| Significant Accounting Policies | Note 2—Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include our accounts and the
accounts of our subsidiaries, all of which are wholly owned. All
intercompany balances and transactions have been eliminated in
consolidation.
Use of Estimates in the Preparation of Consolidated Financial
Statements
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires us to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying
notes. Estimates include, but are not limited to, revenue
recognition (particularly revenue recognition associated with
contracts accounted for on a percentage of completion basis),
allowances for doubtful accounts, recoverability of deferred tax
assets, determining the fair value associated with acquired assets
and liabilities including deferred revenue, intangible asset and
goodwill impairment, pension benefit obligations and certain other
of our accrued liabilities. Actual results could differ from those
estimates.
Foreign Currency Translation
We have international subsidiaries in Europe, the Asia-Pacific
region and Canada, whose functional currencies are either the
British Pound Sterling, Swiss Franc or European Euro (in
respect of our European subsidiaries), the Australian Dollar and
Singapore Dollar (in respect of our Asia Pacific subsidiaries) or
the Canadian Dollar (in respect of our Canadian subsidiary). Assets
and liabilities of all of our international subsidiaries have been
translated into U.S. dollars at year-end exchange rates, and
results of operations and cash flows have been translated at the
average exchange rates in effect during the year. Gains or losses
resulting from foreign currency translation are included as a
component of accumulated other comprehensive income or loss.
Foreign currency transaction gains and losses are included in
results of operations as incurred and are not significant to our
overall operations.
Cash and Cash Equivalents
We consider all highly liquid instruments with an original maturity
of three months or less to be cash equivalents. The carrying value
of these instruments approximates their fair value. At
June 30, 2017, our cash equivalents consisted of demand
deposit accounts and money market funds.
Marketable Securities
All marketable securities must be classified as one of the
following: held to maturity, available for sale, or trading. At
June 30, 2017, we held $2.0 million of marketable securities
which consisted primarily of U.S. corporate debt securities.
Our held to maturity investments, all of which mature within one
year, are recorded at amortized cost and interest income is
recognized in earnings when earned. The cost of securities sold is
determined based on the specific identification method. At
June 30, 2017 and 2016 the amortized cost of our
held-to-maturity investments approximated their fair value.
Our securities classified as available for sale are recorded at
fair value, with all unrealized gains or losses recorded as a
component of accumulated other comprehensive income (loss). At
June 30, 2017 and 2016, $1.9 million and $20.0 million,
respectively, of our available for sale securities had maturities
of less than one year. At June 30, 2016, the remaining $15.1
million had maturities between one and five years. The cost of
securities sold is determined based on the specific identification
method. At June 30, 2017 and 2016, our net unrealized loss
associated with our investment securities was not significant.
The table below presents information regarding our marketable
securities by major security type as of June 30, 2017 and
2016.
June 30, 2017 June 30, 2016
Held to Available Total Held to Available Total
(in
thousands)
Marketable securities:
Corporate and other debt securities $ 67 $
1,906 $
1,973 $
63 $
35,146 $
35,209
Total marketable securities $
67 $ 1,906 $ 1,973 $ 63 $ 35,146 $ 35,209
All of our available for sale marketable securities are classified
as current assets as we do not have the positive intent to hold
these investments until maturity. At June 30, 2017 and
June 30, 2016, the difference between the fair value of our
available for sale securities and their amortized cost was not
significant.
The following table presents the aggregate fair values and gross
unrealized losses for those available for sale investments that
were in an unrealized loss position as of June 30, 2017 and
June 30, 2016, respectively, aggregated by investment category
and the length of time that individual securities have been in a
continuous loss position:
At June 30, 2017 At June 30, 2016
Less than 12 Months
Fair Value Unrealized Loss Fair Value Unrealized Loss
(in thousands)
(in thousands)
US Corporate $
1,628 $
1 $
2,760 $
2
Residential mortgage-backed — — 4,229 5
Total $
1,628 $
1 $
6,989 $
7
Other Investments
We have certain other investments accounted for at cost. The
carrying value of these investments was $7.7 million at both
June 30, 2017 and 2016, and they are reported as a component
of our other assets. The investments are evaluated periodically for
indicators of impairment and impairment losses, to the extent
occurring, would be recorded as an operating expense in the period
incurred. At June 30, 2017, we reviewed the carrying value of
these investments and concluded that they were not impaired.
For all but one of our investments, we are unable to exercise
significant influence over the investee. In respect of one of our
investments, we are able to exercise significant influence over the
investee, although we are unable to exercise control. Relative to
this investment, we do not hold common stock or in-substance common
stock since the equity underlying our investment is preferred stock
which includes a substantial liquidation preference not available
to common stockholders. Accordingly, this investment is also
accounted for under the cost-method of accounting.
Concentration of Credit Risk
Financial instruments that potentially subject us to significant
concentrations of credit risk consist of cash and cash equivalents
and accounts receivable. We had approximately $114.9 million of
cash and cash equivalents invested with six financial institutions
at June 30, 2017. Balances of cash and cash equivalents are
typically in excess of any insurance, such as FDIC coverage, that
may protect our deposits.
Our accounts receivable are reported in our consolidated balance
sheets net of allowances for uncollectible accounts. We believe
that the concentration of credit risk with respect to accounts
receivable is limited due to the large number of companies and
diverse industries comprising our customer base. On-going credit
evaluations are performed, generally with a focus on new customers
or customers with whom we have had no prior collections history,
and collateral is generally not required. We maintain reserves for
potential losses based on customer specific situations as well as
our historic experience and such losses, in the aggregate, have not
historically exceeded our expectations. There were no customers
that, individually, accounted for more than 10% of our consolidated
accounts receivable balance at June 30, 2017 or 2016. For the
fiscal years ended June 30, 2017, 2016, and 2015, we had no
customer that accounted for 10% or greater of our consolidated
revenues.
Financial Instruments
The fair value of our financial instruments, which include cash and
cash equivalents, marketable securities, accounts receivable,
accounts payable and our convertible senior notes are based on
assumptions concerning the amount and timing of estimated future
cash flows and assumed discount rates reflecting varying degrees of
perceived risk. Please refer to Note 4 Fair
Value
Accounts Receivable
Accounts receivable includes unbilled receivables of approximately
$4.2 million and $4.1 million at June 30, 2017 and 2016,
respectively. Unbilled receivables include revenues recognized for
which billings have not yet been presented to the customers, based
on the contractually stipulated billing requirements.
Property and Equipment
Property and equipment are stated at cost, net of accumulated
amortization and depreciation. Depreciation is recorded on a
straight-line basis over the estimated useful lives of the assets
as follows:
Property, equipment, furniture, fixtures and vehicles 3-7 years
Software 3-5 years
Technical equipment 3-5 years
Building (Reading, England) 50 years
Leasehold improvements
Lower of estimated life or remaining lease term
Periodically, based on specific transactions, we may assign a life
outside of the general range of useful lives noted here if a
particular asset’s estimated period of use falls outside of
the normal range.
Goodwill and Other Intangible Assets
We initially record goodwill and other acquired intangible assets
at their estimated fair values, and we review these assets
periodically for impairment. Goodwill represents the excess of the
purchase price over the fair value of identifiable tangible and
intangible assets acquired and liabilities assumed in a business
combination and is tested at least annually for impairment;
historically during our fourth quarter.
Our specifically identifiable intangible assets, which consist
principally of customer related assets and core technology, are
reported net of accumulated amortization and are amortized over
their estimated useful lives at amortization rates that are
proportional to each asset’s estimated economic benefit. We
review the carrying value of these intangible assets annually, or
more frequently if indicators of impairment are present.
In performing our review of the recoverability of goodwill and
other intangible assets we consider several factors, including
whether there have been significant changes in legal factors or the
overall business climate that could affect the underlying value of
an asset. We also consider whether there is an expectation that the
asset will be sold or disposed of before the end of its originally
estimated useful life. In the case of goodwill, we must estimate
the fair value of the reporting unit to which the goodwill is
assigned. If as a result of examining any of these factors we
conclude that the carrying value of goodwill or any other
intangible asset exceeds its estimated fair value, we will
recognize an impairment charge and reduce the carrying value of the
asset to its estimated fair value.
Advertising Costs
We expense advertising costs as incurred. Advertising costs were
$2.6 million, $2.6 million, and $1.3 million for the years
ended June 30, 2017, 2016 and 2015, respectively.
Shipping and Handling Costs
We expense all shipping, handling and delivery costs in the period
incurred, generally as a component of other cost of revenues.
Commissions Expense
We record commissions as a component of sales and marketing expense
when earned by the respective salesperson. Excluding certain
arrangements within our Digital Banking segment, for which
commissions are earned as revenue is recorded over the period of
project performance, substantially all software commissions are
earned in the month in which a customer order is received.
Commissions associated with professional services are typically
earned in the month that services are rendered. Commissions
associated with post-contract customer support arrangements and
subscription-based arrangements are typically earned when the
customer is billed for the underlying contractual period, or in the
period the order is received. Commissions are normally paid within
thirty days of the month in which they are earned.
Research and Development Expenditures
Research and development costs incurred prior to the establishment
of technological feasibility (for software to be sold, leased or
otherwise marketed), or prior to application development (for
internal-use software) are expensed as incurred.
Debt Issuance Costs
We incurred certain third party costs in connection with our
issuance of the 1.5% Convertible Senior Notes maturing December 1,
2017 (the Notes), as more fully described
in Note 10
Indebtedness five-year
We also incurred certain third party costs in connection with the
Credit Facility, as defined in Note 10
Indebtedness
Income Taxes and Income Tax Uncertainties
We recognize deferred tax assets and deferred tax liabilities based
on differences in the financial reporting and tax basis of the
underlying assets or liabilities, measured at tax rates that are
expected to be in effect when the differences reverse. A valuation
allowance to reduce the carrying value of deferred tax assets is
recorded if, based on the weight of available evidence, it is more
likely than not that some portion or all of the deferred tax assets
will not be realized.
In respect of income tax uncertainties, we perform a two-step
analysis for all tax positions. The first step involves an
evaluation of the underlying tax position based solely on technical
merits (such as tax law) and the second step involves measuring the
tax position based on the probability of it being sustained in the
event of a tax examination. We recognize tax benefits at the
largest amount that we deem more likely than not will be realized
upon ultimate settlement of any tax uncertainty. Tax positions that
fail to qualify for recognition are recognized in the period in
which the more-likely-than-not standard has been reached, when the
tax positions are resolved with the respective taxing authority or
when the statute of limitations for tax examination has
expired.
We record any interest or penalties accruing in respect of
uncertain tax positions as a component of income tax expense.
Share-Based Compensation
We recognize expense for the estimated fair value of our
share-based compensation. The expense associated with share-based
payment awards is recognized on a straight-line basis over the
award’s vesting period.
Capitalized Software Costs
Capitalization of software development costs for software that is
to be sold, leased or otherwise marketed begins upon the
establishment of technological feasibility. The establishment of
technological feasibility and the ongoing assessment of
recoverability of capitalized software development costs requires
considerable judgment by us with respect to certain factors,
including, but not limited to, technological feasibility,
anticipated future gross revenues, estimated economic life, and
changes in software and hardware technologies. Capitalized costs
commence amortization on the date of general release using the
greater of the straight-line method over the estimated useful life,
or the ratio of revenue in the period to total expected revenues
over the product’s expected useful life. For the fiscal years
ended June 30, 2017, 2016 and 2015, we capitalized $3.4
million, $7.8 million and $5.0 million, respectively and expensed
$2.2 million, $1.2 million and $0.0 million of software development
costs, respectively, excluding software developed for internal use.
At June 30, 2017 and 2016, the net carrying value of
capitalized software excluding software developed for internal use,
which is included in intangible assets, net on our consolidated
balance sheets, was $12.9 million and $11.7 million,
respectively.
We capitalize certain development costs associated with internal
use software incurred during the application development stage. We
expense costs associated with preliminary project phase activities,
training, maintenance and any post-implementation period costs as
incurred. For the fiscal years ended June 30, 2017, 2016 and
2015, we capitalized $6.6 million, $6.0 million and $5.7 million,
respectively, of internal use software development costs associated
with our SaaS-based technology platforms. In addition, during
fiscal years ended June 30, 2017 and 2016, we capitalized $3.1
million and $0.2 million, respectively, of costs associated with
our implementation of a new, global ERP solution. Capitalized
internal use software costs are normally amortized over estimated
useful lives ranging from 2 to 7 years once the related project has
been completed and deployed for customer use. For the fiscal years
ended June 30, 2017, 2016 and 2015, we expensed $3.8 million,
$2.5 million and $1.3 million of capitalized internal use
software costs associated with our SaaS-based technology platforms.
At June 30, 2017 and 2016, the net carrying value of
capitalized internal use software associated with our SaaS-based
technology platforms, which is included in property and equipment,
net on our consolidated balance sheets, was $15.7 million and $12.9
million, respectively.
Revenue Recognition
Software Arrangements
We recognize revenue on our software license arrangements when four
basic criteria are met: persuasive evidence of an arrangement
exists, delivery of the product has occurred, the fee is fixed and
determinable and collectability is probable. We consider a fully
executed agreement or a customer purchase order to be persuasive
evidence of an arrangement. Delivery is deemed to have occurred
upon transfer of the product to the customer or the completion of
services rendered. We consider the arrangement fee to be fixed and
determinable if it is not subject to adjustment and if the customer
has not been granted extended payment terms. Excluding our long
term contract arrangements where revenue is recorded on a
percentage of completion basis, extended payment terms are deemed
to be present when any portion of the software license fee is due
in excess of 90 days after the date of product delivery. In
arrangements that contain extended payment terms, software revenue
is recorded as customer payments become contractually due, assuming
all other revenue recognition criteria have been met. We consider
the arrangement fee to be probable of collection if our internal
credit analysis indicates that the customer will be able to pay
contractual amounts as they become due.
Our software arrangements often contain multiple revenue elements,
such as software licenses, professional services and post-contract
customer support. For multiple element software arrangements which
qualify for separate element treatment, revenue is recognized for
each element when each of the four basic criteria is met which,
excluding post-contract customer support, is typically upon
delivery. Revenue for post-contract customer support agreements is
recognized ratably over the term of the agreement, which is
generally one year. Revenue is allocated to each element, excluding
the software license, based on vendor specific objective evidence
(VSOE). VSOE is limited to the price charged when the element is
sold separately or, for an element not yet being sold separately,
the price established by management having the relevant authority.
We do not have VSOE for our software licenses since they are seldom
sold separately. Accordingly, revenue is allocated to the software
license using the residual value method. Under the residual value
method, revenue equal to VSOE of each undelivered element is
recognized upon delivery of that element. Any remaining arrangement
fee is then allocated to the software license. This has the effect
of allocating any sales discount inherent in the arrangement to the
software license fee.
Certain of our software arrangements require significant
customization and modification and involve extended implementation
periods. These arrangements do not qualify for separate element
revenue recognition treatment as described above, and instead must
be accounted for under contract accounting. Under contract
accounting, companies must select from two generally accepted
methods of accounting: the completed contract method and the
percentage of completion method. The completed contract method
recognizes revenue and costs upon contract completion, and all
project costs and revenues are reported as deferred items in the
balance sheet until that time. The percentage of completion method
recognizes revenue and costs on a contract over time, as the work
progresses.
We use the percentage of completion method of accounting for our
long-term contracts, as we believe that we can make reasonably
reliable estimates of progress toward completion. Progress is
measured based on labor hours, as measured at the end of each
reporting period, as a percentage of total expected labor hours.
Accordingly, the revenue we record in any reporting period for
arrangements accounted for on a percentage of completion basis is
dependent upon our estimates of the remaining labor hours that will
be incurred in fulfilling our contractual obligations. Our
estimates at the end of any reporting period could prove to be
materially different from final project results, as determined only
at subsequent stages of project completion. To mitigate this risk,
we solicit the input of our project professional staff on a monthly
basis, as well as at the end of each financial reporting period,
for purposes of evaluating cumulative labor hours incurred and
verifying the estimated remaining effort to completion; this
ensures that our estimates are always based on the most current
projections available.
Non-Software Arrangements
For arrangements governed by general revenue recognition
literature, such as with our SaaS offerings or equipment and
supplies only sales, we recognize revenue when four basic criteria
are met. These criteria are similar to those governing software
transactions: persuasive evidence of an arrangement exists,
delivery has occurred or services have been rendered, the
arrangement fee is fixed or determinable and collectability is
reasonably assured. For our SaaS offerings, revenue is generally
recognized on a subscription or transaction basis over the period
of performance.
For arrangements consisting of multiple elements, revenue is
allocated to each element based on a selling price hierarchy. The
selling price of each element is based on VSOE if available,
third-party evidence (TPE) if VSOE is not available or estimated
selling price (ESP) if neither VSOE nor TPE are available. The
residual method of allocation in a non-software arrangement is not
permitted and, instead, arrangement consideration is allocated at
the inception of the arrangement to all deliverables using the
relative selling price method. The relative selling price method
allocates any discount in the arrangement proportionately to each
deliverable based on the proportion of each deliverable’s
selling price to the total arrangement fee. We are typically unable
to establish TPE, which is based on the selling price charged by
unrelated third-party vendors for similar deliverables when they
are sold separately, as we are generally unable to obtain
sufficient information on actual vendor selling prices to
substantiate TPE. The objective of ESP is to estimate the price at
which we would transact if the deliverable were sold separately
rather than as part of a multiple element arrangement. Our
determination of ESP considers several factors including actual
selling prices for similar transactions, gross margin expectations
and our ongoing pricing strategy. We formally analyze our ESP
determinations on at least an annual basis.
Whether a deliverable represents a separate unit of accounting,
thus resulting in discrete revenue recognition as the revenue
recognition criteria for that deliverable are met, is dependent on
whether the deliverable has value to the customer on a standalone
basis. A deliverable has standalone value if it is sold separately
by us or any other vendor or if the deliverable could be resold by
the customer. Additionally, in an arrangement that includes a
general right of return related to delivered items, delivery or
performance of any undelivered items must be considered probable
and substantially within our control.
We periodically charge up-front fees related to installation and
integration services in connection with certain of our SaaS
offerings. These fees typically do not have stand-alone value and
are deferred and recognized as revenue ratably over the estimated
customer relationship period (generally five to ten years). The
revenue recognition period associated with these fees normally
commences upon customer implementation.
Contract origination costs and incremental direct costs are
expensed as incurred.
Arrangements Including Both Software and Non-Software
Deliverables
Periodically we will enter an arrangement that contains both
software and non-software deliverables. In such a transaction, the
arrangement consideration is allocated to the software deliverables
and non-software deliverables as a group, using the relative
selling prices of each of the deliverables, by following the
aforementioned selling price hierarchy. After this allocation is
completed, the arrangement consideration allocated to the software
deliverables is further allocated using the residual value method
described above.
Regardless of the allocation methodology or the nature of the
deliverables, we limit the amount of revenue that can be recognized
for delivered items to the amount that is not contingent on future
deliverables or subject to customer specific return or refund
rights.
Earnings per Share
We report both basic and diluted earnings per share. Basic earnings
per share is calculated based on the weighted average number of
shares of common stock outstanding and excludes the dilutive effect
of warrants, stock options or any other type of convertible
securities. Diluted earnings per share is calculated based on the
weighted average number of shares of common stock outstanding and
the dilutive effect of stock options, warrants and other types of
convertible securities are included in the calculation. Dilutive
securities are excluded from the diluted earnings per share
calculation if their effect is anti-dilutive.
Comprehensive Income or Loss
Comprehensive income or loss includes all changes in equity during
a period from non-owner sources, such as net income or loss,
foreign currency translation adjustments, certain pension
adjustments and unrealized gains and losses on available for sale
securities. |
