Revenues | Note 2. Revenues Adoption of ASC 606, Revenue from Contracts with Customers On January 1, 2018, the Company adopted ASC 606, which includes ASU 2014-09 Revenue Recognition The Company recorded an increase to opening retained earnings of $3.0 million as of January 1, 2018 due to the cumulative impact of adopting ASC 606. The impact, all in the Americas segment, primarily related to the change in timing of revenue recognition associated with certain customer contracts that provide fees upon renewal, as well as changes in estimating variable consideration with respect to penalties and holdback provisions for failure to meet specified minimum service levels and other performance-based contingencies. Revenue recognized under ASC 606 is expected to be slightly higher during 2018 than revenue would have been under ASC 605. This is primarily attributable to the change in the timing of revenue recognition, as discussed above. The impact on revenue recognized for the first quarter of 2018 is reported below. The cumulative effect of the adjustments made to the Company’s Condensed Consolidated Balance Sheet as of December 31, 2017 for the line items impacted by the adoption of ASC 606 was as follows (in thousands): December 31, Adjustments Due to the Adoption of ASC 606 January 1, Receivables, net $ 341,958 $ 825 $ 342,783 Deferred charges and other assets 29,193 2,045 31,238 Income taxes payable 2,606 697 3,303 Deferred revenue 34,717 (1,048 ) 33,669 Other long-term liabilities 22,039 202 22,241 Retained earnings 546,843 3,019 549,862 The financial statement line items impacted by the adoption of ASC 606 in the Company’s Condensed Consolidated Balance Sheet as of March 31, 2018 were as follows (in thousands): As Reported Balances Without the Impact of the Adoption Effect of Adoption Increase (Decrease) March 31, 2018: Receivables, net $ 346,920 $ 343,750 $ 3,170 Deferred charges and other assets 32,618 29,365 3,253 Income taxes payable 2,698 1,133 1,565 Deferred revenue 30,217 32,697 (2,480 ) Other long-term liabilities 24,670 24,242 428 Retained earnings 560,810 553,900 6,910 The financial statement line items impacted by the adoption of ASC 606 in the Company’s Condensed Consolidated Statement of Operations for the three months ended March 31, 2018 were as follows, along with the impact per share (in thousands, except per share data): As Reported Balances Without the Impact of the ASC 606 Adoption Effect of Adoption Increase (Decrease) Three Months Ended March 31, 2018: Revenues $ 414,371 $ 409,320 $ 5,051 Income from operations 14,284 9,233 5,051 Income before income taxes 13,404 8,353 5,051 Income taxes 2,456 1,296 1,160 Net income 10,948 7,057 3,891 Net income per common share: Basic $ 0.26 $ 0.17 $ 0.09 Diluted $ 0.26 $ 0.17 $ 0.09 The Company’s net cash provided by operating activities for the three months ended March 31, 2018 did not change due to the adoption of ASC 606. Practical Expedients The Company utilized the practical expedient that allows for the application of ASC 606 to a portfolio of contracts (or performance obligations) with similar characteristics if the entity reasonably expects that the effects on the financial statements of applying this guidance to the portfolio would not differ materially from applying this guidance to the individual contracts (or performance obligations) within that portfolio. Costs of Obtaining Customer Contracts ASC 606 requires an entity to recognize as an asset the incremental costs of obtaining a contract with a customer if the entity expects to recover those costs. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (e.g. a sales commission). Because the Company’s sales commissions are not directly incremental to obtaining customer contracts, they are expensed as incurred. Recognition of Revenues Accounting Policy The Company’s “Recognition of Revenues” accounting policy under ASC 606 is outlined below. For the Company’s accounting policy under ASC 605, see Note 1, Overview and Summary of Significant Accounting Policies, of the Company’s Annual Report on Form 10-K The Company recognizes revenues in accordance with ASC 606, whereby revenues are recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration it expects to be entitled to in exchange for those goods or services. Customer Engagement Solutions and Services Under ASC 606, the Company accounts for a contract with a client when it has approval, the contract is committed, the rights of the parties, including payment terms, are identified, the contract has commercial substance and consideration is probable of collection. The Company’s customer engagement solutions and services are classified as stand-ready performance obligations. Because the Company’s customers simultaneously receive and consume the benefits of its services as they are delivered, the performance obligations are satisfied over time. The Company recognizes revenue over time using output methods such as a per minute, per hour, per call, per transaction or per time and materials basis. These output methods faithfully depict the satisfaction of the Company’s obligation to deliver the services as requested and represent a direct measurement of value to the customer. The Company’s contracts have a single performance obligation as the promise to transfer the customer solutions and services are not separately identifiable from other promises in the contract, and therefore not distinct. Revenue recognition is limited to the established transaction price, the amount to which the Company expects to be entitled to under the contract, including the amount of expected fees for those contracts with renewal provisions and the amount that is not contingent upon delivery of any future product or service or meeting other specified performance obligations. The Company’s contracts include penalties and holdbacks provisions for failure to meet specified minimum service levels and other performance-based contingencies, as well as the right of certain of the Company’s clients to chargeback accounts that do not meet certain requirements for specified periods after a sale has occurred. The portion of the transaction price that is subject to service level, performance-based contingencies, and other chargeback provisions is deferred until such contingency is resolved. Certain customers also receive cash discounts for early payment. These provisions are accounted for as variable consideration and are estimated using historical service and pricing trends, the individual contract provisions, and the Company’s best judgment at the time. None of these variable consideration components are subject to constraint due to the short time period to resolution, the Company’s extensive history with similar transactions, and the limited number of possible outcomes and third-party influence. The transaction price, once determined, is allocated to the single performance obligation on a contract by contract basis. The Company’s primary billing terms are that payment is due upon receipt of the invoice, payable usually within 30 or 60 days. Invoices are generally issued on a monthly basis as control transfers and/or services are rendered. While the Company’s contracts with customers can range from 30 days to six years, the majority include termination without cause provisions allowing either party to cancel the contract without penalty at any time. Under these circumstances, the contract term ends when control of the services already provided transfers to the customer (e.g., month-to-month 90-day Other Revenues In the Americas, the Company provides a range of enterprise support services including technical staffing services and outsourced corporate help desk services, primarily in the U.S. Revenue for enterprise support services are recognized over time using output methods such as number of positions filled similar to Company’s outsourced customer engagement services and solutions. In EMEA, the Company offers fulfillment services that are integrated with its customer care and technical support services. The Company’s fulfillment solutions include order processing, payment processing, inventory control, product delivery and product returns handling. Sales are recognized upon shipment to the customer and satisfaction of all obligations. The Company also has miscellaneous other revenue in the Other segment. In total, other revenues are immaterial, representing 0.5% and 0.6% of the Company’s consolidated total revenues for the three months ended March 31, 2018 and 2017, respectively. Disaggregated Revenues The Company disaggregates its revenues from contracts with customers by service type and geographic location (see Note 15, Segments and Geographic Information), for each of its reportable segments, as the Company believes it best depicts how the nature, amount, timing and uncertainty of its revenue and cash flows are affected by economic factors. The following table represents revenues from contracts with customers disaggregated by service type for the three months ended March 31, 2018 and 2017, by the reportable segment for each category (in thousands): Three Months Ended March 31, 2018 2017 Americas: Customer engagement solutions and services $ 340,422 $ 320,663 Other revenues 299 268 Total Americas 340,721 320,931 EMEA: Customer engagement solutions and services 71,671 61,068 Other revenues 1,956 1,999 Total EMEA 73,627 63,067 Other: Other revenues 23 16 Total Other 23 16 $ 414,371 $ 384,014 Trade Accounts Receivable The Company’s trade accounts receivable, net, consists of the following (in thousands): March 31, January 1, (3) Trade accounts receivable, net, current (1) $ 335,255 $ 332,014 Trade accounts receivable, net, noncurrent (2) 3,353 2,078 $ 338,608 $ 334,092 (1) (2) (3) The Company’s noncurrent trade accounts receivable result from contracts with customers that include renewal provisions that take effect subsequent to the satisfaction of the associated performance obligations. Payment is expected upon renewal, which occurs in bi-annual and annual increments over the associated expected contract term, the majority of which range from two to five years. Deferred Revenue The Company receives up-front pro-rata up-front Deferred revenue from estimated potential penalties and holdbacks results from the failure to meet specified minimum service levels in certain contracts and other performance-based contingencies. Deferred revenue from estimated chargebacks reflects the right of certain of the Company’s clients to chargeback accounts that do not meet certain requirements for specified periods after a sale has occurred. Deferred revenue consists of the following (in thousands): March 31, January 1, (1) Future services $ 22,353 $ 26,353 Estimated potential penalties and holdbacks 3,462 3,291 Estimated chargebacks 4,402 4,025 $ 30,217 $ 33,669 (1) The following table reflects the revenue recognized during the three months ended March 31, 2018 that was included in “Deferred revenue” as of January 1, 2018 (in thousands): Future Services Estimated Potential Penalties and Holdbacks Estimated Chargebacks Total Revenue recognized in the period $ 6,840 $ 305 $ 119 $ 7,264 Deferred revenue classified as future services represents the transaction price allocated to the performance obligations that remain unsatisfied at period end. Such obligations are then satisfied over time. While these balances are classified as current due to cancellation and refund provisions whereby the customers can terminate the contracts and demand pro-rata up-front up-front Of the consolidated deferred future services balance as of March 31, 2018, the Company expects to recognize revenue as outlined below (in thousands): Future Within 1 year $ 17,138 1 - 2 years 2,451 2 - 3 years 1,184 3 - 4 years 790 Thereafter 790 $ 22,353 The amount of revenue recognized in the current period associated with estimated potential penalties, holdbacks and chargebacks represents the Company’s satisfaction of service level and other performance-based contingencies, as well as the satisfaction of certain client requirements during the period after sale that were previously unsettled as of January 1, 2018. Of the remaining contract liabilities for estimated potential penalties, holdbacks and chargebacks as of March 31, 2018, the Company expects to recognize the entire balance as revenue within 30 to 120 days if the requisite service levels and client requirements are met in order to settle the contingency. Other changes to the opening and closing balances of these estimated potential penalties, holdbacks, and chargebacks include the establishment of new contingency-based deferrals associated with current period services performed, as well as client settlements for both previously recorded service level requirements and current period requirements that were not met. With respect to the remaining customer engagement solutions and services contracts accounted for as stand-ready performance obligations each period, there are no unsatisfied performance obligations at period end as the customer simultaneously receives and consumes the benefit of the services as they are delivered over time. |