Revenue, deferred revenue, and deferred commissions

6 Months Ended

Jun. 30, 2020

Revenue from Contract with Customer [Abstract]

Revenue, deferred revenue, and deferred commissions

Revenue, deferred revenue and deferred commissions

Disaggregation of Revenue

A typical sales arrangement involves multiple arrangements, such as the 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:

	Three months ended June 30,				Six months ended June 30,
(in thousands)	2020		2019		2020		2019
Product revenue
Device	$	17,100	$	14,504	$	31,003	$	24,564
Software	6,851		8,628		10,798		12,571
Total product	23,951		23,132		41,801		37,135
Service revenue
Maintenance and support	18,994		16,928		37,063		33,321
Professional services and training	4,402		4,699		9,156		9,612
Total service	23,396		21,627		46,219		42,933
Total revenue	$	47,347	$	44,759	$	88,020	$	80,068

Contract balances

The timing of revenue recognition may differ from the timing of invoicing to customers. Accounts receivable are recorded at the invoiced amount and in the period the Company delivers goods or provides services or when the Company’s right to consideration is unconditional. Payment terms on invoiced amounts are typically 30 days. The balance of accounts receivable, net of allowance for doubtful accounts, as of June 30, 2020 and December 31, 2019 is presented in the accompanying condensed consolidated balance sheets. In situations where revenue recognition occurs before invoicing, an unbilled receivable is created, which represents a contract asset. As of June 30, 2020 and December 31, 2019, contract assets totaling $4.7 million and $4.3 million, respectively, were included in other receivables in the condensed consolidated balance sheets.

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 condensed consolidated statements of operations. The Company determines its estimated period of benefit 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 three and six months ended June 30, 2020 are as follows:

(in thousands)	March 31, 2020		Additions		Commissions Recognized			June 30, 2020
Deferred commissions	$	10,307	$	3,163	$	(2,352	)	$	11,118

(in thousands)	December 31, 2019		Additions		Commissions Recognized			June 30, 2020
Deferred commissions	$	10,477	$	5,116	$	(4,475	)	$	11,118

Of the $11.1 million total deferred commissions balance as of June 30, 2020, the Company expects to recognize approximately 49% 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 condensed consolidated balance sheet date. Changes in the balance of total deferred revenue (contract liability) during the three and six months ended June 30, 2020 are as follows:

(in thousands)	March 31, 2020		Additions		Revenue Recognized			June 30, 2020
Deferred revenue	$	56,676	$	17,385	$	(20,047	)	$	54,014

(in thousands)	December 31, 2019		Additions		Revenue Recognized			June 30, 2020
Deferred revenue	$	61,475	$	32,330	$	(39,791	)	$	54,014

Revenue recognized during the three and six months ended June 30, 2020 from deferred revenue balances at the beginning of the period was $19.5 million and $34.2 million, respectively. Revenue recognized during the three and six months ended June 30, 2019 from deferred revenue balances at the beginning of the period was $17.0 million and $29.4 million.

The “contracted but not recognized” performance obligations represent the Company’s deferred revenue and non-cancelable backlog amounts. This balance as of June 30, 2020 was $115.9 million, of which the Company expects to recognize approximately 66% as revenue over the next 12 months and the remainder thereafter.