Revenue from Contracts with Clients and Customers

Performance Obligations and Revenue Recognition Timing

A performance obligation is a promise in a contract to transfer a distinct good or service to the client or customer and is the unit of account in ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

Our performance obligations for the PFS Operations segment (“PFS Operations”), includes order to cash, fulfillment and customer care services and for the LiveArea Professional Services segment (“LiveArea”), include consulting, design, digital marketing and technology services. For arrangements with multiple distinct performance obligations, we allocate consideration among the performance obligations based on their relative standalone selling price. Standalone selling price is the price at which we would sell a promised good or service separately to our client and customers.

We typically price our professional services contracts on either a time and materials, fixed-price or a cost-plus margin basis.

For fixed-price arrangements, we typically recognize revenue based on the input method, as we believe that hours expended over time proportionately, based on actual hours to budgeted hours during the period, provides the most relevant measure of progress for these contracts. For time and materials contracts, we recognize revenue monthly based on the actual hours worked at the labor rates by job category and cost of materials plus margin. We recognize revenue for a performance obligation satisfied over time only if we can reasonably measure our progress toward complete satisfaction of the performance obligation. In some circumstances (for example, in the early stages of a contract), we may not be able to reasonably measure the outcome of a performance obligation, but we expect to recover the costs incurred in satisfying the performance obligation. In those circumstances, we shall recognize revenue only to the extent of the costs incurred until such time that we can reasonably measure the outcome of the performance obligation.

Contracts that are billed on a time and materials basis typically are structured such that the amount the company bills at each point in time corresponds directly with the value of our performance to date. We have elected the ‘as-invoiced’ practical expedient for these contracts.

In addition, PFS Operations has certain product revenue where it acts as a reseller in which we have determined we do not have ultimate control of the provisioning of the performance obligation. For these agreements, we recognize net revenue at a point in time when control transfers to the customer, typically at FOB shipping point.

Remaining performance obligations represent the transaction price of firm orders for which work has not yet been performed. This amount does not include 1) contracts that are less than one year in duration, 2) contracts for which we recognize revenue based on the right to invoice for services performed, or 3) variable consideration allocated entirely to a wholly unsatisfied performance obligation. Much of our revenue qualifies for one of these exemptions. As of December 31, 2019, the aggregate amount of the transaction price allocated to remaining performance obligations for contracts with an original expected duration of one year or more was $11.8 million. We expect to recognize revenue on approximately 87% of the remaining performance obligations in 2020, 98% through 2021 and the remaining recognized thereafter.

Contract Assets and Contract Liabilities

Contract assets primarily relate to our rights to consideration for work completed but not billed at the reporting date and costs to fulfill assets capitalized for PFS Operations implementation services. The contract assets are reclassified as receivables when the rights become unconditional. Costs to Fulfill assets related to deferred costs, which are included within other current assets, other assets and to software development costs, which are included within property and equipment in our consolidated balance sheets. The contract liabilities primarily relate to the advance consideration received from clients for contracts, including amounts received for implementation services which are not distinct performance obligations.

Our payment terms vary by the type and location of our clients and the type of services offered. The term between invoicing and when payment is due is generally not significant.

Contract balances consisted of the following (in thousands):



	December 31, 2019		December 31, 2018
Contract Assets
Trade Accounts Receivable, net	$	71,183	$	72,180
Unbilled Accounts Receivable	1,079		235
Costs to Fulfill	4,875		5,214
Total Contract Assets	$	77,137	$	77,629
Contract Liabilities
Accrued Contract Liabilities	$	1,806	$	535
Deferred Revenue	7,456		9,255
Total Contract Liabilities	$	9,262	$	9,790

Changes in costs to fulfill contract assets during the period was a decrease of $0.3 million from December 31, 2018 to December 31, 2019, primarily due to an increase of approximately $6.1 million from new projects, offset by approximately $6.4 million of amortization and recognition of costs in the year ended December 31, 2019. Changes in costs to fulfill contract assets during the period from January 1, 2018 to December 31, 2018 was a decrease of $1.2 million, primarily due to an increase of approximately $4.6 million from new projects, offset by approximately $5.8 million of amortization and recognition of costs in the year ended December 31, 2018.

Changes in contract liabilities during the period was a decrease of $0.5 million in our contract liabilities from December 31, 2018 to December 31, 2019, primarily due to an increase of approximately $10.8 million from new projects, offset by approximately $11.3 million of amortization and recognition of revenue in the year ended December 31, 2019. Contract losses for the year ended December 31, 2019 were not material. Changes in contract liabilities during the period from January 1, 2018 to December 31, 2018 was a decrease of $1.5 million in our contract liabilities, primarily due to an increase of approximately $8.1 million from new projects, offset by approximately $9.6 million of amortization and recognition of revenue in the year ended December 31, 2018. We recognized a $0.2 million contract loss for the year ended December 31, 2018.

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables and customer advances and deposits (contract liabilities) on the consolidated balance sheet.

Changes in the contract asset and liability balances during the years ended December 31, 2019 and 2018 were not materially impacted by any other factors.

The following table presents our revenues, excluding sales and usage-based taxes, disaggregated by revenue source (in thousands):



	Year Ended December 31, 2019						Year Ended December 31, 2018
	PFS Operations		LiveArea Professional Services		Total		PFS Operations		LiveArea Professional Services		Total
Revenues:
Service fee revenue	$	139,490	$	74,892	$	214,382	$	148,071	$	82,413	$	230,484
Product revenue, net	26,613				26,613		34,350		—		34,350
Pass-through revenue	50,296		2,731		53,027		59,315		2,011		61,326
Total revenues	$	216,399	$	77,623	$	294,022	$	241,736	$	84,424	$	326,160

The following table presents our revenues, excluding sales and usage-based taxes, disaggregated by timing of revenue recognition (in thousands):



	Year Ended December 31, 2019						Year Ended December 31, 2018
	PFS Operations		LiveArea Professional Services		Total		PFS Operations		LiveArea Professional Services		Total
Revenues:
Over time	$	189,786	$	76,645	$	266,431	$	207,385	$	84,274	$	291,659
Point-in-time	26,613		978		27,591		34,351		150		34,501
Total revenues	$	216,399	$	77,623	$	294,022	$	241,736	$	84,424	$	326,160

The following table presents our revenues, excluding sales and usage-based taxes, disaggregated by region (in thousands):



	Year Ended December 31, 2019						Year Ended December 31, 2018
	PFS Operations		LiveArea Professional Services		Total		PFS Operations		LiveArea Professional Services		Total
Revenues by region:
North America	$	178,760	$	68,684	$	247,444	$	194,496	$	73,653	$	268,149
Europe	37,639		8,939		46,578		47,240		10,771		58,011
Total revenues	$	216,399	$	77,623	$	294,022	$	241,736	$	84,424	$	326,160