(15) REVENUE AND CONTRACT COSTS

Nature of the Company’s Products and Offerings

The Company operates and manages the business in four reportable segments. Revenue is disaggregated by products and offerings, which the Company views as the relevant categorization of revenues for the Company’s businesses. See Note 17 – Segment Reporting, for additional information on the nature of the Company’s products and offerings by segment.

The Company’s Fiber SPG (within the Zayo Networks segment) and zColo segments have contract terms that are accounted for as leases and are further described below.

Contracts related to the Fiber SPG are generally fixed rate contracts and can be payable upfront, on a monthly recurring basis or a combination of both. Monthly recurring payment structures in this segment generally include annual inflationary pricing escalators. A majority of the revenue earned from the Fiber line of business is not accounted for under ASC 606 as the contract terms are accounted for as lease arrangements. The Company recognizes revenue associated with its dark fiber leases on a straight-line basis from the customer acceptance date through the lease term.

The Fiber SPG may provide telecommunications construction solutions or perform variable non-routine maintenance activities that are billable to its customers. These types of solutions are accounted for under ASC 606 and are recognized as the service is performed. Revenue recognized from these non-lease arrangements was $46.5 million, $29.6 million, and $34.5 million during years ended June 30, 2019, 2018 and 2017, respectively. Contracts in the Company’s Fiber SPG do not include significant financing components.

The Company’s contract terms for the zColo segment includes terms that may be fixed or variable. The Company’s zColo revenue contracts generally include multiple performance obligations including space and infrastructure, which is considered a lease component, and power and remote hand component, which are considered to be separate components of the zColo revenue arrangement. The transaction price in contracts that include multiple performance obligations is allocated to each performance obligation based on the Company’s standalone selling price for each component when such offerings are sold separately. In instances where the Company does not sell the product or offering separately, the Company estimates the standalone selling prices based on observable inputs as well as various market conditions. The Company estimates the standalone selling price to be the price of the offerings when sold on a standalone basis without any promotional discounts.

The Company recognizes revenue on space and infrastructure leases on a straight-line basis over the customer lease term. The Company’s customer leases often include customary renewal terms. However, the Company does not include any extension options in a customer’s lease term for lease classification purposes or recognizing rental revenue unless it is reasonably certain that the customer will exercise the extension renewal option. The excess of zColo lease revenue recognized in excess of lease payments received is recorded within other assets on the Company’s consolidated balance sheets.

Customer power arrangements are coterminous with the respective customer lease and may be billed at fixed or variable rates. The Company recognizes revenue on its fixed rate power contracts as the arrangements are rendered, as the customer simultaneously receives and consumes the benefit of the arrangements provided. Variable contracts are invoiced based on usage and are billed in arrears and recognized as the usage occurs. Revenue is recognized on remote hand services as the services are provided. Revenue recognized by the zColo segment from these non-lease arrangements was $38.5 million, $39.6 million and $36.9 million during the years ended June 30, 2019, 2018 and 2017 respectively.

Contracts in the Company’s zColo segment do not include significant financing components.

The Company’s contract terms for Layer 2/3, Transport, Allstream and Other segment businesses include terms that may be fixed or variable. The Company recognizes revenue on its fixed rate contracts as the product offerings are rendered, as the customer simultaneously receives and consumes the benefit of the products provided. Variable contracts are invoiced based on usage and are billed in arrears and recognized as the usage occurs. These contracts do not include significant financing components and generally include a single performance obligation. The transaction price in contracts that include multiple performance obligations is allocated to each performance obligation based on the Company’s standalone selling price for each product offering. The Company estimates the standalone selling price to be the price of the offering when sold on a standalone basis without any promotional discounts.

Remaining Performance Obligation Associated with Non-Lease Arrangements

A majority of the Company’s revenue is provided over a contract term. When allocating the total contract transaction price to identified performance obligations, a portion of the total transaction price relates to performance obligations that are yet to be satisfied or are partially satisfied as of the end of the reporting period.

In determining the transaction price allocated to remaining performance obligations, the Company does not include non-recurring charges and estimates for usage.

Remaining performance obligations associated with the Company’s contracts reflect recurring charges billed, adjusted to reflect estimates for sales incentives and revenue adjustments.

The table below reflects an estimate of the remaining transaction price of fixed fee, non-lease revenue arrangements to be recognized in the future periods presented. The table below does not include estimated amounts to be recognized in future periods associated with variable usage-based consideration.


	Year Ended June 30,
	2020		2021		2022		2023		2024		Thereafter		Total
	(in millions)
Reportable Segment
Zayo Networks		621.4		295.9		117.4		36.7		14.1		17.5		1,103.0
zColo		21.7		11.0		6.2		3.5		2.5		2.0		46.9
Allstream		110.3		26.7		11.8		1.6		0.3		—		150.7
Total	$	753.4	$	333.6	$	135.4	$	41.8	$	16.9	$	19.5	$	1,300.6

Contract Assets and Liabilities

The timing of revenue recognition may differ from the time of billing to the Company’s customers. Customer receivables represent an unconditional right to consideration net of an estimated allowance for doubtful accounts. Contract balances represent amounts from an arrangement when either the Company has performed, by transferring a solution to the customer in advance of receiving all or partial consideration for such goods and offerings from the customer, or the customer has made payment to the Company in advance of obtaining control of the goods and/or offerings promised to the customer in the contract.

Contract liabilities arise when the Company bills its customers and receives consideration in advance of providing the goods or offerings promised in the contract. Contract liabilities are recognized as revenue when product offerings are provided to the customer. Contract liabilities are presented in the Company’s consolidated balance sheet as deferred revenue.

The following table presents information about the Company’s customer receivables, contract assets and contract liabilities as of June 30, 2019 and June 30, 2018:


	June 30, 2019		June 30, 2018
	(in millions)
Customer receivable, net(1)	$	136.4	$	164.0
Contract liabilities(1)	$	50.5	$	68.9

(1) Amounts do not include balances associated with lease revenue from the Company’s Zayo Networks and zColo segments.

During the years ended June 30, 2019, 2018 and 2017, the Company recognized $20.9 million, $21.9 million and $21.4 million, respectively, of revenue that was included in contract liabilities.

Contract Costs

The Company recognizes an asset for incremental commission and bonus expenses paid to internal sales personnel and third party agents in conjunction with obtaining certain customer contracts. These costs are only deferred when the commissions are incremental and would not have been incurred absent the customer contract. Costs to obtain a contract are amortized and recorded ratably within selling, general and administrative expenses on the Company’s consolidated statements of operations over the estimated contract term.

The Company also defers costs incurred to fulfill contracts that relate directly to the contract, are expected to generate resources that will be used to satisfy the Company’s performance obligation under the contract and are expected to be recovered through revenue generated under the contract. Contract fulfillment costs are expensed to cost of service as the Company satisfies its performance obligations. These costs principally relate to direct costs associated with activating new customer solutions.

The Company estimates the amortization period for its costs incurred to obtain and fulfill customer contracts at a portfolio level due to the similarities within its customer contract portfolios.

Other costs, such as general costs or costs related to past performance obligations, are expensed as incurred.

As of June 30, 2019 and 2018, the Company had $5.7 million and $7.1 million, respectively, of short-term unamortized contract costs included in other current assets and $3.8 million and $5.6 million, respectively, of long term unamortized contract costs included in other assets on its consolidated balance sheets. During the years ended June 30, 2019, 2018 and 2017, the Company recorded $7.8 million, $8.7 million and $8.3 million, respectively, in selling, general and administrative expenses associated with the amortization of deferred contract costs. The amortization period for these contract costs ranges from 12 to 48 months.