REVENUES FROM CONTRACTS WITH CUSTOMERS

The majority of the Company's revenues are derived from investment management and advisory contracts that are accounted for in accordance with ASC 606.

Performance Obligations

Performance obligations are the unit of account under the revenue recognition standard and represent the distinct goods or services that are promised to the customer. The majority of the Company's contracts have a single performance obligation to provide asset management, advisory and other related services to permanent capital vehicles, long-dated private funds and separately managed accounts. The Company also has a separate performance obligation to act as an agent for certain third party lenders and provide loan administration services to certain borrowers. These loan administration services also represent a single performance obligation.

The Company primarily provides investment management services to a fund by managing the fund’s investments and maximizing returns on those investments. The Company’s asset management, advisory and other related services are transferred over time to the customer on a day-to-day basis. The contracts with each fund create a distinct performance obligation for each quarter the Company provides the promised services to the customer, from which the customer can benefit from each individual quarter of service. Furthermore, each quarter of the promised services is considered separately identifiable because there is no integration of the promised services between quarters, each quarter does not modify services provided prior to that quarter, and the services provided are not interdependent or interrelated. Most services provided to these funds are provided continuously over the contract period, so the services in the contract generally represent a single performance obligation comprising a series of distinct service periods. A contract’s transaction price is allocated to the series of distinct services that constitute a single performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

The management fees earned by the Company are largely dependent on fluctuations in the market and, thus, the determination of such fees is highly susceptible to factors outside the Company's influence. Management fees typically have a large number and broad range of possible consideration amounts and historical experience is generally not indicative of future performance of the market. Hence, the Company is applying the exemption provided under the new revenue recognition guidance as the Company is unable to estimate the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied and the variable consideration is allocated entirely to a wholly unsatisfied performance obligation.

Reimbursement of certain expenses incurred on behalf of the Company's funds are reported on a gross basis on the statements of operations if the Company is determined to be acting as the principal in those transactions.

Significant Judgments

The Company's contracts with customers generally include a single performance obligation to provide asset management, advisory and other related services on a quarterly basis. Revenues are recognized as such performance obligation is satisfied and the constraint on the management fees is lifted on a quarterly basis, hence, the Company does not need to exercise significant judgments in regards to management fees. Consideration for management fees is received on a quarterly basis as the performance obligations are satisfied.

With respect to performance fees based on the economic performance of its SMAs, significant judgment is required when determining recognition of revenues. Such judgments include:


•	whether the fund is near final liquidation


•	whether the fair value of the remaining assets in the fund is significantly in excess of the threshold at which the Company would earn an incentive fee


•	the probability of significant fluctuations in the fair value of the remaining assets


•	whether the SMA’s remaining investments are under contract for sale with contractual purchase prices that would result in no clawback and it is highly likely that the contracts will be consummated

As such, the Company will consider the above factors at each reporting period to determine whether there is an amount of the SMA performance fees which should be recognized as revenue because it is probable that there will not be a significant future revenue reversal, hence, the “constraint” on the performance fees has been lifted.

The Company accounts for performance fees which represent capital allocations to the general partner or investment manager pursuant to accounting rules relating to investments accounted for under the equity method of accounting. As such, these types of performance fees are not within the scope of the new revenue recognition standard and the above significant judgments and constraints do not apply to them. Refer to Note 2, “Summary of Significant Accounting Policies,” and Note 4, “Investments,” for additional information.

Revenue by Category

The following table presents the Company's revenue from contracts with customers disaggregated by type of customer for the three and nine months ended September 30, 2020:



	Permanent Capital Vehicles		Long-dated Private Funds		SMAs		Other		Total
	(in thousands)
For the three months ended September 30, 2020
Management fees	$	4,045	$	1,097	$	1,133	$	—	$	6,275
Other revenues and fees	1,192		—		—		443		1,635
Total revenues from contracts with customers	$	5,237	$	1,097	$	1,133	$	443	$	7,910

For the nine months ended September 30, 2020
Management fees	$	12,855	$	3,633	$	3,319	$	—	$	19,807
Other revenues and fees	4,426		—		—		1,843		6,269
Total revenues from contracts with customers	$	17,281	$	3,633	$	3,319	$	1,843	$	26,076

Management fees in the table above are presented net of expense support payments under an expense support agreement entered into by the Company and MCC which became effective on June 1, 2020 (See Note 13). During the three and nine months ended September 30, 2020 such amounts were $0.4 million and $0.7 million respectively. In determining whether the expenses under the expense support agreement should be recorded on a gross or net basis on its consolidated statements of operations the Company followed the contract modification guidance in ASC 606. As the expense support agreement changes the existing enforceable rights and obligations of the parties to the original contract, the expense support agreement represents an agreed-upon change in the transaction price, and as such, is presented on a net basis within management fees on the Company's condensed consolidated statement of operations.

The following table presents the Company's revenue from contracts with customers disaggregated by type of customer for the three and nine months ended September 30, 2019:



	Permanent Capital Vehicles		Long-dated Private Funds		SMAs		Other		Total
	(in thousands)
For the three months ended September 30, 2019
Management fees	$	6,593	$	1,616	$	1,398	$	—	$	9,607
Other revenues and fees	2,075		—		—		546		2,621
Total revenues from contracts with customers	$	8,668	$	1,616	$	1,398	$	546	$	12,228

For the nine months ended September 30, 2019
Management fees	$	21,144	$	5,185	$	4,399	$	—	$	30,728
Other revenues and fees	5,327		—		—		2,404		7,731
Total revenues from contracts with customers	$	26,471	$	5,185	$	4,399	$	2,404	$	38,459

Other revenues and fees reflected in the tables above consist of: (i) revenues earned under administration agreements, as described in Note 13, (ii) revenues earned by Medley while serving as loan administrative agent on certain deals, including loan administration fees and transaction fees, (iii) reimbursable origination and deal related expenses, (iv) reimbursable entity formation and organizational expenses and (v) consulting fees for providing non-advisory services related to one of the Company's managed funds.

The Company's asset management, advisory and other related services are transferred over time and the Company recognizes these revenues over the period of time these services are provided.

Contract Balances

For certain customers, the Company has a performance obligation to provide loan administration services. The timing of revenue recognition may differ from the timing of invoicing to such customers or receiving consideration. For the majority of these services cash deposits are received prior to the performance obligation being met. The performance obligation of acting as a loan administrator is satisfied over time; therefore, the Company defers any payments received upfront as deferred revenue and recognizes revenue on a pro-rata basis over time as the loan administrative services are performed.

These contract liabilities are reported as deferred revenue within accounts payable, accrued expenses and other liabilities on the Company's condensed consolidated balance sheets and were $0.2 million as of September 30, 2020 and December 31, 2019. During the three months ended September 30, 2020 and 2019, the Company recognized revenue from amounts included in deferred revenue of $0.1 million and $0.2 million, respectively, and received cash deposits of $0.1 million and $0.2 million, respectively. During the nine months ended September 30, 2020 and 2019, the Company recognized revenue from amounts included in deferred revenue of $0.4 million and $0.5 million, respectively, and received cash deposits of $0.3 million for each of those periods.

The Company did not have any contract assets as of September 30, 2020 or December 31, 2019.

Assets Recognized for the Costs to Obtain or Fulfill a Contract

As part of providing investment management services to a fund, the Company might incur certain placement fees to third parties for obtaining new investors for the fund. Any placement fees incurred to third party placement agents for placing investors into a fund are variable as it is based on a percentage of future fees and cannot be reasonably estimated. The Company determined that placement fees which are paid in cash over time as fees are earned, do not relate to a new contract at the time the payment is made. These costs do not represent a cost to obtain a new contract but rather a cost to fulfill an existing contract. The Company does not recognize any assets for the incremental costs of obtaining or fulfilling a contract with a customer and expenses placement fees as incurred.