency or interrelationship of the item with other goods or services in the contract, the complexity of any required integration or customization and the ability of the customer’s personnel or other third party providers to fulfill like goods or services. If a particular good or service is not considered to be distinct, it is combined with other performance obligations in the arrangement and revenue is recognized as the combined performance obligation is transferred to the customer.

The transaction price is the amount of consideration we expect to be entitled to under a contract upon fulfillment of the performance obligations. The starting point for estimating the transaction price is the selling price stipulated in the contract, however we include in the determination of the overall transaction price an estimate of variable consideration to the extent it is probable that inclusion will not result in a significant future reversal of revenue. Variable consideration can arise in our arrangements as a result of usage-based fees. For contracts with a long period over which usage-based fees can arise, or in contracts with customers with whom we do not have a reasonable operating history, we often constrain the amount of variable consideration included in the transaction price. We update our estimate of variable consideration at the end of each financial reporting period. We exclude from the determination of the transaction price sales and other taxes we bill to and collect from customers and remit to government authorities. Shipping and handling activities performed after the customer has obtained control of the good or service is accounted for as a fulfillment activity.

The transaction price is allocated to contractual performance obligations on a relative standalone selling price basis. We normally estimate standalone selling price using the adjusted market approach, maximizing the use of observable inputs and other factors that can include: the price we charge when we sell an item separately, our internal price lists and internal pricing guidelines, cost of delivering the item and overall gross margin expectations and information about the customer or class of customer. Revenue is recorded, either at a point in time or over time, as we satisfy the performance obligations in a contract.

Nature of Goods and Services

Subscriptions and Transactions: We generate subscriptions and transactions revenue through the provision of hosted and SaaS based solutions which can include contractually fixed revenue amounts as well as usage based fees. Our SaaS arrangements consist of an obligation for us to provide continuous access to a technology solution that we host, which we account for as a stand-ready performance obligation. These contracts may also be subject to variable pricing or overage fees based on customer processing, usage or volume. We recognize revenue for fixed subscription fees ratably over the non-cancelable term of the contract, commencing on the date the customer has access to the solution. In circumstances where we meet certain requirements to allocate variable consideration to a distinct service within a series of related services, we allocate variable consideration to each distinct period of service within the series. If we do not meet those requirements, we include an estimate of variable consideration in the transaction price and recognize it ratably over the non-cancelable term of the contract.

For certain of our hosted or SaaS solutions, customers are charged a fee for implementation services. In determining whether the implementation services are distinct from the hosting services we consider various factors including the level of customization, complexity of the integration, the interdependency and interrelationship between the implementation services and the hosting services and the ability (or inability) of the customer’s personnel or other service providers to perform the services. We have concluded that the implementation services in our hosting arrangements with multiple performance obligations are not distinct and therefore we recognize fees for implementation services ratably over the non-cancelable term of the hosting contract.

We license certain software on a subscription basis under contractual arrangements where customers pay a specified fee, inclusive of support and maintenance, for a time-based license right to use our software. These fees recur periodically, unless the customer opts to cancel their subscription arrangement with us. These contracts typically contain two distinct performance obligations: the software license and support and maintenance. The portion of the transaction price allocated to the license right is recognized at the point in time in which we have provided the customer access to the intellectual property and the license term has commenced. The portion of the transaction price allocated to support and maintenance is recognized ratably over the non-cancelable contract term.

Software Licenses: Software licenses revenue reflects fees we charge to license software on a perpetual basis. For software licenses that do not include significant customization we recognize revenue at the point in time where the customer has obtained access to the intellectual property and the license period has commenced.

Certain of our software arrangements require significant customization and modification and involve extended implementation periods. In these arrangements the professional services and software license are highly interdependent and we treat the software license and professional services as a combined performance obligation. We recognize revenue for the combined performance obligation over time and measure progress to completion based on labor hours incurred as a percentage of total expected labor hours. We believe the use of labor hours as an input measure provides a faithful depiction of the transfer of goods and services under these contracts.

Support and Maintenance: Our software licenses are generally sold with post-contract support which is comprised of technical support and unspecified software upgrades. Unspecified upgrades refer to software upgrades which we make available at our discretion and from time-to-time, on a “when and as available” basis. We account for post-contract support as a stand-ready performance obligation and recognize revenue ratably over the non-cancelable contract term which is typically one year.

Professional Services: Our professional services revenue is normally comprised of implementation, consulting and training services. Except for professional service performance obligations that form part of an overall, highly customized arrangement, our professional services typically represent distinct performance obligations and revenue is recognized as the services are performed.

Other: Other revenue is derived from the sale of equipment and supplies and is recognized at the point in time control transfers to the customer.

Disaggregation of Revenue

The tables below present our revenue disaggregated by major product category and the related financial statement classification of revenue for the three and six months ended December 31, 2018.


	Three Months Ended December 31, 2018
	Settlement Network Solutions		Legal Spend Management Solutions		Banking Solutions		Payments and Transactional Documents		Healthcare		Other		Total
	(in thousands)
Financial statement classification:
Subscriptions and transactions	$	24,881	$	19,149	$	15,925	$	11,045	$	231	$	57	$	71,288
Software licenses		235		—		2,100		1,499		464		1,367		5,665
Service and maintenance		6,063		—		5,103		12,601		872		2,147		26,786
Other		—		—		—		798		—		309		1,107

Total revenues	$	31,179	$	19,149	$	23,128	$	25,943	$	1,567	$	3,880	$	104,846


	Six Months Ended December 31, 2018
	Settlement Network Solutions		Legal Spend Management Solutions		Banking Solutions		Payments and Transactional Documents		Healthcare		Other		Total
	(in thousands)
Financial statement classification:
Subscriptions and transactions	$	49,163	$	37,545	$	31,591	$	21,614	$	1,057	$	86	$	141,056
Software licenses		807		—		3,426		3,653		883		1,408		10,177
Service and maintenance		12,388		—		10,363		25,360		1,770		4,310		54,191
Other		—		—		—		1,550		—		309		1,859

Total revenues	$	62,358	$	37,545	$	45,380	$	52,177	$	3,710	$	6,113	$	207,283

Remaining Performance Obligations

The transaction price allocated to remaining performance obligations that are unsatisfied, or partially unsatisfied, as of December 31, 2018 represents contracted revenue that will be recognized in future periods. Our future performance obligations consist primarily of SaaS hosting/subscription obligations relating to future periods, contracted but uncompleted professional services obligations and support and maintenance obligations. The amount of revenue recognized during the three and six months ended December 31, 2018 from performance obligations satisfied in prior periods was not significant.

Revenue allocated to remaining performance obligations was $367.0 million as of December 31, 2018 of which we expect to recognize approximately $160.0 million over the next twelve months and the remainder thereafter. We exclude from our measure of remaining performance obligations amounts related to future transactional or usage based fees for which the value of services transferred to the customer will correspond to the amount we will invoice for those services.

Contract Assets and Liabilities

The table below presents our accounts receivable, contract assets and deferred revenue balances as of July 1, 2018 and December 31, 2018.


	July 1,		December 31,
	2018		2018		$ Change
	(in thousands)
Accounts receivable	$	72,391	$	62,902	$	(9,489	)
Contract assets		5,118		6,894		1,776
Deferred revenue		88,888		75,189		(13,699	)

Accounts receivable include amounts related to our contractual right to consideration for both completed and partially completed performance obligations that may not have been invoiced. Contract assets arise when we recognize revenue in excess of the amount billed to the customer and the right to payment is contingent on conditions other than simply the passage of time, such as the completion of a related performance obligation. Contract assets are classified in our consolidated balance sheets as other current assets for those contract assets with amortization periods of one year or less and other assets for contract assets with amortization periods greater than one year. Deferred revenue consists of billings or customer payments in excess of amounts recognized as revenue.

For the three and six months ended December 31, 2018, we recognized $24.7 million and $51.8 million, respectively, in revenue from amounts that were included in deferred revenue as of July 1, 2018.

Contract Costs

We capitalize incremental costs incurred in connection with obtaining a contract if they have a period of benefit that is greater than one year and we expect to recover the costs through future contract revenues. Incremental costs incurred to obtain a contract relate to sales commissions. We also capitalize costs incurred in fulfilling a contract when the costs relate directly to a specifically identifiable customer contract, when the costs generate or enhance resources that we will use to satisfy performance obligations in the future and when the costs are expected to be recovered through future contract revenues. Capitalized costs to obtain a contract and capitalized fulfillment costs totaled $5.2 million and $16.3 million, respectively, at December 31, 2018.

Capitalized costs are amortized on a basis consistent with the transfer of the goods or services to which the asset relates. This results in capitalized costs being recognized on a ratable basis over the estimated period of future benefit, which is generally five years. We estimate the future period of benefit considering the current contract term, the impact of estimated customer renewal terms and the estimated life of the technology solution underlying the contracts. Amortization expense associated with costs of obtaining and costs of fulfilling a contract, respectively, for the three months ended December 31, 2018 was $0.5 million and $0.9 million and were recorded as components of sales and marketing expense and cost of revenues, respectively, in our consolidated statement of comprehensive income (loss). Amortization expense associated with costs of obtaining and costs of fulfilling a contract were $0.8 million and $1.4 million, respectively, for the six months ended December 31, 2018, and were recorded as components of sales and marketing expense and cost of revenues, respectively, in our consolidated statement of comprehensive income (loss).

The following tables summarize the impact of adopting the new revenue standard on our consolidated financial statements as of and for the three and six months ended December 31, 2018:

Unaudited Condensed Consolidated Balance Sheet


	At December 31, 2018
(in thousands, unaudited)	As Reported			Adjustments			Balances without adoption of new revenue standard
ASSETS
Current assets:
Cash and cash equivalents	$	87,639		$	—		$	87,639
Cash held for customers		5,382			—			5,382
Marketable securities		8,477			—			8,477
Accounts receivable, net		62,902			1,576			64,478
Prepaid expenses and other current assets		30,205			(11,162	)		19,043

Total current assets		194,605			(9,586	)		185,019
Property and equipment, net		28,876			—			28,876
Goodwill		200,786			—			200,786
Intangible assets, net		160,136			—			160,136
Other assets		33,301			(14,931	)		18,370

Total assets	$	617,704		$	(24,517	)	$	593,187

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	10,166		$	—		$	10,166
Accrued expenses and other current liabilities		29,038			—			29,038
Customer account liabilities		5,382			—			5,382
Deferred revenue		58,496			2,071			60,567

Total current liabilities		103,082			2,071			105,153
Borrowings under credit facility		110,000			—			110,000
Deferred revenue, non-current		16,693			6,542			23,235
Deferred income taxes		7,457			1,619			9,076
Other liabilities		19,627			—			19,627

Total liabilities		256,859			10,232			267,091
Stockholders’ equity
Preferred Stock, $.001 par value		—			—			—
Common Stock, $.001 par value		46			—			46
Additional paid-in-capital		700,520			—			700,520
Accumulated other comprehensive loss		(35,704	)		185			(35,519	)
Treasury stock, at cost		(128,216	)		—			(128,216	)
Accumulated deficit		(175,801	)		(34,934	)		(210,735	)

Total stockholders’ equity		360,845			(34,749	)		326,096

Total liabilities and stockholders’ equity	$	617,704		$	(24,517	)	$	593,187

Unaudited Condensed Consolidated Statement of Comprehensive Income (Loss)


	Three Months Ended December 31, 2018									Six Months Ended December 31, 2018
(in thousands, unaudited)	As Reported			Adjustments			Balances without adoption of new revenue standard			As Reported			Adjustments			Balances without adoption of new revenue standard
Revenues:
Subscriptions and transactions	$	71,288		$	390		$	71,678		$	141,056		$	1,226		$	142,282
Software licenses		5,665			(1,742	)		3,923			10,177			(3,382	)		6,795
Service and maintenance		26,786			514			27,300			54,191			1,227			55,418
Other		1,107			(37	)		1,070			1,859			(37	)		1,822

Total revenues		104,846			(875	)		103,971			207,283			(966	)		206,317

Cost of revenues:
Subscriptions and transactions		31,352			263			31,615			63,021			649			63,670
Software licenses		210			2			212			441			2			443
Service and maintenance		12,528			408			12,936			25,234			801			26,035
Other		891			(30	)		861			1,415			(28	)		1,387

Total cost of revenues		44,981			643			45,624			90,111			1,424			91,535

Gross profit		59,865			(1,518	)		58,347			117,172			(2,390	)		114,782

Operating expenses:
Sales and marketing		22,585			175			22,760			45,607			365			45,972
Product development and engineering		16,815			146			16,961			33,380			178			33,558
General and administrative		11,904			—			11,904			25,769			—			25,769
Amortization of acquisition-related intangible assets		5,253			—			5,253			10,579			—			10,579

Total operating expenses		56,557			321			56,878			115,335			543			115,878

Income from operations		3,308			(1,839	)		1,469			1,837			(2,933	)		(1,096	)
Other expense, net		(858	)		—			(858	)		(1,639	)		—			(1,639	)

Income (loss) before income taxes		2,450			(1,839	)		611			198			(2,933	)		(2,735	)
Benefit (expense) from income taxes		3,519			4,797			(1,278	)		4,853			5,738			(885	)

Net income (loss)	$	5,969		$	(6,636	)	$	(667	)	$	5,051		$	(8,671	)	$	(3,620	)

Net income (loss) per share:
Basic	$	0.15		$	(0.17	)	$	(0.02	)	$	0.13		$	(0.22	)	$	(0.09	)

Diluted	$	0.14		$	(0.16	)	$	(0.02	)	$	0.12		$	(0.21	)	$	(0.09	)

Shares used in computing net income (loss) per share:
Basic		40,635			—			40,635			40,162			—			40,162

Diluted		41,739			(1,104	)		40,635			41,662			(1,500	)		40,162

Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on available for sale securities		8			—			8			6			—			6
Unrealized gain (loss) on interest rate hedging transactions		(1,438	)		—			(1,438	)		(1,111	)		—			(1,111	)
Minimum pension liability adjustments		(10	)		—			(10	)		(56	)		—			(56	)
Foreign currency translation adjustments		(2,543	)		125			(2,418	)		(3,910	)		185			(3,725	)

Other comprehensive loss, net of tax:		(3,983	)		125			(3,858	)		(5,071	)		185			(4,886	)

Comprehensive income (loss)	$	1,986		$	(6,511	)	$	(4,525	)	$	(20	)	$	(8,486	)	$	(8,506	)

Unaudited Condensed Consolidated Statement of Cash Flows


	Six Months Ended December 31, 2018
(in thousands, unaudited)	As Reported			Adjustments			Balances without adoption of new revenue standard
Operating activities:
Net income (loss)	$	5,051		$	(8,671	)	$	(3,620	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Amortization of acquisition-related intangible assets		10,579			—			10,579
Stock-based compensation plan expense		21,891			15			21,906
Depreciation and other amortization		11,191			—			11,191
Gain on sale of cost-method investment		(237	)		—			(237	)
Deferred income tax benefit		(6,177	)		5,738			(439	)
Provision for allowances on accounts receivable		159			—			159
Amortization of debt issuance costs		208			—			208
Amortization of discount on investments		(75	)		—			(75	)
Loss (gain) on disposal of equipment		594			—			594
Loss (gain) on foreign exchange		326			(5	)		321
Changes in operating assets and liabilities:
Accounts receivable		8,827			328			9,155
Prepaid expenses and other current assets		(1,982	)		2,754			772
Other assets		(1,643	)		1,004			(639	)
Accounts payable		403			—			403
Accrued expenses		(4,858	)		—			(4,858	)
Customer account liabilities		2,761			—			2,761
Deferred revenue		(13,491	)		(1,163	)		(14,654	)
Other liabilities		(278	)		—			(278	)

Net cash provided by operating activities	$	33,249		$	—		$	33,249

The following summarizes the significant adjustments resulting from our adoption of the new revenue recognition standard compared to what would have been recorded in our financial statements had we continued to apply the provisions of legacy GAAP:

Consolidated Balance Sheet

Adjustments to prepaid expenses and other current assets and other assets relate to costs to fulfill and costs to obtain a customer contract which are capitalized under the new standard and expensed as incurred under legacy GAAP. Adjustments to deferred revenue reflect the acceleration of revenue recognition for certain transactions that required longer term revenue deferral under legacy GAAP.

Consolidated Statement of Comprehensive Income (Loss)

Adjustments to software license revenues reflect the requirement under legacy GAAP to defer recognition of revenue when vendor specific evidence of fair value could not be established. The new revenue standard does not have a similar requirement and instead results in the recognition of software license revenue when that performance obligation has been transferred to the customer. In addition, the new revenue standard changed the methodology for allocating the transaction price between performance obligations, which had the impact of increasing software revenue. The decrease in our deferred tax benefit under legacy GAAP is driven by the overall decrease in net income and the inability to recognize certain interim tax benefits.

Statement of Cash Flows

The adoption of the new revenue standard had no impact on our total cash flows or the net cash provided by operating activities. The adjustments reflect offsetting shifts in the components of operating cash flow driven by changes to individual balance sheet accounts and the change in our net income (loss).