Revenues | 2. Revenues Adoption of ASC 606 On January 1, 2018, the Company adopted ASC 606 using the modified retrospective method applied to those contracts that were not completed as of that date. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with prior revenue recognition accounting guidance. The Company recorded a net reduction to opening accumulated deficit of $4,085, net of tax, as of January 1, 2018 due to the cumulative impact of adopting ASC 606, with the impact primarily related to the recognition of breakage revenues and the deferral of incremental costs to both obtain and fulfill contracts. The impact to revenues for the three months ended March 31, 2018 as a result of applying ASC 606 was not material. The adoption of ASC 606 did not have a material impact on the Company’s provision for income taxes, and had no impact on the net cash used in operating, investing and financing activities on the Company’s condensed consolidated statements of cash flows. Refer to “ASC 606 Adoption Impact on Reported Results,” below, for the impact of the adoption of ASC 606 on the Company’s condensed consolidated balance sheets and condensed consolidated statements of operations. Revenue Recognition The Company generates its revenues principally from subscriptions either directly with advertisers or with advertising agencies to its platform for the management of search, social and display advertising. Revenues are recognized when control of these services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. The Company determines 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; and • Recognition of revenue when, or as, the Company satisfies a performance obligation. The subscription fee under most contracts is variable based on the value of the advertising spend that the Company’s advertisers manage through the Company’s platform and is generally invoiced and recognized on a monthly basis. Contracts with direct advertisers and certain contracts with independent advertising agencies also include a minimum monthly fee that is recognized ratably over the duration of the contract, commencing on the date that the Company’s platform is made available to the customer. Due to the nature of the platform and the services performed under the subscription agreements, the Company determined that the variable and fixed subscription fees should be allocated to the monthly period in which the Company has the contractual right to bill under the contract. As a result, the adoption of ASC 606 did not have a material impact on the Company’s subscription revenues. Disaggregation of Revenues Revenues by geographic area, based on the billing location of the customer, were as follows for the periods presented: Three Months Ended March 31, 2018 2017 United States of America $ 10,211 $ 13,612 United Kingdom 2,110 2,820 Other (1) 3,081 3,901 Total revenues, net $ 15,402 $ 20,333 (1) No individual country within the “Other” category accounted for 10% or more of revenues, net for any period presented. Contract Balances Accounts receivable, net The timing of revenue recognition may differ from the timing of invoicing to customers. Accounts receivable are recorded at the invoiced amount, net of any necessary allowance for doubtful accounts or credit reserves. A receivable is recognized in the period the Company provides the underlying services or when the right to consideration is unconditional. The balance of accounts receivable, net of the allowance for doubtful accounts and the credit reserve, as of March 31, 2018 and December 31, 2017 is presented in the accompanying condensed consolidated balance sheets. Customer advances The Company records advances from customers for cash payments that are received in advance of its performance of the underlying services. These cash payments are generally received on a weekly basis at amounts that are at the discretion of the customers, based on established advertising budgets. The unused portion of these advances from customers is included within accruals and other current liabilities on the accompanying condensed consolidated balance sheets. Under the Company’s terms of service, individual customer advances that are not used by or refunded to the customer for a period of 180 days become the property of the Company. The Company recognizes these advances from customers that have remained outstanding for 180 days or more as breakage revenues. The Company recorded historical breakage up to January 1, 2018 as an adjustment to opening accumulated deficit, and breakage revenue for the three months ended March 31, 2018 within revenues, net. Changes in the balance of advances from customers during the three months ended March 31, 2018 are as follows: Balance at December 31, 2017, as previously reported $ 2,003 Impact of adoption of ASC 606 on January 1, 2018 (1,445 ) Balance at January 1, 2018, as adjusted 558 Customer advances received 1,979 Subscription revenue recognized (on a gross basis) (1,944 ) Breakage revenue recognized (74 ) Balance at March 31, 2018 $ 519 Costs to Obtain and Fulfill Contracts The Company capitalizes certain contract acquisition costs, consisting primarily of commissions paid and the related payroll taxes that are incremental to obtaining customer contracts, when customer contracts are signed (“deferred costs to obtain contracts”). The Company also capitalizes certain contract fulfillment costs, consisting primarily of on-boarding and integration services for new and existing customers performed by the Company’s professional services team. The professional services payroll and the related payroll taxes that are incremental to fulfilling customer contracts are capitalized (“deferred costs to fulfill contracts”). The deferred costs to obtain and fulfill contracts are amortized based on the expected period of benefit, which the Company determined to be three years. This period of benefit was determined by taking into consideration the duration of the Company’s customer contracts, historical contract renewal rates, the underlying technology and other factors. Amortization expense for deferred sales commissions and deferred professional services is included in sales and marketing expense and cost of sales, respectively, on the accompanying condensed consolidated statements of operations. The Company classifies deferred costs to obtain and fulfill contracts as current or non-current based on the timing of when the related amortization expense is expected be recognized. The current portion of these deferred costs is included in prepaid expenses and other current assets, while the non-current portion is included in other non-current assets on the accompanying condensed consolidated balance sheets. Changes in the balances of deferred costs to obtain and fulfill contracts during the three months ended March 31, 2018 were as follows: Costs to Obtain Contracts Costs to Fulfill Contracts Balances at January 1, 2018, as adjusted for adoption of ASC 606 $ 1,760 $ 880 Deferred costs 257 115 Amortization (432 ) (173 ) Balances at March 31, 2018 $ 1,585 $ 822 ASC 606 Adoption Impact on Reported Results The following table reflects the accounts impacted by the adoption of ASC 606 on the Company’s condensed consolidated balance sheets at March 31, 2018: March 31, 2018 As Reported Balances Without Adoption of ASC 606 Effect of Change Higher/(Lower) Assets Prepaid expenses and other current assets $ 5,652 $ 4,097 $ 1,555 Other non-current assets 2,357 1,505 852 Liabilities Accrued expenses and other current liabilities $ 8,474 $ 9,993 $ (1,519 ) Shareholders' equity Accumulated deficit $ (232,581 ) $ (236,507 ) $ 3,926 The following table reflects the impact of the adoption of ASC 606 on the Company’s condensed consolidated statements of operations for the three months ended March 31, 2018: Three Months Ended March 31, 2018 As Reported Balances Without Adoption of ASC 606 Effect of Change Higher/(Lower) Revenues, net $ 15,402 $ 15,328 $ 74 Cost of revenues 7,572 7,514 58 Gross profit 7,830 7,814 16 Operating expenses Sales and marketing 7,381 7,206 175 Research and development 6,155 6,155 — General and administrative 3,377 3,377 — Total operating expenses 16,913 16,738 175 Loss from operations (9,083 ) (8,924 ) (159 ) Other income, net 295 295 — Loss before provision for income taxes (8,788 ) (8,629 ) (159 ) Provision for income taxes (324 ) (324 ) — Net loss $ (9,112 ) $ (8,953 ) $ (159 ) Net loss per share available to common stockholders, basic and diluted $ (1.59 ) $ (1.56 ) $ (0.03 ) Practical Expedients and Exemptions The Company does not disclose the value of unsatisfied performance obligations since its contracts generally have an original expected term of one year or less and the Company recognizes revenues at the amount to which it has the right to invoice for services performed. |