| Summary of Significant Accounting Policies | Note 3 Summary of Significant Accounting Policies The significant accounting policies of the Company and its subsidiaries are summarized below. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an initial maturity date of three months or less to be cash equivalents. Funds held as investments in money market funds are included within cash and cash equivalents. As of December 31, 2022 and 2021, respectively, the Company had approximately $50 million and $0 invested in money market accounts. Accounts Receivable Accounts receivable includes billed and unbilled receivables, net of allowance for doubtful accounts. Billed accounts receivable are initially recorded upon the invoicing to clients with payment due within 30 days. Unbilled accounts receivable represent revenue recognized on contracts for which the timing of invoicing to clients differs from the timing of revenue recognition. As of December 31, 2022 and 2021, unbilled accounts receivable was $2 million and $1.3 million, respectively. The unbilled accounts receivable balance is due within one year. The Company maintains an allowance for doubtful accounts at an amount estimated to be sufficient to provide adequate protection against losses resulting from extending credit to its clients. The Company regularly determines the adequacy of the allowance based on its assessment of the collectability of the accounts receivable by considering the age of each outstanding invoice, the collection history of each client, and an evaluation of current expected risk of credit loss of any clients with known financial difficulties. The Company assesses collectability by reviewing accounts receivable on an aggregated basis where similar characteristics exist and on an individual basis for specific clients with historical collectability issues or known financial difficulties. Increases to the allowance are recognized as a charge to doubtful accounts included in General and administrative expenses in the consolidated statement of operations. Accounts receivable deemed uncollectible are charged against the allowance for doubtful accounts when identified. The Company's allowances are as follows (in thousands): Balance at December 31, 2020 $ 598 Charges to the provision 1,450 Accounts written off, net of recoveries (1,257) Balance at December 31, 2021 791 Charges to the provision 1,158 Accounts written off, net of recoveries (724) Balance at December 31, 2022 $ 1,225 Property and Equipment, Net Property and equipment is stated at historical cost, net of accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the individual assets, except for leasehold improvements, which are depreciated over the shorter of the estimated useful life of the asset or the underlying lease term. Also included in property and equipment are capitalized costs of software developed for internal use. The useful lives of property and equipment are as follows: Property and Equipment Asset Type Estimated Useful Lives Software development costs 3 years Computers and equipment 5 years Furniture and fixtures 5 years Leasehold improvements Shorter of estimated economic useful life or remaining lease term Maintenance and repairs are expensed as incurred. Upon retirement or disposition, the cost and related accumulated depreciation or amortization is removed from the accounts and any gain or loss is included in operating income. Software Development Costs Capitalized software costs consist of costs to purchase software to be used within the Company and costs to develop software internally. Capitalization of purchased or internally developed software occurs during the application development stage and consists of costs associated with design, coding and testing. Amortization of software development costs is calculated using the straight-line method over the estimated useful lives of the software, which is generally three years. Capitalized software development costs are recorded within property and equipment, net of accumulated amortization, within the consolidated balance sheets. Amortization expense is included in Cost of revenues – platform subscription services in the consolidated statements of operations. Impairment of Long-Lived Assets The Company evaluates the carrying value of long-lived assets in accordance with the accounting standard for impairment or disposal of long-lived assets, which requires recognition of impairment of long-lived assets in the event that circumstances indicate impairment may have occurred and when the net carrying value of such assets exceeds the future undiscounted cash flows attributed to such assets. The Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. No impairment of long-lived assets occurred during the years ended December 31, 2022, 2021 and 2020. Fair Value of Financial Instruments Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the exit price) in an orderly transaction between market participants at the measurement date. Accounting standards establish a hierarchal framework, which prioritizes and ranks the level of market price observability used in measuring assets and liabilities at fair value. Market price observability is impacted by a number of factors, including the type of investment and the characteristics specific to the investment. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on the best information available. Assets and liabilities measured and reported at fair value are classified and disclosed in one of the following categories: Level 1 Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 Inputs are inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; and Level 3 Inputs are unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company has investments in money market accounts, which are included in cash and cash equivalents on the condensed consolidated balance sheets. Fair value inputs for these investments are considered Level 1 measurements within the Fair Value Hierarchy, as money market account fair values are known and observable through daily published floating net asset values. The carrying amount of the Company’s other financial instruments, including accounts receivable and accounts payable, approximate fair value due to their short-term nature. Revenue Recognition The Company recognizes revenue in accordance with Accounting Standards Codification 606 (“ASC 606”), Revenue from Contracts with Customers. The Company derives its revenues primarily from fees for platform subscription and managed services provided to clients. Revenues are recognized when control of these services are transferred to the Company’s clients in an amount that reflects the consideration the Company expects to be entitled to in exchange for these services. Revenues are recognized net of taxes that will be remitted to governmental agencies applicable to service contracts. Historically, platform subscription contracts have typically had a one-year term and were cancellable with 30 days’ notice. Beginning in the first quarter of 2021, our default platform subscription contract has had a multi-year term and does not allow termination for convenience, though each contract has and can be negotiated with varying term lengths, with or without a termination for convenience clause. Clients are invoiced each month for the services provided in accordance with the stated terms of their service contracts. Fees for partial term service contracts are prorated, as applicable. Payment of fees are due from clients within 30 days of the invoice date. The Company does not provide financing to clients. The Company determines revenue recognition through the following five-step framework: ● Identification of the contract, or contracts, with a client; ● Identification of the performance obligation in the contract; ● Determination of transaction price; ● Allocation of the transaction price to the performance obligations in the contract; and ● Recognition of revenue when, or as, performance obligations are satisfied. Platform subscription revenues Platform subscription revenues consist primarily of fees for providing clients with access to the Company’s cloud-based platform. Platform subscription clients do not have the right to take possession of the platform’s software, and do not have any general return rights. Platform subscription revenues are recognized ratably over the period of contractually enforceable rights and obligations, beginning on the date that the client gains access to the platform. Installment payments are invoiced at the end of each calendar month during the subscription term. Managed services revenues Managed services revenues primarily consist of client-selected middle and back-office services provided on our clients’ behalf using the Company’s platform. Revenue is recognized monthly as the managed services are performed, with invoicing occurring at the end of the calendar month. Other revenues Other revenues consist of non-subscription-based revenues, such as data conversion and services that integrate a client’s historical data into our solution. The Company recognizes revenues as these services are performed with invoicing occurring at the end of each month. Service contracts with multiple performance obligations Our service contracts with clients can include multiple performance obligations. For these contracts, we account for individual performance obligations separately if they are distinct. The Company has determined that implementation services are not distinct from the ongoing platform subscription services due to the highly specialized knowledge required to execute on our solution. Such services are recognized with the platform subscription services revenue over time. Remaining performance obligations For the Company’s contracts that exceed one year and do not include a termination for convenience clause, the amount of the transaction price allocated to remaining performance obligations as of December 31, 2022 and December 31, 2021 was $31.1 million and $23.4 million, respectively. The Company expects to recognize this amount over the next one Disaggregation of revenue The Company’s total revenues by geographic region, based on the client’s physical location is presented in the following table: Year Ended December 31, 2022 2021 2020 Geographic Region Amount Percent Amount Percent Amount Percent Americas* $ 95,122 63.3 % $ 72,994 65.3 % $ 54,057 67.9 % Europe, Middle East and Africa (EMEA) 20,051 13.3 % 13,491 12.1 % 8,748 11.0 % Asia Pacific (APAC) 35,176 23.4 % 25,215 22.6 % 16,760 21.1 % Total revenues $ 150,349 100.0 % $ 111,700 100.0 % $ 79,565 100.0 % * Includes revenues in the United States (country of domicile) of $92.8 million, $71.9 million and $53.0 million for the years ended December 31, 2022, 2021 and 2020, respectively. Deferred commissions The Company pays sales commissions for initial contracts and expansions of existing contracts with customers. These commissions earned by certain of our sales force are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions paid where the amortization period is one year or less are expensed as incurred. All other sales commissions are deferred and then amortized on a straight-line basis over a period of benefit that we have determined to be three years. We determined the period of benefit by taking into consideration our standard contract terms and conditions, rate of technological change, and other factors. Amortization expense is included in sales and marketing expense in the accompanying consolidated statements of operations. The balance of deferred commissions as of December 31, 2022 and December 31, 2021 was $2.8 million and $1.7 million, respectively, and is included in Other assets and Other current assets on the Consolidated Balance Sheets. The amount of amortization expense recognized during the years ended December 31, 2022 and 2021 was $845 thousand and $228 thousand, respectively. Cost of revenues Cost of revenues consists primarily of personnel-related costs associated with the delivery of the Company’s software and services, including base salaries, bonuses, employee benefits and related costs. Additionally, cost of revenues includes amortization of capitalized software development costs, allocated overhead and certain direct data and hosting costs. Technology and Development Technology and development expenses consist primarily of employee-related expenses for the Company’s software development. Additional expenses include costs related to the development, maintenance, quality assurance and testing of new technologies, and ongoing refinement of the Company’s existing solutions. Technology and development expenses, other than internal-use software costs qualifying for capitalization, including costs associated with preliminary project stage activities, training, maintenance, and all other post-implementation stage activities are expensed as incurred. Advertising Costs The Company expenses advertising costs as incurred. Advertising costs incurred were approximately $1.5 million, $1.2 million and $1.3 million during the years ended December 31, 2022, 2021 and 2020, respectively. Equity-Based Compensation Prior to the IPO, the Company had a Change in Control Bonus Plan (the “Pre-IPO Plan”) for certain members of the Company’s management (“Plan Participants”) that provided for the payment of a cash bonus based on a specified number of Management Incentive Award Units (“Award Units”) in the event of a change in control (“CiC”) transaction (i.e., a liquidity event), as defined by the Company’s Operating Agreement. As of December 31, 2020, the Company did not record a liability for payments under the Pre-IPO Plan as the timing of any future CiC transaction or amount of Award Units to be paid to Plan Participants was not probable or estimable. In October 2021, the Company's board of managers elected to terminate the Change in Control Bonus Plan (and all Award Units issued thereunder) upon effectiveness of the registration statement for the IPO. In connection with the IPO, we adopted the 2021 Stock Option and Incentive Plan, or 2021 Plan. The 2021 Plan allows our compensation committee to make incentive awards to our officers, employees, directors and service providers. We also adopted the 2021 Employee Stock Purchase Plan, or 2021 ESPP. The Company measures stock compensation expense for its share-based payment awards at fair value on the grant date. The fair value of share-based payment awards is determined using the fair market value of the underlying Class A common stock on the date of grant. The Company applied a discount for lack of marketability, estimated using the Finnerty Model, to the fair value of awards with post-vesting restrictions, which includes the vested shares of Class A common stock and the contingently issuable shares (the “Contingently Issuable Shares”) of Class A common stock issued on the IPO effectiveness date. For RSUs for which vesting is subject to the achievement of a market capitalization hurdle, the Company determines the fair value of these RSUs using a Monte Carlo simulation. The Monte Carlo simulations used to estimate the fair value include subjective assumptions, including the fair value of the underlying common stock, expected volatility of the price of the Company’s common stock, risk-free interest rate, expected dividend yield of common stock, and the Company’s cost of equity capital. We record forfeitures as they occur. The cost of services received from employees and non-employees in exchange for awards of equity instruments is recognized in the consolidated statement of operations based on the estimated fair value of those awards on the grant date or reporting date, if required to be remeasured, and amortized on a straight-line basis over the requisite service period. Loss per share Loss per share is computed by dividing net loss attributable to the Company by the number of weighted average shares of Class A common stock outstanding during the period. Diluted loss per share is computed by dividing net loss attributable to the Company by the number of weighted-average shares of Class A common stock outstanding during the period after adjusting for the impact of securities that would have a dilutive effect on loss per share. See Note 11, Loss Per Class A Common Share All earnings (loss) for the period prior to the IPO were entirely allocable to Enfusion LLC, Ltd. and its historic non-controlling interest. Due to the impact of the Reorganization Transactions, the Company’s capital structure for the pre- and post-IPO periods is not comparable. As a result, the presentation of earnings (loss) per share for the periods prior to the IPO and Organizational Transactions is not meaningful and only loss per share for the period subsequent to the IPO and Organizational Transactions is presented herein. Non-controlling interest Non-controlling interests represent the portion of profit or loss, net assets and comprehensive income of our consolidated subsidiaries that is not allocable to the Company based on our percentage of ownership of such entities. Income Taxes The Company accounts for income taxes under the asset and liability method, and deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying values of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and deferred tax liabilities is recognized in income in the period that includes the enactment date. We recognize deferred tax assets to the extent that it is believed that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, carryback potential if permitted under the tax law, and results of recent operations. A valuation allowance is provided if it is determined that it is more likely than not that the deferred tax asset will not be realized. The Company evaluates and accounts for uncertain tax positions using a two-step approach. Recognition (step one) occurs when the Company concludes that a tax position, based solely on its technical merits, is more-likely-than-not to be sustainable upon examination. Measurement (step two) determines the amount of tax benefit that is greater than 50% likely to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. Derecognition of a tax position that was previously recognized would occur when the Company subsequently determines that a tax position no longer meets the more likely-than-not threshold of being sustained. The Company records interest (and penalties where applicable), net of any applicable related income tax benefit, on potential income tax contingencies as a component of Income tax expense in the Consolidated Statements of Operations. Tax Receivable Agreement (TRA) The Company accounts for amounts payable under the TRA in accordance with ASC 450, Contingencies Concentration of Risk Deposits with Financial Institutions The Company has concentrated its credit risk for cash by maintaining deposits in several financial institutions, which may at times exceed amounts covered by insurance provided by the Federal Deposit Insurance Corporation (“FDIC”). The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk related to cash. Accounts Receivable As of December 31, 2022 and 2021, no individual client represented more than 10% of accounts receivable. For the years ended December 31, 2022, 2021 and 2020, no individual client represented more than 10% of the Company’s total revenues. Translation of Foreign Currencies Foreign currency assets and liabilities of the Company’s international subsidiaries are translated using the exchange rates in effect at the balance sheet date. Results from operations are translated using the average exchange rates prevailing throughout the year. The effects of exchange rate fluctuations on translating foreign currency assets and liabilities into U.S. dollars are accumulated as part of the foreign currency translation adjustment in accumulated other comprehensive loss in the consolidated balance sheets. Foreign currency intercompany balances that remain unsettled at the end of each period are translated using the exchange rates in effect at the balance sheet date. The effects of exchange rate fluctuations on translating foreign currency intercompany assets and liabilities into U.S. dollars are recorded as other (expense) income in the Consolidated Statements of Operations. Recently Adopted Pronouncements In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes the guidance in former ASC 840, Leases, to increase transparency and comparability among organizations by requiring recognition of right-of-use assets and lease liabilities on the balance sheet (with the exception of short-term leases) and disclosure of key information about leasing arrangements (with the exception of short-term leases). In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, to clarify how to apply certain aspects of the new Leases (Topic 842) standard. ASU 2016-02, as subsequently amended for various technical issues, was effective for private companies and emerging growth companies in fiscal years beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022, and early adoption is permitted. The Company elected the optional transition method and adopted the new guidance on January 1, 2022 (“the adoption date”), on a modified retrospective basis, with no restatement of prior period amounts. As allowed under the new accounting standard, the Company elected to apply practical expedients to carry forward the original lease determinations, lease classifications and accounting of initial direct costs for all arrangements at the time of adoption. The Company also elected not to separate lease components from non-lease components and to exclude short-term leases from its Consolidated Balance Sheet. The Company’s adoption of the new standard resulted in the recognition of right-of-use assets of $9.1 million and liabilities of $9.5 million as of the adoption date, with no cumulative effect adjustment to equity as of the adoption date. Adoption of the new standard did not have a material impact on the Company’s Consolidated Statements of Income or Cash Flows. See Note 6 - Leases for additional information. In December 2019, the FASB issued ASU 2019-12, Income Taxes Simplifying the Accounting for Income Taxes Recent Accounting Pronouncements Not Yet Adopted In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses Measurement of Credit Losses on Financial Instruments |
