| Revenue from Contracts with Customers | 2. Revenue from Contracts with Customers
The Company primarily derives revenue from the sale of its online
video platform, which enables its customers to publish and
distribute video to Internet-connected devices quickly, easily and
in a cost-effective and high-quality manner. Revenue is derived
from three primary sources: (1) the subscription to its
technology and related support; (2) hosting, bandwidth and
encoding services; and (3) professional services, which
include initiation, set-up and
In May 2014, the Financial Accounting Standards Board (FASB)
issued ASU No. 2014-09, Revenue
from Contracts with Customers (Topic 606) Revenue from Contracts with Customers catch-up adjustment Revenue Recognition a cumulative catch-up adjustment
1) Identify the contract with a
customer
2) Identify the performance
obligations in the contract
3) Determine the transaction
price
4) Allocate the transaction price to
performance obligations in the contract
5) Recognize revenue when or as the
Company satisfies a performance obligation
The Company satisfies performance obligations as discussed in
further detail below. Revenue is recognized at the time the related
performance obligation is satisfied by transferring a promised
service to a customer.
Disaggregation of Revenue
The Company classifies its customers by including them in either
premium or volume offerings. For premium offerings, the Company
organizes its go-to-market approach
The following table summarizes revenue from contracts with
customers by business unit for the three months ended
March 31, 2018.
Revenue by Business Unit
Media $ 22,972
Digital Marketing / Enterprise 16,980
Volume 1,242
Total 41,194
Subscription and Support
The Company’s subscription arrangements provide customers the
right to access its hosted software applications. Customers do not
have the right to take possession of the Company’s software
during the hosting arrangement. Contracts for premium customers
generally have a term of one year and are non-cancellable. These
Under ASC 605, if usage exceeded the annual allowance level for a
particular customer arrangement, the associated revenue was
recognized in the period that the additional usage occurred. Under
ASC 606, when the transaction price includes a variable amount of
consideration, an entity is required to estimate the consideration
that is expected to be received for a particular customer
arrangement. The Company evaluates variable consideration for
usage-based fees at contract inception and re-evaluates quarterly
Contracts with customers that are month-to-month arrangements pay-as-you-go pay-as-you-go
Professional Services and Other Revenue
Professional services and other revenue consist of services such as
implementation, software customizations and project management for
customers who subscribe to our premium editions. These arrangements
are priced either on a fixed fee basis with a portion due upon
contract signing and the remainder due when the related services
have been completed, or on a time and materials basis. Professional
services and other revenue sold on a stand-alone basis are
recognized as the services are performed, subject to any refund or
other obligation.
Contracts with Multiple Performance Obligations
The Company periodically enters into multiple-element service
arrangements that include platform subscription fees, support fees,
and, in certain cases, other professional services. These contracts
include multiple promises that the Company evaluates to determine
if the promises are separate performance obligations. Performance
obligations are identified based on services to be transferred to a
customer that are both capable of being distinct and are distinct
within the context of the contract. Once the Company determines the
performance obligations, the Company determines the transaction
price, which includes estimating the amount of variable
consideration to be included in the transaction price, if any. The
Company then allocates the transaction price to each performance
obligation in the contract based on a relative stand-alone selling
price method. The transaction price post allocation is recognized
as revenue as the related performance obligation is satisfied.
Costs to Obtain a Contract
Commissions are paid to internal sales representatives as
compensation for obtaining contracts. Under the new guidance, the
Company capitalizes commissions that are incremental, as a result
of costs incurred to obtain a customer contract, if those costs are
not within the scope of another topic within the accounting
literature and meet the specified criteria. Assets recognized for
costs to obtain a contract are amortized over the period of
performance for the underlying customer contracts. The commission
expense on contracts with new customers was previously recorded
over the respective contract term. Under the new guidance, the
commission expense on contracts with new customers will be recorded
over the average life of a customer given the commission amount
associated with sales to new customers is not commensurate with the
commission amount associated with the contract renewal for those
same customers. The commission amount associated with the renewal
of a contract in addition to any commission amount related to
incremental sales was previously recorded as expense in the quarter
the commission was earned; however, under ASC 606 these commission
amounts are recorded as expense over the term of the renewed
contract. These assets are periodically assessed for
impairment.
Financial Statement Impact of Adoption ASC 606
The cumulative effect of applying the new guidance to all contracts
with customers that were not completed as of January 1, 2018
was recorded as an adjustment to accumulated deficit as of the
adoption date. As a result of applying the modified retrospective
method to adopt the new revenue guidance, the following adjustments
were made on the condensed consolidated balance sheet as of
January 1, 2018.
As Reported Adjustments Adjusted
December 31, Subscription Costs to January 1,
Assets
Current assets:
Cash and cash equivalents $ 26,132 $ 26,132
Accounts receivable, net 25,236 926 26,162
Prepaid expenses 3,991 3,991
Other current assets 3,045 1,861 3,384 8,290
Total current assets 58,404 2,787 3,384 64,575
Property and equipment, net 9,143 9,143
Intangible assets, net 8,236 8,236
Goodwill 50,776 50,776
Deferred tax asset 87 87
Other assets 969 978 1,947
Total assets $ 127,615 $ 2,787 $ 4,362 $ 134,764
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 6,142 $ 6,142
Accrued expenses 13,621 13,621
Capital lease liability 228 228
Equipment financing 26 26
Deferred revenue 39,370 1,429 40,799
Total current liabilities 59,387 1,429
— 60,816
Deferred revenue, net of current portion 244 115 359
Other liabilities 1,228 1,228
Total liabilities 60,859 1,544
— 62,403
Commitments and contingencies
Stockholders’ equity:
Undesignated preferred stock
—
—
Common stock 35 35
Additional paid-in 238,700 238,700
Treasury stock (871 ) (871 )
Accumulated other comprehensive loss (809 ) (809 )
Accumulated deficit (170,299 ) 1,243 4,362 (164,694 )
Total stockholders’ equity 66,756 1,243 4,362 72,361
Total liabilities and stockholders’ equity $ 127,615 $ 2,787 $ 4,362 $ 134,764
Subscription and Support
Under ASC 606, the Company estimates the variable consideration to
be received and recognizes those amounts, subject to constraint, as
the Company satisfies its performance obligation. In conjunction
with the January 1, 2018 adoption of ASC 606, the Company
reduced accumulated deficit by $1,243 reflecting the
recognition of revenue primarily relating to variable
consideration, for contracts that still require performance by the
entity at the date of adoption.
Costs to Obtain a Contract
Under the new guidance, the commission expense on contracts with
new customers will be recorded over the average life of a customer
given the commission amount associated with sales to new customers
is not commensurate with the commission amount associated with the
contract renewal for those same customers. The commission amount
associated with the renewal of a contract in addition to any
related incremental sale is recorded as expense over the term of
the renewed contract. The net impact of these changes resulted in
a $4,362 reduction to accumulated deficit for contracts
that still require performance by the Company at the date of
adoption.
Income Taxes
The adoption of ASC 606 primarily resulted in an acceleration of
revenue and the reduction of expense as of December 31, 2017,
which in turn generated additional deferred tax liabilities that
ultimately reduced the Company’s net deferred tax asset
position. As the Company fully reserves its net deferred tax assets
in the jurisdictions impacted by the adoption of ASC 606, this
impact was offset by a corresponding reduction to the valuation
allowance.
Impact of New Revenue Guidance on Financial Statement Line
Items
The following tables compare the reported condensed consolidated
balance sheet, statement of operations and cash flows, as of and
for the three months ended March 31, 2018, to the pro-forma
As of March 31, 2018
Balance Sheet As reported
Pro forma as if the
Assets
Current assets:
Cash and cash equivalents $ 26,419 $ 26,419
Accounts receivable, net 27,408 26,180
Prepaid expenses 5,274 5,274
Other current assets 7,953 2,854
Total current assets 67,054 60,727
Property and equipment, net 10,083 10,083
Intangible assets, net 7,562 7,562
Goodwill 50,776 50,776
Deferred tax asset 93 93
Other assets 2,141 1,043
Total assets $ 137,709 $ 130,284
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 5,866 $ 5,866
Accrued expenses 14,480 14,480
Capital lease liability 121 121
Deferred revenue 43,200 41,613
Total current liabilities 63,667 62,080
Deferred revenue, net of current portion 148 148
Other liabilities 1,134 1,134
Total liabilities 64,949 63,362
Commitments and contingencies
Stockholders’ equity:
Undesignated preferred stock
—
—
Common stock 35 35
Additional paid-in 241,109 241,109
Treasury stock (871 ) (871 )
Accumulated other comprehensive loss (562 ) (562 )
Accumulated deficit (166,951 ) (172,789 )
Total stockholders’ equity 72,760 66,922
Total liabilities and stockholders’ equity $ 137,709 $ 130,284
Total reported assets were $7,425 greater than the pro-forma
Total reported liabilities were $1,587 greater than the
pro-forma
The following summarizes the significant changes on the
Company’s condensed consolidated statement of operations for
the three months ended March 31, 2018 as a result of the
adoption of ASC 606 on January 1, 2018 compared to if the
Company had continued to recognize revenues under ASC 605.
As of March 31, 2018
Statement of Operations As reported Pro forma as
Revenue:
Subscription and support revenue $ 37,867 $ 37,913
Professional services and other revenue 3,327 3,327
Total revenue 41,194 41,240
Cost of revenue: (1) (2)
Cost of subscription and support revenue 13,456 13,456
Cost of professional services and other revenue 3,755 3,755
Total cost of revenue 17,211 17,211
Gross profit 23,983 24,029
Operating expenses: (1) (2)
Research and development 7,775 7,775
Sales and marketing 13,234 13,513
General and administrative 5,390 5,390
Total operating expenses 26,399 26,678
Loss from operations (2,416 ) (2,649 )
Other income (expense), net 271 271
Loss before income taxes (2,145 ) (2,378 )
Provision for income taxes 112 112
Net loss $ (2,257 ) $ (2,490 )
Net loss per share—basic and diluted $ (0.06 ) $ (0.07 )
Weighted-average number of common shares used in computing
net loss per share 34,923,215 34,923,215
The primary difference in subscription and support revenue relates
to the impacts of applying the variable consideration guidance
under ASC 606. Under the previous guidance, subscription and
support revenue would have been approximately $46 higher as
revenue for usage based fees, for contracts with annual entitlement
allowances, was recognized in the month of such usage. Under ASC
606, usage based fees, for contracts with annual entitlement
allowances, are recognized as revenue over the term of the
underlying arrangement.
Sales and marketing expense, under the previous guidance, would
have increased by approximately $279 due to a portion of the
commission payments being recorded immediately to expense at the
time a liability was recorded. In addition, certain commission
amounts that were amortized to expense over the underlying term of
the arrangement are now amortized over the average customer life
under ASC 606.
The net impact of accounting for revenue under the new guidance
increased net loss per share by $0.01 per basic and diluted
share.
As of March 31, 2018
Statement of Cash Flows As reported
Pro forma as if the
Operating activities
Net loss $ (2,257 ) $ (2,490 )
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 1,644 1,644
Stock-based compensation 1,668 1,668
Provision for reserves on accounts receivable 13 13
Changes in assets and liabilities:
Accounts receivable (2,038 ) (811 )
Prepaid expenses and other current assets (616 ) (761 )
Other assets (179 ) (59 )
Accounts payable (128 ) (128 )
Accrued expenses (80 ) (80 )
Deferred revenue 2,908 1,939
Net cash provided by operating activities $ 935 $ 935
The adoption of ASC 606 had no impact on the Company’s cash
flows from operations. The aforementioned impacts resulted in
offsetting shifts in cash flows between net loss and various
working capital balances.
The following summarizes the opening and closing balances of
receivables, contract assets and contract liabilities from
contracts with customers.
Accounts Contract Assets Deferred Deferred (non-current) Total Deferred
Balance at January 1, 2018 $ 26,162 $ 3,124 $ 40,799 $ 359 $ 41,158
Balance at March 31, 2018 27,408 2,607 43,200 148 43,348
Revenue recognized during the three months ended March 31,
2018 from amounts included in deferred revenue at the beginning of
the period was approximately $19.8 million. During the three
months ended March 31, 2018, the Company did not recognize
revenue from performance obligations satisfied or partially
satisfied in previous periods.
The assets recognized for costs to obtain a contract were
$5.7 million and $5.4 million as of March 31, 2018
and January 1, 2018, respectively. Amortization expense
recognized during the three months ended March 31, 2018
related to costs to obtain a contract was $1.8 million.
Transaction Price Allocated to Future Performance
Obligations
ASC 606 requires that the Company disclose the aggregate amount of
transaction price that is allocated to performance obligations that
have not yet been satisfied as March 31, 2018. ASC 606
provides certain practical expedients that limit the requirement to
disclose the aggregate amount of transaction price allocated to
unsatisfied performance obligations.
Subscription and Support Revenue
As of March 31, 2018, the total aggregate transaction price
allocated to the unsatisfied performance obligations for
subscription and support contracts was approximately
$109.9 million, of which approximately $86.6 million is
expected to be recognized over the next 12 months. The Company
expects to recognize substantially all of the remaining unsatisfied
performance obligations by the end of 2020. The Company applied the
practical expedient to not disclose the amount of transaction price
allocated to unsatisfied performance obligations for variable
consideration that the Company is able to allocate to one or more
of the performance obligations in its contracts.
Professional Services
The Company applied the practical expedient to not disclose the
amount of transaction price allocated to unsatisfied performance
obligations when the performance obligation is part of a contract
that has an original expected duration of one year or less. The
Company does not have material future obligations associated with
professional services that extend beyond one year. |
