Revenue

Based upon similar operational and economic characteristics, the Company’s revenues are disaggregated by its three strategic pillars: U.S. Integrated HCM (“HCM”), HR Outsourcing ("HRO"), and Global with separate disaggregation for PEO benefits pass-through revenues and Client Fund Interest revenues. The Company believes these revenue categories depict how the nature, amount, timing, and uncertainty of its revenue and cash flows are affected by economic factors.

HCM provides a suite of product offerings that assist employers of all types and sizes in all stages of the employment cycle, from recruitment to retirement. Global is generally consistent with the types of services provided within HCM but represent geographies outside of the United States and includes our multinational offerings. HCM and Global revenues are primarily attributable to fees for providing solutions for payroll, benefits, talent, retirement services and HR processing and fees charged to implement the Company's solutions for clients.

HRO provides a comprehensive human resources outsourcing solution, including offering benefits, providing workers’ compensation insurance, and administering state unemployment insurance, among other human resources functions. This revenue is primarily driven by the Professional Employer Organization Services (“PEO”). Amounts collected from PEO worksite employers include payroll, fees for benefits, and an administrative fee that also includes payroll taxes, fees for workers’ compensation and state unemployment taxes. The payroll and payroll taxes collected from the worksite employers are presented in revenue net, as the Company does not retain risk and acts as an agent with respect to this aspect of the PEO arrangement. With respect to the payroll and payroll taxes, the worksite employer is primarily responsible for providing the service and has discretion in establishing wages. The fees collected from the worksite employers for benefits (i.e., PEO benefits pass-throughs), workers’ compensation and state unemployment taxes are presented in revenues and the associated costs of benefits, workers’ compensation and state unemployment taxes are included in operating expenses, as the Company does retain risk and acts as a principal with respect to this aspect of the arrangement. With respect to these fees, the Company is primarily responsible for fulfilling the service and has discretion in establishing price. The Company has further disaggregated HRO to separate out its PEO benefits pass-through revenues.

The Company enters into service agreements with clients that include anywhere from one service to a full suite of services. The Company’s agreements vary in duration having a legally enforceable term of 30 days to 5 years. The performance obligations in the agreements are generally combined into one performance obligation, as they are considered a series of distinct services, and are satisfied over time because the client simultaneously receives and consumes the benefits provided as the Company performs the services. The Company uses the output method based on a fixed fee per employee serviced to recognize revenue, as the value to the client of the goods or services transferred to date (e.g., number of payees or number of payrolls processed) appropriately depicts our performance towards complete satisfaction of the performance obligation. The fees are typically billed in the period in which services are performed.

The Company recognizes client fund interest revenues on collected but not yet remitted funds held for clients in revenues as earned, as the collection, holding and remittance of these funds are critical components of providing these services.

Collection of consideration the Company expects to receive typically occurs within 30 to 60 days of billing. We assess the collectability of revenues based primarily on the creditworthiness of the client as determined by credit checks and analysis, as well as the client's payment history.

The following tables provide details of revenue by our strategic pillars with disaggregation for PEO benefits pass-throughs and client fund interest, and includes a reconciliation to the Company’s reportable segments (in millions):



	Three Months Ended
	September 30,
Types of Revenues	2018		2017
HCM	$	1,520.3	$	1,424.1
HRO, excluding PEO benefits pass-throughs	557.5		509.1
PEO benefits pass-throughs	653.4		595.3
Global	473.5		449.3
Client Fund Interest	118.5		99.4
Total Revenues	$	3,323.2	$	3,077.2

Reconciliation of disaggregated revenue to our reportable segments for September 30, 2018:



Types of Revenues	Employer Services		PEO		Other			Total
HCM	$	1,521.8	$	—	$	(1.5	)	$	1,520.3
HRO, excluding PEO benefits pass-throughs	226.1		332.7		(1.3		)	557.5
PEO benefits pass-throughs	—		653.4		—			653.4
Global	473.5		—		—			473.5
Client Fund Interest	116.8		1.7		—			118.5
Total Segment Revenues	$	2,338.2	$	987.8	$	(2.8	)	$	3,323.2

Reconciliation of disaggregated revenue to our reportable segments for September 30, 2017:



Types of Revenues	Employer Services		PEO		Other			Total
HCM	$	1,425.0	$	—	$	(0.9	)	$	1,424.1
HRO, excluding PEO benefits pass-throughs	206.6		303.6		(1.1		)	509.1
PEO benefits pass-throughs	—		595.3		—			595.3
Global	449.3		—		—			449.3
Client Fund Interest	98.5		0.9		—			99.4
Total Segment Revenues	$	2,179.4	$	899.8	$	(2.0	)	$	3,077.2

Contract Balances

The timing of revenue recognition for our HCM, Global and HRO services is consistent with the invoicing of clients, as invoicing occurs in the period the services are provided. Therefore, the Company does not recognize a contract asset or liability resulting from the timing of revenue recognition and invoicing.

Set up fees received from certain clients to implement the Company's solutions are considered a material right. Therefore, the Company defers revenue associated with these set up fees and records them over the period in which such clients are expected to benefit from the material right, which is approximately five to seven years.

Changes in deferred revenue related to set up fees for the three months ended September 30, 2018 were as follows:



Contract Liability
Contract liability, July 1, 2018	$	607.5
Recognition of revenue included in beginning of year contract liability	(47.4		)
Contract liability, net of revenue recognized on contracts during the period	30.8
Currency adjustments	(5.8		)
Contract liability, September 30, 2018	$	585.1

Deferred costs

Incremental Costs of Obtaining a Contract

Incremental costs of obtaining a contract (e.g., sales commissions) that are expected to be recovered are capitalized and amortized on a straight-line basis over a period of three to eight years, depending on the Company's business unit. The Company has previously expensed these costs as incurred. Expected renewal periods are only included in the expected client relationship period if commission amounts paid upon renewal are not commensurate with amounts paid on the initial contract. Incremental costs of obtaining a contract include only those costs the Company incurs to obtain a contract that it would not have incurred if the contract had not been obtained. These costs are included in selling, general and administrative expenses.

Costs to fulfill a Contract

The Company capitalizes costs incurred to fulfill its contracts that i) relate directly to the contract ii) are expected to generate resources that will be used to satisfy the Company’s performance obligations under the contract and iii) are expected to be recovered through revenue generated under the contract. Costs incurred to implement clients on our solutions (e.g. direct labor) are capitalized and amortized on a straight-line basis over the expected client relationship period if the Company expects to recover those costs. The expected client relationship period ranges from three to eight years. These costs are included in operating expenses.

The Company has estimated the amortization periods for the deferred costs by using its historical retention by business unit to estimate the pattern during which the service transfers.

Deferred costs are periodically reviewed for impairment. There were no impairment losses incurred during the period.

The balance is as follows:



	September 30,
	2018
Deferred costs to obtain a contract	$	1,445.7
Deferred costs to fulfill a contract	906.6
Total deferred contract costs (1)	$	2,352.3

(1) The amount of total deferred costs amortized during the three months ended September 30, 2018 and for the three months ended September 30, 2017 were $216.9 million and $204.7 million, respectively.