Revenue, deferred revenue, and deferred commissions

12 Months Ended

Dec. 31, 2019

Revenue from Contract with Customer [Abstract]

Revenue, deferred revenue, and deferred commissions

2.

Revenue, deferred revenue and deferred commissions

Disaggregation of Revenue

A typical sales arrangement involves multiple arrangements, such as sales of the Company’s proprietary communication device ("Vocera Badge"), perpetual software licenses, professional services, and maintenance and support services which entitle customers to unspecified upgrades, patch releases and telephone-based support. The following table depicts the disaggregation of revenue according to revenue type and is consistent with how the Company evaluates its financial performance:

	Years ended December 31,
(in thousands)	2019		2018		2017
Revenue
Product
Device	$	61,224	$	60,130	$	61,746
Software	31,337		37,317		29,839
Total product	92,561		97,447		91,585
Service
Maintenance and support	68,846		62,267		52,342
Professional services and training	19,094		19,916		22,062
Total service	87,940		82,183		74,404
Total revenue	$	180,501	$	179,630	$	165,989

Costs to obtain and fulfill a contract

The Company capitalizes certain incremental contract acquisition costs consisting primarily of commissions paid and the related payroll taxes when customer contracts are signed. The Company determines whether costs should be deferred based on its sales compensation plans, if the commissions are incremental and would not have been incurred absent the execution of the customer contract. Sales commissions for renewals of customer contracts are not commensurate with the commissions paid for the acquisition of the initial contract given the substantive difference in commission rates in proportion to their respective contract values. Commissions paid upon the initial acquisition of a contract are amortized over the estimated period of benefit, which may exceed the term of the initial contract. Accordingly, amortization of deferred costs is recognized on a systematic basis that is consistent with the pattern of revenue recognition allocated to each performance obligation and is included in sales and marketing expense in the consolidated statements of operations. The Company determines its estimated period of benefit, up to five years, by evaluating the expected renewals of its customer contracts, the duration of its relationships with its customers and other factors. Deferred

costs are periodically reviewed for impairment. Changes in the balance of total deferred commissions (contract asset) during the year ended December 31, 2019 and 2018 are as follows:

(in thousands)	December 31, 2018		Additions		Commissions Recognized			December 31, 2019
Deferred commissions	$	10,303	$	7,761	$	(7,587	)	$	10,477

(in thousands)	December 31, 2017		Additions		Commissions Recognized			December 31, 2018
Deferred commissions	$	10,301	$	8,327	$	(8,325	)	$	10,303

Of the $10.5 million total deferred commissions balance as of December 31, 2019, the Company expects to recognize approximately 49.0% as commission expense over the next 12 months and the remainder thereafter.

Deferred revenue

The Company records deferred revenue when cash payments are received in advance of the performance under the contract. The current portion of deferred revenue represents the amounts that are expected to be recognized as revenue within one year of the consolidated balance sheet date. Changes in the balance of total deferred revenue (contract liability) during the years ended December 31, 2019 and 2018 are as follows:

(in thousands)	December 31, 2018		Additions		Revenue Recognized			December 31, 2019
Deferred revenue	$	58,632	$	82,042	$	(79,199	)	$	61,475

(in thousands)	December 31, 2017		Additions		Revenue Recognized			December 31, 2018
Deferred revenue	$	55,151	$	77,969	$	(74,488	)	$	58,632

Revenue recognized during the year ended December 31, 2019 from deferred revenue balances as of December 31, 2018 was $48.6 million. Revenue recognized during the year ended December 31, 2018 from deferred revenue balances as of December 31, 2017 was $42.6 million.

The “contracted but not recognized” performance obligations represent the Company’s deferred revenue and non-cancelable backlog amounts. This balance as of December 31, 2019 was $123.5 million, of which the Company expects to recognize approximately 66% of the revenue over the next 12 months and the remainder thereafter.