| Summary of Significant Accounting Policies and Practices | Summary of Significant Accounting Policies and Practices Basis of Presentation and Principles of Consolidation The accompanying unaudited condensed consolidated financial statements and footnotes have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles (GAAP) in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for the fair presentation of our financial position and results of operations have been included. The accompanying condensed consolidated financial statements include our accounts and those of our wholly-owned subsidiaries primarily located in India, China and Europe. All significant intercompany balances and transactions have been eliminated in consolidation. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019 or for other interim periods or future years. The consolidated balance sheet as of December 31, 2018 is derived from the audited financial statements as of that date. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Form 10-K for the year ended December 31, 2018. Use of Estimates The preparation of the condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Significant items subject to such estimates and assumptions include the carrying amount of intangibles and goodwill; valuation allowance for receivables and deferred income tax assets; revenue; capitalization of software costs; and valuation of share-based payments. Actual results could differ from those estimates. Revenue Recognition We primarily generate revenue from the sale of subscriptions and subscription-related professional services. In instances involving subscriptions, revenue is generated under customer contracts with multiple elements, which are comprised of (1) subscription fees that provide the customers with access to our on-demand application and content, unspecified solution and content upgrades, and customer support, (2) professional services associated with consulting services (primarily implementation services), and (3) transaction-related fees (including publishing services). Our initial customer contracts usually have contract terms from 3 years to 5 years in length. Typically, the customer does not take possession of the software nor does the customer have the right to take possession of the software supporting the on-demand application service. However, in certain instances, we have customers that take possession of the software whereby the application is installed on the customer’s premises. Our subscription service arrangements typically may only be terminated for cause and do not contain refund provisions. We determine revenue recognition through the following steps: • Identification of the contract, or contracts, with a customer • Identification of the performance obligations in the contract • Determination of the transaction price • Allocation of the transaction price to the performance obligations in the contract • Recognition of revenue when, or as, we satisfy a performance obligation The subscription fees typically begin the first month following contract execution, whether or not we have completed the solution’s implementation. Subscription Revenue for Hosted and On-Premise Customers Subscription revenue, which primarily consists of fees to provide customers access to our solution, is recognized ratably over contract terms beginning on the commencement date of each contract, which is the date our service is made available to customers. For contracts in which the customer takes possession of the software, we determined that the software license and related content updates are one performance obligation and accordingly, recognize the arrangement fee over the contract term. Typically, amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on whether the revenue recognition criteria have been met. Transaction-related revenue is recognized as the transactions occur. Professional Services Revenue for Hosted Customers Professional services revenue primarily consists of fees for deployment of our solution. The majority of professional services contracts are on a time and material basis. When these services are not combined with subscription revenue as a single unit of accounting, as discussed below, this revenue is recognized as the services are rendered for time and material contracts, and when the milestones are achieved and accepted by the customer for fixed price contracts. Professional Services Revenue for On-Premise Customers For customers that take possession of the software, billings for professional services will be recognized as revenue when services are performed. Multiple Performance Obligations Some of our contracts with customers contain multiple performance obligations that generally include subscription, professional services (primarily implementation) as well as transaction-related fees. For contracts with customers, we account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. We determine the standalone selling prices based on our overall pricing objectives, taking into consideration market conditions and other factors, including the value of our contracts, the solution sold, taking into account the modules included, term of the arrangement, and base transaction volume, customer demographics, and geographic locations. Other Revenue Items Sales tax collected from customers and remitted to governmental authorities is accounted for on a net basis and, therefore, is not included in revenue and cost of revenue in the condensed consolidated statements of operations. We classify customer reimbursements received for direct costs paid to third parties and related expenses as revenue, in accordance with ASC 606. Costs to Obtain and Fulfill a Contract We defer commission costs that are incremental and directly related to the acquisition of customer contracts. Commission costs are accrued and deferred upon execution of the sales contract by the customer. Payments to sales personnel are made shortly after the receipt of the related customer payment. Deferred commissions are amortized over an estimated customer life of 6 years. We determined the period of amortization of deferred commissions by taking into consideration our customer contracts, our technology and other factors. Our commission costs deferred and amortized in the period are as follows: Three Months Ended 2019 2018 Commission costs deferred $ 296,046 $ 670,037 Commission costs amortized 1,107,366 999,576 Deferred Revenue and Performance Obligations Deferred revenue from subscriptions represents amounts collected from (or invoiced to) customers in advance of earning subscription revenue. Typically, we bill our annual subscription fees in advance of providing the service. Deferred revenue from professional services represents revenue for time and material contracts where the revenue is recognized when milestones are achieved and accepted by the customer for fixed price contracts. March 31, December 31, Current: Subscription revenue $ 35,901,595 $ 34,849,486 Professional services revenue 251,756 189,669 Total current 36,153,351 35,039,155 Noncurrent: Subscription revenue 213,449 265,324 Total noncurrent 213,449 265,324 Total deferred revenue $ 36,366,800 $ 35,304,479 The amount of subscription revenue and professional services revenue recognized that was included in the beginning balance of deferred revenue is as follows: Three Months Ended 2019 2018 Subscription revenue $ 13,424,374 $ 13,164,922 Professional services revenue 89,140 349,222 As of March 31, 2019, $127,359,267 of revenue is expected to be recognized from remaining performance obligations for subscription contracts and is expected to be recognized over the next 6.8 years. Remaining performance obligations for professional services contracts are recognized within one year or less. Cost of Revenue Cost of subscription revenue . Cost of subscription revenue consists primarily of personnel and related costs of our hosting, support, and content teams, including salaries, benefits, bonuses, payroll taxes, stock-based compensation and allocated overhead, as well as software license fees, hosting costs, Internet connectivity, and depreciation expenses directly related to delivering our solutions, as well as amortization of capitalized software development costs. Our cost of subscription revenue is generally expensed as the costs are incurred. Cost of professional services revenue . Cost of professional services revenue consists primarily of personnel and related costs, including salaries, benefits, bonuses, payroll taxes, stock-based compensation, the costs of contracted third-party vendors, reimbursable expenses and allocated overhead. As our personnel are employed on a full-time basis, our cost of professional services is largely fixed in the short term, while our professional services revenue may fluctuate, leading to fluctuations in professional services gross profit. Cost of professional services revenue is generally expensed as costs are incurred. Cash and Cash Equivalents We consider all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents at March 31, 2019 and December 31, 2018 consist of the following: March 31, December 31, Cash $ 9,555,117 $ 7,471,075 Money market accounts 43,470 43,644 $ 9,598,587 $ 7,514,719 Fair Value of Financial Instruments and Fair Value Measurements Our financial instruments consist of cash equivalents, accounts receivable, accounts payable, and accrued expenses. Management believes that the carrying values of these instruments are representative of their fair value due to the relatively short-term nature of those instruments. Our estimate of fair value for financial assets and financial liabilities is based on the framework established in the fair value accounting guidance. The framework is based on the inputs used in valuation, gives the highest priority to quoted prices in active markets and requires that observable inputs be used in the valuations when available. Management determines fair value using the following hierarchy: Level 1 — Quoted prices in active markets for identical assets or liabilities; Level 2 — Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; or Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The following table provides the financial assets and liabilities classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. March 31, December 31, Assets: Cash equivalents - money market accounts $ 43,470 $ 43,644 Restricted cash - money market accounts 56,400 56,400 Accounts Receivable and Allowance for Doubtful Accounts Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing accounts receivable. We determine the allowance based on historical write-off experience, the industry, and the economy. We review our allowance for doubtful accounts monthly. Past-due balances over 90 days and over a specified amount are reviewed individually for collectibility. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. We do not have any off-balance-sheet credit exposure related to our customers. Typically, we record unbilled receivables for contracts on which revenue has been recognized, but for which the customer has not yet been billed. Major Customers and Concentrations of Credit Risk Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents and trade receivables. Our customer base is principally comprised of enterprise and mid-market companies within industries including Chemical/Pharmaceutical, High Technology/Electronics, Industrial/Manufacturing, Logistics, Oil & Gas, and Retail/Apparel. We do not require collateral from our customers. For the three months ended March 31, 2019, no customer accounted for more than 10% of our total revenue. For the three months ended March 31, 2018, one customer accounted for 12.0% of our total revenue. As of March 31, 2019 and December 31, 2018, no single customer accounted for more than 10% of our total accounts receivable. Geographic Information Disaggregation of Revenue We sell our subscription contracts and related professional services to customers primarily in two geographical markets. Revenue by geographic location based on the billing address of our customers is as follows: Three Months Ended Country 2019 2018 United States $ 16,059,619 $ 15,237,501 International 5,037,044 4,826,891 Total revenue $ 21,096,663 $ 20,064,392 For the three months ended March 31, 2019 and 2018, no single country other than the United States had revenue greater than 10% of our total revenue. Long-lived assets by geographic location is as follows: Country March 31, December 31, United States $ 9,219,019 $ 9,310,108 International 916,819 822,700 Total long-lived assets $ 10,135,838 $ 10,132,808 Adjustments to Previously Reported Amounts Immaterial Correction of an Error. As previously disclosed, during the third quarter of 2018, we revised previously reported stock-based compensation expense for the three months ended March 31, 2018 related to certain performance stock units due to a change in performance conditions. In accordance with Staff Accounting Bulletin (SAB) No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, management evaluated the materiality of the error from qualitative and quantitative perspectives, and concluded the error was immaterial to the prior periods. The correction of the immaterial error resulted in an increase of $2,246,644 to stock-based compensation for the three months ended March 31, 2018. Recent Accounting Pronouncements In January 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which removes Step 2 of the goodwill impairment test. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This ASU is effective for interim and annual reporting periods beginning after December 15, 2019. We early adopted this standard on January 1, 2019 and it did not have a material effect on our condensed consolidated financial statements. In February 2016, the FASB issued ASU No. 2016-02, Leases. The standard requires lessees to recognize lease assets and lease liabilities on the balance sheet and requires expanded disclosures about leasing arrangements. We adopted this standard on January 1, 2019 on a modified retrospective basis and have not restated comparative amounts. Also, we elected the practical expedients permitted under the transition guidance, which allows us to carryforward our historical lease classification, our assessment on whether a contract is or contains a lease, and our initial direct costs for any leases that exist prior to adoption of the new standard. We also elected to combine lease and non-lease components and to keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the condensed consolidated statements of operations on a straight-line basis over the lease term. As a result, on January 1, 2019, we recorded operating lease right-of-use (ROU) assets of $7,781,725 and operating lease liabilities of $9,302,876 in our condensed consolidated balance sheet. Our capital leases that existed as of January 1, 2019 are now classified as finance leases. |
