| 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 catch-up
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 and nine months ended
September 30, 2018.
Three Months Ended Nine Months Ended
Revenue by Business Unit
Media $ 21,926 $ 67,300
Digital Marketing / Enterprise 18,110 53,171
Volume 1,085 3,498
Total 41,121 123,969
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 and nine months ended
September 30, 2018, to the pro-forma
As of September 30,
2018
Balance Sheet As reported
Pro forma as if the
Assets
Current assets:
Cash and cash equivalents $ 26,855 26,855
Accounts receivable, net 24,040 23,312
Prepaid expenses 4,483 4,483
Other current assets 7,388 2,497
Total current assets 62,766 57,147
Property and equipment, net 10,153 10,153
Intangible assets, net 6,340 6,340
Goodwill 50,776 50,776
Deferred tax asset 87 87
Other assets 2,288 928
Total assets $ 132,410 $ 125,431
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 5,041 $ 5,041
Accrued expenses 15,065 15,065
Capital lease liability 154 154
Deferred revenue 39,516 38,412
Total current liabilities 59,776 58,672
Deferred revenue, net of current portion 278 280
Other liabilities 1,117 1,117
Total liabilities 61,171 60,069
Commitments and contingencies
Stockholders’ equity:
Undesignated preferred stock
—
—
Common stock 37 37
Additional paid-in 249,176 249,176
Treasury stock (871 ) (871 )
Accumulated other comprehensive loss (998 ) (998 )
Accumulated deficit (176,105 ) (181,982 )
Total stockholders’ equity 71,239 65,362
Total liabilities and stockholders’ equity $ 132,410 $ 125,431
Total reported assets were $6,979 greater than
the pro-forma
Total reported liabilities were $1,102 greater than
the pro-forma
The following summarizes the significant changes on the
Company’s condensed consolidated statement of operations for
the three and nine months ended September 30, 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.
Three Months Ended September 30,
Nine Months Ended September 30,
Statement of Operations As reported Pro forma as As reported Pro forma as
Revenue:
Subscription and support revenue $ 37,442 $ 37,478 $ 113,176 $ 113,200
Professional services and other revenue 3,679 3,679 10,793 10,793
Total revenue 41,121 41,157 123,969 123,993
Cost of revenue:
Cost of subscription and support revenue 13,142 13,142 39,723 39,723
Cost of professional services and other revenue 3,176 3,176 10,424 10,424
Total cost of revenue 16,318 16,318 50,147 50,147
Gross profit 24,803 24,839 73,822 73,846
Operating expenses:
Research and development 8,314 8,314 23,832 23,832
Sales and marketing 14,009 13,898 42,508 42,804
General and administrative 5,621 5,621 18,056 18,056
Total operating expenses 27,944 27,833 84,396 84,692
Loss from operations (3,141 ) (2,994 ) (10,574 ) (10,846 )
Other income (expense), net (217 ) (217 ) (427 ) (427 )
Loss before income taxes (3,358 ) (3,211 ) (11,001 ) (11,273 )
Provision for income taxes 144 144 410 410
Net loss $ (3,502 ) $ (3,355 ) $ (11,411 ) $ (11,683 )
Net loss per share - basic and diluted $ (0.10 ) $ (0.09 ) $ (0.32 ) $ (0.33 )
Weighted-average number of common shares used in computing net loss
per share 36,212,246 36,212,246 35,564,311 35,564,311
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 $36 and $24 higher,
respectively, for the three and nine months ended
September 30, 2018 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 decreased by approximately $111 for the three months ended
September 30, 2018. Sales and marketing expense would have
increased by $296 for the nine months ended September 30,
2018, 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
for the three months ended September 30, 2018, and decreased
net loss per share by $0.01 per basic and diluted share for the
nine months ended September 30, 2018.
Nine Months Ended September 30, 2018
Statement of Cash Flows As reported
Pro forma as if the
Operating activities
Net loss $ (11,411 ) $ (11,683 )
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 5,164 5,164
Stock-based compensation 5,022 5,022
Provision for reserves on accounts receivable 99 99
Changes in assets and liabilities:
Accounts receivable 1,998 1,799
Prepaid expenses and other current assets (118 ) (472 )
Other assets (355 ) 28
Accounts payable (1,262 ) (1,262 )
Accrued expenses 1,964 1,964
Deferred revenue (1,335 ) (893 )
Net cash provided by operating activities $ (234 ) $ (234 )
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 September 30, 2018 24,040 2,032 39,516 278 39,794
Revenue recognized during the nine months ended September 30,
2018 from amounts included in deferred revenue at the beginning of
the period was approximately $38.1 million. During the nine
months ended September 30, 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
$5.5 million and $5.4 million as of September 30,
2018 and January 1, 2018, respectively. Amortization expense
recognized during the three and nine months ended
September 30, 2018 related to costs to obtain a contract was
$1.9 million and $5.7 million, respectively.
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 September 30, 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 September 30, 2018, the total aggregate transaction
price allocated to the unsatisfied performance obligations for
subscription and support contracts was approximately
$108.0 million, of which approximately $86.0 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. |
